Dozens Charged (OTC Market Research).
On Thursday, February 14, 2019, securities attorney James Schneider was sentenced to 7 years in prison for his role in perhaps the biggest shell factory bust in history. Schneider was also ordered to pay $19.7 million in restitution to 2,156 investors for securities fraud, and he must forfeit $4.8 million. Schneider became the 12 shell factory participant to be convicted and at the age of 77 years old, his conviction could amount to a life sentence.
James Schneider’s role in the shell factory was writing bogus legal opinion letters to help create 20 of the shells manufactured through the shell factory scheme between 2008 to 2013.
Without a legal opinion letter, the shells cannot be taken public. So the scheme could not have been completed without the assistance of Schneider. The 7 year sentence and hefty monetary judgment sends a loud and clear message to other security attorneys that if you want to facilitate securities fraud you will pay.
The Shell Factory
Over the years I’ve built up a reputation as one of the best pre-promotion stock researchers in the business – meaning that I’ve built up a reputation of being able to find stock promotion tickers ahead of the stock promotions. Since 2012 I’ve literally written hundreds of research reports for stocks ahead of their stock promotions including a large majority of the big name/high profile stock promotion tickers. A big part of finding Issuers being set up for future stock promotions is being able to find connections between past stock promotion Issuers and new Issuers being set up for future paid promotions. That means being able to connect dots and recognize links (common service providers, names, business descriptions, changes in controls, and basically any large or small details of the set-up). I continue to find and publish research reports for stock promotion tickers ahead of their high profile promotions for the members of OTC Markets Research.
Because of my knack for connection dots and finding links between shells, I was on top of the James Schneider linked shell factory way before the regulators got involved. I first wrote about the shell factory on February 22, 2013 setting up a spread sheet showing the connections between 10 of shells. The connection between the 10 shells in my spread sheet was Alvin Mirman and Steve Sanders as the incorporators and James Schneider (through his firm Schneider Weinberger LLP) as the attorney for all 10 shells (MIB Digital Inc currently trading as RACK, InTake Communications Inc which currently trades as FUEG, Teaching Time Inc which became RDMP but no longer trades, Hidden Ladder Inc which currently trades as ASPU, Mlight Tech Inc which currently trades as CXKJ, Blue Sun Media Inc which currently trades as AGPL, BlueFlash Communications which currently trades as NTRP, FanSport Inc which currently trades as JADG, Mobile Vault Inc which received a Stop Order before it could complete the going public process, and ShopEye Incwhich received a Stop Order before it could complete the going public process). These were 10 of the earliest shells created by the shell factory and Mirman and Sanders did a very poor job of hiding their involvement.
I did a second write up on February 24, 2013 that included an additional 6 shells that would later be identified as part of the same shell factory again setting up a spread sheet showing the connections between the shells. For these shells, Alvin Mirman and Steve Sanders hid their involvement, but there were still some obvious connections that made it clear to me that the same secret insiders set up the shells – they all used the same auditing firm, Peter Messineo (Peter Messineo CPAs), many used the same attorney, Diane Harrison, and they all had virtually identical set-ups. The second group of shells included First Titan Corpwhich currently trades as SOAN, Rainbow Coral Corp (RBCC), Neutra Corp (NTRR), Aristocrat Group Corp (ASCC), First Social Network Corp which currently trades as RBEL, E-Waste Corp (EWST), and First Independence Corp (ITEN) which got revoked in 2016.
When criminal charges were filed against Alvin Mirman and Steven Sanders on July 28, 2016, I created a master list of all the shells from the shell factory (36 shells total):
- Premier Nursing Products Corp (which now trades as PNRC)
- We Sell For U Corp (which now trades as CGEM)
- Pashmina Depot.com Inc (which became SWHN then was revoked in 2018)
- Liquid Financial Engines Inc (which now trades as AURM)
- Mobieyes Software Inc (which now trades as ASAB)
- mBeach Software Inc (which was revoked in 2014)
- MIB Digital Inc (which now trades as RACK)
- Intake Communications Inc (which now trades as FUEG)
FUEG was suspended in 2013 at the start of a paid promotion eventually leading to Criminal Charges against Alexander Goldshmidt, Alex Puzaitzer, Michael Vax, Paul Orena, Yitz Grossman, Erim Aksanov, and Steve Koifman (more info here)
- Teaching Time Inc (which became RDMP but had its stock cancelled after going bankrupt)
- Hidden Ladder Inc (which now trades as ASPU)
- BCS Solutions Inc (which now trades as GRZG)
- Benefit Solutions Outsourcing Corp (which now trades as BBII)
- Big Clix Inc (which now trades as HPTG)
- mLight Tech Inc (which still trades as CXKJ)
- Blue Sun Media Inc (which now trades as AGPL)
- BlueFlash Communications Inc (which now trades as NTRP)
- FanSport Inc (which had some higher level paid promotions as MEDA and now trades as JADG)
- ShopEye Inc (which received a Stop Order before getting a trading symbol)
- Mobile Vault Inc (which received a Stop Order before getting a trading symbol)
- Diamond Lane Inc (which received a Stop Order before its S-1 was made effective)
- Sunchip Technology Inc (which received a Stop Order before its S-1 was made effective)
- Rainbow Coral Corp (which still trades as RBCC)
- First Titan Corp (which now trades as SOAN)
- Neutra Corp (which still trades as NTRR)
- Aristocrat Group Corp (which still trades as ASCC)
- First Social Networx Corp (which now trades as REBL)
- E-Waste Corp (which still trades as EWST)
- First Independence Corp (which became ITEN and got revoked in 2016)
ITEN became part of a Criminal Complaint against AJ Discala, Ira Shapiro, Craig Josephberg, Kyleen Cane, Marc Wexler, Matthew Bell, Victor Azrak, Darren Ofsink, Michael Morris, and Darren Goodrich (more info here)
- Universal Technology Systems Corp (which now trades as OPVS)
- Global Group Enterprises Corp (which now trades as TYME)
- Changing Technologies Inc (which still trades as CHGT)
- XtraSafe Inc (which now trades as TNGS)
- Envoy Group Corp (which now trades as BLGI)
- Visual Acumen Inc (which received a Stop Order before it got a trading symbol)
- First Xeris Corp (which got a Stop Order before it got a trading symbol)
- Orion Global Corp (which got a Stop Order before it got a trading symbol)
According to the criminal complaint against Alvin Mirman and Steve Sanders, the Mirman and Sanders unlawfully enrich themselves by creating shell companies and falsely and fraudulently registering them with the SEC, so that the companies could issue shares which could be traded in the penny stock markets. After obtaining approval for the shares to be publicly traded, the conspirators would secretly obtain control of all or nearly all of the shares, and would sell the companies and the secretly-controlled shares at a profit to buyers who would then utilize the companies to engage in stock swindles or other manipulation schemes.
Mirman and Sanders along with co-conspirators Daniel McKelvey, Jeffrey L Lamson, and one unnamed individual (Conspirator A) would recruit individuals to serve as Straw CEOs for the Shell Companies. The conspirators would inform the Straw CEOs that they would have no further role with the company and would be paid only when the company was later sold. Mirman, Sanders, McKelvey, and Conspirator A would thereafter file incoporation documents with the State of Florida and obtain employer identification documents from the IRS, reflecting the name of the Straw CEOs as the sole officers and/or directors of the companies.
Mirman, Sanders, McKelvey, Conspirator A, and Lamson, would open bank accounts in the name of the Shell Companies, using funds and documents provided by the conspirators but with the Straw CEOs listed on the bank accounts. These bank accounts would be controlled by the conspirators and not typically accessed by theStraw CEOs
Mirman, Sanders, McKelvey, Conspirator A, and others, would prepare false and fraudulent corporate documents for the Shell Companies, such as board meeting minutes, stock certificates and shareholder lists. The conspirators would then submit these false and fraudulent documents and other false information to the SEC on Form S- 1 in order to obtain effective registration of the Shell Companies. Once a company’s registration was effective, Mirman, Sanders McKelvey, Conspirator A, and others would thereafter file periodic reports for the Shell Companies on Forms 10-K and 10-Q. The reports did not disclose the role of the conspirators with the respect to the Shell Companies or the true purpose of the companies.
Mirman, Sanders, McKelvey, Conspirator A, and others, would fraudulently place the Straw CEOs’ electronic signatures on the Form s S-l , 10-K and 10-Q, and would create false corporate documents using the names and signatures of theStraw CEOs. In some instances, the conspirators would also place false notary seals and signatures on corporate documents.
The Forms S-l , 10-K and 10-Q submitted to the SEC would contain false and fraudulent representations and material omissions, including that (a) the Straw CEO was in fact involved in the company, and worked 10 to 30 hours per week at the company, (b) the company had a legitimate business purpose as described in the filing; (c) the company had financial results and operations related to its business purpose as reported in the filing; and, (d) the company was intended to be used to further the business plan as described in the filing.
For many of the Shell Companies, a second unnamed Conspirator (Conspirator B), along with other conspirators, would submit a Form 211 to FINRA to obtain approval for the company’s shares to be publicly traded over the counter. The Form 211 and follow-up communications provided by Conspirator B to FINRA, would include false and fraudulent information about the role of the Straw CEO at the company, the relationship between Conspirator B and the company, and the business operations of the company. In the Form 211 and in other forms, Conspirator B would conceal from FINRA, the SEC and others, the role of the conspirators with respect to control of the Shell Companies. Conspirator B would also falsely represent that Steve Sanders, Alvin Mirman, Daniel McKelvey, Conspirator A, and other conspirators had no affiliation with the Shell Companies to facilitate electronic trading of shares controlled by the conspirators.
After FINRA gave approval for the shares to be traded over the counter, Mirman, Sanders, McKelvey, Conspirator A, Conspirator B, and other conspirators, would seek buyers for the Shell Companies. The conspirators would negotiate a sale price that included control of the corporate shell as well as the secretly controlled and unrestricted shares, and then convey control of the company to a person or entity designated by the buyer. Mirman, Sanders, McKelvey, Conspirator A, and Conspirator B, would facilitate transfer of the secretly controlled shares to the buyer. The transfer of the unrestricted shares to the buyer, typically to a separate person or entity designated by the buyer, would not be disclosed to the SEC and the public. During the scheme, shares of the Shell Companies were purchased on the open market by investors, including investors located in Miami-Dade County.
After paying certain expenses, Steven Sanders, Alvin Mirman ,Daniel McKelvey, and Conspirator A, would divide the proceeds of the scheme among themselves.
We now know that James Schneider was Co-Conspirator A.
On April 16, 2015, the SEC also brought civil charges against Alvin Mirman, Steve Sanders, Daniel McKelvey, Jeffrey Lamson, as well as Scott Hughes, Edward Sanders, Ilene Mirman, and some business entities controlled by the Defendants.
More Details about James Schneider’s role in the Shell Factory
According to the indictment against James Schneider, from approximately March 2008 through approximately May 2015, Schneider conspired with Sanders, McKelvey, Mirman, Lamson, attorney David Lubin and others in a scheme to fraudulently create shell companies and file documents with the SEC indicating that the companies were controlled by a nominee chief executive officer (CEO). The straw CEO would be listed as the owner of the control block of shares but in reality the companies were controlled by the principals. The control block of shares listed in the name of the officer were deemed restricted and could not be sold to the public. The principals would also list in SEC filings the a description of various shareholders to make it appear that these shares were owned by persons other than the conspirators. These shares would later become unrestricted, or “free trading” and secretly sold to shell buyers. Using false and fraudulent documentation describing the companies’ business purpose and share ownership, the principals would then obtain approval for the shares of the companies to be sold publicly over the counter. Thereafter, the principals would sell the companies to shell buyers who would secretly obtain both the control shares and the purported “free trading” shares without disclosure of this common control and simultaneous sale to the SEC or the investing public. This would allow the shell buyers to engage in stock manipulation or pump and dump schemes using the “free trading” shares.
Schneider authored false and fraudulent legal opinion letters indicating that shares of the companies were owned by persons who were not “affiliates,” when in truth and in fact the shares were owned and controlled by the conspirators. Schneider also created false billing records to make it appear like he was performing work for, and taking direction from, the straw CEOs. In reality, he took his direction from Sanders and McKelvey, who would keep their names off of documents. Schneider also performed so-called escrow services for the sale of the shell entities, including the illegal sale of the purported free trading shares, and wired more than $5.6 million in proceeds to bank accounts controlled by the conspirators. Schneider did this even though he had no authorization from the named shareholders or verification that the persons whose names were listed on the escrow agreements authorized or approved these transfers.
Others Indicted/named in litigation in the scheme
This shell factory resulted in a ton of fall out with several Indictments and SEC Complaints being filed against more then a dozen individuals.
- Alvin Mirman (age 80) was Indicted on July 28, 2016. He was sentenced to 12 months in prison. His sentence was delayed for several months in exchange for him serving as a key witness in the case against James Schneider. The SEC also filed a Complaint against Alvin Mirman.
- Steven Sanders was Indicted on July 28, 2016. He was sentenced to 16 months in prison (later reduced to 9 months). The SEC also filed a Complaint against Steven Sanders.
- Daniel McKelvey was Indicted on July 19, 2016. He was sentenced to 6 months in prison. The SEC also filed a Complaint against Daniel McKelvey.
- Jeffrey Lamson was Indicted on July 19, 2016. He was sentenced to 7 months in prison which was to run concurrent with a 30 month sentence he was already serving for wire fraud in California. The SEC also filed a Complaint against Jeffrey Lamson.
- James Schneider (a securities attorney – age 77) was Indicted on October 10, 2017. He was sentenced to 84 months in prison
- Sheldon Rose (one of the Co-conspirators involving in the shell factory) was Indicted on September 21, 2016. He pleaded guilty and was sentenced to 40 months in prison (later reduced to 17 months).
- David Lubin (a securities attorney) was Indicted on July 19, 2017. According to the Indictment he was a major participant in the BioZoom Inc (BIZM) pump&dump (which also involved Steven Sanders, Daniel McKelvey, and Jeffrey Lamson) and also assisted Mirman and Sanders with their shell factory by seeking out buyers for many of the shells and by providing bogus attorney letters to transfer agents and brokers for many of the shells. Lubin was sentenced to 36 months in prison (later reduced to 1 year and 1 day). The SEC also barred Lubin.
- Ian Kass (a broker/deal working at Delaney Equity Group LLC) was Indicted on September 21, 2016. According to the Indictment, Kass provided false information to the Financial Industry Regulatory Authority (FINRA) to obtain authorization for the company’s shares to be publicly traded. Ian Kass was also named in a civil Complaint filed by the SEC along with Delaney Equity Group LLC and the owner of Delaney Equity Group LLC, David Delaney. Ian Kass was sentenced to 30 months in prison (later reduced to 25 months in prison). Ian Kass was also barred by the SEC and barred by FINRA.
- David Delaney (broker and owner of Delaney Equity Group LLC) was named in a civil Complaint filed by the SEC along with his firm Delaney Equity Group LLC and Ian Kass for providing false information to the Financial Industry Regulatory Authority (FINRA) to obtain authorization for the company’s shares to be publicly traded. David Delaney was barred by the SEC and barred by FINRA. His firm, Delaney Equity Group LLC, was expelled by FINRA.
- Edward Sanders was named as a Defendant in an SEC Complaint. He is the brother of Steven Sanders. Edward Sanders served as a straw CEO in two of the shells.
- Scott Hughes was named as a Defendant in an SEC Complaint. Hughes served as the straw CEO in two of the shells.
- Irene Mirman was named as a Defendant in an SEC Complaint. Irene Mirman is the wife of Alvin Mirman. Alvin Mirman transferred most of his ill gotten gains into his wife’s name. Irene Mirman was also used as a seed shareholder in some of the shells without her knowledge or consent.
- Diane Harrison (a securities attorney) was named in an SEC Complaint for her involvement in her own shell factory with her husband, Michael J Daniels as well as her involvement in writing 21 legal opinions for 9 of the Mirman/Sanders shells that were sold after going public.
- Myron Gushlak (a stock promoter from Canada that lives in the Cayman Islands) was Indicted on October 10, 2017 for secretly controlling Helix Wind Corp (HLXW) using his sister-in-law Yelena Furman as a straw CEO and for assisting Sanders, McKelvey, Lamson, and Lubin with selling free trading stock in BioZoom Inc (BIZM). Gushlak began assisting in the scheme while awaiting sentencing for securities fraud and conspiracy to commit money laundering in another unrelated case involving Global Net stock in the early 2000s then continued to assist in the scheme from behind bars after being sentenced to 72 months in prison.
- Yelena Furman (the sister-in-law of Myron Gushlak) was Indicted on October 10, 2017, Furman’s roles involved serving as a straw CEO for Gushlak in Helix Wind Corp (HLXW) and allowing Gushlak to use her name to set up accounts in Switzerland to use to wire his proceeds from the two scams (HLXW and BIZM). Furman then used some of the money to pay bills and expenses for Gushlak while he was in prison. Yelena Furman was sentenced to 18 months in prison (later reduced to 9 months).
- John Ahearn (a senior partner at Manhattan Stock Transfer) was Indicted on December 14, 2017. According to the Indictment, Ahearn knowingly assisted in the Mirman/Sanders shell scheme by acting as the transfer agent for many of the shells and assisting with filing reports for many of the shells with the SEC. Ahearn was sentenced to 54 months probation. The SEC also brought an Administrative Order against John Ahearn (barring him) and against Manhattan Stock Transfer (censoring the firm).
- Andrew Wilson (a securities attorney) was Indicted on December 14, 2017. According to the Indictment, Wilson provided attorney opinion letters as well other services for BIZM, mLight Tech Inc, BlueFlash, and Big Clix Corp receiving a nice payment for his assistance. Wilson was sentenced to 5 years of probation. Andrew Wilson was also named in an SEC Complaint. The SEC barred Wilson in the case.
- Francisco Abellan Villena was named in an SEC Complaint for his role in the BIZM pump&dump. In the Complaint, the SEC said that Abellan and Ciupiak secretly acquired control of virtually all of the BIZM free trading stock using nominees and offshore accounts. Abellan has a long history of pump&dump/paid promotion activity.
- Guillermo Ciupiak was named in an SEC Complaint for his role in the BIZM pump&dump. In the Complaint, the SEC said that Abellan and Ciupiak secretly acquired control of virtually all of the BIZM free trading stock using nominees and offshore accounts.
- James B Panther Jr was named in an SEC Complaint for his role in the BIZM pump&dump. In the Complaint, the SEC said that Panther Jr. helped broker the reverse merger deal that created Biozoom by misleading Opsolution about the true situation of the BIZM (then known as EERT shell).
- Faiyaz Dean (a securities attorney) was named in an SEC Complaint for his role in the BIZM pump&dump. In the Complaintm the SEC said that Dean helped Abellan and Ciupiak with the transferring of all the free trading stock into the names of nominee Argentinian shareholder names. Then assisted Abellan and Ciupiak with moving the shares into brokerage accounts set up under the names of the nominee shareholders.
- Peter Messineo was already banned by the SEC by the time the shell factory busts started or he probably would have been named in some kind of SEC Complaint or Administrative Order for his role.
I did several in-depth research reports in 2013 about the BioZoom Inc (BIZM) pump&dump including a pre-promotion research report, a report right at the start of the promotion linking the stock to Francisco Abellan, the some follow up reports (link to follow up report #1 and link to follow up report #2) further detailing the links between BIZM and Francisco Abellan. I even published a Francisco Abellan photo album.