The U.S. Securities and Exchange Commission has amended its complaint against Caledonian and three other defendants, stating for the first time that the brokerages traded on behalf of clients in their alleged securities violations.
The lawsuit claims that restricted securities “were passed off” as free trading stock held by shareholders unaffiliated with the issuers, and that the stock certificates were subsequently transferred, without restrictive legends, to Caledonian Bank and Caledonian Securities in Cayman, Clear Water Securities and Legacy Global Markets in Belize, and Verdmont Capital in Panama or brokerage accountants held by these firms. The companies then sold the stock from those accounts to the public and violated U.S. securities laws, the SEC alleges.
“Verdmont sold the stock for the account of one or more of three customers – Lomex Financial Ltd., Nautilus Growth Fund, Inc. or Bartlett Trading Inc. – and, on information and belief, received $239,965 in commissions for those sales. Caledonian’s counsel has represented that it also sold the stock for the account of customers,” the amended complaint states.
The stock sold involved four practically worthless penny stock shell companies – Swingplane Ventures, Goff Corp., Norstra Energy Inc. and Xumanii, Inc. The companies saw their share price spike as a result of heavy promotional activity and then collapse to zero within months.
Sales of the shares in the four companies through the defendants generated about $75 million in proceeds for the perpetrators of the penny stock pump-and-dump schemes, according to the complaint.
The SEC filed the amended complaint after District Judge William Pauley III lambasted the SEC for its handling of the case in a hearing on May 21.
During the hearing, the defense counsel for Verdmont said he was going to push for a judgment on the pleadings, arguing that on the current evidence presented in the case the SEC had no chance of succeeding.
“If they are going to have a case here, your Honor, I really don’t care what the complaint says, what is their case? How are they going to prove it? Who is going to take that stand and testify? What documents are going to come into evidence and how are they going to authenticate those documents?” attorney Robert Zito said.
The judge said if the SEC “could get around to figuring out the court’s individual rules” and amend its complaint, a judgment on the pleadings would not be necessary.
“You are going to get going on this case. We are going to have a hearing in this case. I’m going to direct the SEC to file a motion to amend their complaint,” Judge Pauley said, adding that the defense had raised some troubling concerns.
The amended complaint now outlines that Verdmont customers – Nevis-based Lornex Financial, Cayman-registered Nautilus Growth Fund and Samoa company Bartlett Trading [later renamed to Bamfield Equities] – deposited the stock certificates into accounts they maintained at Verdmont, which transferred the stocks into an omnibus custodial account at BNY Mellon in New York. From there the stock certificates were moved to the Depository Trust Corporation and converted into stock that is transferable by book entry rather than physically.
Verdmont then sold the stock through various accounts the firm maintained with brokerages in the U.S. The sales proceeds were subsequently repatriated to Panama and deposited into the client accounts of Lornex, Nautilus and Bartlett/Bamfield.
Caledonian has asserted through counsel that the securities in question were sold for customer accounts, but the bank and its securities arm have not identified their clients. Caledonian stated only that the accounts have been closed.
Verdmont clients are connected
The evidence submitted to the court by Verdmont and research by the Cayman Compass show that the three Verdmont clients, even though they are registered in Nevis, Cayman and Samoa, use the same person in the Dominican Republic, Virgilio Santana Ripoll, as either company secretary or director.
Lornex Financial principal Clifford Wilkins and Bamfield Equities director Christopher Smith previously worked together at First Nevisian Stockbrokers Ltd. in Nevis. Mr. Wilkins was a director and indirect shareholder and Mr. Smith was a financial controller of FN Stockbrokers Ltd. The company was later moved from Nevis to the Dominican Republic.
SEC filings for a separate company show Mr. Wilkins and Mr. Smith also work or worked together at HE Capital S.A. in the Dominican Republic.
The owner of Nautilus Growth Fund is Belize-registered Keyse Management Ltd., whose beneficial owner is Swiss national Francois Lambercy, according to Verdmont’s records.
However, the contact person for Nautilus, Lornex and Bamfield/Bartlett is Mr. Ripoll in the Dominican Republic. His contact email address for Nautilus Growth Fund, given in the KYC questionnaire to Verdmont, is [email protected], the same HE Capital that Mr. Wilkins and Mr. Smith are, or were, directors of.
Mr. Wilkins and Mr. Lambercy also show up as joint directors of U.K. companies Law Formations Limited and Law Consultants Limited.
According to Verdmont’s trading records submitted to the court, Lornex Financial sold 14 million shares in Goff for $2.08 million, bought 50,000 shares of Norstra Energy for $18,400 and sold 1.89 million shares in the same company for $1.52 million. Lornex also bought 150,100 shares in Xumanii for $39,980 and sold 17.2 million shares in Xumanii for $4.38 million.
Bamfield/Bartlett sold 3.7 million shares in Norstra Energy for $3.31 million.
And Nautilus Growth Fund bought 519,800 shares in Norstra for $440,000 and sold 4.67 million shares in the same company for $3.42 million, Verdmont trading records show.
In total, the three companies traded $15.22 million worth of shares through the Panamanian broker.
All three shares turned out to be worthless and subsequently their share price collapsed.
When asked by Judge Pauley in the May 21 hearing why the Verdmont clients were not named as defendants in the case, an SEC lawyer responded that the SEC had only learned of their identity at the end of February.
When the judge pressed on and asked what the SEC had done since then to “[bring] the customers into this case,” SEC counsel said the Commission had focused on litigating against Verdmont, discovery requests and a preliminary injunction hearing with Caledonian.
“So you focused on all the wrong things,” the judge concluded. The Verdmont clients are not named as defendants in the amended complaint.