SEC Charges Shell Factory Operators With Fraud
The Securities and Exchange Commission today announced fraud charges against a California stock promoter and a New Jersey lawyer who allegedly were creating sham companies and selling them until the SEC stopped them in their tracks.
The SEC alleges that Imran Husain and Gregg Evan Jaclin essentially operated a shell factory enterprise by filing registration statements to form various startup companies and misleading potential investors to believe each company would be operating and profitable. The agency further alleges that their secret objective all along was merely to make money for themselves by selling the companies as empty shells rather than actually implementing business plans and following through on their representations to investors.
Moving quickly to protect investors based on evidence collected even before its investigation was complete, the SEC issued stop orders and suspended the registration statements of the last two created companies – Counseling International and Comp Services – before investors could be harmed and the companies could be sold.
“Issuers of securities offerings must make truthful disclosures about the company and its business operations so investors know what they’re getting into when they buy the stock,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “We allege that Husain drummed up false business plans and created a mirage of initial shareholders while Jaclin developed false paperwork to depict emerging companies that later sold as just empty shells.”
According to the SEC’s complaint filed in federal court in Los Angeles:
- Husain and Jaclin created nine shell companies and sold seven using essentially the same pattern.
- Husain created a business plan for each company that would not be implemented beyond a few initial steps, and then convinced a friend, relative, or acquaintance to become a puppet CEO who approved and signed corporate documents at Husain’s direction.
- Jaclin supplied bogus legal documents that Husain used to conduct sham private sales of a company’s shares of stock to “straw shareholders” who were recruited and given cash to pay for the stock they purchased plus a commission. Some of the recorded shareholders were not even real people.
- Husain and Jaclin filed registration statements for initial public offerings and falsely claimed that a particular business plan would be implemented. Deliberately omitted from the registration statements were any mention of Husain starting and controlling the company.
- Husain and Jaclin filed misleading quarterly and annual reports once a company became registered publicly, providing much of the same false information depicted in the registration statements.
- Husain obtained about $2.25 million in total proceeds when the empty shell companies were sold, and Jaclin and his firm received nearly $225,000 for their legal services.
The SEC’s complaint charges Husain and Jaclin with violating or aiding and abetting violations of the antifraud, reporting, and securities registration provisions of the federal securities laws. The SEC seeks disgorgement of ill-gotten gains plus interest and penalties, permanent injunctions, and penny stock bars. The SEC also seeks an officer-and-director bar against Husain.
The SEC’s investigation was conducted by Roberto A. Tercero and Spencer E. Bendell as part of the Microcap Fraud Task Force. The litigation will be led by Amy J. Longo and supervised by John Berry. The SEC appreciates the assistance of the FBI and the U.S. Attorney’s Office for the Northern District of California.