SEC files for default judgment against several shell companies allegedly controlled by Vancouver men accused of US$35 million international pump and dump

By Christine Duhaime | April 18th, 2020

This week, the Securities and Exchange Commission (“SEC“) filed applications for default judgement against several companies, including several shells in tax havens with Canadian nominee control persons, involved in an alleged US$35 million international pump and dump scheme.

Six individuals, including three Canadians, at least one from Vancouver, were charged in an SEC complaint in the case.

The three Canadians are Steve M. Bajic, Rajesh Taneja and Christopher McKnight. The case also references two other unidentified persons in Vancouver who allegedly assisted Bajic and Taneja to further the alleged unlawful conduct, known simply as Person A and Person B.

Photo of Raj Taneja (holding a wine glass) (Source: Desibuzz Canada)

The default judgment applications are being sought because the defendants did not respond to a complaint filed by the SEC against them on January 20, 2020, in the Southern District of New York, alleging securities fraud, among other allegations.

The SEC alleges that Bajic and Taneja held substantial control of the shares of several little public companies – for themselves and on behalf of others – paid millions of dollars to have those shares promoted and be extensively pumped to jack up the prices, and then dumped the shares.

The shares were required to be restricted and the SEC alleges that a lawyer, who was not identified, created a false communication in respect of the shares to the transfer agent in order to induce the transfer agent to approve the release of unrestricted shares. With respect to the shell companies, they are alleged to have worked on beneficial ownership to obfuscate who the control persons were behind offshore entities.

The offshore entities were in tax and money laundering safe havens, such as the Seychelles, Switzerland and Anguilla. Besides in Canada, the entities set up brokerage accounts in AML lax jurisdictions including Mauritius, Singapore and Malta, and bank accounts in Cyprus.

Bajic and/or Taneja allegedly paid, or caused to be paid, over $3.6 million to a service that pumped securities to the marketplace.

McKnight, the other Canadian, is alleged to be a promoter, who allegedly sold stock promotions as a service. Through a Singapore corporate entity, he allegedly arranged for the pumping services of the scheme and arranged for the writing of content for the promotions that pumped shares that were illegally on the market. The SEC alleges that McKnight substantially assisted Bajic and Taneja to sell shares illegally.

Some so-called “promoters” earn money making false representations about shares of little issuers to generate interest to drive up the price and lure investors to buy them so that control persons can sell the shares when the price is artificially high, make a killing, and cashing out. Because the representations are false in such cases, in due time, interest in the little issuers dies down and unsuspecting members of the public who bought shares during a hype, lose their investment. In other words, the innocent investors are the ones whose funds are used, without them knowing it, to line the pockets of a pump and dumper.

In the pleadings of a number of SEC enforcement filings, reference has been made to the prevalence of the use of Canadians with ties to Vancouver who perform promotion services in support of securities fraud.

In this case, one of the corporate defendants, Blacklight S.A., is a Swiss entity allegedly formerly owned by Roger Knox, who is the subject of other SEC enforcement actions. It is allegedly now owned by two other defendants, Kenneth Ciapala and Anthony Killarney.

Ciapala is alleged to have been the shell-hunter in the alleged scheme.

A shell-hunter is a person who hunts down little companies for sale that are issuers that are dormant, that could be de facto bankrupt, or that may have sold substantially all of its corporate undertakings without disclosing such to the shareholders or obtaining the requisite shareholder consent to dispose of substantially all of its undertakings. Some shell-hunters know that the world of corporate law and securities law rarely cross paths, often in a place like Canada, and that no one will have vetted corporate law compliance as against securities law compliance, and thus those entities can be subject to a reverse take over into a hyped-up Blockchain or cannabis company without much in the way of corporate oversight.

Inasmuch as shell-hunting may result in securities fraud down the line, often a large amount of corporate law fraud occurred as a precursor to the securities law fraud. In other words, the securities fraud can often not occur without corporate fraud against shareholders having first occurred.

Vancouver has a group of persons who, for over twenty years at least, have engaged in shell-hunting as a service, who charge fees that can exceed several hundreds of thousands of dollars for hunting a shell that ends up being RTO’ed.

In this case, the SEC application for default judgment stated that as of this date, none of the corporate defendants responded to the complaint filed by the SEC in the SDNY. The default judgements seek over US$16 million from the entities.

Before the default applications, the SEC obtained a double-barrelled order for a mareva injunction and asset forfeiture against the defendants, effectively depriving them each and collectively of funds to hire lawyers.

Banks, including BMO, CIBC and TD Bank, who provided banking to some of the defendants, and lawyers of the defendants, were ordered to patriate the proceeds of the alleged fraud to the Court in the US where the claim was filed.

The application for the asset seizure and patriation order was based on affidavit evidence that deposed that over US$42 million in trading proceeds were handled by the defendants and on statements made to the RCMP about Bajic and Taneja, records seized during a search of Bajic’s home in Vancouver and WeChat and Threema chat messages of Bajic obtained by law enforcement.

The alleged shell-hunter, Ciapala, is incarcerated in the UK and is being sought by the US for extradition in a similar related criminal case, and service upon him of any of the filed materials may be not possible while he remains incarcerated.

Killarney was in Switzerland but has apparently disappeared, and so personal service upon him may also be impossible in the normal course. Absent confirmation of personal service and an affidavit as to service, obtaining default judgment becomes more difficult.

McKnight and Bajic are in Canada and the third Canadian, Taneja, is believed to be in Vietnam.

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