Jury Rejects SEC “Shell Creation” Claims

A Florida jury found against the SEC on all but one count of a multi-count complaint centered on charges that Spartan Securities Ltd. and others ran what was alleged to be a “shell creation” factory. The trial lasted for thirteen days. SEC v. Spartan Securities Group, LTD., Civil Action No. 19-civ-00448 (M.D. Fla. Feb. 20, 2019).

The complaint named as defendants: Spartan, a registered broker-dealer; Island Capital Management LLC, a registered transfer agent; and Carl Dilley; Micah Eldred; and David Lopez. Collectively the individual Defendants controlled the entity defendants.

The action centered on a five-year long shell creation scheme that traces to 2009. The complaint claimed that a group known as the Mirman/Rose Companies were responsible for creating 14 shells corporations that were shams. A second group, called The Daniels Companies, supposedly created another five shell companies. Those entities were also shams, according to the complaint.

The creation of the shell companies, coupled with claims that the shares were free trading, hinged on a series of misrepresentations. Those included false statements to FINRA on Form 211 applications, to DTC and to potential buyers. As a result, the complaint alleged violations of Securities Act Sections 5(a), 5(c) and 17(a)(1) and (3) and Exchange Act Sections 10(b) and 15(c)(2).

The jury found in favor of Defendants on all Counts except No. 6 which alleged false statements in violation of Exchange Act Section 10(b). There the jury found in favor of the Commission on that single count.