A Vancouver resident with a history of stock market violations in B.C. is now facing securities fraud charges in the United States related to an alleged illegal offshore shell company scheme involving over $1 billion in transactions.
The U.S. Securities and Exchange Commission announced three civil charges against George Stubos on June 8 for allegedly engaging in a “sophisticated” and “deceptive” scheme whereby offshore shell companies were utilized to fraudulently generate $11 million in net profits from two U.S. companies.
Stubos "secretly gained control of several thinly traded microcap companies whose stock was publicly traded in the U.S. securities markets, hired stock promoters to create demand for his stock, and generated substantial illicit profits by selling the stock to unsuspecting investors,” stated the commission in its complaint.
According to the complaint filed by the commission at the Southern District of New York court, Stubos used nominees for offshore companies to hide his control of the company stock. He also allegedly broke up his shares with these nominees in less than 5% portions to avoid reporting requirements. By doing so, he also created the appearance the company had widespread trading activity, the commission alleges.
“As a result of Stubos’ deceptive conduct, investors buying the shares he sold were deprived of important information – that the stock they purchased was being dumped by the person controlling that company,” noted the complaint.
Stubos also allegedly hired marketing agencies to promote the companies to raise their share price before selling his shares of Petrosonic Energy Inc. of Nevada and Ener-Core Inc. of Delaware.
The commission alleges “Stubos utilized the illicit services of Frederick L. Sharp and his employees (“the Sharp Group”) to facilitate each step of his fraud.”
Since August, the commission has laid charges against nearly two dozen B.C. residents in connection to the Vancouver-based Sharp Group, which allegedly orchestrated a series of similar schemes. In total, the commission claimed the Sharp Group generated an estimated $770 million in net profits from the sale of just over $1 billion of shares from hundreds of junior (penny stock) U.S. public companies.
Sharp has been found guilty of securities fraud by default after not responding to the commission’s allegations last year. He now owes USD $52.9 million in penalties. He is also charged criminally by the U.S. Department of Justice in relation to the commission’s case, which the Federal Bureau of Investigation co-investigated. Sharp is presumed innocent of those charges until or unless a court deems otherwise.
Sharp's last known address is in West Vancouver. He is a former lawyer who worked with Panama firm Mossack Fonseca setting up offshore shell companies, according to the International Consortium of Investigative Journalists.
The complaint filed against Stubos highlights intercepted text messages from the encrypted network dubbed “xPhone” by Sharp, who referred to himself as “Bond” in dealing with his "Q” accounting system. Stubos' codenames were 'Lion' and '77,' noted the complaint.
In one conversation Stubos had with alleged Sharp Group associate and Surrey resident Courtney Kelln, Stubos appears to voice concern about their activity."
“Ok do it that way. Easy. Let's not talk on the phone anymore. Really scares the shit out of me….Sorry to be blunt, but shit is scary out there and they are listening, who knows? Paranoid is good,” states Stubos, according to the complaint.
The commission has also named Stubos' wife as a defendant (only for relief of unjust enrichment) after claiming she took $1.3 million of allegedly ill-gotten gains to buy a home in Palm Springs.
“Dori-Ann Stubos received investor funds derived from the unlawful acts, practices and scheme of George Stubos under circumstances dictating that, in equity and good conscience, she should not be allowed to retain such fund," states the complaint.
The commission seeks to permanently ban Stubos from the markets and force re-payment of the allegedly ill-gotten gains. He is presumed innocent unless or until a court rules otherwise.
The commission also noted that Stubos has a history of market violations in B.C., including transgressions involving offshore accounts.
On June 28, 2007, the British Columbia Securities Commission (BCSC) barred Stubos from the securities industry — including acting as a director or officer of any company — for two years when he failed to file insider trading reports after selling shares in San Telmo Energy Ltd.
“Stubos had direct beneficial ownership of San Telmo securities in two offshore accounts at branch offices of a securities dealer in the Cayman Islands and Bahamas. He also exercised direction over San Telmo securities in two offshore accounts his sister controlled. Stubos failed to file insider reports for the transactions made in these accounts,” the BCSC stated in July 2007.
And on Sept. 3, 1998, the Vancouver Stock Exchange barred Stubos, then a financial advisor, from the exchange for one year, followed by one year of supervision upon return to the industry and ordered him to pay fines and disgorgement for executing trades in a client account without the client's permission, the complaint noted.