CHICAGO (CN) - Stefan Benger, SHB Capital, Jason Meyers, and International Capital Financial Resources defrauded more than 1,400 investors by taking $44.2 million from them for penny stocks without revealing that more than 60% of the money went to pay "sales commissions," the SEC claims in Federal Court.
Benger, 42, and Meyers, 48, both live in Chicago.
"On its Web site, SHB Capital claims to be 'one of the premier buyout companies,' specializing in 'the acquisition and management of small businesses,'" according to the complaint.
International Capital Financial Resources lists it principal business place Meyers' personal residence in Chicago. Its Web site "claims that it is a 'leading provider of specialized and traditional investment banking services to micro, small, and mid-cap companies,'" according to the complaint.
"Defendants' scheme is simple," the SEC says. "Defendants Stefan H. Benger, Jason B. Meyers, SHB Capital, Inc. and International Capital Financial Resources, LLC (collectively, the 'Distribution Agent Defendants') enter into distribution agreements with companies that issue shares of 'Regulation S stock,' which is stock that is exempt from registration with the Commission because it is offered solely to investors who are located outside the United States. In these agreements, the Distribution Agent Defendants agree to solicit investors for such stock in exchange for sales commissions that exceed 60%. The Distribution Agent Defendants then retain overseas boiler room operators to sell the inventory of such stock through phone solicitations. The boiler room sales agents prey upon less sophisticated foreign investors - including elderly Europeans. In their cold calls, the sales agents employ high pressure sales tactics and myriad misrepresentations.
"After an individual agrees to invest in the boiler room stock, Defendants handle the rest of the transaction. Investors receive a share purchase agreement ('SPA') documenting their purchase with instructions on where to fax their signed SPA, and wiring instruction for their investment funds. In most instances, investors send their investment funds and signed SPA's to Defendants Philip T. Powers, Handler, Thayer & Duggan, LLC, Frank I. Reinschreiber and Global Financial Management, LLC (collectively, the "Escrow Agent Defendants"). The Escrow Agent Defendants then disburse more than 60% of the investor proceeds to the parties who receive sales commissions -- including the boiler room sales agents - with less than 40% going to the issuers of the stocks. The Escrow Agent Defendants have disbursed to foreign accounts nearly $29 million of the $44.2 million raised from investors in the boiler room scheme. After dividing up the investor proceeds in this manner, the Escrow Agent Defendants often send share certificates to investors.
"Throughout the sales process, investors are deceived about the sales commissions. The boiler room agents oftentimes lie outright about their exorbitant commissions to prospective investors, falsely claiming that the agent will only make money on the investment if the investor makes money on the investment. The SPA's provided to investors misrepresent that investors pay no sales commissions. The SPA's create the misimpression that the investor's entire investment amount goes to the stock issuer, with the investor paying nominal "transaction fees" amounting to 1% or less of the amount invested.
"By their conduct, Defendants are participating in an unconscionable fraud on investors. The Distribution Agent Defendants, obviously aware of their massive sales commissions, have employed investor offering documentation that falsely indicates that investors pay no sales commissions. In addition, Defendants Philip T. Powers, Frank I. Reinschreiber and Global Financial Management, LLC have provided knowing and substantial assistance to the Distribution Agent Defendants' fraud. As escrow agents, they receive and process investors' signed SPA's, take custody of investor funds (which they primarily disburse as exorbitant sales commissions), then issue share certificates to investors. Defendants Philip T. Powers, Frank I. Reinschreiber and Global Financial Management, LLC have provided this substantial assistance with either knowledge of the material misrepresentations and omissions concerning commissions, or with a reckless disregard of the fraud. Further, all of the Defendants are acting as securities brokers even though they have not registered with the Commission as brokers as they are required to do.
"The Commission brings this lawsuit to put an immediate halt to Defendants' ongoing misconduct, to prevent further harm to investors, and to hold Defendants accountable for their flagrant and repeated violations of the federal securities laws."
Here are the defendants: Stefan H. Benger, SHB Capital Inc., Jason B. Meyers, International Capital Financial Resources LLC, Philip T. Powers Handler Thayer & Duggan LLC, Frank I. Reinschreiber, Global Financial Management LLC, and relief defendants CTA Worldwide Services SA, and Stephan Von Hase.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.