According to court documents, including the charging information, from October 2009 through at least June 2013, Delaney Equity Group LLC ("Delaney Equity"), through certain employees including Ian C. Kass, participated in a conspiracy to sell shares of bogus microcap companies, knowing that the companies had been created using nominee officers and were secretly controlled by shell principals Steven Sanders, Daniel McKelvey, and Alvin S. Mirman. The shell principals would fraudulently create public companies, known as issuers, by filing documents with the SEC that falsely described the companies and their share ownership. These documents would indicate that the companies were controlled by a nominee, or straw chief executive officer (CEO). The straw CEO would be listed as the owner of the control block, or restricted shares, but in reality the companies were controlled by the principals. The principals would also create documents with the names of various shareholders for each company, to make it appear that these shares were owned by persons unaffiliated with the company. These shares would later be classified as unrestricted or "free trading." Thereafter, the principals would sell the companies to criminal actors who would secretly obtain the control shares and the purported "free trading" shares, without disclosure to the U.S. Securities and Exchange Commission (SEC) or the investing public. This would allow the buyers to engage in stock manipulation schemes using the purported "free trading" shares.According to the allegations in the information, Delaney Equity was a securities broker-dealer that was registered with the SEC and was a market maker for penny stocks in the over-the-counter securities markets. Acting at the direction of the shell principals, Delaney Equity sponsored nine fraudulent shell companies for electronic trading, and facilitated the sale of shares of these bogus entities to criminal actors. According to court documents, Delaney Equity utilized fraudulent paperwork to deposit shares into broker accounts in the names of the fraud principals, including Steven Sanders, Daniel McKelvey, and Alvin S. Mirman. Delaney Equity also obtained authorization from the Financial Industry Regulatory Authority (FINRA) for shares of the companies to be electronically traded. Delaney Equity also opened brokerage accounts for the shell principals and deposited shares of the bogus entities into these accounts, later selling the shares to the investing public knowing that the companies were sham entities with nominee officers. These activities, according to allegations in the information, facilitated the unlawful sale of securities that should have been classified as restricted, facilitating the securities fraud scheme.Ten other defendants have been convicted in connection with the Shell Factory Fraud investigation: John Ahearn and Andrew Wilson, Case No. 17-20883-CR-KMW; Yelena Furman, Case No. 17-20713-CR-CMA; David Lubin, Case No. 17-20508-CR-MGC; Sheldon Rose and Ian Kass, Case No. 16-20706-CR-JEM; Steven Sanders and Alvin S. Mirman, Case No. 16-20572-CR-CMA; and, Daniel McKelvey and Jeffrey Lamson, Case No. 16-20546-CR-RNS.
As set forth in the "Summary" of the OIP:prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act; andbarred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.
1. These proceedings arise out of Fan's purchase of the securities of at least four undisclosed "blank check" companies as defined in Rule 419 under the Securities Act, 17 C.F.R. § 230.419 (the "Blank Check Companies") with the intent to use the Blank Check Companies for future reverse mergers. Fan used nominees to conceal, and otherwise failed to disclose, his beneficial ownership of essentially all the issued securities of the Blank Check Companies. Fan also authorized false press releases and Commission filings with respect to purported business operations and engaged in manipulative trading in the public markets in order to maintain the Blank Check Companies as viable candidates for future reverse mergers.
These proceedings arise out of AF Ocean's status as an undisclosed "blank check" company as defined in Rule 419 under the Securities Act, 17 C.F.R. § 230.419, by which its principal, Andy Z. Fan, acquired virtually all of the shares of a public company for a future reverse merger. AF periodic reports with the Commission failed to disclose the beneficial ownership of Fan over essentially all its issued securities. AF Ocean also issued press releases and filed periodicOcean'sreports misrepresenting that it had purported business operations. AF Ocean has since become delinquent in its filing obligations with the Commission, having not filed any periodic reports since it filed a Form 10-Q for the period ended June 30, 2016.
These proceedings arise out of ChinAmerica's status as an undisclosed "blank check" company as defined in Rule 419 under the Securities Act, 17 C.F.R. § 230.419, by which its principal, Andy Z. Fan, owned virtually all of the shares of a public company for a future reverse merger. ChinAmerica's periodic reports with the Commission failed to disclose the beneficial ownership of Fan over essentially all its issued securities. ChinAmerica also issued press releases and filed periodic reports misrepresenting that it had purported business operations. ChinAmerica has since become delinquent in its filing obligations with the Commission, having not filed any periodic reports since it filed a Form 10-Q for the period ended June 30, 2016.
Testimony before the Financial Services and General Government Subcommittee of the House Committee on Appropriations