SEC wants info on two Vancouverites in LOM matter 2004-06-25 17:02 ET - Street Wire Also Street Wire (C-*BCSC) B.C. Securities Commission
Also Street Wire (U-STLOF) SHEP Technologies Inc
by Stockwatch Business Reporter Canada's most respected securities regulator, the U.S. Securities and Exchange Commission, wants information about the stock trading of two Vancouver-area businessmen, Todd Peever and James Curtis, both known locally as stock promoters. The SEC is attempting to loosen up trading information thought to be held by Bermuda-based Lines Overseas Management Ltd. (LOM) and its managing director Scott Lines. The regulator has filed an application to enforce a subpoena served upon LOM and Scott Lines. The SEC has also been working with the British Columbia Securities Commission, seeking information on the two Howe Streeters, who the SEC believes have been using nominees to hide their identities while trading shares of SHEP Technologies Ltd. through LOM. (All figures are in U.S. dollars unless otherwise noted.) News on the SEC court application was broken by David Marchant's Offshore Alert on June 11, 2004, one day after the SEC filed its application in court. This is not Mr. Curtis's first appearance in the news. Something of a newsmaker on Howe Street, he was named in March, 1996, as a defendant against allegations brought in the Supreme Court of B.C. by a Polish bank for a total of $22.4-million (Canadian). Bank Gospodarki Zywnosciowj Spolka Ackcyjna sued Mr. Curtis and his associate Don Farrell. The dispute is unresolved. Mr. Curtis has been involved as a director of many Vancouver companies over the years. Mr. Peever was the president of Achievers Training Group Inc., as well as a director for Doron Explorations Inc., Lodestar Explorations Inc., Precision International Resources Corp. and Rockwealth International Resource Corp. He was an investor for Datawave Systems Inc., Landmark Resources Ltd. and Pathfinder Resources Ltd. The allegations in the SEC's application and in the BCSC's hearing notices remain unproven, and so far, the SEC is seeking only to talk with Scott Lines. It claims to not even have a negative opinion about any of the people or stocks mentioned in its application. SEC APPLICATION The SEC's application was filed in the District Court of the District of Columbia on June 9, 2004. Scott Lines was personally subpoenaed by an SEC process server on April 20, 2004, at the Miami International Airport with a request that LOM hand over documents in connection with an SEC investigation into SHEP Technologies, HiEnergy Technologies Inc. and Sedona Software Solutions Inc., all trading at one point on the OTC Bulletin Board. Sedona, the regulator says, is a shell company, registered in Nevada and run from Vancouver. (SHEP, another local production, has its office in the same building as Stockwatch in Vancouver. The office is also used by the MCSI Consulting Group, owned by Tracy A. Moore, a director of SHEP.) The SEC alleges that HiEnergy, unrelated to either Sedona or SHEP, is secretly controlled by Phil Gurian, a name that has appeared in many Stockwatch stories and has being linked with the Mafia. LOM is based in Bermuda but has satellite offices in the Cayman Islands and in the Bahamas. Most of the office functions are conducted through the Bermuda office. The SEC claims that Brian Lines, the president of LOM, and his brother Scott Lines routinely handled U.S. market securities transactions for LOM clients, opening accounts in LOM's name at several U.S. securities firms, including Knight Securities LP, Paragon Capital Markets Inc., Wein Securities Corp. and Vfinance Investments Inc. in January, 2003. At the same time, LOM had agreements with Bear Sterns Companies Inc. and Spear, Leeds & Kellogg, two U.S. firms, to clear LOM's securities transactions. As part of LOM's agreements with the securities firms, the SEC claims that LOM agreed to submit itself to arbitration with regulatory agencies in the U.S. if a dispute arose. The SEC initiated separate investigations on Sedona, SHEP and HiEnergy, looking for information about possible fraud, market manipulation and reporting violations. The Sedona investigation began on Jan. 29, 2003, when SEC staff started looking at if any person or entity involved with Sedona was violating anti-fraud provisions of U.S. federal securities laws. During the course of the Sedona investigation, the court application states, SEC staff identified allegedly fraudulent activities in the securities of SHEP, involving some of the same participants in the Sedona investigation, including LOM, the Lines brothers and several as-yet unnamed nominees. During the investigation into Sedona and HiEnergy, SEC has uncovered information that points to "significant trading" in the securities of the three investigatee companies through LOM for the benefit of LOM customers and the Lines brothers personally, the application states. Scott Lines was personally subpoenaed by SEC staff on April 20, 2004, at the Miami International Airport with a request that LOM hand over documents relating to trading in the three companies since Jan. 1, 2002. The subpoena stated that the information needed to be on the desks of SEC staff in Washington, D.C., by April 28, 2004. Since then, neither LOM or Scott Lines have contested the subpoenas, but neither have they delivered the information or appeared to testify to the SEC. Scott Lines's lawyer has contacted the SEC and indicated that his client will not be testifying under the subpoena. The subpoena delivered to Scott Lines stated clearly that the investigation is a non-public fact-finding inquiry, as the SEC is simply trying to determine if any securities laws have been broken. The disclaimer also states that the SEC had not concluded that the recipients have broken the law, nor that the SEC had a negative opinion of any person, entity or security. The subpoena then asks for information for each account that bought or sold HiEnergy stock since Jan. 1, 2002, any Sedona stock since Jan. 1, 2003, and any SHEP stock since Dec. 1, 2001; account opening documents; account statements; confirmation and order tickets for each transaction; all documentation relating to delivery of stock, credits or debits (including wire transfer instructions, memos and cancelled checks); and anything to identify the brokers assigned to the accounts. The Sedona subpoena also asks for any information on accounts in the name of Eric Collins or his apparent company Consensus Investment Ltd., Richard King or his apparent company Nottinghill Resources Ltd., Kevin Way or his apparent company SKN Holdings Ltd., Michael Heslop or his apparent company Aberdeen Holdings Ltd., or Mr. Peever and Mr. Curtis. (Consensus Investments has participated in several financings for Vancouver public companies, as have Nottinghill Resources, SKN Holdings and Aberdeen Holdings.) The application to the court included an affidavit by Michael Ungar, an SEC attorney, much of which dealt with Sedona. The affidavit states that Sedona currently trades on the Pink Sheets under symbol SSSI. The SEC's Sedona investigation has led to suspicions that in early January, 2003, Brian and Scott Lines secretly acquired 99 per cent of Sedona's shares through nominees, the affidavit alleges. The affidavit goes on to state that Brian Lines told an LOM employee that at least 1.2 million Sedona shares were to be credited to two LOM accounts controlled by the Lines brothers. LOM entered into an agreement on Jan. 15, 2002, with Renaissance Mining Corp., a private U.S. company, for it to assist Renaissance in raising between $3-million and $6-million from non-American investors. A condition of the agreement was a reverse merger between Renaissance and Sedona. Two days later, Renaissance issued a press release touting LOM as the investment banker for the financing. The press release neglected to mention that the Lines brothers controlled 99 per cent of Sedona's stock and stood to profit quite handsomely from the proposed merger. On Jan. 21, 2003, Sedona opened at $9.00 per share, a 30,000-per-cent increase over the previous close price of three cents per share. Brian Lines allegedly took advantage of the skyrocketing price and sold 97,000 Sedona shares. Over the next week, Brian Lines allegedly sold another 51,000 Sedona shares through his accounts at Vfinance and Knight, as well as an unnamed Canadian firm. Mr. Ungar's affidavit claims that Brian Lines made over $1.4-million from his sales and through sales to LOM customers. The SEC also wants Scott Lines to tell all on his apparent beneficial ownership of Sedona shares sold by his brother Brian during January, 2003. On Jan. 29, 2003, Sedona was suspended by the SEC. The affidavit alleges that after LOM learned of the SEC investigation into Sedona's trading, LOM made several changes to its internal records regarding the ownership of Sedona shares. The changes were to conceal the significant ownership and control of the Lines brothers over Sedona, the affidavit claims. In the course of its investigation, SEC staff discovered that LOM and the Lines had previously engaged in similar conduct involved SHEP Technologies between January, 2002, and June, 2003. The affidavit claims that the unlawful scheme to manipulate the shares of SHEP was carried out between LOM, Brian Lines and two LOM customers, identified in a tiny-print footnote as being Vancouver's own Mr. Peever and Mr. Curtis. The footnote states that the accounts of Mr. Peever and Mr. Curtis in LOM Caymans and LOM Bahamas received virtually all of the SHEP shares that LOM and Brian Lines purchased in a private transaction. Nominees were used to hide the identity of true beneficial owners Mr. Peever and Mr. Curtis, the affidavit alleges. The affidavit goes on to state that Brian Lines used nominees to obtain secret control over 88 per cent of SHEP on behalf of Mr. Peever and Mr. Curtis. Brian Lines then instructed a U.S. lawyer to file ownership reports with the SEC that falsely stated that several of the nominees owned or sold the shares, when in fact the SEC claims that it was Mr. Peever and Mr. Curtis who were the SHEP owners. Over three million SHEP shares were sold into the U.S. markets after several tout press releases for SHEP. The SHEP share scheme raked in approximately $3-million in profit. LOM'S INITIAL DOCUMENTS LOM initially provided documents to SEC staff, Mr. Ungar's affidavit claims, but redacted the identity of customers in all communications. The SEC told LOM that it needed the names, and LOM then declared that it was finished being helpful. If the SEC wanted any further co-operation, LOM stated, then staff would have to make a request to the Bermuda Monetary Authority (BMA), LOM's primary regulator. The BMA served LOM with the SEC's requests, and LOM handed over an additional 400 pages of documents to the SEC, continuing to redact the names of customers. In January, 2004, LOM filed an action in a Bermuda court to challenge the BMA's authority to share LOM customer information with foreign authorities, including the SEC. Mr. Ungar states in his affidavit that he believes that LOM and Scott Lines have not produced certain documents in their possession relating to the trading and ownership of Sedona and SHEP stock. After the SEC subpoenaed Scott Lines and LOM, LOM customers Mr. Peever and Mr. Curtis, along with their nominees Golden Accumulator Ltd. and Coal House Ltd., sought an injunction in the Cayman Islands and in Bermuda. SEC staff believe that the injunction is a step to prevent the Cayman and Bermuda authorities from passing on information to the SEC. Mr. Ungar claims that the B.C. authorities have also served Mr. Peever and Mr. Curtis with documents on behalf of the SEC, but to date the two have not produced their LOM account information to the BCSC. Mr. Ungar also notes that the BCSC has filed a notice of hearing against LOM and many of its directors, with a hearing date set for Oct. 5 and 6, 2004, but this is in connection with yet another company. Mr. Curtis has been a director of many Vancouver companies, including high-profile flops such as Cross Pacific Pearls Inc., Danco Industries Ltd., Lima Gold Corp., Medilase Industries Inc. and Turbodyne Technologies Inc. Mr. Curtis was an active associate of former Howe Street promoter Harry Moll. Turbodyne, from which Mr. Curtis resigned in October, 1993, after less than a year on the board, subsequently became involved in notoriety when director Nick Massee vanished with his wife in August, 1994, after having arranged a meeting with a potential investor, who according to one source said he was representing investors from Chicago. Mr. Curtis was also involved as an investor in Paviland Financial, Langland Bay Financial, Jersey Investments, Skinny Technologies Inc., Unique Tire Recycling Inc. and International Tourigan Corp. THE BCSC CONNECTION The BCSC's LOM notice of hearing, filed on May 20, 2004, states that between Sept. 1, 2002, and March 28, 2003, LOM made purchases in San Telmo Energy Ltd., a TSX Venture Exchange-listed company, accounting for 15.5 per cent of purchases and 35 per cent of sales of San Telmo on the TSX-V. LOM accounts were also allegedly responsible for 20 per cent of the upticks in San Telmo's trades during the period. On Nov. 6, 2003, the BCSC stated that commission staff requested that the BMA help it in obtaining the identity of the person or persons trading in San Telmo through LOM. LOM apparently declined to give the information over to the BMA, instead handing over an anonymous list of all trades for San Telmo. The report indicated that LOM accounts bought 1.65 million shares of San Telmo and sold 5.6 million shares over the TSX-V and two other stock exchanges. The BCSC served LOM with a demand for production on April 30, 2004. LOM'S DENIAL LOM issued a press release on June 14, denying that it ever engaged in securities fraud as alleged by the SEC, and that the company is prevented from providing information on its clients trading by Bermuda confidentiality laws. LOM put out a plea that the American courts "must respect the duties imposed by the laws of other nations, even smaller nations, and not unilaterally seek to enforce American administrative supoenas against entities and persons in other countries." |
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