August 3, 2021/US SEC
On Friday, July 30th, after a three week trial in Federal Court in Tampa, Florida, a jury returned a unanimous verdict finding broker-dealer Spartan Securities Group, LTD., transfer agent, Island Capital Management LLC d/b/a Island Stock Transfer, and two of their principals, Carl E. Dilley and Micah J. Eldred, liable for fraud in connection with their roles in the creation of at least 19 purportedly legitimate public companies that were in fact shams.
Evidence at trial showed that Spartan Securities, Dilley, and Eldred made misrepresentations and omissions in the filing of 15c2-11 applications and submissions with Financial Industry Regulatory Authority (FINRA), which are required to publicly list the companies’ common stock and ultimately enable the shares to become free-trading and available to public investors. The evidence also showed that Island Stock Transfer and Dilley, its President, made misrepresentations and omissions regarding the designation of the securities as free trading and when effectuating the bulk issuance and transfer of securities, including stock certificates without restrictive legends. Finally, the evidence revealed that Spartan Securities, Island Stock Transfer, and Dilley initiated and provided false information for applications filed with the Depository Trust Company (DTC), including misrepresenting the shell status of issuers.
The jury found Spartan Securities, Island Stock Transfer, Dilley and Eldred liable for fraud by violating Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 10b-5(b) thereunder. The jury found Spartan not liable for violating Section 15(c)(2) of the Exchange Act and Rule 15c2-11 thereunder and found Dilley, Eldred and defendant David D. Lopez not liable for aiding and abetting those alleged violations. The jury also found Spartan, Island, Dilley and Eldred not liable for violating or aiding and abetting alleged violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Rules 10b-5(a) and (c) of the Exchange Act, and not liable for violating Sections 5(a) and 5(c) of the Securities Act.
The Court will determine the remedies to be imposed against Spartan Securities, Island Stock Transfer, Dilley and Eldred in further proceedings. The SEC seeks permanent injunctions and civil penalties against Spartan Securities, Island Stock Transfer, Dilley, and Eldred; penny stock bars against Spartan Securities, Dilley, and Eldred; and disgorgement of ill-gotten gains with prejudgment interest against Island Stock Transfer.
The SEC’s litigation is being conducted by Christine Nestor, Alice Sum, Alise Johnson, and supervised by Andrew Schiff of the Miami Regional Office. The investigation that led to the SEC’s action was conducted by Jeffrey Cook and supervised by Eric Busto and Glenn Gordon, also of the Miami Regional office.