Securities and Exchange Commission v. Diane J. Harrison, et al., Civil Action No. 18-cv-01003 (M.D. Fla., filed April 25, 2018)
The Securities and Exchange Commission recently announced that it filed a civil injunctive action on April 25, 2018, against a lawyer and two other individuals relating to two microcap schemes involving undisclosed “blank check” companies. In separate, settled administrative proceedings, the SEC charged another individual and two public companies related to one of the schemes.
The SEC’s complaint alleges that attorney Diane J. Harrison, Esq. and her husband, Michael J. Daniels, both of Palmetto, Florida, manufactured at least five microcap issuers with the undisclosed intent to sell them based on their status as public companies with purportedly unrestricted shares available for resale in the public markets. According to the complaint, Daniels and Harrison created the false appearance that the companies were pursuing specific business plans with independent management and shareholders by installing friends and family (including defendant Catherine A. Bradaick-Zolla of Sarasota, Florida, who also provided other assistance to the fraud) as purported officers and shareholders. The SEC alleges that, in reality, Daniels and Harrison controlled the shares. According to the complaint, Daniels and Harrison sold four of the five companies to Andy Z. Fan of Las Vegas, Nevada and, along with Bradaick-Zolla, continued to provide support to Fan. For example, the SEC alleges that Daniels, Harrison, and Bradaick-Zolla prepared false SEC filings, Harrison submitted false legal opinion letters, and Daniels and Bradaick-Zolla entered manipulative trades to artificially set the price of the stocks in the public market. The SEC previously issued a stop order on the public offering of the fifth company in Daniels and Harrison’s pipeline.
The SEC’s complaint also alleges that Harrison participated in a separate fraudulent scheme involving at least 11 undisclosed blank check companies secretly controlled by Alvin S. Mirman and Sheldon R. Rose. The SEC previously filed enforcement actions against Mirman and Rose, who were also convicted of criminal charges and sentenced to prison based on the same alleged conduct. According to the SEC’s complaint, Harrison provided at least 21 false legal opinion letters in furtherance of Mirman and Rose’s scheme.
The SEC’s complaint, filed in the United States District Court for the Middle District of Florida, alleges that Harrison and Daniels violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and Rule 13a-14 thereunder, and aided and abetted violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13 and 13a-14 thereunder. The complaint also alleges that Daniels violated Section 9(a) of the Exchange Act, and that Harrison also violated Sections 5(a) and 5(c) of the Securities Act. The complaint further alleges that Harrison and Bradaick-Zolla aided and abetted violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement with prejudgment interest, civil penalties, penny stock bars, and officer-and-director bars against each defendant.
In separate orders instituting settled administrative proceedings, the Commission charged Fan and two public companies under his control, AF Ocean Investment Management Company and ChinAmerica Andy Movie Entertainment Media Company, with issuing false press releases and making false SEC filings regarding their purported revenues. The Commission also charged Fan with manipulating the price of both companies’ stock and fraudulently selling his controlling interest in another public company.
Without admitting or denying the SEC’s findings, Fan and the two companies agreed to the entry of cease-and-desist orders. Fan further agreed to entry of an order barring him from participating in penny stock offerings, barring him from serving as an officer or director of a public company, and ordering him to pay $140,000 in civil penalties. AF Ocean and ChinAmerica each further agreed to entry of an order revoking their securities registrations.
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