SEC Charges Microcap Fraud Scheme Participants Attempting to Capitalize On the Covid-19 Pandemic
Litigation Release No. 24839 / June 18, 2020
Securities and Exchange Commission v. Gomes et al.;, Civil Action No. 1:20-cv-11092 (D. Mass. filed June 9, 2020)
The Securities and Exchange Commission has filed an emergency action and obtained an asset freeze against five individuals and six offshore entities for an alleged fraudulent scheme that generated more than $25 million from illegal sales of multiple microcap companies' stock, including four that were the subject of recent SEC trading suspension orders: Sandy Steele Unlimited Inc., WOD Retail Solutions Inc., Bioscience Neutraceuticals, Inc., and Rivex Technology Corp.
The SEC's complaint alleges that, from at least January 2018 to the present, Canadian citizen Nelson Gomes, working with Canadian Michael Luckhoo-Bouche and others, enabled corporate control persons that were unknown to the public to conceal their identities while dumping their company's stock into the market for purchase by unsuspecting investors. The complaint alleges that these illegal stock sales were often boosted by promotional campaigns that, in some instances, included false and misleading information designed to fraudulently capitalize on the COVID-19 pandemic. For example, the alleged promotions included claims that Sandy Steele could produce medical quality facemasks and that WOD Retail had automated kiosks for retailers to use in response to the COVID-19 pandemic. The complaint also charges Canadians Shane Schmidt, Douglas Roe, and Kelly Warawa with fraudulently dumping shares of Sandy Steele.
The SEC's complaint, filed in federal district court in Boston, Massachusetts, charges Gomes, Luckhoo-Bouche, Roe, Warawa, FFS Capital Limited, and Atlantean Management Corporation with violating Sections 5(a), 5(c), 17(a)(1) and 17(a)(3) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5(a) and (c) thereunder, and Gomes with violating Section 13(d) of the Exchange Act and Rule 13d-1 thereunder. The complaint also charges Schmidt with violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Paifang Trading Limited, Artefactor Limited, Meadow Asia Limited, and Thyme International Limited are charged with violating Sections 5(a) and 5(c) of the Securities Act. Gomes, Luckhoo-Bouche, and FFS Capital are also charged with aiding and abetting Roe, Warawa, Paifang Trading, Atlantean, Artefactor, Meadow Asia, and Thyme International's violations of Sections 5(a) and 5(c) of the Securities Act; and aiding and abetting Schmidt, Roe, Warawa, and Atlantean's violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. The SEC seeks permanent injunctions, conduct based injunctions, disgorgement of allegedly ill-gotten gains plus interest, civil penalties, and penny stock bars.
On June 10, 2020, the U.S. Attorney's Office for the District of Massachusetts announced parallel criminal charges against Schmidt.
The SEC's case is being handled by Trevor Donelan, Eric Forni, Kathleen Shields, J. Lauchlan Wash, Susan C. Anderson, and Amy Gwiazda in the Boston Regional Office and Katherine Bromberg of the Division of Enforcement's Retail Strategy Task Force. This enforcement action is the result of the staff's ongoing investigation following the trading suspensions. The SEC appreciates the assistance of the U.S. Attorney's Office for the District of Massachusetts, the Federal Bureau of Investigation, Financial Industry Regulatory Authority, the British Columbia Securities Commission, the Ontario Securities Commission, the Alberta Securities Commission, the Royal Canadian Mounted Police, the Cayman Islands Monetary Authority, the Hong Kong Securities and Futures Commission, and the Monetary Authority of Singapore.