The US Securities and Exchange Commission has filed civil fraud charges against Rahim Mohamed, the owner of Cayman-based special economic zone company White Sands Securities SEZC, and several other residents of Vancouver and Calgary in relation to a scheme to boost stocks by hacking brokerage accounts.
The SEC claims that the group built up large positions in companies and then forced hacked US brokerage accounts to buy stock in those companies.
They unloaded their stock, realising a combined US$1.3 million, the SEC said.
The complaint describes Mohamed, 45, as a Calgary and Cayman resident, who controls, or controlled, Cayman brokerage White Sands. He is also the owner of privately-held Canadian company Nexium Financial Inc and the CEO and chairman of Softlab9 Technologies, Inc.
White Sands SEZC, a derivates and commodities trader, has not been charged, while entities in Wyoming, Nevada, Nevis and the Dominican Republic have been named in the complaint as defendants.
Other defendants are Zoltan Nagy, 55, of Vancouver; Phillip Sewell, 61, of Vancouver; Richard Tang, 44, of Richmond (metro Vancouver); Anna Tang, 43, of Richmond; Breanne Wong, 33, of Vancouver; and Davies Wong, 62, of Vancouver.
The charges arise from a scheme to sell shares of two companies – Lotus Bio-Technology Development Corp. (LBTD), a supposed cannabis company trading on the OTC Markets, and Good Gaming Inc (GMER).
According to the SEC, members of the group laid the groundwork for the scheme in 2015, with Tang and Nagy using backdated paperwork to obtain blocks of tradable shares, and Tang structured his holdings so that no single entity held enough shares to trigger any reporting requirements.
Eventually the group’s holdings amounted to 63% of LBTD’s outstanding shares.
Forced stock purchases
Together the group, according to the SEC, “gained control of large blocks of LBTD common stock constituting most of the outstanding shares, failed to file the above-referenced reports required by the beneficial ownership reporting provisions of the Exchange Act, took other steps to conceal their interests in LBTD, and sold or coordinated the sale of LBTD stock into one or more of the hacks that forced the purchases of LBTD stock”.
The complaint alleges that in August and September 2017, Mohamed coordinated hacks on at least 24 retail brokerage accounts at four US brokerage firms which were forced to buy millions of LBTD shares.
The unnamed affected brokerage firms reimbursed the account holders and suffered losses of more than $1 million as a result, the court filing said.
The hacks and ensuing forced purchases of GMER stock occurred in January 2018.
The SEC complaint said, “The hackers, acting in concert with one or more of the defendants, or others, caused the hacked brokerage accounts to purchase large quantities of shares, thereby inflating the prices. The owners of the accounts that purchased the shares did not authorize the purchases.”
At the time of the hacks, it is alleged that the defendants sold LBTD and GMER shares at these artificially high prices.
“In multiple instances, the defendants sold stock executed directly to the forced purchases in the hacked accounts,” the complaint said.
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