Sandip Shah, Securities Kickback Scheme, Massachusetts 2014

BOSTON – A pair of California men were slapped with federal charges yesterday for their involvement in a brazen stock kickback scheme.

Sandip Shah, 40, was hit with nine counts of wire fraud in an indictment, while his cohort Shailesh Shah, 47, was charged in an Information with two counts of mail fraud and two counts of wire fraud in Chino, California. Both men were previously arrested on February 27, 2014.

According to the charging documents, Sandip Shah was making a living by promoting penny stocks and helping public companies find sources of funding. Meanwhile, Shailesh Shah was at the helm of two publicly-traded companies, SOHM, Inc. and Costas, Inc. It’s alleged that Shailesh Shah agreed to pay secret kickbacks to an investment fund representative in exchange for having the fund buy stock in his companies. The kickbacks were cleverly concealed through sham consulting agreements and other fraudulent documents.

Furthermore, the indictment alleges that Sandip Shah agreed to introduce the investment fund representative to executives of publicly-traded companies, so that those executives could enter into the kickback arrangement. In exchange for the introductions and for facilitating the kickback arrangements, Sandip Shah accepted a portion of the kickbacks paid by the executives. What the defendants didn’t know was that the purported investment fund representative was actually an undercover agent.

The charges follow a lengthy investigation focusing on preventing fraud in the microcap stock markets. Microcap companies are small publicly-traded companies whose stock often trades at pennies per share.

If convicted, each defendant faces a statutory maximum penalty of 20 years in prison, three years of supervised release, and a fine of $250,000 or twice the gain or loss on each count.

United States Attorney Carmen M. Ortiz and Vincent B. Lisi, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division, made the announcement. U.S. Attorney Ortiz expressed appreciation for the significant assistance her office received from the U.S. Securities and Exchange Commission. These cases are being prosecuted by Trial Attorney Alexander H. Berlin.

The details contained in the indictment and Information are allegations. The defendants are presumed to be innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.

The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

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