The U.S. District Court for the District of Massachusetts has passed a final judgment against Avtar S. Dhillon, a resident of California, in a significant case brought by the U.S. Securities and Exchange Commission (SEC). This complex case involved Dhillon and eight other defendants, who were part of fraudulent schemes related to illegal stock sales. These schemes generated hundreds of millions of dollars and were executed over several years.
The Fraudulent Scheme
Table of Contents
The SEC’s allegations point to Frederick Sharp, a Canadian resident, as the mastermind behind the fraudulent activities, which spanned from 2011 to 2019. Sharp, along with associates Zhiying Yvonne Gasarch and Courtney Kelln, also from Canada, played a crucial role in enabling the control persons of microcap companies to conceal their stock ownership and control. This concealment allowed them to sell their stock in the U.S. markets, violating federal securities laws.
In addition, another group of Canadian residents, Mike K. Veldhuis, Paul Sexton, and Jackson T. Friesen, often collaborated with Sharp. They engaged in selling massive stock positions while simultaneously hiding their control positions and stock promotional activities from the public. Avtar S. Dhillon, who was at the helm of the boards of directors for four public companies whose stocks were involved in these schemes, reportedly made millions from these illicit sales. He was found to be complicit in these activities.
Furthermore, Maryland resident William T. Kaitz, who worked as a promoter, played a role in these schemes. He is alleged to have touted stocks that Veldhuis, Sexton, and Friesen were planning to sell, all the while concealing their roles in these activities.
Legal Proceedings and Judgments
The judgment against Dhillon is substantial. He has been ordered to pay more than $10 million, which includes fines, disgorgement of illicit gains, and prejudgment interest. Additionally, Dhillon has been permanently barred from violating various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. He is also subjected to a penny stock bar.
Apart from Dhillon, the court has taken action against other key figures in these schemes. A default judgment was entered against Frederick Sharp, mandating him to pay more than $50 million. Judgments by consent were also entered against other defendants, including Taylor and Kaitz. In the case of Kelln and Veldhuis, the court imposed injunctions and penny stock bars, with financial penalties to be decided later. A judgment against Sexton saw him agreeing not to contest his liability.
In a significant turn of events, following a ten-day trial in September 2023, a jury found Gasarch liable for violating several sections of the Securities Act and the Exchange Act. Friesen was also found liable for violations under the same acts.
Impact and Significance
This case was skillfully handled by Kathleen Shields, David London, Alfred Day, and Nita Klunder from the Boston Regional Office of the SEC. Their successful prosecution of this case marks a significant win for the SEC, emphasizing their ongoing commitment to protecting retail investors from fraudulent schemes.
The case against Dhillon and his associates highlights the intricate and covert nature of stock market fraud. It underscores the importance of vigilant regulatory practices to safeguard the integrity of financial markets. The substantial penalties and bans imposed reflect the severity of the offenses and serve as a deterrent to similar fraudulent activities in the future.
