SEC - The United States Securities and Exchange Commission
06/26/2024 | Press release | Distributed by Public on 06/26/2024 15:32
Mike K. Veldhuis, Paul Sexton, Jackson T. Friesen, Zhiying Yvonne Gasarch, and Courtney Kelln
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 26037 / June 26, 2024
Securities and Exchange Commission v. Frederick L. Sharp et al., No. 1:21-cv-11276 (D. Mass. filed Aug. 5, 2021)
SEC Obtains Judgments Against Participants in International Microcap Fraud Schemes
On June 20, 2024, the U.S. District Court for the District of Massachusetts entered judgments against Canadian residents Mike K. Veldhuis, Paul Sexton, Jackson T. Friesen, Zhiying Yvonne Gasarch, and Courtney Kelln for their roles in fraudulent schemes that collectively generated hundreds of millions of dollars from unlawful stock sales and caused significant harm to retail investors in the United States and around the world. Among other relief, these defendants were collectively ordered to pay more than $48 million in disgorgement and civil penalties.
According to the SEC's complaint, Canadian resident Frederick Sharp masterminded a complex scheme from 2011 to 2019 in which he and his associates-Gasarch and Kelln-enabled control persons of microcap companies, whose stock was publicly traded in the U.S. securities markets, to conceal their control and ownership of huge amounts of the stock and then surreptitiously dump the stock into the U.S. markets, in violation of federal securities laws. The complaint alleged that one group of control persons, comprising Veldhuis, Sexton, and Friesen, frequently collaborated with Sharp to sell massive stock positions while hiding their control positions and stock promotional activities from the investing public. Another defendant, Avtar S. Dhillon, who chaired the boards of directors of four of the public companies whose stocks were fraudulently sold during the schemes, was allegedly complicit with this group of control persons, as well as with Canadian resident Graham R. Taylor. Maryland resident William T. Kaitz worked as a promoter and allegedly touted stocks that Veldhuis, Sexton, and Friesen simultaneously planned to sell, while concealing their roles.
The court previously entered a judgment by default against Sharp that, among other relief, ordered him to pay more than $50 million in disgorgement, prejudgment interest, and civil penalties, and judgments by consent against Dhillon, Taylor, and Kaitz. Before the trial in this matter, the court entered partial judgments against Kelln and Veldhuis in June 2023 that imposed injunctions and penny stock bars with monetary relief to be determined by the court at a later date. The court then entered a partial judgment against Sexton on September 12, 2023 in which Sexton agreed not to contest his liability, with injunctive and monetary relief to be determined by the court at a later date.
On September 27, 2023, after a ten-day trial, a jury found Gasarch liable for violating Section 17(a)(3) of the Securities Act of 1933 and aiding and abetting violations of Sections 17(a)(1), 17(a)(3) of the Securities Act, or Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. The jury found Friesen liable for violations of Sections 10(b) and 13(d) of the Exchange Act and Rules 10b-5(a) and (c) and 13d-1 thereunder, and Sections 5(a) and (c) and 17(a)(1) and (3) of the Securities Act.
The judgments against Veldhuis, Sexton, and Friesen permanently enjoin them from violating the antifraud, registration, and reporting provisions of Sections 5 and 17(a) of the Securities Act, and Sections 10(b) and 13(d) of the Exchange Act and Rules 10b-5 and 13d-1 thereunder. The judgments further impose penny stock bars and injunctions against participating in the issuance, purchase, offer, or sale of any security, but allow for trading on a national securities exchange in their own personal accounts. The judgments also order each of them to pay a civil penalty of $1,562,603. The judgments further hold them jointly and severally liable, along with Sharp, for disgorgement of $42,503,547, with the amount to be disgorged by Veldhuis not to exceed $13,289,897, the amount to be disgorged by Sexton not to exceed $17,367,474, and the amount to be disgorged by Friesen not to exceed $11,846,176.
The judgment against Gasarch permanently enjoins her from violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The judgment further imposes a penny stock bar and an injunction against participating in the issuance, purchase, offer, or sale of any security, but allow for trading on a national securities exchange in her own personal account. The judgment also orders her to pay a civil penalty of $269,651 and holds her jointly and severally liable, along with Sharp, for disgorgement of $2,522,367.
The judgment against Kelln permanently enjoins her from violating the antifraud and registration provisions of Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The judgment further imposes a penny stock bar and an injunction against participating in the issuance, purchase, offer, or sale of any security, but allows for trading on a national securities exchange in her own personal account. The judgment also orders her to pay a civil penalty of $904,078 and holds her jointly and severally liable, along with Sharp, for disgorgement of $1,582,785.
The matter was handled by Kathleen Shields, David London, Alfred Day, Nita Klunder, and Alyssa DiPaolo of the Boston Regional Office.