SEC Halts Microcap Fraud Scheme Orchestrated Through International Accounts
Litigation Release No. 24304 / October 3, 2018
Securities and Exchange Commission v. Roger Knox et al., No. 18-cv-12058 (D. Mass. filed October 2, 2018)
United States v. Roger Knox, No. 1:18-mj-06268-MPK (D. Mass. filed September 17, 2018)
The Securities and Exchange Commission yesterday filed an emergency action and obtained an asset freeze against two individuals and their companies in a scheme that generated more than $165 million of illegal sales of stock in at least 50 microcap companies. SEC investigators unraveled the multi-year scheme with the assistance of more than a dozen international regulators and sophisticated analysis of nearly 400 bank and brokerage accounts.
According to the SEC's complaint, U.K. citizen Roger Knox and his Swiss-based company, Wintercap SA, helped microcap securities holders evade federal securities laws that restrict sales by large shareholders. The complaint charges that Knox and Wintercap, formerly Silverton SA, helped sellers conceal their stock ownership and provided anonymous access to brokerage accounts to sell the shares in the U.S. market. For three specific issuers detailed in the complaint, Knox sold the stocks when their price and trading volume were inflated by promotional campaigns. Michael T. Gastauer allegedly aided and abetted the fraud by establishing several U.S. corporations and allowing Knox to use their bank accounts to disburse the proceeds of his illegal stock sales.
The SEC's complaint, filed in federal district court in Boston, charges Knox and Wintercap with violating the antifraud and registration provisions of the federal securities laws and with acting as unregistered broker-dealers, and charges Gastauer and his entities with aiding and abetting Knox's violations of the antifraud and registration provisions. The complaint also names as relief defendants two family members of Gastauer and a U.K. entity Gastauer controlled. In addition to the asset freeze and other temporary relief obtained yesterday, the SEC seeks permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, penalties, and penny stock bars.
In a parallel criminal case, the U.S. Attorney's Office for the District of Massachusetts today announced criminal charges against Knox.
The SEC's investigation was handled by Trevor Donelan, Jonathan Allen, Eric Forni, J. Lauchlan Wash, Rebecca Israel, David Scheffler, and Amy Gwiazda in the Boston Regional Office. Paul Hopker in the Miami Regional Office, Alex Lefferts in the Office of Market Intelligence, and staff in the Office of International Affairs and the Microcap Fraud Task Force assisted in the investigation. The SEC appreciates the assistance of the U.S. Attorney's Office for the District of Massachusetts, the Federal Bureau of Investigation, the Argentinian Comisión Nacional de Valores, the Alberta Securities Commission, the British Columbia Securities Commission, the Ontario Securities Commission, the Royal Canadian Mounted Police, the Cyprus Securities and Exchange Commission, the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), the Hong Kong Securities and Futures Commission, the Latvian Financial and Capital Market Commission, the Malta Financial Services Authority, the Mauritius Financial Services Commission, the Mexican Comisión Nacional Bancaria y de Valores, the New Zealand Financial Markets Authority, the Panamanian Superintendencia del Mercado de Valores, Monetary Authority of Singapore, the Dubai Financial Services Authority, the UAE Securities and Commodities Authority, the Liechtenstein Financial Market Authority, and the Financial Industry Regulatory Authority ("FINRA").