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Published On: Mon, Feb 18th, 2019

South Florida Securities Lawyer Sentenced to 7 Years for Securities Fraud Scheme

A Boca Raton attorney was sentenced today to 84 months’ imprisonment and ordered to pay restitution of $19.7 million to 2,156 investors, after previously being convicted by a federal jury of 33 counts of conspiracy, securities fraud, wire fraud, and money laundering offenses.  This case involved a scheme to fraudulently register public shell companies with the U.S. Securities and Exchange Commission (SEC), issue a class of purported free-trading shares that were secretly controlled, and sell these shares as part of pump-and-dump stock swindles.

Ariana Fajardo Orshan, U.S. Attorney for the Southern District of Florida, and George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, made the announcement.

James M. Schneider, 77, a securities lawyer from Boca Raton, Florida, was convicted on December 7, 2018, by a federal jury after a two-week trial in Miami (Case No. 17-20712-CR-FAM(s)).  Schneider was convicted of conspiracy to commit securities and wire fraud, in violation of Title 18, United States Code, Section 1349; securities fraud, in violation of Title 18, United States Code, Section 1348; wire fraud, in violation of Title 18, United States Code, Section 1343; conspiracy to commit money laundering, in violation of Title 18, United States Code, Section 1956(h); and money laundering, in violation of Title 18, United States Code, Section 1957.  In addition to the sentence of 84 months’ imprisonment, U.S. District Judge Federico A. Moreno ordered restitution in the amount of $19.7 million to be paid to 2,156 investors and forfeiture of $4.8 million.

photo/ Nick Youngson

According to evidence introduced at trial, from approximately March 2008 through the end of 2013, Schneider participated in a fraudulent “shell factory” scheme, in which the conspirators created approximately 20 shell companies and filed numerous false documents with the SEC.  The filings falsely stated that the companies were controlled by a nominee chief executive officer (CEO).  The straw CEO would be listed as the owner of the control block of shares but in reality the companies were controlled by the undisclosed principals.  The control block of shares listed in the name of the sole officer were deemed restricted and could not be sold to the public.  The principals would register an offering of shares with the SEC and put these shares the names of various shareholders for each company to make it appear that these shares were owned by persons unaffiliated with the company.  These shares would later be deemed “free trading” and secretly sold to shell buyers.  Using false and fraudulent documentation describing the companies’ business purpose and share ownership, the conspirators would then obtain approval to sell the companies’ shares publicly in the open market.  Thereafter, the conspirators would sell the companies to shell buyers who would secretly obtain both the control shares and the purported “free trading” shares without disclosure to the SEC or the investing public.  These buyers would then use the shares to conduct pump-and-dump stock swindles and other securities manipulation schemes.  Evidence at trial showed that the shares of the fake companies were then sold to investors for millions of dollars.

Schneider, according to the evidence introduced at trial, was a Florida attorney who authored false and fraudulent legal opinion letters indicating that shares of the 20 companies that were owned by persons who were not “affiliates,” when in truth and in fact the shares were owned and controlled by the conspirators.  Schneider also created false billing records to make it appear that he was performing work for, and taking direction from, the straw CEOs.  In reality, he took his direction from his co-conspirators, who sought to keep their names off publicly filed documents.  Schneider also performed so-called escrow services for the sale of the shell entities, including the illegal sale of the purported free trading shares, and wired more than $5.6 million in proceeds to bank accounts controlled by the conspirators.  Schneider did this, according to evidence introduced at trial, without authorization from the named shareholders or verification that the persons whose names were listed on escrow agreements authorized or approved these transfers.

Eleven other defendants have been convicted in the Southern District of Florida in connection with the Shell Factory Fraud investigation: John Ahearn and Andrew Wilson, Case No. 17-20883-CR-KMW; Yelena Furman, Case No. 17-20713-CR-CMA; David Lubin, Case No. 17-20508-CR-MGC; Sheldon Rose and Ian Kass, Case No. 16-20706-CR-JEM; Steven Sanders and Alvin S. Mirman, Case No. 16-20572-CR-CMA; Daniel McKelvey and Jeffrey Lamson, Case No. 16-20546-CR-RNS; and, Delaney Equity Group LLC, Case No. 18-20336-CR-CMA.  Defendant Myron Gushlak has also been charged but his case was transferred to fugitive status in Case No. 17-20713-CR-CMA.  These convicted defendants included two attorneys who practices securities law (Lubin and Wilson), a registered securities representative (Kass), a stock transfer agent (Ahearn), a securities broker-dealer (Delaney Equity Group LLC), an accountant (Lamson), and five stock promoters (Sanders, McKelvey, Mirman, Rose, and Furman).

Previously, the SEC filed parallel civil enforcement actions against Schneider and the other criminal defendants charged in the Shell Factory Fraud investigation.

The United States Attorney commended the investigative efforts of the FBI’s Miami Field Office, and also thanked the SEC’s Miami Regional Office for their assistance with the ongoing Shell Factory Fraud investigation.  The United States was represented at trial by Assistant U.S. Attorneys Jerrob Duffy and Christopher B. Browne, and Special Assistant U.S. Attorney Jeffrey T. Cook, and forfeiture is being handled by Assistant U.S. Attorney Alison W. Lehr.

Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or at http://pacer.flsd.uscourts.gov.

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