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Posted On 04/20/2017 02:22:07 by wangqing
Custodianship Shells Brenda Hamilton
Submitted 2014-01-05 18:24:55 A new form of fraudster is distinguishing himself among the bottom feeders who prey upon small Christian Benteke Jersey , financially distressed public companies and their shareholders. These fraudsters, who are often securities professionals including transfer agents, accountants and lawyers, engage in corporate takeovers using custodianship andor receivership actions that are based on fabricated pleadings filed under the penalties of perjury.

The participants in these schemes file fraudulent pleadings in custodianship andor receivership actions in order to trick a state court judge into providing them with an order appointing a custodian or receiver. They take several carefully planned steps to carry out their scheme. These types of proceedings have become a microcap epidemic. While methods used by the fraudsters vary, the end goal is the same: to obtain control of a public shell company (“public shell”) and sell it in a reverse merger transaction.

Public shells illegally taken over in these proceedings have been featured in reverse merger transactions for some of the most notorious pump and dump schemes in the history of the microcap markets. Fraudsters have literally hijacked hundreds of dormant public shell companies using state court proceeding to obtain inventory for reverse merger transactions. The participants are the suppliers of public shells to unregistered brokers, sleazy investor relations firms and promoters who acquire the vehicles for use in the fraudulent schemes that have caused hundreds of millions of dollars in investor losses.

Who Are the Fraudsters?

These schemes have four participants, at least two of whom are attorneys:

♦ A participant (the “bogus shareholder”) who buys or purports to buy shares of the target public shell so that he can serve as a plaintiff in the bogus state court action;

♦ A participant who is a corrupt or incompetent securities lawyer (the “SEC lawyer”) who provides legal opinions Cameron Brannagan Jersey , prepares corporate amendments for reverse splits, domicle changes and name changes, and submits other information to the relevant Secretary of State, transfer agents, FINRA and the SEC;

♦ A participant who serves as a receiver (the “receiver”) often a lawyer; and

♦ A lawyer who files the necessary state court action and receives a default judgment.

How They Pull it Off

When a corporate entity is incorporated, it is required to file a one page annual report with the Secretary of State each year that lists its officers, directors Brad Smith Jersey , contact information and registered agent. If the corporate entity fails to file the required report, the relevant Secretary of State “administratively” dissolves the entity. Unlike other types of corporate dissolution, an administratively dissolved entity can be reinstated at any time by paying a nominal fee and sending in a new one page annual report listing the corporation’s officers and directors. Any publicly traded corporation that fails to file its annual report is vulnerable to the scheme. Some schemes involve the fraudsters simply reinstating the corporation and listing themselves or other participants as the officers andor directors.

What The Hijackers Do To Get Control of the Public Shell l the Florida Example

The scheme varies somewhat from state to start but always involves a bogus shareholder action based upon fraudulent state court pleadings. In Florida for example, the participants rely upon Florida Statutes which allows a shareholder of a Florida corporation to petition the court to appoint a receiver under limited circumstances to manage the corporation’s affairs if the board of directors is deadlocked and the shareholders are unable to break the deadlock. In Florida, the fraudsters file bogus pleadings stating the directors are deadlocked and the shareholders cannot break the deadlock. In reality, no matters were presented to the corporation’s directors or shareholders for a vote.

The Fraud

To pull off their plan, the participants make false statements to a state court judge about the supposed “deadlock” of the board of directors that the shareholders of the corporation cannot break. Most importantly Alberto Moreno Jersey , the participants must swear under the penalties of perjury to these false statements. Needless to say, the participants have no information at all about the affairs of the company or its board of directors, or of actions taken or not taken by majority shareholders including whether there was a deadlock. Additionally, in order to obtain the order from the state court judge, the participants omit various material facts including that they have no intention of seeking a final order for judicial dissolution and that the appointment of the receiver is only to allow them to obtain control of a public entity. The participants simply fabricate the allegations in the verified pleadings. Upon filing the action, the participants typically fail to effect proper service of process on the legitimate management of the corporation enabling them to receive default judgments. Once the action is filed, the participants petition for a hand picked receiver who is a participant to be appointed. Upon appointment Adam Lallana Jersey , the receiver then causes the issuance of sufficient shares of stock to provide the participants with control of the public entity. After obtaining control but prior to the judge executing the final order for dissolution of the corporate entity, the participants dismiss the action.

How ThPro.


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