SEC – USAO File Actions Based on Scheme To Conceal Ownership

by Dorsey & Whitney LLP
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Building on an undercover sting operation, the SEC filed an enforcement action against two individuals and their controlled entity. They are alleged to have conducted a business which helped shareholders conceal their ownership and avoid their filing obligations. As a result of operating the business, however, the business men assumed the filing obligations of their clients, which they violated. SEC v. Bandfield, Civil Action No. 1:14-cv-05271 (E.D. N.Y. Filed September 9, 2014). Parallel criminal charges were brought by the U.S. Attorney’s Office for the Eastern District of New York.

Robert Bandfield, Andrew Godfrey and IPC Corporate Services LLC are named as defendants in the Commission’s action. Mr. Bandfield is a U.S. citizen while Mr. Godfrey is a citizen and resident of Belize. He manages IPC which is a limited liability company formed under the laws of Nevis.

IPC had a website which details its services. Those include providing offshore services for company formation, trust formation, licensed trustee services, nominees and others. One of those services involved concealing the true ownership of shares so that the owner does not have to file Exchange Act Section 13d reports.

The shareholder services provided by the company through which stock ownership can be concealed were explained in a series of recorded conversations with an undercover federal agent that began in 2013 and continued through early 2014. In those conversations Messrs. Bandfield and Godfrey explained that they had formed a number of Nevis and Belize entities. IPC uses Nevis LLCs to hold shares of Belize Companies in part because the law imposes significant barriers on regulators and others to determining the identity of individuals who are IPC clients and actually owned the shares of the companies.

Under the arrangements the IPC client does not legally own either the Belize Companies or the Nevis LLCs he selects. Rather, Mr. Banfield appoints a nominal owner who has 99% of the ownership of the Nevis LLCs. The remaining 1% is held by IPC. That interest is controlled by Mr. Bandfield. Control is maintained over the nominees through a series of mechanisms such as undated letters of resignation.

Each Nevis LLC assumed ownership of a portion of the client shareholdings, but never more than 5%. If the client owns more than 5% of an entity, the shareholdings are divided among two or more entities. Thus, if the holdings are sold through a broker dealer questions are avoided. Under this structure the IPC client cedes legal ownership and legal control of the shares to IPC. Any trading requests are given to Mr. Bandfield. IPC does not keep trading profits. Rather, it is paid a fee for its service.

Since IPC has legal control over the client shares, it must participate in various corporate events and services. Those transactions are conducted in the name of IPC.

Neither Bandfield nor IPC ever filed a Schedule 13D or Schedule 13G. Yet during the period IPC and Mr. Bandfield acquired beneficial ownership of 5% or more of the outstanding common stock of at least one issuer that was registered under Exchange Act Section 12 and whose shares carried voting rights. The Complaint alleges violations of Exchange Act Section 13d. The Commission’s case and the parallel criminal action are pending.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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