Risk & Compliance

Promoter Accused of $2M Shell Company Scam

The SEC says Sheldon Rose sold more than a dozen blank check companies disguised as promising startups to investors.
Matthew HellerSeptember 22, 2016

A stock promoter has been charged with disguising a “supply chain” of blank check companies as promising startups in a scheme that generated $2.7 million in illicit profits.

The U.S. Securities and Exchange Commission said Sheldon Rose, 77, created more than a dozen shell companies that had no operations and no value other than their registered status to sell stock. They were eventually sold to the public through reverse mergers or other change-of-control transactions.

Registration statements and other corporate filings made it falsely appear that the shell companies were pursuing real business ventures, according to an SEC administrative order

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Rose has agreed to settle the charges, with monetary sanctions to be determined by an administrative law judge at a later date. In a related case, the U.S. Attorney’s Office in Miami has charged him with a criminal count of conspiracy to commit securities fraud.

“Rose illicitly profited by creating a supply chain of blank check companies with the illusion that they were legitimate startups in order to register securities for sale in reverse mergers,” Eric I. Bustillo, director of the SEC’s Miami regional office, said in a news release.

The SEC said Rose is connected to a shell company scheme it halted last year with fraud charges against 10 other individuals. Four of those people — Daniel McKelvey, Jeffrey L. Lamson, Steven Sanders, and Alvin S. Mirman — have pleaded guilty to related criminal charges and are awaiting sentencing.

Rose, either acting alone or in concert with other undisclosed control persons, allegedly created shell companies with sham sole officers and registered offerings of their securities, without disclosing the true purpose or control of the companies.

Form S-1 registration statements “described elaborate business plans full of product descriptions, competitor analysis, and representations the sole officers worked up to 25 hours per week for the blank check companies and were involved in the day-to-day operations,” the SEC said.

In fact, the sole officers “took virtually no action toward the purported business plans,” the SEC said, and most of them “spent no more than one hour in any given week with respect to the companies.”