Two months ago, the Alberta Securities Commission (“ASC“) issued an order permanently banning two individuals it called “scoundrels” from the capital markets permanently, together with an issuer that operated a pump and dump scheme.
The individuals are Cem Can (“Can“), a Turkish foreign national, and Charles Michael Miller. The issuer is Bluforest Inc. (“Bluforest” or the “issuer“). The order flows from an ASC decision rendered in August 2020, here. Bluforest’s shares were listed on the OTC Markets in the US, and it was a reporting issuer in Alberta pursuant to 51-105.
The decision is an interesting example of the preparatory nature of securities fraud and the extent to which such activities are organized and transnational.
To illustrate, we created a data set of the legal and natural persons involved in Bluforest Inc. and subsequently converted the data to a geo network, below. It provides a visual representation of the transnational nature of the case.
The ASC decision covers the period of time from late 2010 to November 2013, and is closely related to a superseding indictment of numerous Canadians in the US for money laundering and securities fraud as part of a FATCA case.
Superseding indictments in the US
That superseding indictment was filed in the EDNY in July 2015, charging Cem Can and several Canadians from British Columbia – Gregg Mulholland, Philip Kueber, Paula Psyllakis and Brian De Wit – as well as an American Robert Bandfield, and two natives of the Bahamas, Rohn Knowles and Kelvin Leach, with various criminal offences, including securities fraud and some for money laundering.
The superseding indictment alleged that Mulholland, Can, Bandfield, Kueber, Psyllakis, De Wit and Godfrey, among others, created shell companies and opened numerous bank accounts which were used to move over US$500 million in proceeds of crime. Mulholland was alleged to have fraudulently manipulated the shares of more than 40 issuers and moved US$300 million in proceeds of crime into accounts he controlled.
Although many of the indicted were from British Columbia, they were situated in places like Belize, Nevis and Panama. The US government alleged that they created numerous shells with nominee directors and officers to conceal the legal ownership of the shells, acquired controlling interests in shares of pubcos, hired promoters to pump the share prices artificially, and exited when the share prices were high. The defendants owned, operated or worked at companies, including Legacy Global Markets S.A., Unicorn International Securities LLC, and IPC Corporate Services LLC, which were the vehicles allegedly used to perpetrate the fraud.
An undercover agent met with Can and others in the tax havens and was told, among other things, by Can that he knew a way to secretly pay “consultants” in stock manipulation schemes. The indictment explains how Mulholland allegedly made US$21 million in proceeds manipulating the trading of one issuer.
Several of the defendants were arrested. Mulholland was arrested when his flight from Vancouver landed in Phoenix, Arizona. He and Bandfield proceeded through the criminal trial process together and joined each other’s motions, ultimately both agreeing to plead guilty and go through sentencing and forfeiture together.
Mulholland pled guilty to money laundering and is serving a 12-year sentence of incarceration at a medium security prison in California, followed by a three year term of supervised release with special conditions. He asked to enter a prison-run drug abuse program while incarcerated. As part of a deal for a lesser sentence, he pled guilty and agreed to forfeit assets from the proceeds of his criminal activities, including forfeiting a private jet, homes in West Vancouver, California and Whistler and funds and securities held in bank accounts and brokerage firms in several tax havens.
Bandfield also pled guilty, served his sentence and is now released.
Kueber pled guilty and appears not to have entered the federal prison system which may mean he was sentenced to time served in remand.
De Wit and Psyllakis appear to have remained in British Columbia. It is not known whether the US government has an arrest warrant out for either of them that would be acted upon if they entered US air or land space, or if the US government has commenced extradition proceedings, or abandoned the case against them.
Can returned to Turkey. He may be in Istanbul or Antalya. According to an old news report which relied upon statements appearing in an Alberta Court judgment, he allegedly had ties (could be merely tenuous ties) to organized crime (the Calgary Hells specifically) in connection with an earlier capital markets deal gone sour that involved organized crime.
It is not known what happened to the other indicted individuals or entities.
Against that backdrop, the ASC looked into Bluforest, which involved some of the same individuals and entities, including Legacy Global Markets S.A., Unicorn International Securities LLC, and IPC Corporate Services LLC, Can, Godfrey, Bandfield and De Wit.
The president and CEO of Bluforest was Charles Miller but Can actually directed the affairs of the issuer. The SEC ultimately revoked its listing on the OTC Markets for failures to file.
The business activities of Bluforest appear to have been an illusion that existed on paper only. Bluforest alleged in one paid promotion to investors that it owned 135,000 hectares of forest in Ecuador called El Juval worth US$695 million and not only that, allegedly, it had carbon offset credits from that land equal to the same amount, US$695 million.
In another paid promotional campaign, it alleged to have US$700 million in assets and US$698,875,000 in property for developing carbon assets. However, at that time it only had $43 in the bank. And only $17,000 in actual assets. One of the material issues with respect to the issuer was how this happened when the issuer had an independent auditor responsible for the accuracy of its financial disclosure.
Can purchased the shares of Bluforest, and through nominees, maintained control of, and acted as its secret operating mind. In order to do that, he caused to be issued, numerous shares to various corporate entities in which he controlled. Two of the material entities were Mainland Investments Ltd. and North American Investments Inc.
He used a number of the same nominees including Branislav Jovanovic and Talal Fouani, who acted for some time upon his directions. The issuer operated effectively as a one-man show by Can, who exclusively called all the shots even though on paper, he had no role with the issuer in the corporate sense.
In respect of payments from the issuer from funds raised, the ASC found that substantial sums of money were directed by Can to be sent to a select group that included his company, Mainland Investments Ltd., and other entities he controlled, as well as to lawyers he instructed, including Faiyaz Dean, Scott Lawler, Norman Anderson and Diane Dalmy, and to various stock promoters.
Analyzing the case from a data perspective
We created a first layer network analysis of the Bluforest actors, shown below. The data shows a number of things:
- The large dark central blue node is Bluforest Inc.
- The red node is Cem Can.
- The orange nodes are a type of service provider.
- The light blue nodes are others, such as known shareholders, directors, officers, alleged debt holders, promoters, etc.
- Interpretation of data:
- The dandelion shape on left side depicts a normal functioning issuer relationship between the issuer and shareholders; the issuer and service providers; the issuer and directors / officers.
- The right side of the dandelion breaks off and shows a clear disruption – a disfunction – in the issuer. The affairs of the issuer are blown out and form a tangled web.
- You can see that the disfunction is tied to the red node, a few orange nodes; and several light blue nodes.
In the image below, we took the same data set and plotted it along one axis and it becomes more clear that information flows in respect of the issuer’s affairs went through only a few people. In a normal functioning issuer, the officers are the one source of all activities in the capital markets.
Alleged debt for shares
One of the most interesting aspects that the ASC decision focused on was the use of alleged debt settlement agreements to issue free-trading shares for alleged consulting services. In one instance, the issuer took an alleged debt of US$60,000 allegedly owed to Can’s company, North American Investments Inc., and re-paid the lenders consideration of $200 million to settle the debt, paid in shares of the issuer.
In order to ensure the shares were free-trading and avoid the hold period, a lawyer named Scott Lawler issued a closing opinion to the transfer agent to remove the restrictions.
The ASC found that the explanations given as to how US$60,000 became $200 million were “nonsensical”.
The ASC staff believed that the invoice underlying the alleged US$60,000 debt was fake, which the ACS panel took as meaning that no actual services were provided. In other words, $200 million in shares were obtained for no consideration.
Subsequently, the issuer completed a second series of debt settlement arrangements where shares were issued to settle alleged debts. In the second instance, there was an alleged debt of $90,000 and 100 million shares were issued to the lenders to pay out that debt. The ASC calculated that the transfer meant that the issuer, with alleged net assets of $695 million, transferred 97% of that value for $900,000.
A lawyer named Faiyez Dean wrote the opinion letter in respect of removing restrictive legends, enabling the 25 million shares to be issued to entities controlled by Can and Charles Miller as free-trading. The ASC found that the issuer deliberately mischaracterized the shares as a proposed resale of shares earlier acquired from Bluforest in order to justify the removal of restrictions, and held that the deals were intended to deprive the shareholders of their economic interest in the issuer.
The ASC found the share issuances for alleged debt settlement deals were in furtherance of a pump and dump scheme, and together with the false opinions, diluted other shareholders and concentrated control secretly with Can and Charles Miller.
The ASC also found that there were issues with the alleged forestry deals announced by the issuer.
When Bluforest announced that it had entered into a series of forestry-related agreements in Ecuador, it represented that they were arms length in the disclosure record, when in fact they were non-arms length. Despite the forestry-related deals that were touted as being so valuable, the ASC found that they were not pursued and the agreements and rights thereunder appear to have expired over time, if they existed at all. Those deals were what was supporting the issuer’s valuation.
Paid promoters promoted
The ASC found that Can hired, indirectly, a number of promotional companies to aggressively promote the issuer across various mediums. Over time, the share price went from $0.25 to $6.19, and was artificially increased as a result of paid promotional activities. Eric Cusimano and Jamie Boye were among the paid promoters that Can hired using his own companies, to promote the issuer’s stock.
Cusimano and Boye were indicted in the US in connection with paid promotional activities in the capital markets and pled guilty in that case.
At the end of the day, because Bluforest was just a business that looked good on paper to investors while there was nothing behind the curtain when it was pulled back to substantiate its share price, or valuation, it crumbled apart.
The ASC found that Can and Charles Miller were centrally involved in virtually all aspects of the pump and dump scheme and played significant roles in the secret control of the issuer and manipulation of its shares in the capital markets. IPC Corporate Services LLC, Unicorn International Securities LLC, and Legacy Global Markets S.A., were some of the offshore vehicles used by Can and others to receive shares of Bluforest and the proceeds from the sales of shares.
The ASC called the Bluforest pump and dump scheme “a deplorable form of securities fraud.”
Typologies of pump and dumps
This decision is also useful from the perspective of typologies that can be gleaned that raise red flags for potential capital markets fraudulent activities.
The alleged past ties of Cem Can to organized crime wasn’t explored but perhaps should not be discounted as a risk factor of the prospect of organized crime infiltration in the life cycle of some issuers.
Two of the largest securities fraud cases occurred in Canada and involved Mafia figures.
In the first, Russian crime boss Semion Mogilevich caused the pumping of the stock of a Canadian issuer he controlled, YBM Magnex, which lost investors over US$1 billion. In the second, deceased Canadian Costa Nostra leader Vito Rizzuto and one of his associates, allegedly came to control a series of Canadian stock promotion newsletters owned by Canadian Eric Van Nguyen, which allegedly were material in the loss to investors of an estimated US$3 billion in connection with several issuers that were pump and dump schemes orchestrated from Canada.
Mogilevitch and Van Nguyen remain wanted US fugitives. Mogilevitch is in Russia. Van Nguyen allegedly went from Montreal to Toronto. Some experienced securities investigators in the private sector believe, based on their investigations, that Van Nguyen is behind several recent paid promotions of several issuers in Canada, including several being pumped to investors right now in real time.