The U.S. Securities and Exchange Commission (SEC) has made it a baker’s dozen of British Columbians facing fraud charges for their role in an alleged $1-billion stock fraud scheme orchestrated by shell company facilitator and West Vancouver resident Fred Sharp.
On Friday, America’s stock market regulator announced civil charges against three more British Columbians: Jay Scott Kirk Lee, Geoffrey Allen Wall and Benjamin Thompson Kirk, who now join 10 other B.C. residents who allegedly participated in a massive and complex pump-and-dump operation between 2010 and 2019 by using a web of overseas shell companies created by Sharp, a former Vancouver lawyer-turned-businessman for Panama investment firm Mossack Fonseca.
The allegations against Lee, Wall and Kirk are similar in nature to a suite of charges laid out by SEC and the Federal Bureau of Investigation (FBI) since August. In essence, the so-called “Sharp Group” allegedly used its shell companies to conceal beneficial ownership of shares belonging to the company insiders, who hired Sharp.
The commission alleges the insiders, such as Lee, Wall and Kirk, concealed their shares with nominee owners and in tranches of less than 5% of the total company shareholdings, to skirt disclosure requirements. Simultaneously, false representations were also made to brokers and trading agents to make it seem as though the insider shares were legally tradable (and without disclosures) on the open market to regular investors. To complete the scheme, the insiders allegedly marketed (pumped) the companies before selling (dumping) the shares.
“The defendants charged in this case were some of the more prolific clients of Frederick L. Sharp and his offshore platform, which was essentially a complete service provider for all the illicit needs of those dedicated to committing penny stock fraud,” the commission said Friday in a statement.
Sharp was criminally charged in August. The commission claims the Sharp Group was central to the decade-long offshore shell scheme that realized $770 million in net profit from over $1 billion in gross sales of stocks controlled by Sharp-connected company officers and their accomplices.
The charging document filed Friday in the District of Massachusetts, where many investors were allegedly ripped off, shows the trio traded in at least 10 junior American companies and received an estimated $77.3 million in illicit profits — about 10% of Sharp’s entire alleged scheme, which involves hundreds of companies.
"The defendants apparently believed that by joining Sharp’s network of clandestine accounts and cloak-and-dagger communications they would have the tools at their disposal to commit fraud without accountability," said Melissa Hodgman, associate director of the Enforcement Division. "Our action today has demonstrated that even the most sophisticated scheme is not beyond our enforcement efforts."
How did the alleged scheme work?
One of the three defendants has a track record of stock offences.
In 2015, the Alberta Securities Commission ruled Kirk made misrepresentations and broke trading registration rules when promoting junior company Skymark Media Group Ltd. as a de facto director. Kirk was banned from trading Alberta-registered companies and also entered into a consent agreement with the SEC to pay back over $6 million in relation to his illegal activity, which also involved hidden ownership of shares.
However, it wasn’t until Jan. 25 of this year that the B.C. Securities Commission (BCSC) placed reciprocal trading bans on Kirk.
The BCSC was unable to explain why there was a more than five-year delay but spokesperson Elise Palmer stated amendments to the B.C. Securities Act from March 2020 have resulted in automatic reciprocal orders and settlement agreements from any other provincial securities regulator in Canada. (The BCSC would still need to initiate its own orders for those found guilty in America.)
Kirk is said to have communicated with Sharp in an encrypted cellphone network as code name “Bertie.” Lee called himself “Rocko” while Wall was known as “Bahamas.”
The Sharp Group was, according to the commission and FBI, run by Sharp and associates Courtney Kelln of Surrey and Yvonne Gasarch (Zhiyeng Chen) of Richmond, who all face criminal securities fraud charges.
Lee is 38 years old and resides in Vancouver; Wall is 49 years old and lives in Saanich; Kirk, meanwhile, is 43 and lives in Hope, according to information available to the SEC, which was assisted in this investigation by the BCSC.
As one example of how the trio and the Sharp Group operated the alleged scheme, the three defendants first merged a public company called Buka Ventures Inc. with a private company called Nutranomics. Trading at 12 cents per share in 2013, they made incredible claims about the purported health products provider.
Kirk arranged with Sharp to incorporate marketing company Nugget Enterprises LLC in the Caribbean nation of Saint Kitts and Nevis for Kirk’s use and to hide the origins of the marketing materials.
Then, “Lee, Wall and Kirk conferred repeatedly in September 2013 to discuss the timing of manipulative trading and the launch of their publicity campaign,” the commission claims.
After aggressively marketing the company, the stock rose to over $1 per share at one point and the trio sold all 20 million of their Nutranomics shares to unsuspecting retail investors, for gross proceeds in excess of $16.35 million, according to the SEC.
Aside from Nutranomics, the group of alleged conspirators is said to have obtained the $77 million through the following companies: Ami James, Green Innovations, iTalk, Independence Energy, Axiom, Medijane, Willow Creek, Vapor Hub and Punchline.
The SEC’s complaint, which was filed in federal district court in Boston, charges Lee, Wall and Kirk with violating the anti-fraud and registration provisions of the federal securities laws. The SEC is seeking permanent injunctions, conduct-based injunctions, repayment of allegedly ill-gotten gains plus interest, civil penalties, and penny stock bars, noted the commission’s statement.
Sharp, 69, has not responded to his charges. The Department of Justice has filed for a default judgment.