U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23800 / April 6, 2017
Securities and Exchange Commission v. Michael D. Shumway, No. 17-cv-00260 (D. Utah, filed April 5, 2017)
SEC Charges Corporate Officer of 2 Utah Water Companies with Securities Fraud
The Securities and Exchange Commission today announced fraud charges against a former corporate secretary and treasurer of two Utah water companies for misappropriating and fraudulently selling corporate shares.
The SEC's complaint, filed in federal court in the District of Utah, alleges that Michael D. Shumway misappropriated unauthorized shares of stock in American Fork Irrigation Company (AFIC) and Lehi Irrigation Company (LIC) and sold them to unwitting investors for at least $435,500. Shumway also allegedly misappropriated at least $633,396 from AFIC and LIC. From at least 2003 through May 2015, Shumway allegedly engaged in a fraudulent scheme of falsifying AFIC and LIC books and records and issuing unauthorized shares in those companies and fraudulently selling the shares to investors. The complaint alleges that shares in AFIC and LIC convey the right to an appropriation of water from each company. The allegedly unauthorized shares Shumway sold did not have such water rights. Shumway also allegedly established secret bank accounts that he used to misappropriate AFIC and LIC funds for his personal use. Shumway allegedly misled the companies' officers and directors in carrying out his fraud. The total value of Shumway's alleged misappropriation of shares and funds from AFIC and LIC is at least $1,068,896.
The SEC's complaint charges Shumway with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks injunctive relief, disgorgement, and an officer and director bar against Shumway. Shumway agreed, without admitting or denying the allegations in the SEC's complaint to the entry of a judgment imposing permanent injunctions and an officer-and-director bar, and ordering him liable for disgorgement of $435,500, payment of which will be deemed satisfied by the restitution ordered in the parallel federal criminal case.
On December 14, 2016 Shumway pleaded guilty in federal district court in Utah to one count of felony wire fraud. On April 5, 2016, he was sentenced to 12 months and 1 day and ordered to pay $1,100,481.78 in restitution.
The SEC's investigation was conducted by William McKean and Justin Sutherland. The SEC's litigation will be led by Daniel Wadley and Amy Oliver.