Indicted US lawyer who resold and flipped multiple shell companies for whopping profit, and wrote false closing opinion for Canadian entity, settles with SEC

By Christine Duhaime | October 6th, 2019

SEC Settlement

A New Jersey lawyer, Gregg Jaclin, entered into a settlement agreement with the US Securities Exchange Commission (“SEC“) earlier this fall in respect of several allegations, including over the practice of the creation and resale and flipping of what are called “shell” companies, flipped to clients for hundreds of thousands of dollars and in respect of false statements made in a closing opinion. As part of the settlement, Jaclin is prohibited as a lawyer from appearing before the SEC.

Jaclin was also indicted in May 2017, by the US  government (here) for similar activities and a forfeiture order upon conviction was sought against him for $2.25 million from the proceeds derived from flipping shell companies to clients.

Ran a Shell Company Mill

According to the indictment, Jaclin’s law firm under his direction, signed off on a closing opinion for a Canadian company and he then filed the closing opinion which contained material false information that was relied upon by investors and the regulator. The indictment also states that he assisted with the creation of 10 shell companies, eight of which were resold and flipped to clients for over $2 million and used for reverse take-overs in the public markets, and that the law firm trust account was used to receive the proceeds of the resale and flipping of the shell companies. Jaclin also billed over $200,000 for legal fees to those clients for, inter alia, shell company flipping services.

A co-accused, Imran Husain, has admitted assisting with the shell creation and re-sale, flipping scheme and with the filing of material false information to the government regulator. This week, he asked for a lenient sentence from a court in the US.

Shelf & Shell Companies are Flipped and Resold for Hundreds of Thousands of Dollars

Law firms create shelf and shell companies but they are not the same thing.

A shelf company is unlike a shell company in that it is created and parked on a shelf to age so that it gives the illusion of longevity. Its directors and incorporator are one or more lawyers of the firm. The more it ages, like wine, the more valuable it becomes. The sole purpose of creating and maintaining shelf companies is to flip them to clients down the road, like how real estate is flipped in Vancouver. When clients buy those shelf companies, they may pay upwards of hundreds of thousands of dollars for each of them. Law firms create multiple shelf companies for the sole purpose of re-selling and flipping them to clients for astronomical returns (e.g., a profit of sometimes upwards of $200,000 for each).

If you are an investigator, you can identify a shelf company because they all have the same characteristics: they are not new; their corporate filings are in perfect order; their original legal owners are lawyers or staff at the law firm that created them or a numbered company owned by the law firm.

Both shelf and shell companies may have subsequent beneficial ownership structures to obfuscate the legal owner and so whether a company is a shelf or shell company is not indicative of whether it will have obfuscated ownership to defeat the rule of law.

The practice described above by Jaclin is not similar to, and should not be confused with, the normal situation where a law firm is hired, arms length, to incorporate a new company for a client, and it bills the client its normal fees of $2,000 or less for such services and disbursements associated with incorporation.

The filing of a false closing opinion and the creation of multiple shell companies resold with obfuscated information as in this case, for use in the public markets, allows companies’ securities to trade publicly when technically they do not qualify for trading and investors may be defrauded.

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