By NEIL HARTNELL
Tribune Business Editor
US authorities are seeking to extradite two Bahamians from Belize, after charging them with helping to facilitate an alleged $500 million securities fraud and money laundering scheme.
Kelvin Leach and Rohn Knowles, both described as Bahamian citizens, were named among six individual defendants in an indictment unsealed by US federal prosecutors in the eastern New York district courts on Tuesday.
The duo, both financial services professionals, are understood to be the principals of a Belize-based broker/dealer, Titan International Securities, which was among six corporate entities also listed as defendants by the US government.
The indictment itself remains sealed, and the details inaccessible to the media, so the specific details underpinning the charges against Messrs Leach and Knowles are not divulged.
However, a joint release by the US Attorney for eastern New York and the Federal Bureau of Investigation (FBI), seemingly alleges that they and Titan aided a fraudulent scheme devised by a US citizen, Robert Bandfield, and his Belizean partner, Andrew Godfrey.
The US district attorney for eastern New York, Loretta Lynch, alleged: “Bandfield and his co-conspirators devised not only a fraudulent scheme but an elaborate corporate structure, based on lies and deceit, designed to enable US citizens to evade and circumvent our securities and tax laws.
“They set up sham companies with figureheads at the helm in an attempt to deceive US law enforcement and regulators, and bragged about their scheme to their clients.
“Today’s sweeping indictment, charging the individuals and companies responsible for this $500 million scheme, closes this fraudulent offshore safe haven and sends a strong message to those who seek to abuse the financial markets in order to enrich themselves that we will investigate and prosecute them no matter where they set up shop.”
The US authorities describe Mr Leach as being 34 years-old, and Mr Knowles, 29. Both are described as being resident in Belize City, and Tribune Business was unable to uncover much about their backgrounds and connections here yesterday.
However, a report by Bloomberg alleged that Titan operated from the same floor, in the same building, as Bandfield, Godfrey and their company. Titan was also said to have held millions of share for clients in Cynk Technology, a microcap that saw its market value surge to $6 billion for one hour this July.
Cynk, which was said to have no assets or revenue, and just one employee at the time of a 36,000 per cent increase in its stock price, also listed the same address as Bandfield/Godfrey and Titan.
Jacon Frankel, an attorney said to be representing Titan and its Bahamian principals, complained to Bloomberg that his clients had no notice of the charges. He promised they would respond, and be “exonerated”.
The US attorney’s office is alleging that more than 100 US citizens and residents benefited from the scheme, which ran from January 2009 to this month, in three ways.
First, by providing these clients with anonymity, the Bandfield/Godfrey scheme enabled these persons to conceal their beneficial ownership interests in - and control of - various illiquid, thinly-traded microcap stocks that were listed in the US.
This enabled these clients to perpetrate so-called ‘pump and dump’ schemes, a form of financial fraud, on unsuspecting investors in these microcap stocks. Artificially inflating the share price via misleading press releases and other means, these clients ultimately ‘dumped’ their relatively worthless holdings on others when the stock peaked in value - leaving other investors ‘holding the bag’.
This is the ‘securities fraud’ element to the charges, which also accuse the two Bahamians, Bandfield, Godfrey and two others, Canadians Brian de Wit and Cem Can, of helping clients to evade due US taxes and laundering the proceeds generated by the securities frauds. The clients were able to access their money via untraceable debit cards.
“To facilitate these inter-related schemes, the defendants created shell companies in Belize and Nevis, West Indies, for the corrupt clients and placed nominees at the helm of these companies,” the US Attorney’s Office alleged.
“ This structure was designed to conceal the corrupt clients’ ownership interest in the stock of US public companies, in violation of US securities laws, and enable the corrupt investors to engage in trading under the nominee’s names through brokerage firms also set up in Belize.
“For example, this structure enabled the defendant De Wit and a US corrupt client to manipulate the stock of Cannabis-Rx, a microcap or penny stock company which traded under the ticker symbol CANA, through a series of orchestrated transactions between March 27, 2014, and April 16, 2014.
“On March 28, 2014, alone, De Wit received at least five telephone calls from the corrupt client with specific instructions to fraudulently orchestrate the trading of CANA’s stock. That day, CANA’s stock, which had not traded since July 2, 2013, had a trading volume of 189,800 shares. Ultimately, CANA’s stock price plummeted from $13.77 per share on March 27, 2014, to $0.50 per share on April 16, 2014.”
Further insight into the alleged scheme comes from the US Securities and Exchange Commission (SEC), the capital markets regulator, which often conducts its own civil investigation in parallel to the US attorney’s office.
In this instance, the SEC filed a simultaneous indictment against Bandfield, Godfrey and their company, IPC Corporate Services, but did not name either of the two Bahamians or their company, Titan, as a defendant.
The SEC alleged that Bandfield and Godfrey formed a “pyramid” of limited liability companies to conceal their clients’ identities, and advised them to place their stock holdings into different entities in these structures.
This, the SEC alleged, was designed to keep the client below the 5 per cent ownership threshold at which they would have to report the holdings to the regulator. IPC employees frequently held a 99 per cent stake in each company, with IPC holding the remaining 1 per cent.
And, while not listed as a defendant, Titan’s name appeared in a July case filed by the SEC in Massachusetts, which also involved the alleged ‘pump and dump’ of another microcap stock.
The SEC alleged that one of the defendants called Titan to confirm that certificates for 15 million shares be placed in the name of three entities, with the stock to be traded by the Belizean broker. This gave the scheme’s perpetrators almost complete control of the stock.