(HedgeCo.Net) The Securities and Exchange Commission has announced charges against three Israeli residents, a Washington, D.C. attorney, and an Israeli auditor and his Maryland-based accounting firm for their roles in a fraudulent scheme in the creation of numerous public shell companies. Under the terms of their settlements with the SEC, the three Israeli residents will be subject to penny stock bars and the attorney and auditor will be prohibited from appearing and practicing before the Commission.
According to a complaint filed by the SEC in federal district court for the Eastern District of New York, Sharone Perlstein, Aric Swartz, and Hadas Yaron created at least 15 shell companies by filing false and misleading registration statements and periodic reports with the SEC, creating phony business plans, and appointing nominal officers and directors, who also acted as straw-man shareholders for the shell companies. The defendants also conducted putative initial public offerings of certain shell companies. In reality, the defendants continued to control the companies’ shares and the defendants subsequently sold certain shell companies at a profit of more than $1.8 million.
The SEC also filed complaints in federal district court for the District of Columbia against gatekeepers who provided substantial assistance in the fraudulent scheme. According to the SEC’s complaint against Jonathan Strum, a Washington, D.C.-based attorney, he assisted in drafting false and misleading registration statements and periodic reports and signed fraudulent opinion letters. In its complaint against Alan Weinberg, CPA, an Israeli resident, and his Baltimore-based accounting firm Weinberg & Baer LLC, the SEC alleges that they issued misleading audit reports for at least seven of the shell companies. Despite numerous audit failures and red flags, Weinberg and his firm issued audit reports falsely asserting that the audits had been performed in accordance with the auditing standards promulgated by the Public Company Accounting Oversight Board.
The SEC’s complaints charge Perlstein, Swartz, and Yaron with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5; Strum, Weinberg, and Weinberg & Baer with aiding and abetting these violations; Weinberg and Weinberg & Baer with violating Exchange Act Section 10A(a)(2); and Weinberg & Baer with violating Rule 2-02(b)(1) of Regulation S-X.
“This matter underscores the SEC’s ongoing determination to protect investors from fraud and abuse, regardless of the location of the violators, and to hold accountable gatekeepers who facilitate fraud and fail to honestly discharge their duties,” said Antonia Chion, Associate Director of the SEC’s Enforcement Division.
“The law requires truthful disclosures about a company and its business operations to protect investors,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “Here, we worked closely with foreign authorities to expose how the defendants spun up sham business plans, inserted placeholder shareholders, and with the assistance of gatekeepers filed false documents to reap over $1.8 million from companies that sold as worthless shells.”
