The Securities and Exchange Commission (SEC) has charged two senior executives and their California-based firm with claims that they defrauded companies in an $8 million stock lending scheme.
The SEC alleges that Argyll Investments is merely a fraud perpetrated by James Miceli and Douglas McClain to acquire publicly traded stock from corporate officers and directors at a discounted price from market value, separately sell the shares for full market value in order to fund the loan, and use the remaining proceeds from the sale of the collateral for their own personal benefit. Miceli, McClain, and Argyll typically lied to borrowers by explicitly telling them that their collateral would not be sold unless a default occurred. However, since Argyll had no independent source of funds other than the borrowers collateral, Argyll often sold the collateral prior to closing the loan and then used the proceeds to fund it, said a press statement from the SEC.
Scott Friestad, associate director of the SECs Division of Enforcement said: Miceli and McClain thought they had devised a foolproof way to make substantial risk-free profits, but their purported business model was nothing more than an illegal get-rich-quick scheme.”
Also charged in the SECs complaint filed in U.S. District Court for the Southern District of California is a broker through which Argyll attracted potential borrowers. The SEC alleges that AmeriFund Capital Finance and its owner Jeffrey Spanier violated the federal securities laws by brokering numerous transactions for Argyll while not registered with the SEC.
The SEC alleges that Miceli and McClain induced at least nine corporate officers and directors since 2009 to transfer ownership of millions of shares of stock to Argyll as collateral for purported loans. Miceli and McClain promised to return the stock to the borrowers when the loans were repaid. However, rather than retaining the collateral shares as required, they sold the shares without the borrowers knowledge before or soon after funding the loans. In many cases, they used the proceeds from the collateral sales to fund the loans. As a result of the scheme, Argyll reaped more than $8 million in unlawful gains that Miceli and McClain used in part toward their personal expenses.
In addition to the fraud charges against Miceli, McClain, and Argyll, the SEC alleges that they violated the federal securities laws by improperly selling the collateral shares all of which were restricted securities into the public markets in unregistered transactions. They also failed to register with the SEC as brokers or dealers.
(JDC)