in process of locating answers for my question along with confirming my suspicions about sec filings lol BEWARE THE EVIL TWINS http://www.stockpatrol.com/article/key/eviltwins
May 15 2007
"We offer this disturbing thought. The federal securities laws, the very rules that were calculated to discourage deception and protect investors, provide a pair of mechanisms that fuel fraudulent stock schemes. Or, to put it slightly differently, securities laws that are designed to foster transparency and disclosure instead protect silence and deception.
One fundamental precept underlies our federal securities laws - investors must be given access to material information about public companies and the people who run and control them. Yet two federal regulations not only ignore that mandate but tolerate secrecy.
What are these tools that can be used to distribute stock clandestinely to the four corners of the globe, conceal identities, launder funds, and defraud investors? They are every con artist's dream and every law enforcement official's nightmare - and they share a common root, the letter "S." They are Regulation S, which allows U.S. public companies to sell stock overseas without registration, and Form S-8, which enables companies to register shares instantly.
When they were first enacted, these two regulations were relatively benign, but promoters and manipulators have discovered ways to utilize both Regulation S and Form S-8 to further illicit schemes Regulation S
Regulation S was crafted as a safe harbor that allows public companies to sell shares to non-U.S. citizens. In essence, while regulators wanted to assure that U.S. investors had adequate access to information about public companies, non-U.S. residents were not afforded the same protection. Those non-U.S. residents would be permitted to buy and sell shares, among themselves, even though the issuer had never registered those shares with the SEC.
In other words, companies were given license to do abroad what they could not do at home - dump shares on the marketplace without registration or disclosure.
Why would lawmakers, who so carefully crafted securities laws that demanded both registration and disclosure, also create this massive loophole in the system? Perhaps they truly wished to provide the international community easier access to U.S. public companies, or, conversely, they wanted to afford those public companies the ability to attract foreign capital. Cynics might say that American lawmakers were willing to overlook the impact on foreign investors so long as they could maintain order in their own home.
Whatever the rationale, Regulation S has engendered a booming business, particularly for small, struggling companies who are desperate for funding at any cost. Those companies, many of which trade on the OTC Bulletin Board or the Pink Sheets, have been willing to sell stock to overseas investors, at a deep discount from prevailing market prices, under Regulation S.
To qualify for a Regulation S exemption, the shares must be sold offshore to a non-U.S. resident, and may not be sold back into the United States for one year. Those requirements are not as stringent as they may seem at first blush. The U.S. market is foreclosed to re-sales for one year, but that leaves the rest of the world - and the market for U.S. public companies is thriving around the globe.
Boiler rooms operating in Europe and the Far East aggressively hawk Regulation S shares. Consider the case of the Brinton Group, which operated out of Bangkok, Thailand and other locations in Indochina.
In September 2001, a small over-the-counter company called Oasis Resorts International Inc. announced plans to sell $15 million of its stock to the Brinton Group under Regulation S. In exchange, Oasis was to receive $4 million in cash and 1.1 million shares of another obscure OTC company, Virtual Gaming Technology.
The public records do not indicate that Oasis ever received the cash. In fact, when it stopped filing public reports in 2001, the Company had a working capital deficit of $6.4 million. On June 8, 2004 the SEC revoked Oasis's registration because of the Company's failure to file financial reports.
There is little doubt, however, that Brinton was issued the Oasis stock - and proceeded to dump it on unsuspecting investors in the Far East and Australia. According to a November 19, 2001 article in Time Asia, the Brinton boiler room prodded Australian investors to buy Oasis shares by telling them that the Company was a global casino operation run by the team that had set up a restaurant chain featuring Gary Coleman, the diminutive star of the 1980s TV show "Diff'rent Strokes." They did not bother to mention that the only jewel in that chain was a failing restaurant in Denver, Colorado.
Brinton was also peddling Virtual Gaming stock. In all likelihood that included the Virtual Gaming shares that had been handed out to Oasis as part of the Regulation S deal. Virtual Gaming was an internet gambling firm run by one Virgil Williams, who was once tied to a boiler room scam in San Diego, California.
Brinton's activities were interrupted in July 2001 when the firm was raided by a task force that included the Securities and Exchange Commission of Thailand, the FBI, U.S. Customs, the Royal Thai police, the Thailand Anti-Money Laundering Office, the Thai Immigration Bureau and the Australian Federal Police. Thai authorities charged Brinton with running an unlicensed securities firm and engaging in fraudulent activities, including the use of high-pressure sales tactics.
Despite that raid, Brinton, and other boiler rooms utilizing the same aggressive sales techniques, continued to sell stock. On June 10, 2004, a Thai court convicted seven individuals who ran the Brinton Group - and a trio of other boiler rooms - of illegally selling securities.
Other regulation schemes have a distinctly different flavor - but they all have the same goal, to dump unregistered stock on the market. One such Regulation S manipulation centered on an individual named David Wolfson, who apparently inherited his affection for stock scams from his father Allen. Allen Wolfson has been named in multiple SEC and criminal stock fraud suits and was convicted in March 2003 of scamming investors out of $7 million.
David Wolfson, as regulators discovered, is quite a chip off the old block. Earlier this year he and his cohorts were charged with orchestrating a massive Regulation S scam. The SEC says that Wolfson and his colleagues found struggling U.S. companies that were hungry for cash (and occasionally formed the companies themselves) and then arranged for them to sell stock to a British Virgin Island corporation called Sukomo at a deep discount - 30% of the bid price.
Since Sukomo was purportedly a non-U.S, citizen, the stock was sold without registration under Regulation S. There were a few problems with this setup, as the SEC discovered. First, Sukomo was actually a boiler room operating from Laos and Thailand - so its agenda was clear. It wanted stock to dump on overseas investors. Second and more important as far as Regulation S is concerned, Sukomo may have been a non-U.S. resident but it never was a bona fide purchaser. In reality, Sukomo was simply acting as a broker and the proceeds from its boiler room operation were going back to Wolfson, his colleagues, and to a lesser extent, the issuing companies.
Nor do the Wolfsons seem to have been deterred by regulatory scrutiny. In April 2006, a Utah Grand Jury indicted the father and son team for creating a phony company called Stem Genetics, and then dumping shares overseas, to hapless investors in Great Britain, Australia and New Zealand.
Regulation S also has been used to fuel schemes concocted by U.S. residents who established phony offshore companies to act as Regulation S buyers. Those Regulation S. shares quickly found their way back into the U.S., long before the one year holding period expired.
In other words, Regulation S is an invitation for abuse. Its potential harm far outweighs its actual benefit. Form S-8
The S-8 Registration Statement is rapidly becoming the weapon of choice for stock scams. It is quick and effective and takes advantages of a glaring loophole in the federal securities laws.
Form S-8 allows public companies to register shares that have been, or will be, issued to directors, officers, employees and consultants - instantly, with minimal disclosure. Here is how it works. A company that wishes to register securities begins by filing a Registration Statement with the SEC. In most cases, the SEC reviews that Registration Statement, issues appropriate comments, asks pertinent questions and requires reasonable clarification. Then, after the company provides satisfactory responses to these questions, the SEC allows the Registration Statement to be declared effective, and permits the sale of the securities.
This process is designed to protect investors by ensuring that they receive ample information about the company in which they are about to invest.
Form S-8 abandons that protection and leaves investors to fend for themselves. An S-8 Registration becomes effective immediately after it is filed with the SEC, before it is reviewed by anyone. In an instant, the shares are registered and may be sold. Let the buyer beware.
Rather than provide detailed disclosure, Form S-8 includes fragmentary information, including the number of shares being registered. The company's financial condition is rarely presented in detail. Instead, the Form S-8 incorporates prior financial statements "by reference." As a practical matter, few investors will bother to review those earlier documents.
The absence of meaningful disclosure is only one of the disturbing features of Form S-8. Here is another. The company is not required to identify the individuals who will be receiving shares. Instead, the shares may be registered for a generic "Employee Benefit Plan." Which employees will "benefit" from that plan? The company is not required to identify the potential recipients when the Form S-8 is filed. And while companies are supposed to amend each Form S-8 to add the names of the new stockholders as shares are issued, they rarely do.
In reality, the recipients of shares may not be employees at all - and that is another distressing feature of S-8. Under the statute that controls this registration form, employees may include "consultants" and "advisors" - opening the possibility for shares to be distributed to a host of individuals with mere marginal connection to the company.
And the company is never obligated to account for the services rendered by those consultants in consideration for the stock.
The impact of these registrations can be seen in dozens of Form S-8 Registration Statements filed each week. Consider this example. A company, called Bach-Hauser, has made a business out of issuing S-8 shares. In fact, so far this is the only discernible business developed by the Company, despite a seemingly endless stream of consultants.
Since early 2000, Bach-Hauser has filed twenty three Forms S-8, registering more than 220 million shares issued to consultants, including a variety of lawyers. What have all these consultants been doing for Bach Hauser? The proof, as they say, is in the pudding, and Bach-Hauser's bowl remains quite empty. The Company has no business and no revenues.
Although Bach-Hauser initially named the consultants who had been issued shares, in recent years they have adopted a practice - followed by most small companies - of registering shares for unidentified recipients under an Employee Benefit Plan.
Bach-Hauser is a glaring example of the way Form S-8 has been used to flood the market with shares. It is hardly alone. Virtually every day, tiny companies issue mounds of shares to unidentified individuals for unspecified services - and it is all within the letter of the law.
But the common use of these two rules, Regulation S and Form S-8, hardly reflects the spirit of disclosure that is at the foundation of federal securities regulation. Instead, these twins seem destined to leave investors in the dark.
Just be grateful they weren't triplets.