SECURITIES AND EXCHANGE COMMISSION v. RODNEY S. SHEHYN, a.k.a. Robert Schmidt, a.k.a. Zach Adams, a.k.a. Jack Bishop, a.k.a. Geoffrey Williams, a.k.a. Alex Gray, a.k.a. Jason Henley, RODNEY D. MARR, a.k.a. Robert Moran, a.k.a. Ronald Carlson, DONALD L. MARR, a.k.a. Robert Moran, a.k.a. Ronald Carlson, and KAREN S. LEIGH, a.k.a. Elizabeth Blaine, a.k.a. Victoria Young, Civil Action No. 04 CV 02003 (MBM) (S.D.N.Y.) (filed March 15, 2004)
The Commission today filed an action in the U.S. District Court for the Southern District of New York against four individuals who managed all or part of Millennium Financial, Ltd. ("Millennium"), a sophisticated and fraudulent international boiler room operation. The Commission's complaint alleges that Millennium conducted fraudulent operations from Spain, Mexico and the United States, and operated from approximately March 2000 until June 2002. The complaint alleges that, during that time, Millennium defrauded more than 700 investors in over 20 countries, and raised more than $20 million.
The Complaint alleges that Rodney Shehyn headed Millennium's operations, and that Rodney Marr, Donald Marr and Karen Leigh each acted, at various times, as Millennium salespersons and managers of other salespersons. The complaint alleges that each of the defendants knew of the fraudulent nature of Millennium's operations and took numerous steps to conceal their respective roles. Among other things, the Complaint alleges that each of them used a variety of aliases when working for Millennium.
The Complaint alleges that Millennium made a number of fraudulent claims about itself and the securities that it was selling. Millennium first identified potential investors by renting the subscription lists of English language financial publications, including certain well-known U.S. publications. Millennium then contacted those subscribers and lured them in with false claims that it was a prestigious offshore banking firm with a "phenomenal 21-year track record." In reality, Millennium began its operations in approximately March 2000.
The Complaint alleges that Millennium then engaged in a two-step "bait and switch" sales scheme. First, Millennium's salespersons fraudulently induced investors to purchase U.S. securities trading on the New York Stock Exchange ("NYSE"). Those investors who purchased NYSE-traded securities were then contacted by another Millennium salesperson. In the second stage of the sales process, Millennium fraudulently induced investors to sell their NYSE-traded securities and invest the proceeds, plus additional money, in the so-called "pre-initial public offering" securities of small U.S. companies, including Key Card Communications, Inc., kNutek Holdings, Inc. and Sonic Garden, Inc. Millennium's salespersons used high pressure sales tactics and made a number of fraudulent statements concerning the value of these securities. None of the companies which issued these securities have had an IPO, and Millennium's investors have typically lost most, if not all, of their investment.
The Commission's Complaint alleges that each of the defendants violated the antifraud provisions of the federal securities contained within Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder. It alleges that Shehyn, Rodney Marr and Donald Marr are liable for Millennium's violations of Section 10(b) of the Exchange Act and Rule 10b-5 as controlling persons under Section 20(a) of the Exchange Act. The Complaint further alleges that Shehyn violated Section 15(a) of the Exchange Act. The Commission's Complaint seeks, against all the defendants, a permanent injunction against future violations of the federal securities laws, disgorgement and prejudgment interest thereon, an accounting and repatriation of investor funds, civil monetary penalties, and a penny stock bar.
On May 22, 2002, the Commission filed an action against Millennium itself. SEC v. Millennium Financial, Ltd., and Newpont Fiduciaries & Nominees, S.A., Civil Action No. 02 CV 3901 (MBM) (S.D.N.Y.); Litigation Release Nos. 17528 (May 22, 2002) and 17576 (June 20, 2002). In that action, the court issued a preliminary injunction and asset freeze, and also appointed a receiver. For additional information concerning the receiver, investors may access the website at www.millfinreceiver.com.
On May 21, 2001, Shehyn was arrested in connection with an indictment in another boiler room operation. On or about June 28, 2001, Shehyn was released pending trial in the Southern District of California. He was re-arrested on June 11, 2002 for violating the conditions of his pre-trial release. Since then, he has remained in custody.
The Commission wishes to acknowledge the cooperation and assistance of the regulatory and law enforcement officials of more than a dozen foreign jurisdictions in connection with this matter, including the Federation of St. Kitts and Nevis, which has restrained over $1.3 million of defrauded investor funds. The Commission also wishes to acknowledge the cooperation and assistance of the U.S. Immigration and Customs Enforcement.
In order to assist investors, the Commission has released an online brochure on pre-IPO fraud. Entitled "Risky Business: Pre-IPO Investing," the brochure advises investors about the consequences of investing at the pre-IPO stage and provides key questions investors should ask. The brochure is available at www.sec.gov/investor/pubs/preipo.htm. The Commission has also posted a warning to foreign investors who may be additionally victimized by those who promise to help recover losses in U.S. microcap stocks. In some cases, individuals have fraudulently promised to help investors recover losses for a substantial fee disguised as some type of tax, deposit, or refundable insurance. The notice concerning these activities is located at www.sec.gov/investor/pubs/fleecing.htm
The Commission is continuing its investigation in this matter.