U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21120 / July 8, 2009
SEC v. Sky Capital LLC a/k/a Granta Capital LLC, Ross Mandell, Stephen Shea, Adam Harrington Ruckdeschel, Arn Wilson, Michael Passaro and Robert Grabowski, Civil Action No. 09-CV-6129 (SDNY) (PAC)
SEC Charges Broker-Dealer, Founder, Executive and Registered Representatives in Multi-Million Dollar Transatlantic Stock Manipulation Scheme
On July 8, 2009, the Securities and Exchange Commission (Commission) filed a civil injunctive action in the United States District Court for the Southern District of New York charging a New York based broker-dealer, Sky Capital LLC a/k/a Granta Capital LLC (referred to herein as Sky Capital) for using fraudulent boiler room tactics between September 2002 and November 2006 to raise more than $61 million from investors in two related companies — Sky Capital Holdings Ltd. and Sky Capital Enterprises, Inc. (the Sky Entities). The Commission also charged Sky Capital's founder, former President and CEO, Ross Mandell, the firm's former COO, Stephen Shea, and four registered representatives, Adam Harrington Ruckdeschel, Arn Wilson, Michael Passaro, and Robert Grabowski, for orchestrating and participating in the fraudulent scheme designed to fraudulently induce numerous individuals to invest in the Sky Entities.
According to the Commission's complaint, Mandell orchestrated the fraudulent scheme with the assistance of Shea and the other defendants. According to the complaint, Mandell directed Sky Capital brokers to make material misrepresentations, and fail to disclose material information, to induce their Sky Capital customers to purchase stock in the Sky Entities. Mandell also personally made material misrepresentations to his customers. Additionally, the defendants implemented and enforced a "no-net sales" policy, which had the effect of preventing investors from selling their Sky Entities' stocks that were otherwise publicly traded on the Alternative Investment Market of the London Stock Exchange. The no-net sales policy had the effect of artificially inflating the price of the Sky Entities' stocks. Moreover, as a result of the "no-net sales" policy, which the defendants did not disclose to their customers, numerous Sky Capital investors were unable to sell their shares in the Sky Entities before trading in those stocks was suspended thereby rendering the investments worthless.
The SEC's complaint further alleges that the fraudulent scheme was extremely profitable for the defendants. Between 2002 and 2006, Sky Capital raised over $61 million from investors in the U.S. and the U.K. Mandell used the investor funds to subsidize his own lifestyle, including using investor funds for various personal expenses, including first-class travel, five-star hotel stays, expensive meals, adult entertainment, and child-care expenses. Mandell also used investor funds to richly compensate the other individual defendants by paying them hefty undisclosed commissions and giving them other perks.
The SEC's complaint charges each of the defendants with violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also, in the alternative, charges Shea with aiding and abetting the other defendants' violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Additionally, the SEC's complaint charges Sky Capital with violating Section 15(c) of the Exchange Act, and Mandell with aiding and abetting Sky Capital's violation of Section 15(c) of the Exchange Act. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay civil penalties. The complaint also seeks to permanently prohibit Mandell from acting as an officer or director of any registered public company.