SEC charges Lines brothers with civil fraud
2007-12-20 21:08 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Mike Caswell
The U.S. Securities and Exchange Commission has filed civil fraud charges against Bermuda brokerage LOM (Holdings) Ltd. for manipulating two Vancouver stocks, Sedona Software Solutions Inc. and SHEP Technologies Inc. The suit, filed on Wednesday, Dec. 19, in New York, names LOM principals Scott and Brian Lines as defendants, as well as two Vancouver men, William Peever and Phillip Curtis.
The SEC is seeking to ban Scott and Brian Lines from penny stocks for life. The regulator alleges that they and others secretly took control of Sedona through nominee accounts. Using paid touts, deceptive press releases and manipulative trades, they kept Sedona at prices between $9 and $10 while they dumped 159,300 shares, for proceeds of $1.5-million. The scheme ended when the SEC halted the stock. (All figures are in U.S. dollars.)
In the alleged SHEP manipulation, the script was almost the same, except the defendants made $4.3-million selling three million shares.
The Lines brothers, who operate LOM (Holdings) and its various subsidiaries from Bermuda, have not responded to the allegations.
SEC's complaint
The SEC's 67-page complaint names as defendants the Lines brothers; LOM (Holdings) and its various subsidiaries; Anthony Wile, 39, a Canadian living in Florida; Wayne Wile, 63, a Canadian living in the Cayman Islands; Robert Chapman, 72, a stock tout from Florida; William Peever, 48, a Vancouver resident and an LOM client; Phillip Curtis, 47, also a Vancouver resident and an LOM client; and Ryan Leeds, 35, a Florida stock broker.
SEC describes Sedona manipulation
The Sedona allegations trace back to December, 2002, when the Lines brothers struck a deal to merge Sedona with Renaissance Mining Corp. Inc., a private company owned by Tony Wile. Renaissance had a deal to acquire three gold mines in Central America, but needed $5-million in financing. The Lines brothers agreed to serve as Renaissance's investment banker, and they also agreed to take Renaissance public through a merger with Sedona, a shell company.
The SEC claims that in January, 2003, the Lines brothers secretly acquired control of Sedona. To conceal their ownership, they used five nominee companies called Gateway Research Management Group Ltd., Clyde Resources Ltd., Warwick Ventures Ltd., Iguana Investments Ltd. and ICH Investments Ltd. They enlisted several friends to be "signature directors" of these nominees. The friends were responsible for signing any paperwork, but did not put up any money.
Meanwhile, Tony Wile was issuing deceptive news releases on Renaissance that gave the impression the company had acquired three producing gold mines in Central America. A Jan. 8 release said the company had transitioned from exploration to production in just a few short months. In fact, the SEC says the company only had a letter of intent to acquire three mines, and the acquisitions were contingent on the company raising $5-million, among other things.
To kick off the promotion, Tony Wile held a party in Boca Raton with over 100 people. He notified Brian Lines of the event in a Jan. 2, 2003, e-mail. "This is the start of a massive promotion," he said. "Too bad you can't be in Boca [for the party]."
Around the same time, Mr. Chapman and three other newsletter writers issued purportedly independent research reports on Renaissance. Mr. Chapman, who the SEC says secretly controlled 370,000 Renaissance shares, called the company "an incredible opportunity." He said the stock was at $10 and could hit $62, even though it only traded at three cents.
The Lines brothers were making similar misrepresentations as they tried to raise money for Renaissance. Scott Lines told LOM customers that Sedona would open around $7 to $8 per share on Jan. 21. He also told them that Renaissance had already acquired the mines and that they would produce 100,000 ounces that year.
On Jan. 21, some unusual trading began. The Line brothers placed an order to sell 20,000 shares at $9, and 13 minutes later, Wayne Wile placed an order to buy 5,000 shares at $8.25. This was highly unusual, because the stock had been dormant for seven months and last traded at three cents. Similar trades followed.
After that, numerous public investors bought the stock at artificially inflated prices, the SEC says. Between Jan. 21 and Jan. 27, Brian and Scott Lines sold 143,000 shares between $8.95 and $9.40. They had bought those same shares for seven cents.
On Jan. 29, 2003, the SEC suspended Sedona, ending the scheme.
After the suspension, the Lines brothers altered records to conceal their roles in the scheme, the SEC says. Among other things, they told employees to backdate share purchase agreements and told the SEC that the five nominee companies were the true owners of the stock.
The SHEP manipulation
The SHEP manipulation followed almost the same script, except that it included Vancouverites Mr. Peever and Mr. Curtis as shareholders.
At first, the SHEP promotion faced some difficulties, which Scott Lines and Mr. Peever blamed on naked shorters. In spite of that, they eventually managed to sell three million of the company's shares at inflated prices, for proceeds of $4.3-million.
Again, after Brian Lines learned that the SEC was investigating SHEP, he instructed his lawyer to file ownership reports showing that nominees actually controlled SHEP shares. The SEC says the reports are misleading, and Mr. Peever, Mr. Curtis and the Lines brothers were the beneficial owners.
The SEC is seeking orders banning the Lines brothers and the other individual defendants from participating in penny stock offerings for life. It is also asking for civil penalties and appropriate disgorgement orders.
BCSC case
The SEC action comes almost three years after a B.C. Securities Commission panel dismissed allegations that LOM (Holdings) improperly withheld trading records from BCSC investigators. The BCSC was investigating trades that LOM made in San Telmo Energy Inc., a TSX Venture Exchange company.
Those allegations surfaced in May, 2004, just one month before the SEC subpoenaed Scott Lines, Mr. Peever and Mr. Curtis to provide trading information related to SHEP and Sedona. The SEC's case came to Vancouver that June when the SEC filed an application with the B.C. Supreme Court for information about the trading by Mr. Peever and Mr. Curtis.
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Reader Comments - Comments are open and unmoderated, although libelous remarks may be deleted. Opinions expressed do not necessarily reflect the views of Stockwatch.
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Brian Lines may not have been in Boca for the shindig... but I was. And it as a great party.
Posted by Wasn't that a party! @ 2007-12-21 01:31
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Is william peever also todd peever or a relative to todd peever
Posted by sedona @ 2007-12-21 09:25
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Finally! This stuff happened like 5 years ago.
Check out LOM's response to the SEC charges.
Posted by mike steves @ 2007-12-21 09:32
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This will not be a happy new year for a kniving vancouver broker that once pawned herself off as a somewhat naive and as a trustworthy sales assistant working in Toronto. Her story will likely be available in an upcoming statement of allegations ( for all to read). She lied and stole from many who taught her how to make a living, I suppose that it is karma. Merry Christmas fatty ( it worked out pretty well for you for a few years for you,anyway)
Posted by tip of the iceberg @ 2007-12-21 11:30
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The girl who took the orders ( although, she was cautioned against it....no charges???
Posted by what about the broker in toronto?? @ 2007-12-21 11:32
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what is scary is that SEC is going back so many years.Pulling trading plotts from six years ago? why
Posted by kerry losh @ 2007-12-21 15:13
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Why doesn't the SEC go back to all those crooks from the Internet bubble? Fraud on a massive scale, the likes of never before seen in the entire history of the stock market. Why does the SEC let those crooks get away with stealing billions and go after the penny stock scraps instead?
Posted by CNBC @ 2007-12-22 03:26
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I agree they are the biggest thieves. After all we live in Canada, why not harpoon the whale with an office on dunsmuir
Posted by blommberrg @ 2007-12-22 07:32
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I remember whin Sedona was the talk of the town, and all that I thought was just how lucky I am not being a canadian or US resident. Likely this is the beginning of the end of many careers of brokers and traders in North America ( know your client, right?)
Posted by not so bad in nassau @ 2007-12-22 07:45
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what does spinner have to do with this? Who was the broker raider?
Posted by j.spinner @ 2007-12-22 13:11
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