Belize brokers arrested after 2-year FBI stock manipulation probe
After an almost two year investigation into offshore stock entities in Belize, things moved quickly on Sept. 9. The indictment in Brooklyn was unsealed and at 11:45 a.m. Robert Bandfield was arrested in Miami on stock fraud charges. By 1 p.m., FBI agents and Belize police were on the fourth floor of the Matalon Building in Belize City searching the offices of Titan International Securities Inc., IPC Management Services LLC and Legacy Global Markets SA, seizing computers and file boxes. The operation went well into the night.
At the same time, U.S. law enforcement officials were executing a search approved by Belize government officials of Unicorn International Securities LLC on Coney Drive, not far from the Matalon.
The indictment charged Bandfield, Andrew Godfrey, Kelvin Leach, Rohn Knowles, Brian De Wit, Cem Can, IPC, Titan, Legacy and Unicorn with orchestrating an offshore operation that hid assets and the identities of investors, perpetrated securities fraud and money laundering and aided in tax evasion. All of the named defendants are residents of Belize City. De Wit and Can are Canadian nationals. Leach and Knowles are natives of the Bahamas. Bandfield is originally from the U.S. and Godfrey is a Belize native.
The grand jury action parallels civil lawsuit filed by the Securities and Exchange Commission against Bandfield, 70, Godfrey, 51, and IPC, filed in U.S. District Court in Brooklyn. The lawsuit claims that the Belize-based business created offshore companies and limited liability corporations that hid shares of penny stocks and their true ownership, in violation of federal securities regulations.
The criminal indictment claims that Bandfield and Godfrey, through IPC and its affiliates, set up clients with anonymous foreign entities that used nominee officers. Those companies were owned by a limited liability company that would shield the ownership of the foreign entity. Ownership of the penny stocks was divided between the entities so that none would own more than 4% of a single company. That was allegedly meant to avoid the SEC filing required when a single shareholder owns more than 5% of a stock.
The investigation included the criminal investigation unit of the Internal Revenue Service, Immigration and Customs Enforcement’s Homeland Security Investigations directorate and the SEC.
Attorney Jacob Frankel, who represents Titan, Leach and Knowles, said in a statement that he expects his clients to be exonerated.
The other defendants and their representatives could not be reached for comment.
The government’s probe turned on a November 2012 conversation between an undercover FBI agent and a former employee with Bahamas-based Gibraltar Global Securities Inc. According to the indictment, the agent posed as a stock promoter looking to set up an offshore account that would hide his identity and stock ownership and allow him to avoid IRS scrutiny. The Gibraltar employee told the agent to contact Titan or Legacy and e-mailed contact information. In January, the agent talked with Titan’s Leach, 34, about his desire to set up an offshore account with Titan that would conceal his identity, ownership of stocks and money transfers. Leach allegedly said that by opening an international business company through IPC, a brokerage account could be opened in the name of that business, shielding the agent.
Next, the agent talked with IPC’s Godfrey who allegedly told the agent that by opening the international business company and creating an LLC the agent could shield his identity and holdings. The LLC would own the company, which would in turn be linked to a Titan brokerage account.
Last October, the agent paid $3,300 to IPC for the international business company, LLC and accounts at Titan and Legacy, confirming the details with Leach and Legacy’s De Wit.
A month later, the FBI agent sat down in IPC’s Belize office with Bandfield and Godfrey. They allegedly reassured the agent that his desire for secrecy, to manipulate the market and hide his cash, was common for their clients. Bandfield allegedly told the agent that he had created Titan and Legacy and had incorporated more than 5,000 sham companies to accommodate such clients. He also allegedly instructed the FBI agent that he could hide stock he owned by having nominees sign IRS forms and that they could offer the agent a prepaid credit card loaded up with $50,000 that could not be traced back to him.
In a conversation the same day with Titan’s Knowles, 29, and Legacy’s De Wit, 45, the FBI agent said he wanted to manipulate the market in microcap stocks by employing wash and matched trades. Knowles allegedly responded that “me and Brian do it all the time for other clients.”
By March, the FBI agent had opened half a dozen international business companies, two LLCs, and accounts with Titan, Legacy, Unicorn and two other brokerage firms, according to the indictment. He met March 4 with Bandfield and Godfrey at the IPC office and recorded the conversation where Godfrey explained that account nominees such as security guards and couriers would sign stock purchase agreements for the FBI agent. The agent paid IPC almost $10,000 in cash. Later that day, he met with Unicorn’s Can, 44, who allegedly instructed the agent to keep his wire transfers out of Belize under $50,000 to keep banks from inquiring about the money.
Federal prosecutors went to a judge that month to ask for digital wire taps for IPC, Titan and Legacy, according to the indictment. By March 21 the wiretap was up and running. It remained in operation until May 22. Federal agents also used search warrants to obtain e-mails between the named defendants to learn how far the operation went. According to the indictments, the brokerages and IPC were offering similar services to more than 100 clients.
The Justice Department has already begun collecting some assets tied to the case. It is also seeking extradition of the defendants who are in Belize.
Knowles and Leach were arrested on Sept. 12 at Phillip S.W. Goldson International Airport in Belize City as they prepared to board a charter out of the country, according to a person familiar with the investigation. Belize authorities took them into custody, charging them with violations of Belize law regarding the carrying of cash out of the country. Knowles and Leach both posted bail on the cash offense, but were taken back into custody immediately. Belizean officials say they were being detained pending extradition to the U.S.
The indictment was at least the second action that U.S. officials have taken in recent months involving Belize-based players in the U.S. penny stock market.
Shares of Cynk Technology Corp. rose from 6 cents on June 16 to $13.90 by July 11 when the SEC halted trading. The run-up gave the company a market capitalization of $6 billion. When trading resumed, July 25, the shares slid to $2. As of Sept. 18, the stock was trading at 16 cents.
Cynk listed the Matalon Building in Belize City as its business address. The same building housed Legacy’s, IPC’s and Titan’s offices. Both Legacy and Titan had accounts in which investors traded Cynk shares, and IPC created international business companies and LLCs that were used by Cynk shareholders. A law enforcement official confirmed that Cynk, along with the promotion and trading of its shares, are under investigation by the Justice Department. Cynk lists its current address at 1 Coney Drive in Belize City, the same address as Unicorn.
Cannabis-Rx Inc. was the only stock specifically identified in the recent indictment as having been manipulated. Shares of the Scottsdale, Ariz.-based company were the subject of a market manipulation that took them as high as $13.77 in March before they fell to a low of 50 cents in April. The indictment said De Wit of Legacy was involved in the manipulation along with a client who wasn’t identified.
Cannabis-Rx CEO Llorn Kylo said in a statement that he was shocked by the indictment and the discovery that some shareholders in his company had manipulated the shares.
Kylo signed a $14 million secured loan agreement on March 25 with IPC’s Falcon Investments Holdings SA unit. Godfrey was a signatory on that document, an SEC filings shows.
Kylo declined to comment beyond his written statement.
Cannabis-Rx purports to lease real estate to cannabis-related businesses.
Godfrey, Bandfield or IPC vehicles such as Chancery Lane Investments Group Inc., Tucker Investments Corp. and Palm Harbour International Inc. have been investors in a number of companies that were the subjects of paid stock promotions. Those include Sunpeaks Ventures Inc. (now known as Pharmagen Inc.), Tiger Global Oil and Energy Inc., National Graphite Corp., Dimi Telematics International Inc., Nitro Petroleum Inc., Rostock Ventures Corp., Biozoom Inc., Dewmar International BMC Inc., Nanotech Entertainment Inc., Universal Potash Corp., Black Hawk Exploration Inc. and Fountain Healthy Aging Inc.
Legacy Global was tied to suspicious trading in Sunpeaks, according to internal reports of the Financial Industry Regulatory Authority that were previously obtained by The Deal. Finra also suspected Legacy of suspicious trading in Goff Corp. De Wit is also named in an April 2013 report by Finra on trading in Goff. That report was passed on to the SEC.
Finra was consulted in the Belize probe, according to a person familiar with the investigation.
Legacy has paid for a number of promotional campaigns, according to legal disclaimers on 10 different mailers and e-mails promoting penny stocks. The stocks include Cooper Holdings Corp., Digagogo Ventures Corp., Spring Creek Capital Corp., Amalgamated Gold and Silver Inc., EMO Capital Corp., Promithian Global Ventures Inc., Southern Products Inc., Avatar Ventures Corp., Life Design Station International Inc. and Noveau Life Pharmaceuticals Inc.
Titan International paid for a promotion of Greenlite Ventures Inc. in 2012, according to a legal disclaimer.
The Office of the International Financial Services Commission in Belize, which regulates brokerage firms in the country, suspended Unicorn, Legacy and Titan on Sept. 15, according to its website.
