U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23921 / August 25, 2017
Securities and Exchange Commission v. Caledonian Bank Ltd., et al., Civil Action No. 15-CV-00894
SEC Obtains Final Judgment Against Five Offshore Entities For Selling Unregistered Penny Stocks
On July 31, 2017, the Honorable Judge Willian H. Pauley III of the U.S. District Court for the Southern District of New York entered final judgments by default against Belize-based, Clear Water Securities, Inc. ("Clear Water") and Legacy Global Markets S.A. ("Legacy Global") and, on April 7, 2017, entered final judgment by default against Panama-based, Verdmont Capital S.A. ("Verdmont"). Earlier, on November 9, 2016, as part of a settlement, Judge Pauley entered a final judgement against Cayman Islands-based, Caledonian Bank Ltd. and Caledonian Securities Ltd. ("Caledonian Entities").
The SEC charged these defendants with conducting unregistered sales of penny stock securities, reaping over $75 million in illegal sales proceeds. Simultaneously with filing its complaint, the SEC obtained an emergency court order freezing assets of the Defendants located in the United States.
The defendants, as alleged, sold penny stocks in unregistered distributions from their U.S. brokerage accounts of four shell company issuers, namely, Swingplane Ventures, Inc., Goff Corp., Norstra Energy Inc. and Xumanii, Inc. Each of the unregistered distributions took place through virtually the same scheme. The issuers first filed with the Commission bogus Form S-1 registration statements that purported to register public offerings of securities when, in fact, no bona fide offerings or sales occurred because the securities purportedly sold remained in the control of the issuers and their affiliates. In the sham offerings, the issuers pretended to sell securities to investors residing in such places as Serbia, Mexico, Ireland, Norway, Panama, and Jamaica, while the issuers or their affiliates maintained control and possession of the stock certificates in a scheme where: (1) restricted stock was passed off as "free trading" unrestricted stock; (2) the share certificates issued were subsequently transferred, without restrictive legends, to the defendants; and (3) the defendants deposited the shares into their U.S. brokerage accounts and sold the shares to the public. The defendants then offered and sold into the public markets hundreds of millions of shares of the four issuers in unregistered distributions simultaneously with aggressive and extensive promotion campaigns. Each of the four stocks lost virtually all of its market value within months of the unregistered sales.
The court entered a final judgment against the Caledonian Entities imposing permanent injunctions against future violations of Section 5 of the Securities Act of 1933 ("Securities Act") and a penny stock bar permanently barring them from participating in an offering of a penny stock. The judgment further found the Caledonian Entities liable on a joint and several basis in the amount of $25 million, but payment for this amount was waived based on liquidation proceedings filed in the U.S. and the Cayman Islands.
With regard to Verdmont, the court entered a final judgment imposing a permanent injunction against future violations of Section 5 of the Securities Act and a permanent penny stock bar. The final judgment also ordered Verdmont to pay $19.2 million in disgorgement and prejudgment interest and a civil penalty of $19.2 million. In a separate order, the court directed certain funds that were the subject of the SEC's prior asset freeze to be turned over to the SEC.
The court also entered final judgments against Clear Water and Legacy Global imposing permanent injunctions against future violations of Section 5 of the Securities Act and permanent penny stock bars and ordering monetary relief in disgorgement, interest and civil penalties of over $17.3 million and $14.9 million, respectively.
The SEC's investigation was conducted by Ernesto G. Amparo with assistance by Robert Nesbitt and supervised by Anita B. Bandy. The SEC's litigation was conducted by Patrick R. Costello and Derek Bentsen and supervised by Bridget Fitzpatrick.