The U.S. Securities and Exchange Commission sued Argyll Investments LLC and two of its executives over claims they defrauded officers and directors at public companies in an $8 million stock-lending scheme.
James T. Miceli, 48, and Douglas A. McClain Jr., 38, acquired stock from at least nine corporate officers since 2009 at a discount as collateral for loans, saying the shares would be sold only if they defaulted, the SEC said in a complaint filed today in U.S. District Court in San Diego. Instead, they sold shares for full market value to fund the loans and used the proceeds for their own personal benefit, the SEC said.
The SEC also accused brokerage AmeriFund Capital Finance LLC and owner Jeffrey Spanier, 46, of facilitating transactions for California-based Argyll without registering as a broker-dealer.
“Miceli and McClain thought they had devised a foolproof way to make substantial risk-free profits, but their purported business model was nothing more than an illegal get-rich-quick scheme,” Scott Friestad, an associate director in the SEC’s enforcement division, said in a statement.
The U.S. attorney in San Diego said in a separate statement today that the three were also charged with 35 counts of conspiracy, fraud and money laundering and that they face as long as 20 years in prison, if convicted, on each of the multiple counts of mail, wire and securities fraud.
The indictment also seeks forfeiture of $51 million, including cash and securities, a Ferrari, an Advantage Party Cat vessel, a Cessna Citation corporate jet, and diamond jewelry, according to the U.S. attorney’s statement.
Pat Swan, a San Diego-based attorney for McClain at law firm Jones Day, declined to immediately comment, saying he hasn’t yet reviewed the complaint. Phone calls to Spanier at his AmeriFund office and to Michael Attanasio, an attorney for Miceli, weren’t immediately returned.
The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties, according to the agency’s statement.
According to the SEC, Miceli and McClain promised the borrowers they would return the shares when the loans were repaid. Rather than retaining the shares as required, they sold them without the borrowers’ knowledge before or soon after funding the loans, the SEC said.
Because Argyll typically loaned the borrowers 30 percent to 50 percent less than the current market value of the shares, the company retained substantial proceeds even after funding the loans, the SEC said. As a result, Argyll reaped more than $8 million in unlawful gains, according to the agency.
The SEC also accused Miceli, McClain and Argyll of selling the collateral shares, which were restricted securities, into the public markets in unregistered transactions.