The Securities and Exchange Commission accused six people, including two Sandy residents, Wednesday of bilking a Swiss bank and a prominent investment banking firm of $9.5 million.
The commission said the six managed to defraud a Swiss bank, Bank Leu (pronounced loy), of $3 million through its Toronto office. The also took out a $6.5 million loan with phony backing from the London office of Lehman Brothers. The six used "leased" shares of stock in small companies to secure the loans, according to the civil complaint filed in U.S. District Court in San Diego.The Utah pair charged by the SEC were James W. Farrell and Jill Hall of Sandy. Farrell was a trustee of Delta West Management Trust, an Isle of Man trust, and Alpha Tech Business Services Trust, a Utah trust. When contacted Thursday morning, Farrell refused comment. The Deseret News was unable to locate Hall.
Also charged were Charles Anthony Ferracone of San Diego; James Erickstein of Kamloops, British Columbia; Gary L. Moore, also of of Kamloops; and Guido Bensburg of Miami Beach, Fla.
The defendants arranged to obtain stock certificates between 1992 and 1994 for large blocks of restricted stocks in 18 small companies. At the time five of the firms were listed on the NASDAQ small capitalization market and 13 traded over-the-counter, on either the Pink Sheets or the Bulletin Board.
The companies, or in some cases executives of the companies, were promised as much as $1 million a month to lease the certificates for a year. At the end of the lease period, the six said they could buy the shares but the companies could unilaterally reject any purchase offer, according to Greg Bruch, assistant director of the SEC in Washington, D.C.
The six people were said to have promised they would not sell or otherwise pledge the certificates, according to court documents. However, they did, the SEC charges say.
"Once they had the shares they took them to financial institutions and used the shares as collateral to obtain loans," said Bruch.
Along with Lehman Brothers and Bank Leu, the six also attempted on several other occasions to transfer the stock to third parties without disclosing their agreement with the companies.
Companies in Utah, Texas, Colorado, California and Nevada that leased stock to the six include Dynatec International Corp. of Salt Lake City and American Nortel Communications Inc., formerly of Bountiful. Dynatec, which manufactures the Softtalk shoulder rests for telephones, leased 30 million shares of stock for $550,000 per month over a year. American Nortel leased 40 million shares for an unknown amount, court documents state.
In some cases the SEC said the defendants told companies that having the certificates would enable the defendants to meet certain regulatory rules or make balance sheets of their companies look better. There are no obvious legitimate uses for such a leased share certificate.
The SEC said the defendants had not cooperated in the investigation and that no settlement was expected.
The SEC is seeking permanent injunctions against the defendants, payback of illegally obtained money and civil monetary penalties.