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From Securities Regulation Daily, February 20, 2018

Israelis, their accounting firms and lawyer settle SEC allegations of 'shell factory scheme'

By Rebecca Kahn, J.D.

The SEC has settled charges against three Israeli residents, a D.C. attorney, an Israeli auditor and his Maryland-based accounting firm for their roles in a fraudulent scheme that allegedly created "sham business plans, inserted placeholder shareholders, and with the help of gatekeepers, filed false documents to reap over $1.8 million from companies that sold as worthless shells." The defendants were ordered to disgorge over $2 million including interest. In addition, the three Israelis submitted to penny stock bars and the attorney and auditor will be banned from practicing before the Commission (SEC v. PerlsteinSEC v. StrumSEC v. Weinberg; and In the Matter of Simcha Baer, CPARelease No. 34-82736, February 16, 2018).

Perlstein Group. The SEC’s complaint filed in the Eastern District of New York alleged that from 2010 to 2014, dual U.S.-Israeli citizens Sharone Perlstein and Aric Swartz, and Israeli citizen Hadas Yaron (the "Perlstein Group") created at least 15 fraudulent shell companies which had virtually no assets or operations and no legitimate business purpose. The Perlstein Group did this by filing false and misleading registration statements and periodic reports with the SEC, creating phony business plans, and appointing nominal officers and directors, who acted as straw-man shareholders for the shell companies.

With the assistance of an attorney and an accountant, the Perlstein Group then conducted sham U.S. IPOs of the shell companies’ securities, and sold (or attempted to sell) the shell companies as publicly traded shares. In reality, the defendants continued to control the shares and subsequently sold the shell companies at a profit of more than $1.8 million.

Shell companies. The shell companies are: Aquino Milling, Inc., n/k/a AV Therapeutics, Inc.; Duane Street Corp., n/k/a Cur Media; Eco Planet Corp., n/k/a J.E.M. Capital Ltd.; Epsilon Corp., n/k/a Gase Energy, Inc.; Flaster Corp.; iLoan, Inc.; Instride, Inc.; L3 Corp., n/k/a Praetorian Property, Inc.; Lollipop Corp.; Marathon Bar Corp., n/k/a Lipocine, Inc.; Olie, Inc., n/k/a Syndicate Business Development Corp.; Olivia Inc., n/k/a Bio-En Holdings Corp.; Secure It Corp., n/k/a Black Stallion Oil and Gas, Inc.; Universal Tech Corp., n/k/a Bay Stakes Corp.; and Zubra Inc.

D.C. cases. The SEC also filed complaints in D.C. federal district court against "gatekeepers" for providing substantial assistance to the scheme. The SEC claimed that D.C. attorney Jonathan Strum drafted false and misleading registration statements and periodic reports and signed fraudulent opinion letters. The SEC further alleged that Israeli resident and CPA Alan Weinberg and his Baltimore-based accounting firm (Weinberg & Baer) issued misleading audit reports for at least seven of the shell companies. Despite numerous audit failures and red flags, Weinberg and his firm allegedly issued audit reports falsely asserting that the audits had been performed in accordance with PCAOB auditing standards.

Charges. The SEC charged Perlstein, Swartz, and Yaron with violating Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 thereunder and charged Strum, Weinberg, and Weinberg & Baer with aiding and abetting these violations. It charged Weinberg (as an individual) and his firm, Weinberg & Baer, with violating Exchange Act Section 10A(a)(2); and Weinberg & Baer with violating Rule 2-02(b)(1) of Regulation S-X.

Disgorgement. To settle the SEC’s charges, the defendants agreed, without admitting or denying the allegations, to the entry of permanent injunctions as well as disgorgement and prejudgment interest in the following amounts: $1,656,121 for Perlstein; $307,510 for Swartz; $106,147 for Yaron; $62,900 for Weinberg and Weinberg & Baer, jointly and severally; and $33,611 for Strum.

Injunctions. In addition, Perlstein, Swartz, and Yaron agreed to the entry of penny stock bars; Weinberg and Weinberg & Baer agreed to be suspended from practicing as accountants before the SEC; and Swartz and Strum agreed to be suspended from practicing as attorneys before the SEC.

Simcha Baer. The SEC also settled administrative proceedings against Maryland-based accountant Simcha Baer for his role in the scheme. According to the SEC’s order, Baer failed to properly perform and document various engagement quality reviews for audits and interim reviews, and repeatedly back-dated and falsified documents produced to the SEC. This constituted improper professional conduct pursuant to Exchange Act Section 4C(a)(2) and Rule 102(e)(1)(ii) of the SEC Rules of Practice. Without admitting or denying these findings, Baer agreed to be permanently barred from practicing before the SEC as an accountant.

Global assistance. In its press release, the SEC acknowledged assistance from the Israel Securities Authority, the Latvia Financial and Capital Market Commission, the British Columbia Securities Commission, the U.K.’s Financial Conduct Authority, as well as the IRS, FBI, FINRA and the U.S. Attorney’s Office for the Eastern District of New York.

The cases are No. 1:18-cv-01026 (SEC v. Perlstein); SEC v. Strum and SEC v. Weinberg .

The release is No. 34-82736.

Attorneys: Preethi Krishnamurthy, Daniel Joseph Maher for the SEC.

Companies: Weinberg & Baer LLC

MainStory: TopStory AccountingAuditing BeneficialOwnership Enforcement FraudManipulation InternationalNews DistrictofColumbiaNews MarylandNews NewYorkNews

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