The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Clients of a now-defunct Bahamian broker/dealer have been accused of abusing its accounts to both conduct and conceal a computer hacking-related securities fraud that netted them $1.3m in collective illegal profits.

The US Justice Department and Securities & Exchange Commission (SEC), in separate criminal and civil lawsuits that charged multiple perpetrators in mid-August 2022, claimed accounts at Seton Securities International played a pivotal role in both selling stocks whose value was artificially inflated and concealing the identities of the fraudsters who owned the stock.

Neither Seton itself, nor any of its shareholders, officers or directors, have been named as defendants in the lawsuits. However, the SEC’s version, filed in the north Georgia federal court and which provides more details, reveals that the Bahamian broker/dealer’s “principal” - who is not identified - unwittingly took trading instructions as part of the scheme and that the perpetrators lied to staff about who were really the beneficial owners of the stocks involved.

The scam, according to the SEC, revolved around shares in two thinly traded microcap companies, Lotus Bio Technology Development and Good Gaming. Using accounts at Seton and other broker/dealers to conceal their ownership of large blocks of stock in both entities, the perpetrators allegedly ‘pumped up’ their price by issuing misleading press releases and other promotional material.

They then hacked into the brokerage accounts of unsuspecting investors, taking them over and using them to make large stock purchases to inflate the value of Lotus Bio Technology Development and Good Gaming even further. The shares purchased were then eventually dumped, or sold, to other unwitting investors to net the perpetrators a total $1.3m.

The Wong family, named among the defendants in both lawsuits, allegedly used their Seton account to conceal their ownership of 3.9m shares in Lotus Bio Technology. A cheque that the Wongs sent to Seton to support the purchase of these shares was said by the SEC to be “fake”, and they traded several million more shares with other clients of the Bahamian broker/dealer.

Revealing how the scheme worked, the SEC disclosed that the Wongs made $37,464 in illicit profits by selling Lotus stock from their Seton account to one of the hacked US brokerage accounts. “The largest single Seton sale order on August 16, 2017 - an order to sell 250,000 of the Wongs’ shares at $.0148 per share - was placed at 1.53pm eastern US time,” the US capital markets regulator claimed.

“Between 1.54pm and 1.56pm, the hackers caused the customer to purchase 200,000 Lotus shares at approximately $0.15 per share, and at 1.56pm Seton’s largest trade of the day - a sale of 162,700 shares at $0.15 per share - was executed directly against the hacked account.”

The following month, some 24 brokerage accounts were hacked by the conspirators and the Wongs sold another 1.608m shares held in their Seton account for a $187,764 profit. The Bahamian broker/dealer then wired them $100,000 representing proceeds from these stock sales in November 2017.

As for Good Gaming, some 1.5m of is shares were transferred by Jeffrey Cox, one of the defendants, into his Seton account on January 9, 2018. A further 2.921m shares were deposited in mid-January 2018 just days before four brokerage accounts were hacked and forced to buy one million Good Gaming shares.

“Just before the hacks, Cox twice verified with Seton that the Good Gaming shares had been transferred,” the SEC alleged. “At least 440,000 of the Good Gaming shares held at Seton were sold directly to the hacked accounts.” Net proceeds of more than $170,000 were generated, and one of the conspirators lied on a questionnaire sent to the Bahamian broker/dealer that he was not the beneficial owner of the shares sold from its account.

Seton was wound-up in early 2020 following regulatory action by the Bahamian Securities Commission, which was praised by its SEC counterpart for help provided in the $1.3m account hacking investigation.

The Securities Commission, in its 2020 annual report, disclosed that it intervened in September 2018 after discovering that “Seton had been convicted and fined in Alberta, Canada, for unregistered securities activities”.

“The Commission commenced a court-supervised winding up but subsequently agreed to a Commission-supervised, voluntary winding up using a liquidator appointed by the Commission – the first liquidation of this kind for the Securities Commission of The Bahamas,” the annual report added. 

“Thereafter, the Commission received the court’s leave to withdraw its petition in November 2018 and the winding-up continued to the end of 2019 with the liquidator’s final report being issued around February 2020.”

Tribune Business previously reported on Seton’s Canadian regulatory woes when they occurred in 2018. It paid a $35,000 fine to settle allegations it was operating as an unregistered entity in violation of Alberta’s securities laws after admitting to the breach when a client used its accounts to trade “tens of thousands of shares” in a company whose stock had been suspended.

The settlement agreement disclosed that Seton’s difficulties began when it received an application from Alberta resident, Lambert (Bert) Joseph Lavallee, to open a Bahamas-based securities trading account. Lavallee, who was accused by the Alberta regulator of insider trading, used the Seton account to help generate $137,000 from the sale of shares in North America Frac Sand (NAFS), a Canadian company he controlled.

Seton Securities International’s principal was New Providence resident, Jay Gotlieb. His LinkedIn account describes him as Seton Securities International’s president for the period May 2014 to October 2018, a period covering four years and six months, and whose end appears to coincide with the Securities Commission’s enforcement action against the broker/dealer.

The LinkedIn posting, though, makes no mention of the Securities Commission’s action or the more recent lawsuits by the US Justice Department and SEC against Seton’s former clients. Describing Mr Gotlieb as having more than 39 years’ experience in financial services, it added that Seton “closed operations” so he could “spend more time with family”.