The Securities and Exchange Commission has charged Cayman Islands-based broker Oliver-Barret Lindsay together with a stock promoter and three others involved in a series of alleged penny stock fraud schemes that unraveled as a result of an FBI undercover operation and an SEC trading suspension.
The U.S. Attorney’s Office for the Southern District of California announced related criminal charges against Mr. Lindsay last week.
According to the SEC’s complaint filed in federal court in southern California on July 6, one of the penny stock pump-and-dump schemes concerned Kelvin Medical Inc., or KVMD, a purported medical device company, controlled by California-based stock promoter Gannon Giguiere.
The SEC claims that KVMD issued, through an associate, 1.5 million shares each to two nominee entities, Phenix and Cataleya Capital, controlled respectively by Mr. Giguiere and Mr. Lindsay.
Both allegedly engaged in a matched trading scheme that created the misleading appearance of active trading in the stock and caused the company’s share price to rise from zero to $1.20 per share.
The scheme, whereby the defendants coordinated the sale of the stock between each other and an associate, was designed to induce investors to buy Kelvin Medical stock. The matched trading scheme dominated the public market for KVMD stock and represented on average about 79 percent of KVMD’s total trading volume on days that the stock traded, the SEC complaint stated.
It purportedly netted the defendants $1.57 million in proceeds.
Mr. Giguiere and Cayman brokerage owner Mr. Lindsay, a 44-year-old Canadian, allegedly coordinated their matched trading through an individual who, unbeknownst to them, was a cooperating witness with the Federal Bureau of Investigation.
An undercover FBI operation recorded encrypted messages and telephone conversations between the defendants, purportedly showing the manipulation of Kelvin Medical’s share price.
The recorded messages included a statement made by Mr. Lindsay to the cooperating FBI witness, expressing concern about their means of communication: “I’m a little hesitant about typing all of these details into this app. … You can just imagine if it finds its way somewhere it’s fairly incriminating.”
In a Dec. 20, 2017, telephone conversation, Mr. Lindsay similarly told the cooperating witness: “I just mentioned to Gannon [Giguiere] that some of these text messages look, just like, really evil. I’d rather just pick up the phone,” the SEC complaint said.
The complaint states that between Nov. 29, 2017 and Jan. 16, 2018, “Giguiere, Lindsay, and an associate conducted a matched trading scheme in KVMD’s stock, whereby they coordinated Giguiere’s sales of his 1.5 million shares of KVMD to Lindsay, who was buying those shares in his own brokerage accounts and customer accounts at his Cayman Islands broker-dealer.”
Mr. Lindsay is the principal of CMGT Capital Management, a Cayman Islands exempt broker-dealer registered with the Cayman Islands Monetary Authority. The firm’s website describes CMGT as a privately held firm that is structured as a family office and provides asset management and trade execution for the founding family and associates. Mr. Lindsay is also the owner of Lindsay Capital Corp. SEZC, an investor relations services firm based in Cayman Enterprise City.
On Jan. 29, 2018, Mr. Giguiere promoted the KVMD stock on TheMoneyStreet, a website he controlled, with an article titled “Can Machine Learning Actually Predict Therapeutic Results?”
The article claimed that TheMoneyStreet was “diving into the consumer sports and active lifestyle therapy market, specifically the sub-sector of combined fitness tracking, artificial intelligence and therapeutic treatment” and that it had identified KVMD as “[o]ne such Company perfectly positioned to take advantage of this fast-growing category.”
The article then recommended investing in KVMD by stating: “[W]e believe that the investment opportunity is right now. And you can’t play if you aren’t in the game. Given Kelvin Medical’s (OTC: KVMD) current share price, we believe that a double or triple share price value is not out of the question. But like we always say, YOU MUST OWN KVMD in order to ride its growth. So HURRY up and do your own research on Kelvin Medical, and make sure to show this information to your broker.”
The article did not disclose that Mr. Giguiere owned and controlled TheMoneyStreet, or that Mr. Giguiere was a control person of KVMD.
On March 12, Mr. Giguiere and Mr. Lindsay allegedly began selling the 1.5 million shares of KVMD held by Cataleya at Cayman broker CMGT. However, their plan to sell these shares at a predetermined price “between a dollar fifty and a dollar seventy” was thwarted, the complaint said, when, on March 19, the SEC suspended trading in the securities of the purported medical device company, “due to concerns about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in KVMD’s common stock.”
The SEC’s complaint also charges three others who began laying the groundwork for an unrelated pump-and-dump scheme.
“As alleged in our complaint, these stock traders hijacked companies and manipulated the market to enrich themselves at the expense of the investing public. Law enforcement is committed to rooting out microcap fraud and exposing it no matter how encrypted or complex such schemes may be,” said Marc P. Berger, director of the SEC’s New York Office.
The U.S. Attorney’s Office for the Southern District of California last week announced criminal charges, after a federal grand jury indicted a total of eight people, including Mr. Lindsay and Mr. Giguiere, in three unrelated securities fraud crimes.
Mr. Giguiere has been released on a $2 million bond. Mr. Lindsay is currently held at the Metropolitan Correction Center in San Diego. A motion to detain Mr. Lindsay will be heard on July 19.