MIL-OSI Security: Five Individuals Indicted for Long-Running Pump-and-Dump Schemes

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Source: Federal Bureau of Investigation (FBI) State Crime Alerts (b)

BOSTON – Four Canadian nationals and one former California attorney, who is believed to be residing in Mexico, were indicted on Jan. 9, 2024 in connection with long-running international securities fraud schemes in which they sold millions of shares in multiple microcap—or “penny”—stock companies during pump-and-dumps, generating at least tens of millions of dollars in illicit proceeds. 

The indictment charged Frederick L. Sharp, 71, and Courtney M. Kelln, 43, both of British Columbia, with two counts each of securities fraud and conspiracy to commit securities fraud. The indictment further charged Luis Carrillo, 50, previously of California, and Mike K.G. Veldhuis, 43, and Paul Sexton, 55, both of British Columbia, with one count each of securities fraud and conspiracy to commit securities fraud. Sharp, Carrillo, Veldhuis and Kelln were previously charged in a criminal complaint. Also among the named co-conspirators was Roger Knox, who founded and ran the Swiss asset management firm Wintercap SA and who was sentenced for securities fraud and conspiracy to commit securities fraud in October 2023

According to the charging documents, a pump-and-dump typically involves an effort to artificially inflate the stock price or trading volume of a publicly traded company (the “pump”) so that individuals who control a substantial portion of the company’s float can sell their shares at artificially high prices, or in a more liquid market, to other investors (the “dump”).

Sharp—who used the codename “Bond”—allegedly operated a sophisticated platform for at least six years that provided a variety of services to individuals seeking to conceal their identities in contravention of the securities laws when selling penny stock shares during pump-and-dumps. Sharp’s alleged services included: providing offshore nominee entities to hold shares for clients; providing and administering encrypted communications networks for use by clients and other co-conspirators (known as “xphone” and “xmail”); facilitating the deposit of stock through Wintercap in the names of the nominee entities; administering a proprietary web-based accounting system that tracked clients’ total stock holdings, sales and proceeds (known as “Q”); and facilitating the payment of illegal stock sale proceeds to accounts around the world at his clients’ direction. 

Kelln, who worked for Sharp, allegedly facilitated the breakdown and transfer of Sharp’s clients’ shares to Sharp’s offshore nominees, as well as the shares’ subsequent deposit with Wintercap to facilitate their sale to unsuspecting investors.

Carrillo, Veldhuis and Sexton are alleged to have been “undisclosed control persons” who orchestrated pump-and-dumps using Sharp’s platform and through Wintercap. The steps in the alleged schemes generally involved: acquiring control over a significant portion, if not all, of a penny-stock issuer’s outstanding shares and a majority, if not all, of the issuer’s float, while simultaneously failing to file public disclosures when required by the securities laws; transferring the shares to nominee entities in blocks of less than five percent of the total outstanding shares of the issuer in order to evade and circumvent the securities laws and to evade scrutiny by brokers; transferring the shares held by the nominee entities to Wintercap, which in turn deposited the shares for trading at brokerages around the world; directing Wintercap to dump—i.e., sell—the shares during multifaceted promotional campaigns funded and organized by the undisclosed control persons, which campaigns at times included “boiler rooms” cold-calling unsuspecting U.S. investors in Massachusetts and elsewhere touting the stocks and soliciting purchases; and distributing the illicit proceeds from Wintercap at the undisclosed control persons’ direction.  

The indictment identifies three issuers whose shares were sold during pump-and-dumps allegedly led by Carrillo:

  • OneLife Technologies Corp. (ticker OLMM), millions of shares of which were sold between November 2017 and October 2018 through Wintercap, generating proceeds of approximately $5.2 million;
  • Garmatex Holdings, Ltd. (ticker GRMX), millions of shares of which were sold between March and May 2017 through Wintercap, generating proceeds of approximately $5 million; and
  • Pure Snax International, Inc. (ticker PSNX), millions of shares of which were sold between November 2015 and September 2016 through Wintercap, generating proceeds of approximately $1.6 million.

The indictment also identifies one issuer whose shares were sold during a pump-and-dump allegedly led by Veldhuis and Sexton:

  • Vitality BioPharma, Inc., formerly known as Stevia First Corp. (tickers VBIO & STVF), millions of shares of which were sold between May 2016 and September 2018 through Wintercap, generating proceeds over $17 million.

The charges of securities fraud each provide for a sentence of up to 20 years in prison, three years of supervised release and a fine of $5 million. The charges of conspiracy to commit securities fraud each provide for a sentence of up to five years in prison, three years of supervised release and a fine of $250,000, or twice the gross gain or loss, whichever is greater. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and statutes which govern the determination of a sentence in a criminal case.

Acting United States Attorney Joshua S. Levy and Jodi Cohen, Special Agent in Charge of the Federal Bureau of Investigation, Boston Division made the announcement. Assistant U.S. Attorney James R. Drabick of the Securities, Financial & Cyber Fraud Unit is prosecuting the case.

The details contained in the charging documents are allegations. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.  

MIL Security OSI