BOSTON – Three Canadian nationals and one former California attorney, who is believed to be residing in Mexico, have been charged in connection with a long-running international securities fraud scheme in which they allegedly sold millions of shares in multiple microcap—or “penny”—stock companies during pump-and-dump schemes, generating at least tens of millions of dollars in illicit proceeds.
Frederick Sharp, 69, of British Columbia; Luis Carrillo, 47, previously of California; Mike Veldhuis, 41, of British Columbia; and Courtney Kelln, 41, of British Columbia, were each charged in a criminal complaint with one count of conspiracy to commit securities fraud and one count of securities fraud.
“My office uses securities laws and regulations to preserve market integrity, in other words: to protect investors from getting ripped off by crooks,” said Acting United States Attorney Nathaniel R. Mendell. “Investigating and prosecuting people who illegally manipulate our markets protects all investors, particularly when the illegal activity is sophisticated and done on a large scale.”
“Fred Sharp and his co-conspirators are accused of executing a sophisticated, global con that allegedly bilked unsuspecting investors out of tens of millions of dollars. Investor confidence is essential to keeping our financial markets afloat and actions like the ones these individuals are charged with today chip away at the faith investors place in the process,” said Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division. “The FBI and our partners take securities fraud very seriously and we will do everything we can to hold accountable those who steal from American investors. We urge the public to use caution when researching investment opportunities and to contact us immediately if they become a victim of financial fraud.”
According to the charging documents, a pump-and-dump typically involves an effort to artificially inflate the stock price or trading volume of a publicly traded company (the “pump”) so that individuals who control a substantial portion of the company’s float can sell their shares at artificially high prices, or in a more liquid market, to other investors (the “dump”).
The defendants allegedly engaged in a lucrative securities fraud scheme dating back to no later than 2014 involving the use of a sophisticated platform provided by Sharp to conceal Carrillo’s and Veldhuis’s respective control of millions of shares of multiple microcap companies. Carrillo and Veldhuis allegedly used Sharp’s platform to hide their large penny stock holdings in nominee entities in tranches of less than five percent of the issuers’ total outstanding shares in order to evade certain securities disclosure requirements and brokers’ compliance protocols. Kelln, who worked for Sharp, allegedly facilitated the breakdown and transfer of Carrillo’s and Veldhuis’s shares to Sharp’s nominee entities in blocks of less than five percent, as well as the shares’ subsequent deposit with a Swiss asset management firm to facilitate their sale to unsuspecting investors. It is alleged that those sales were directed by Carrillo and Veldhuis, respectively, and were timed alongside multifaceted promotional campaigns, to include “boiler rooms” involving cold calls to unsuspecting U.S. investors in Massachusetts, and elsewhere, touting the stocks and soliciting purchases.
It is further alleged that, to conceal their scheme, the defendants used codenames to refer to one another, as well as various encrypted communications platforms. One of those platforms was a closed communication network on dedicated BlackBerry devices provided by Sharp that the defendants referred to as “xphones.” Sharp also allegedly maintained an offshore accounting system that the defendants referred to as “Q” that was used to track the scheme’s stock sales and the remittance of illicit proceeds.
Sharp’s Q accounting system tracked over $140 million in stock sales through a Swiss asset management firm between 2014 and 2018, involving over 70 issuers. The charging documents specifically identify four such issuers whose shares were sold during pump-and-dumps as part of the scheme:
The charge of conspiracy to commit securities fraud provides for a sentence of up to five years in prison, three years of supervised release and a fine of $250,000, or twice the gross gain or loss, whichever is greater. The charge of securities fraud provides for a sentence of up to 20 years in prison, three years of supervised release and a fine of $5 million. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
Acting U.S. Attorney Mendell and FBI Boston SAC Bonavolonta made the announcement today. The Boston regional office of the U.S. Securities and Exchange Commission provided assistance with the investigation. Assistant U.S. Attorney James R. Drabick of Mendell’s Securities, Financial & Cyber Fraud Unit is prosecuting the case.
The details contained in the charging documents are allegations. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
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