A Richmond woman code-named “Wires” among her business partners is asking a Boston judge to dismiss civil charges against her in relation to an alleged $1-billion stock fraud scheme orchestrated from Â鶹´«Ã½Ó³»via a network of offshore accounts.
Yvonne Gasarch, whose Chinese name is Zhiying Chen, is one of two key alleged accomplices for ex-Â鶹´«Ã½Ó³»lawyer turned offshore shell company facilitator Fred Sharp, a West Â鶹´«Ã½Ó³»resident.
Sharp, with Gasarch and Courtney Kelln of Surrey, formed what the U.S. Securities and Exchange Commission (SEC) has dubbed the “Sharp Group,” which allegedly operated to conceal shareholdings for public company insiders by using offshore shells controlled by nominees. Along the way, the alleged conspirators lied about their beneficial ownership by misrepresenting disclosures to brokers and trading agents.
The commission alleges a simultaneous “pump and dump” scheme whereby the insiders (Sharp Group clients) marketed (“pumped”) the otherwise nearly worthless shares of hundreds of U.S. companies and then sold (“dumped”) them at inflated prices to unsuspecting regular investors.
In the end, the fraudsters profited at the expense of people's investment portfolios, the commission alleges.
The alleged scheme is said to have generated $770 million in illicit profits from the sale of over $1 billion worth of stocks. Gasarch is said to have received over $1 million between 2010 and 2019 for facilitating the transactions between shells, from Hong Kong to Switzerland and several Caribbean nations, the commission alleges.
Sharp and Kelln face criminal securities fraud and conspiracy to commit securities fraud charges for their part, whereas Gasarch only faces the civil charges from the commission, which is seeking market bans, fines and repayment of alleged ill-gotten funds.
Since the charges were announced in August, Gasarch has had her home on Gabriola Gate listed for sale for $2.9 million and she has successfully sought to ensure her husband’s U.S. bank accounts are not frozen. However, her six Canadian and two American bank and brokerage accounts have been frozen by the authorities. The American authorities state the 49-year-old holds both Chinese and Canadian citizenship.
Gasarch maintains her innocence and is presumed innocent until a court rules on the allegations. She has argued via her U.S. attorneys to have her case dismissed before reaching the discovery stage in the District Court of Massachusetts.
Gasarch argued three points. First, the SEC claim falls outside a five-year statute of limitations, as the commission alleges no clear illegal activity by her within the past five years. Second, Gasarch argues none of the allegations against her are specific; rather, the commission contends she played an administrative role in the alleged scheme. Finally, Gasarch argues the commission has failed to prove she acted with intent and was aware of the alleged fraud.
In response, the commission claims Gasarch is “cherry-picking” at the allegations and it is too early to file a motion to dismiss (before a discovery takes place). Furthermore, she either knew what she was doing or she was reckless and negligent, the commission argued in its response on Dec. 14.
“If discovery reveals that Gasarch stuck her head in the sand and chose not to ask any questions for the entirety of the time she worked with Sharp …while collecting more than a million dollars, including when she wrote a memo about wiping telephones before crossing borders and including when she served as a nominee beneficial stock owner — such evidence would be entirely consistent with acting recklessly or negligently.”
The commission was referring to how the Sharp Group communicated with one another through an encrypted cellphone network Sharp dubbed “Q.” Within the network of “x-phones” Gasarch was reportedly known as “Wires” and Sharp was “Bond.”
Among the evidence put forth, in 2015 she drafted a memo to company insiders (clients) with instructions on how to “delete all secure chats when xphone is shut down (e.g., to cross a border).”
The commission’s response also puts forth in more detail some of Gasarch’s activity within the Sharp Group, including “deliberately” arranging for wire transfers of the proceeds of illegal stock sales in a manner that concealed the actual beneficial owners of the stock being sold. The SEC alleges that Gasarch had “overall awareness of her role in the scheme,” since she personally acted as a nominee shareholder for Sharp Group clients.
As an example, Gasarch used her Peaceful Lion Holdings Ltd. nominee entity, registered in her Chinese name, to conceal the control of company Stevia First by co-defendants Mike Veldhuis, Paul Sexton, and Jackson Friesen — all of whom are from the Â鶹´«Ã½Ó³»area. Gasarch distributed cash and wire transfers from the sale of Stevia First shares in 2014, according to the complaint.
In its response, the commission also argued the five-year limitation period applies only to civil monetary penalties whereas it’s seeking repayment of ill-gotten profits and other penalties, including trading bans, which have a 10-year limitation. Furthermore, any limitation applies only to people residing in the United States, the commission noted.
Meanwhile, co-defendants Sexton, Friesen and Graham Taylor have also filed motions to dismiss based on the statute of limitations argument. The commission has responded likewise with its opposition.
Veldhuis is also challenging the charges on grounds they are inconsistent and arbitrary. The commission hasn’t yet responded to Vedhuis' application.
The commission claims Sexton, Friesen and Veldhuis formed the “Veldhuis Control Group” to orchestrate the scheme alongside Sharp. In one example of the alleged scheme, Veldhuis sent the following encrypted communication to Friesen: “u r getting 173k today. A cut from MDDD and STVF. Buy a boat [expletive]. Rich mother [expletive].”
MDDD and STVF refer to two of the hundreds of companies that now trade for pennies per share.
The criminal cases have not advanced since charges were laid in August.
