Stock Manipulation Scheme Involving False Anthrax Claims Subject of SEC Enforcement Action
FOR IMMEDIATE RELEASE
Included in the SEC Actions are Three Attorneys and Multiple Securities Law Recidivists
Justice Department Fraud Division Simultaneously Obtains Criminal Indictments
Washington, D.C., September 30, 2003 — The Securities and Exchange Commission filed civil fraud charges today in a stock manipulation scheme in which, among other misconduct, a group of U.S. and European stock promoters attempted to exploit fears of terrorism with false claims about an anti-anthrax compound they claimed to be developing. These promoters, including a convicted felon and three securities law recidivists, acquired control of an SEC reporting company, 2DoTrade, Inc., and engaged in manipulative trading activity and orchestrated two fraudulent promotional campaigns during which they dumped millions of 2DoTrade shares into the unsuspecting marketplace.
The SEC alleges that the scheme was conceived in April 2001, when stock promoters Barry W. Gewin, Dominic Roelandt, Eric Landis, and David Wood, along with Florida attorney Michael Karsch, secretly acquired over 99% of the stock of a public shell company traded in the over-the-counter market. Then, with the assistance of another Florida attorney, Van Stillman, the promoters merged the public shell with a private company controlled by convicted felon George R. Taylor, with offices purportedly in Canada and England. Each of these transactions involved filing fraudulent registration statements and/or reports with the SEC.
The promoters, Taylor, and yet another stock promoter, Clinton Walker, proceeded to "pump" 2DoTrade's stock price through manipulative trading activity and two fraudulent promotional campaigns. The first campaign, from July 17 to August 16, 2001, touted the company's ownership of 24 import/export trading contracts supposedly worth over $300 million, which, in fact, were worthless. The initial promotional campaign inflated the price of 2DoTrade's stock to a high of $1.55, thereby creating a market capitalization of over $46 million for a company that had no assets or revenue. During this time, the defendants dumped millions of shares into the initial pump, collectively realizing approximately $1.6 million. By the end of August, however, this selling pressure pushed down 2DoTrade's stock price and it eventually reached a low of $.09 per share.
The second campaign, begun on Oct. 31, 2001 -- at the height of the 2001 anthrax scare -- claimed that 2DoTrade was testing an anti-anthrax compound at a hospital and a university in the United Kingdom for distribution in the United States. In reality, no anthrax testing ever occurred, nor was it ever seriously contemplated. The fraudulent anthrax claims drove up the price of 2DoTrade's stock by approximately 400%, while Gewin, Roelandt, and Landis dumped over 700,000 2DoTrade shares into the second inflated market, collectively receiving approximately $240,000.
The SEC, upon discovering the scheme, suspended trading in 2DoTrade stock in November 2001. The SEC's trading suspension prevented the promoters from dumping millions of additional shares into the inflated market.
"While stock manipulation scams are improper per se, those that seek to exploit investors' fears of terrorism are especially abhorrent and will be punished to the fullest extent of the law," said Harold F. Degenhardt, District Administrator for the SEC's Fort Worth office.
The SEC also charged the two individuals -- attorney Craig Shaber and accountant Steven Wright, both of San Diego, Calif. -- who sold the shell company to the 2DoTrade stock promoters. The SEC alleges that 2DoTrade was one of 18 public shell companies that Shaber and Wright created for sale to stock promoters and others. In each instance, they followed the same deceptive blueprint -- they used nominee shareholders, officers, and directors to conceal their ownership and control of the company and filed false registration statements and periodic reports with the SEC. Since 1998, Shaber and Wright have sold 16 of these shell companies, grossing at least $7.5 million.
The SEC seeks, among other relief, permanent injunctions, disgorgement of ill-gotten gains with pre-judgment interest and financial penalties against all the defendants. The Commission also seeks officer-and-director bars against Taylor, Gewin, Roelandt, and Wood; penny-stock bars against Taylor, Gewin, Roelandt, Wood, Walker, and Karsch; and an order enjoining Roelandt from violating Section 15(b)(6)(B) of the Exchange Act, which prohibits participation in a penny-stock offering in contravention of an SEC order.
The SEC also seeks disgorgement with prejudgment interest from each defendant and relief defendant and further seeks permanent injunctions, an accounting, and officer-and-director bars against Shaber and Wright.
The Department of Justice Fraud Division, working closely with the SEC, has obtained federal fraud indictments against Gewin, Karsch, Roelandt, Taylor, Stillman, Wood, and Walker, in connection with the manipulation of 2DoTrade stock. The FBI arrested several of these individuals earlier this week.
For further information contact:
Harold F. Degenhardt, District Adminstrator, at 817/978-6469
Spencer C. Barasch, Associate Director, at 817/978-6425