United States Attorney
Northern District of Georgia
Thursday, February 23, 2012
Former Corporate Officers Sentenced for Stock Fraud Scam
Rufus Paul Harris, 43, of Oklahoma City, Benjamin Stanley, 48, of Kennesaw, Ga., and Darryl Horton, 50, of Okemos, Mich., were sentenced today by U.S. District Judge Timothy C. Batten in Atlanta on fraud charges stemming from a stock pump-and-dump scam involving their former company, Kennesaw-based Conversion Solutions Holdings Corporation (CSHC).
Harris was sentenced to serve 23 years in prison to be followed by 5 years of supervised release. Stanley was sentenced to serve 16 years in prison to be followed by 5 years of supervised release. Horton was sentenced to serve 4 ½ years in prison to be followed by 3 years of supervised release. Each defendant will be jointly and severally liable to repay $44,025,620.06 in restitution to more than 5,000 investor victims.
In commenting on the case, U.S. Attorney Sally Quillian Yates said, “These significant sentences reflect the seriousness of the massive fraud these defendants committed against numerous victims who invested in the defendants’ company. By issuing false information about the company’s assets, the defendants lured victims into purchasing stock at artificially high prices. While the defendants got rich, victims lost millions. But the defendants won’t be enjoying any of the ill gotten gains–they will be spending many years in prison. The President’s Financial Fraud Task Force will continue its work to root out fraud and restore investor confidence in our financial markets.”
“Today is a great accomplishment in the fight against fraud. Investment fraud not only victimizes individual investors, but the American public. Postal Inspectors will continue to work with its law enforcement partners to aggressively investigate and bring to justice those individuals who commit such crimes,” said Keith Morris, Postal Inspector in Charge of the Atlanta Division.
Harris and Stanley were convicted by a federal jury on May 26, 2011, after a two-week trial. Horton pleaded guilty to committing mail fraud while the jury was still in deliberation.
According to U.S. Attorney Yates, the charges and other information presented in court: Harris was the founder and chief executive officer of CSHC, Stanley was the co-founder and chief operating officer and Horton was the chief financial officer. The three defendants conspired to issue false press releases and financial statements about the company for the purpose of inflating the stock price, while at the same time they secretly transferred shares to family members who sold them at the inflated prices.
The defendants began issuing a series of press releases beginning in approximately July 2006 that publicly claimed CSHC’s ownership or control of entire issuances of foreign sovereign bonds issued by the Republics of Venezuela and Finland. These bonds were, on their face, worth billions of dollars and paid tens of millions of dollars in annual interest. In at least one of the press releases, Harris was quoted as stating that, based on CSHC’s acquisition of such large quantities of sovereign debt, “we are looking at a new justifiable reorganization release price of $25.63 [per share].” At the time, CSHC shares generally traded at less than approximately $1 per share. In October 2006, CSHC issued an annual report claiming as much as $800 million in assets, $500 million of which was in the form of foreign sovereign bonds as stated in at least some of the press releases. Also according to the report and its attachments, CSHC’s anticipated income included $19,869,792 in interest revenue from those bonds.
The evidence at trial showed that the three defendants knew the public statements were not true, and knew that CSHC had little if any assets of any value and did not own or control the foreign sovereign bonds and other assets that it claimed to have. CSHC also had little if any in the way of revenue or profits from any business activity.
During the weeks the defendants disseminated the misrepresentations via press releases and U.S. Securities and Exchange Commission (SEC) filings, CSHC’s stock price on the open market more than tripled. The stock, which was a “penny-stock” trading for less than $1 per share in August 2006, sold for between $3-$4 per share in October 2006. During this time, Harris, Stanley and Horton transferred substantial quantities of CSHC stock to family members and others, who sold the stock in the open market at artificially inflated prices.
On May 24, 2011, before the trial concluded, Harris jumped his bail and fled Atlanta. The trial continued as to the other two defendants and as to Harris in absentia. Harris was arrested by a U.S. Marshal’s Service task force in Utah on May 28, 2011, and he has been held in detention pending his sentence.
This case was investigated by Special Agents of the FBI and Postal Inspectors with the U.S. Postal Inspection Service, based on a referral from the SEC. The SEC has brought civil fraud charges against CSHC.
Assistant U.S. Attorney Justin S. Anand prosecuted the case.
This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit www.StopFraud.gov .