SEC files lawsuit against entities and individuals engage in microcap fraud scheme

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Image source; FBI.gov

The Securities and Exchange Commission (SEC) filed a complaint against five individuals and six offshore entities involved in a microcap fraud scheme, in which they attempted to capitalize on the COVID-19 pandemic.

The defendants in the SEC complaint included Canadians Nelson Gomes, Michel Lukhoo-Bouchee, Shane Schmidt, Douglas Roe, Kelly Warawa, FFS Capital Limited, Paifang Trading Limited, Artefactor Limited, Atlantean Management Corporation, Meadow Asia Limited, and Thyme International Limited.

Allegations against the defendants

In the lawsuit, the SEC alleged that the defendants engaged in a fraudulent scheme that allowed them to generate more than $25 million in profits from the unlawful sale of their stock in multiple microcap companies including Sandy Steele Unlimited Inc., WOD Retail Solutions Inc., Bioscience Neutraceuticals, Inc., and Rivex Technology Corp.

From at least January 2018 to present, Gomes used unknown corporate control persons to illegally dump his stock in the public markets for acquisition. He arranged to sell shares without effective registrations statements of the microcap companies.

Gomes regularly used foreign nominee entities and trading accounts to hide the identities of his control group associates while unlawfully selling large amounts of microcap stocks in the open market. The scheme enabled his control group associates to avoid restrictions under the U.S. securities laws, which prohibits the sales of stocks by corporate control individuals without public registrations.

The SEC alleged that Gomes and his control persons deceived unsuspecting investors who believe they were buying shares in the ordinary course of the market. In reality, the investors were purchasing shares dumped by company insiders.

Additionally, the SEC alleged that various stock promoters boosted such illegal stock sales through campaigns that include false and misleading information designed to capitalize on the COVID-19 pandemic.

For example, the Commission noted that the alleged promotional campaigns included claims that Sandy Steele can produce medical quality facemasks while WOD Retail has automated kiosks for retailers to use in response to the COVID-19 pandemic.

In a statement, SEC Boston Regional Office Director Paul Levenson said, “Microcap stocks can be particularly vulnerable to manipulative schemes, and investors should be alert to the heightened risks that exist during this national emergency. The SEC will continue to act quickly to protect investors from investment scams, including those seeking to capitalize on the COVID-19 crisis.”

The SEC accused Gomes, Luckhoo-Bouche, Roe, Warawa, FFS Capital Limited, and Atlantean Management Corporation of violating the antifraud and registration provisions of the federal securities laws.

The Commission charged Schmidt with violation of the antifraud provisions while Paifang Trading Limited, Artefactor Limited, Meadow Asia Limited, and Thyme International Limited with violation of registration provisions.

It seeking permanent injunctions, conduct-based injunctions, disgorgement of allegedly ill-gotten gains plus interest, civil penalties, and penny stock trading prohibitions against the defendants.