Wednesday, June 1, 2011

Rufus Paul Harris, Benjamin Stanley and Darryl Horton Convicted of Securities and Wire Fraud in Multi-Million-Dollar Stock “Pump-and-Dump” Case


Source- http://www.fbi.gov/atlanta/press-releases/2011/three-former-corporate-officers-convicted-of-securities-and-wire-fraud-in-multi-million-dollar-stock-pump-and-dump-case

ATLANTA—A jury in federal district court has returned guilty verdicts against RUFUS PAUL HARRIS, 43, now a fugitive, originally from Adairsville, Georgia, but most recently from Oklahoma City, Oklahoma, and BENJAMIN STANLEY, 48, of Kennesaw, Georgia. A third defendant, DARRYL HORTON, 50, of Okemos, Michigan, pleaded guilty to conspiracy while the jury was deliberating the case today. HARRIS and STANLEY were convicted by the jury on federal charges of securities fraud, wire fraud, and conspiracy in connection with a scheme to defraud investors of the publicly traded company known as Conversion Solutions Holdings Corporation (“CSHC”). The trial lasted approximately two weeks.

United States Attorney Sally Quillian Yates said, “This was a classic stock ‘pump-and-dump’ scheme. The defendants, the three top officers of a publicly traded company, pumped up the company’s stock price with false claims and inflated financial statements, while they were secretly dumping stock through immediate family. Today’s verdict is a bittersweet victory for the many victims who believed the defendants and invested and lost money. Rufus Paul Harris, the company’s former CEO and lead defendant, decided to flee before the conclusion of the trial, but a multi-agency, nationwide manhunt is underway.”

“Cooperation and partnerships among law enforcement agencies allow us to combine not only our resources, but also our expertise, to combat fraudulent investment schemes,” said Martin D. Phanco, Postal Inspector in Charge of the Atlanta Division. “We are pleased that postal inspectors were able to play a major role in seeing justice served.”

Brian D. Lamkin, Special Agent in Charge, FBI Atlanta Field Office, said, “These individuals demonstrated an immense level of greed as they conspired to defraud others in a far reaching investment scam that resulted in many victims. Although defendant Harris chose to flee any further court proceedings, he will soon join his co-defendants in answering for these crimes in that the law enforcement community has already begun efforts to ensure his recapture.”

According to United States Attorney Yates, the charges, and other information presented in court: When the criminal activity began in August 2006, HARRIS was the founder and chief executive officer of CSHC, STANLEY was the co-founder and chief operating officer, and HORTON was the chief financial officer. The evidence showed that the three defendants conspired to issue false press releases and financial statements about the company for the purpose of inflating the stock price, while at the same time they were secretly transferring shares to family members who sold at the inflated prices.

The defendants issued a series of press releases publicly claiming that CSHC’s ownership of over a billion dollars in foreign bonds issued by the Republics of Venezuela and Finland. These bonds were, on their face, worth billions of dollars and paid tens of millions in annual interest. In at least one of the press releases, HARRIS was quoted as stating that, based on CSHC’s acquisition of such large quantities of sovereign debt, “We are looking at a new justifiable reorganization release price of $25.63 [per share].” At the time, CSHC shares generally traded at less than approximately $1 per share. In October 2006, CSHC issued an annual report claiming as much as $800 million in assets, $500 million of which was in the form of foreign sovereign bonds as stated in at least some of the press releases. Also according to this report and its attachments, CSHC’s income included $19,869,792 in interest revenue from those bonds.

According to the evidence presented in court, the three defendants knew these public statements were untrue, and knew that CSHC had little if any assets of any value and did not own the foreign sovereign bonds and other assets that it claimed to have. CSHC also had little if any in the way of revenue or profits from any business activity.

During the weeks that the misrepresentations were being publicly disseminated via press releases and SEC filings, CSHC’s stock price on the open market more than tripled. The stock, which was a “penny-stock” trading for less than $1 per share on the Over-the-Counter Bulletin Board in August 2006, appreciated to more than $3 per share in October 2006. During this time, HARRIS, STANLEY, and HORTON transferred substantial quantities of CSHC stock to family members and others, who sold the stock in the open market at artificially inflated prices of between $2 - $3 per share.

On the first day of the trial, HARRIS waived his right to an attorney, instead electing to represent himself. HARRIS had been free on a previous bond and was staying at a local hotel. Investigation by the United States postal inspectors revealed that on Monday, May 23, 2011, at approximately 6:20 p.m., HARRIS checked out of the motel and exited the parking lot in a dark-colored minivan. HARRIS failed to report to court on Tuesday, May 24, 2011, and a warrant for his arrest was issued. The trial proceeded against all three defendants, in HARRIS’s absence. The jury verdict against HARRIS was announced in open court late yesterday, with HARRIS being found guilty on all eight counts against him, including a charge of falsely certifying CSHC’s annual filing to the SEC.

Defendants HARRIS and STANLEY could receive a maximum sentence of 25 years in prison and a fine of up to $250,000 for the securities fraud charge, 25 years in prison and a fine of up to $250,000 for the conspiracy charge, and 20 years in prison and a fine of up to $250,000 for each count of the wire fraud charges. The false certification of a financial statement charge, as to HARRIS, carries a maximum sentence of 10 years in prison and a fine of up to $1,000,000. Defendant HORTON, by virtue of his plea, will likely receive the maximum sentence of five years’ imprisonment for the count to which he pled guilty, and also faces a fine of up to $250,000. Sentencing is scheduled for August 18, 2011 at 10:00 a.m. before United States District Judge Timothy C. Batten, Sr. In determining the actual sentence, the Court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.


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