4 B.C. residents charged with running international 'pump-and-dump' schemes

Four B.C. residents were indicted in the U.S. this week in connection to a series of "long-running international securities fraud schemes," according to the U.S. Attorney's Office for the District of Massachusetts.

The indictment alleges that the four Canadians – along with a former California attorney who is now believed to be residing in Mexico – generated "at least tens of millions in illicit proceeds" through "pump-and-dump" schemes.

Frederick L. Sharp, 71, and Courtney M. Kelln, 43, have been charged with two counts each of securities fraud and conspiracy to commit securities fraud.

Mike K.G. Veldhuis, 43, and Paul Sexton, 55, have been charged with one count each of the same charges.

The fifth indicted person, 50-year-old Luis Carrillo, also faces one count of securities fraud and one count of conspiracy to commit securities fraud. He is the only one in the group who is not from B.C.

All five are considered innocent until proven guilty.

According to the U.S. Attorney's Office, the indictment alleges that Sharp "operated a sophisticated platform for at least six years that provided a variety of services to individuals seeking to conceal their identities in contravention of the securities laws when selling penny stock shares during pump-and-dumps."

A pump-and-dump scheme involves artificially inflating the price of and demand for a cheap "penny stock" to allow major shareholders of the company to "dump" their shares at a higher price.

Among other things, Sharp is alleged to have provided offshore nominee entities to hold shares for his clients, provided and administered encrypted communications networks, and facilitated the payment of illegal stock sale proceeds to clients around the world.

The indicted individuals are also alleged to have worked with Wintercap SA, a Swiss asset management firm run by Roger Knox, who was sentenced for securities fraud and conspiracy to commit securities fraud in October 2023.

Knox pleaded guilty to those charges in 2020. His sentence includes 36 months in prison and orders to pay a forfeiture of US$10,909,709 and a to-be-determined amount of restitution.

The indictment alleges that Kelln, who worked for Sharp, facilitated the deposit of clients shares with Wintercap to allow for their sale to unsuspecting investors.

Carrillo, Veldhuis and Sexton allegedly served as "undisclosed control persons" who orchestrated pump-and-dumps using Sharp's platform and Wintercap. These three allegedly funded and organized "multifaceted promotional campaigns" that sometimes included cold-calling unsuspecting investors to solicit purchases of the stocks being dumped.

Carillo allegedly led three schemes, targeting OneLife Technologies Corp., Garmatex Holdings Ltd., and Pure Snax International Inc., and generating proceeds of US$5.2 million, US$5 million and US$1.6 million, respectively.

Veldhuis and Sexton allegedly organized a pump-and-dump of Vitality BioPharma Inc., which generated US$17 million in proceeds.

According to the U.S. Attorney's Office, individuals convicted of securities fraud face sentences of up to 20 years in prison, three years of supervised release and a fine of $5 million. Conspiracy to commit securities fraud can result in sentences of up to five years in prison, three years of supervised release and fines of $250,000 or twice the gross gain or loss, whichever is greater.