Two recent cases have charged attorney with providing legal opinions in a "pump-and-dump" stock case where the attorney apparently did not profit from selling the unregistered shares. This shows a new aggressiveness in criminal prosecutions. The men who used those letters to sell worthless stock via email, Stephen Luscko and Gregory Alphonse Neu of Florida, have already each been sentenced to five years in prison.On March 12, 2009, Dallas attorney, Phillip Windom Offill, Jr., of Dallas, was indicted in U.S. District Court in the Eastern District of Virginia. Mr. Offill is charged with one count of conspiracy to commit registration violations, securities fraud and nine counts of wire fraud. The indictment also seeks approximately $15 million in forfeiture from Mr. Offill.
The indictment charges that Offill and a Phoenix attorney David Stocker (who has already plead guilty and issued a legal opinion that that pump and dump stock op) employed a method to evade federal securities registration requirements in order to provide co-conspirators with millions of unregistered and "free-trading" shares of nine companies’ common stock that the co-conspirators could not have otherwise legally obtained. The indictment alleges many of the shares were subsequently sold by co-conspirators to the general investing public. By evading the registration requirements, the co-conspirators were able to hide from the investing public the actual financial condition and business operations of the companies. The companies included Emerging Holdings Inc.; MassClick Inc.; China Score Inc.; Auction Mills Inc.; Custom-Designed Compressor Systems Inc.; Ecogate Inc.; Media International Concepts Inc.; Vanquish Productions Inc.; and AVL Global Inc.
Attorney Commentary: In some pump-and-dump frauds, a legal opinion is crucial to getting the scam going. In the past, it appears that the only cases in which the SEC brought civil or criminal cases against lawyers who provided the opinions came when those lawyers also directly profited from selling the unregistered shares. No cases used to be brought against lawyers who simply issued such opinions. That has obviously changed and attorneys who offer legal opinions need to be extremely careful in how those legal opinions are going to be used. Good faith is a difficult defense when people have lost millions of dollars in a pump-and-dump scheme.
The opinion letters were deemed important because stock transfer agents rely on them in allowing unregistered shares to be traded. Normally, such shares are subject to rules that keep them from being traded for at least a year. But there are exceptions, and these letters said the shares fell into one exemption. These cases may be brought to deter other attorneys from issuing legal opinions for stocks traded on the Pink Sheets (a market largely used to trade stocks of companies that are not registered with the SEC).
For more, see: http://www.usdoj.gov/opa/pr/2009/March/09-crm-230.html
Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, and have represented attorneys in internal investigations, State Bar proceedings, search warrants and criminal matters.
