The Securities and Exchange Commission today charged two individuals managing an offshore business intended to help clients evade U.S. securities laws with concealing the ownership of certain microcap stocks as part of a larger money laundering scheme alleged by criminal authorities.
Under the federal securities laws, beneficial owners of more than 5 percent of certain stocks are required to report their acquisition and ownership of those stocks to the SEC and the investing public. The SEC alleges that Belize residents Robert Bandfield and Andrew Godfrey through a company called IPC Corporate Services have helped clients who own significant amounts of thinly-traded microcap stocks avoid these reporting requirements. They created associated companies through which the clients could hide their ownership and spread the shares so that none of them contained more than 5 percent of the stock of any particular microcap issuer. They stressed to their clients the importance of staying below the 5 percent reporting threshold for each associated entity. However, because Bandfield and IPC owned the associated entities used in this arrangement, they assumed beneficial ownership of all the clients’ shares of these microcap stocks. Therefore, IPC and Bandfield were themselves required to report their beneficial ownership of more than 5 percent in each stock.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Bandfield and Godfrey for violations of other federal laws extending beyond the SEC’s purview.
“The federal securities laws provide investors the right to know when an individual or entity owns and controls more than 5 percent of a stock because purchases or sales by that major shareholder can have the potential to sway the stock price in one direction or another,” said Michael Paley, Co-Chair of the SEC Enforcement Division’s Microcap Fraud Task Force. “Bandfield with Godfrey’s assistance designed an offshore system to deliberately keep the rest of the market from knowing that someone owned significant amounts of particular stocks. In microcap stock schemes like these that extend even beyond securities laws violations, we will continue to work with criminal authorities to bring wrongdoers to justice for the full extent of their crimes.”
The Securities Exchange Act of 1934 and related SEC rules require beneficial owners of more than 5 percent of a class of stock of certain companies to file Schedule 13D or 13G. The SEC’s complaint charges IPC and Bandfield with repeated failures to make these filings, thus violating Section 13 of the Exchange Act and Rule 13d-1. Godfrey is charged with aiding and abetting those violations. The SEC’s complaint seeks monetary relief and permanent injunctions against IPC, Bandfield, and Godfrey.
The SEC’s investigation is continuing. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, Federal Bureau of Investigation, Internal Revenue Service, and Financial Industry Regulatory Authority.