On October 3, 2018, the Securities and Exchange Commission announced that it filed an emergency action and obtained an asset freeze against two individuals and their companies in a scheme that generated more than $165 million of illegal sales of stock in at least 50 microcap companies. SEC investigators unraveled the multi-year scheme with the assistance of more than a dozen international regulators and sophisticated analysis of nearly 400 bank and brokerage accounts.
According to the SEC’s unsealed complaint, U.K. citizen Roger Knox (“Knox”) and his Swiss-based company, Wintercap SA (“Wintercap”) helped microcap securities holders evade federal securities laws that restrict sales by large shareholders. The complaint charges that Knox and Wintercap, formerly Silverton SA, helped sellers conceal their stock ownership and provided anonymous access to brokerage accounts to sell the shares in the U.S. market. For three specific issuers detailed in the complaint, Knox sold the stocks when their price and trading volume were inflated by promotional campaigns. Michael T. Gastauer (“Gastauer”) allegedly aided and abetted the fraud by establishing several U.S. corporations and allowing Knox to use their bank accounts to disburse the proceeds of his illegal stock sales.
The SEC’s complaint, filed in federal district court in Boston, charged Knox and Wintercap with violating the antifraud and registration provisions of the federal securities laws and with acting as unregistered broker-dealers, and charged Gastauer and his entities with aiding and abetting Knox’s violations of the antifraud and registration provisions.
The complaint also named as relief defendants two family members of Gastauer and a U.K. entity Gastauer controlled. In addition to the asset freeze and other temporary relief obtained, the SEC has sought permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest, penalties, and penny stock bars.
In a parallel criminal case, the U.S. Attorney’s Office for the District of Massachusetts announced criminal charges against Knox.