Washington, D.C., February 15, 2019 – The Securities and Exchange Commission today announced charges against four individuals and related businesses for their roles in two microcap frauds and unlawful securities offerings. In sum, the alleged illegal transactions resulted in proceeds of more than $25 million.
According to the SEC’s complaint, from approximately December 2012 to June 2013, microcap stock financier Magna Group, which was founded and owned by Joshua Sason, engaged in a scheme to acquire fake convertible promissory notes supposedly issued by penny stock issuer Lustros Inc. and then to convert those notes into shares of Lustros common stock. The defendants then sold the shares to unsuspecting retail investors, who did not know that the shares were fraudulently acquired and were being sold illegally. The defendants’ sales of the Lustros shares also had the effect of destroying the value of the Lustros shares held by the public. The complaint alleges that Marc Manuel, Magna Group’s former head of research and due diligence, personally negotiated and executed the sham transactions.
The complaint also alleges that in November 2013, Magna Equities II, which was also wholly-owned by Sason, and Manuel, purchased another fake promissory note from Pallas Holdings. Magna Equities II and the note’s issuer, NewLead Holdings, Ltd., later agreed to retire the fake debt in exchange for shares of the issuer through a court-approved settlement agreement. To obtain approval of the settlement, Sason and Magna Equities II falsely swore to the court that the fake promissory note was a bona fide debt of NewLead. Kautilya “Tony” Sharma and Perian Salviola, who controlled Pallas Holdings, are alleged to also have participated in the scheme.
The Commission’s complaint alleges that Sason violated Sections 5 and 17(a)(2) of the Securities Act of 1933 (the “Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5(b) thereunder, and that he is liable as a control person for the violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by Magna Group, Magna Equities II, and a third entity alleged to have been involved in the NewLead scheme, MG Partners, Ltd. (“MGP”) (collectively, the “Magna Entities”). The complaint alleges that Manuel violated Sections 5 and 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder, and that he is liable for aiding and abetting the violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by Sason and the Magna Entities. The complaint alleges that Magna Group violated Sections 5 and 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder. The complaint alleges that Magna Equities II violated Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The complaint alleges that MGP Group violated Sections 5 and 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder. Finally, the complaint alleges that Sharma, Salviola, and Pallas Holdings each violated Sections 5 and 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder, and that each aided and abetted the violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by Sason, Manuel, and the Magna Entities. The complaint seeks permanent injunctions, disgorgement plus prejudgment interest, a civil money penalty, penny stock bars, and any other relief the Court may deem just and proper.
The SEC’s investigation was conducted by Lee A. Greenwood, Philip A. Fortino, John O. Enright, Christopher Ferrante, Diego Brucculeri, and Sheldon L. Pollock of the New York office. The SEC’s litigation will be handled by Messrs. Fortino, Greenwood, Enright, and Alexander M. Vasilescu. The case is being supervised by Sanjay Wadhwa.