A central figure in one of the biggest frauds in Canadian history has been cited by U.S. securities regulators for allegedly marketing worthless penny stocks through a "boiler room" from Medellin, Colombia.
On Tuesday, the U.S. Securities and Exchange Commission (SEC) accused Frank Biller of civil securities fraud charges.
The SEC alleges Biller operated a call centre out of Medellin that bilked investors in Canada and the United States of more than $58 million in a scheme involving at least 18 companies, including one formerly based in the Fraser Valley.
Canadians Raymond Dove and Troy Gran-Brooks have also been charged in the alleged scheme, also known as a “boiler room” operation whereby phone calls are made using high-pressure sales tactics and misleading information to convince prospective investors to buy stocks in near-worthless companies.
"These scam artists went to great lengths — using bogus companies, aliases, and spoofing their phone numbers — to defraud and mislead investors into a pump-and-dump scheme," said Paul Levenson, director of the SEC’s Boston regional office, in a statement.
Biller, now 52, is presumed innocent until a judge rules on his charges.
Biller was convicted of criminal fraud and theft for his participation in the high-profile B.C.-based Eron Mortgage Corp. Ponzi scheme through the late 1990s.
The Eron Mortgage saga is one of, if not the biggest, financial fraud cases in B.C. history. It garnered significant media attention given the sheer volume of victims.
Eron Mortgage promised over 3,300 B.C. investors big returns on syndicated mortgages, according to the B.C. Securities Commission (BCSC); in reality, it was a Ponzi scheme whereby new investments were used to pay returns for older ones while much of the money went to personal use by the fraudsters, including Biller. In total, the investors lost over $170 million.
In 2000, a B.C. Securities Commission (BCSC) panel of commissioners provided some leniency toward Biller by not banning him from the securities industry for life unlike Eron’s president Brian Slobogian. Instead, Biller was handed a 10-year suspension and fined $300,000 for his role as vice-president. The fine remains unpaid.
“Although his conduct demands his removal from the markets for a substantial period of time, we are not convinced that Biller is a permanent risk to the markets. Biller is a young man and we do not believe it will serve the public interest to permanently deprive him of career opportunities that will bring him into contact with participants in the public markets,” the panel stated in 2000.
The panel’s decision was criticized publicly, in media reports, by Eron investors.
As it turned out, Biller didn’t abide by his orders and in 2002 he was caught promoting stocks and engaging in investor relations after participating in a boiler room in Vancouver.
Biller was then found guilty of criminal fraud and theft in 2005 for his role with Eron Mortgage. He was sentenced to three years in prison.
The BCSC reached a settlement with Biller in 2007, finally banning him from the markets (at least in B.C.) for life.
At the time the Eron Mortgage scheme unfolded, the sale of syndicated mortgages was only loosely regulated by the B.C. Registrar of Mortgage Brokers Now, such investments require offering memorandums (filings explaining the investment, including risks) overseen by the BCSC.
These changes were outlined in a March 2005 study by Simon Fraser University criminologist Neil Boyd.
“The [B.C.] Securities Commission has, in the wake of Eron, removed any doubt about whether an Eron-style syndicated mortgage is a security; it clearly is,” Boyd said in his report.
Boyd also surveyed the damage among investors, who lost savings and retirement assets.
“The effects of the Eron Mortgage losses were literally devastating to hundreds of the Eron investors,” wrote Boyd. “More than half of those who lost more than $50,000 reported extreme or major harm to their emotional well-being, their current financial situation, and their retirement security. Between 20 and 30 per cent of these investors also reported extreme or major harm to their marital relations, friendships and physical health.”
Fast forward to 2016, Biller is said to have started the Colombia boiler room with Dove, according to the SEC.
There, Biller and others allegedly marketed, or "pumped," the shares controlled by company insiders, who formed so-called “control groups” of nominee shareholders who would sell, or "dump," the shares to unwitting retail investors.
“The control groups unlawfully concealed their control of the float [of shares], by breaking up their stock into small blocks owned by foreign nominee companies they directed, and failing to file disclosures that would have revealed that all of those smaller blocks were under their common control.
“The control groups wanted to sell the stock they owned in order to make a significant profit. The control groups used Defendants’ boiler room both to create demand from investors so they would have buyers for their shares, and to increase the price of the stock, thereby increasing their profits,” stated the SEC’s complaint against Biller and others.
Among the involved companies is Garmatex Holdings Ltd., a Nevada-incorporated fabric technology company that once had a subsidiary office in Chilliwack and Surrey. The SEC claims 88% of Garmatex Holdings Ltd. shares were held by Luis Carillo, who is facing fraud charges in a separate but related case.
Garmatex is among the hundreds of companies whose insider shares were allegedly concealed by offshore shell company facilitator and ex-Vancouver lawyer Fred Sharp. The SEC alleges Carillo used nominee shells created by Sharp and moved shares through Swiss trading platform Wintercap SA, operated by convicted fraudster Roger Knox.
Sharp faces criminal securities fraud charges from the U.S. Department of Justice.