New York Attorney Charged With Scheme To Fraudulently Register Shell Companies and Secretly Sell Stock

New York attorney was charged with conspiracy to unlawfully sell unregistered securities in connection with a scheme to fraudulently register shell companies with the U.S. Securities and Exchange Commission (SEC), issue shares in the companies that they and other conspirators secretly controlled, and sell the shares to the investing public at a profit. To date, seven defendants have been charged in connection with the ongoing prosecution of this scheme.

Benjamin G. Greenberg, Acting United States Attorney for the Southern District of Florida, and George Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, made the announcement.

David Lubin, 52, of West Hempstead, New York, was charged by criminal information with one count of conspiracy to unlawfully sell unregistered securities, in violation of Title 15, United States Code, Sections 77e(a)(1), 77e(a)(2), and 77x, and Title 17, Code of Federal Regulations, Section 230.144, all in violation of in violation of Title 18, United States Code, Section 371. Lubin faces a maximum statutory sentence of five years in prison and a fine up to $250,000 or double the proceeds of the offense. This matter is assigned to U.S. District Judge Marcia G. Cooke in Miami, Case No. 17-20508-CR-MGC.

Previously in related cases, Daniel McKelvey, 49, of Foster City, California, and Jeffrey L. Lamson, 51, of El Dorado Hills, California, were charged in Case No. 16-20546-CR-RNS; Steven Sanders, 73, of Lake Worth, Florida, and Alvin S. Mirman, 78, of Sarasota, Florida, were charged in Case No. 16-20572-CR-CMA; and, Sheldon Rose, 77, of Sarasota, and Ian Kass, 45, of Ft. Lauderdale, were charged in Case No. 16-20707-CR-JEM. All six of these defendants were convicted and sentenced to prison terms.

According to court documents, from early 2007 through at least 2014, Sanders, McKelvey, Mirman, and Rose would fraudulently create shell companies by filing documents with the SEC indicating that the companies were controlled by a nominee chief executive officer (CEO). The straw CEO would be listed as the owner of the control block of shares but in reality the companies were controlled by the principals. The control block of shares listed in the name of the officer were deemed restricted and could not be sold to the public. The principals would also list in SEC filings the names of various shareholders for each company to make it appear that these shares were owned by persons unaffiliated with the company. These shares would later become “free trading” and secretly sold to shell buyers. Using false and fraudulent documentation describing the companies’ business purpose and share ownership, the principals would then obtain approval for the shares of the companies to be sold publicly over the counter. Thereafter, the principals would sell the companies to shell buyers who would secretly obtain both the control shares and the purported “free trading” shares without disclosure of this common control and simultaneous sale to the SEC or the investing public. This would allow the shell buyers to engage in stock manipulation or pump and dump schemes using the “free trading” shares.

According to the charging information, Lubin was an attorney licensed to practice in New York and acted as a shell buyer, broker, and attorney for various shell companies involved in the scheme. In certain instances, Lubin also provided false and fraudulent opinion letters to make it appear that shares that were actually controlled by the principals were not owned by “affiliates,” and thus could be deemed unrestricted and available for sale to the investing public. In the case of one fraudulent shell entity, Entertainment Art, Inc. (EERT), in early 2009, Lubin participated in the sale of that entity to a co-conspirator, Conspirator A, but executed fraudulent documents to make it appear that only the restricted shares were sold to Conspirator A. Lubin also drafted and filed with the SEC various documents that falsely represented the nature and control of EERT’s shares, as well as the terms of the sale.

Conspirator A was sentenced to federal prison in approximately November 2010 in connection with a separate securities fraud scheme. Lubin, along with Sanders and McKelvey, assisted with the fraudulent re-sale of EERT on behalf of Conspirator A, including by causing false filings with the SEC. In approximately October 2012, EERT was sold to certain criminal actors and the entity name was later changed to Biozoom, Inc. (BIZM). The EERT purchasers and others used the fraudulently created “free trading” shares of BIZM to engaged in a pump and dump stock manipulation scheme, using the EERT shares that had previously been falsely and fraudulently sold by Lubin to Conspirator A and his co-conspirators.

The SEC today announced a parallel civil enforcement action against Lubin.

Mr. Greenberg commended the investigative efforts of the FBI’s Miami Field Office and Washington Field Office. Mr. Greenberg also thanked the SEC’s Washington Home Office and Miami Regional Office for their assistance. The SEC previously filed civil enforcement actions against McKelvey, Sanders, Mirman, Rose, Kass, and Lamson. This matter is being prosecuted by Assistant U.S. Attorneys Jerrob Duffy and Alison W. Lehr.

A criminal information merely contains allegations and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.