FORMER OFFSHORE BROKERAGE HEAD PLEADS GUILTY TO CHARGES STEMMING FROM INTERNATIONAL PUMP AND DUMP SCHEME

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, December 10, 2015

Former Head of Offshore Brokerage Pleads Guilty to Conspiracy to Commit International Stock Fraud and Money Laundering Scams

A California man pleaded guilty today to two counts of conspiracy to commit wire fraud and one count of conspiracy to commit international money laundering in connection with an international “pump and dump” scheme involving stocks traded on the over-the-counter (OTC) market.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia and Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office made the announcement.

Harold Bailey Gallison II, 58, of Valley Center, California, was charged in an indictment unsealed on July 14, 2015, along with eight other individuals for their roles in complex, international stock manipulation and money laundering schemes.

In entering his guilty plea, Gallison admitted that he conspired to artificially “pump” or inflate the trading volume and price of the shares of Warrior Girl Corp., quoted on the OTC market under the ticker symbol WRGL, and Everock Inc., quoted on the OTC market under the ticker symbol EVRN, by touting business activities and deceptive revenue forecasts and by engaging in coordinated trading activity to create the appearance of increasing market demand.  Gallison admitted that he and others then “dumped” or sold the shares at the inflated prices and laundered proceeds through bank accounts in the United States and overseas.  Gallison further admitted that he facilitated the schemes through an offshore brokerage and money laundering platform that went by various names, including Sandias Azucaradas, Moneyline Brokers and Trinity Asset Services (collectively Moneyline).  Through Moneyline, Gallison created nominee accounts in the names of shell companies to conceal both the true source and ownership of the securities and the flow of funds.  In addition, Gallison pleaded guilty to one count of conspiring to launder the proceeds of a number of securities fraud schemes, including Warrior Girl and Everock, totaling more than $25 million.

Several of Gallison’s co-defendants are scheduled to proceed to trial on Jan. 25, 2016, and are presumed innocent until and unless proven guilty.  Gallison is scheduled to be sentenced on March 18, 2016.

The FBI’s Washington Field Office is investigating the case.  Senior Trial Attorney N. Nathan Dimock and Trial Attorney Michael O’Neill of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Kosta Stojilkovic of the Eastern District of Virginia are prosecuting the case.  Assistant U.S. Attorneys James P. Gillis and G. Zachary Terwilliger of the Eastern District of Virginia assisted in the prosecution.  The Securities and Exchange Commission, the Financial Industry Regulatory Authority and the Criminal Division’s Office of International Affairs also provided significant assistance.

CFTC ANNOUNCES REPORT BY OTC DERIVATIVE REGULATORS TO THE G20

FROM:  U.S. COMMODITY FUTURES EXCHANGE COMMISSION,
OTC Derivatives Regulators Issue Report to the G20

Washington, DC – Today, authorities with responsibility for the regulation of over-the-counter (OTC) derivatives markets in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland and the United States issued a report regarding common understandings to improve the cross-border implementation of OTC derivatives reforms.  This report responds to an April 2013 request by the G20 Finance Ministers and Central Bank Governors, urging key OTC regulators to intensify their efforts to address and resolve remaining cross-border conflicts, inconsistencies, gaps and duplicative requirements by the St. Petersburg Summit, which will take place on September 5-6, 2013.

The report reflects a number of substantive understandings to improve the cross-border implementation of OTC derivatives reforms, including the following:

• Early and comprehensive consultation among relevant authorities when equivalence or substituted compliance assessments are being undertaken is essential.

• A flexible, outcomes-based approach should form the basis of final assessments regarding equivalence or substituted compliance assessments.

• A “stricter-rule” approach would apply to address gaps in mandatory trading or clearing obligations.

• Authorities have a framework for consultation on mandatory clearing determinations.

• Jurisdictions should remove barriers (1) to reporting to trade repositories by market participants and (2) to access to trade repository data by authorities.

• There should be appropriate transitional measures and a reasonable but limited transition period for foreign entities to implement OTC derivatives reforms.

The report also recognizes that challenges will continue to arise in the implementation of OTC derivatives reforms and presents a number of additional topics for further discussion, including authorities’ direct access to registrant information and the treatment of foreign bank branches and guaranteed subsidiaries.

Finally, the report recognizes that open communication is vital to ensure there is common understanding of each jurisdiction’s processes and timelines to implement OTC derivatives reforms, and that flexibility in the application of cross-border regulation will be needed to make progress toward cross-border consistency.

CANADIAN COURT ENFORCES U.S. JUDGEMENT IN OTC MARKET MANIPULATION CASE

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Canadian Court Enforces U.S. Judgment Award in Market Manipulation Case Against William Todd Peever and Phillip James Curtis


The Securities and Exchange Commission today announced that on June 20, 2013, the Honorable Justice Peter J. Rogers of the Supreme Court of British Columbia, Canada granted summary judgment in favor of the Commission to recognize and enforce judgments previously entered in U.S. District Court for the Southern District of New York against William Todd Peever ("Peever") and Phillip James Curtis ("Curtis"), both of whom are Canadian citizens residing in British Columbia. Those U.S. judgments held Peever and Curtis jointly and severally liable for $2,894,537.48 in disgorgement and $1,611,998.18 in prejudgment interest for their respective roles in a fraudulent scheme to manipulate the stock price of SHEP Technologies, Inc. ("SHEP") f/k/a Inside Holdings Inc. ("IHI"), whose shares traded on the Over-the-Counter Bulletin Board.


The Commission’s complaint in SEC v. Brian N. Lines, et al., 1:07-CV-11387 (DLC) (S.D.N.Y. Dec. 19, 2007), filed in U.S. federal court, had alleged, in pertinent part, that during 2002 and 2003, defendants Peever and Curtis, together with certain co-defendants, engaged in a scheme to secretly obtain control of the publicly traded shell company IHI, through use of nominees. The scheme involved merging IHI with a private company to form SHEP, secretly paying touters to promote the IHI/SHEP stock, and then selling SHEP stock into the ensuing demand. During the first half of 2003, Peever, Curtis, and certain other defendants sold over 3 million SHEP shares into this artificially-stimulated demand, generating about $4.3 million in illegal proceeds. As part of the scheme, Peever and Curtis failed to file required reports with the Commission regarding their beneficial ownership of IHI and SHEP stock to conceal that they, among others, owned substantial positions in, and had been selling, SHEP stock.

Curtis and Peever challenged the Commission’s attempt to enforce the U.S. court judgments in Canada by contending: (1) the judgments had been procured by fraud; and (2) that the disgorgement award was penal in nature and, therefore, could not be recognized under Canadian law. The Canadian court rejected both of the Defendants’ arguments, and held that there was no basis to bar enforcement of the judgments against the Defendants in Canada.