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Rights + Justice

How to Crack a Shell Company Fraudster

Gregg Mulholland was a wiz at the pump-and-dump game, bilking investors out of $250 million. The crime, he says, is ‘ambiguous.’

Darryl Greer 6 Dec 2021 | TheTyee.ca

Darryl Greer is a journalist based in Vancouver.

On June 23, 2015, stock promoter Gregg Mulholland left his West Vancouver home with his family to board a private jet to spend his 46th birthday in Mexico. Years in the securities industry had allowed him to amass a considerable fortune, including the jet, a Range Rover, a property in Whistler and a sprawling California mansion. When Mulholland moved to West Vancouver in late 2014, he purchased the five-bedroom, five-bathroom home at 3630 Mathers Ave. for just under $5 million. The home was paid for in cash routed through a Hong Kong law firm.

Mulholland never made it to Mexico. On a stop-over in Phoenix, Arizona, the FBI arrested him in connection with a massive securities fraud and money laundering conspiracy. The fraud had been orchestrated through an offshore brokerage company in Central America called Legacy Global Markets, which Mulholland secretly controlled. Mulholland and several others, the U.S. government alleged, had used anonymously owned shell companies to fraudulently manipulate the stock prices of dozens of publicly traded American companies, raking in millions from so-called pump-and-dump schemes.

While he originally pled not guilty, Mulholland eventually copped to one charge of money laundering, agreeing to forfeit a litany of assets including funds and securities in more than two dozen accounts, the private jet, the Range Rover, the Whistler property and the West Vancouver home. On Feb. 6, 2017, Mulholland was sentenced to 12 years in prison.

The U.S. Attorney in New York’s Eastern District, Robert Capers, had harsh words for Mulholland in a missive to the judge before sentencing. “Not only is market manipulation too common, but Mulholland took it to a level that is very rarely seen,” he wrote. “The defendant, together with his co-conspirators, stole more than $250 million from more victims than the government can realistically count.”

While Mulholland’s scheme may have been rare in scale, Canadian individuals and entities have long played an outsized role in cross-border capital markets fraud. Fraudsters easily take advantage of jurisdictional boundaries to trip up regulators and law enforcement, hiding behind corporate anonymity to conceal ownership of assets bought with ill-gotten gains. Mulholland’s use and abuse of shell companies exemplifies a long-standing problem that policy-makers are now trying to tackle the world over.

The Canadian government is set to unveil a registry forcing beneficial owners — the true owners of companies behind nominee “strawman” shareholders or directors — to unmask themselves by 2025. In June, Canada’s anti-money laundering agency, the Financial Transactions and Reports Analysis Centre, or FINTRAC, issued new guidance about collecting beneficial ownership information as a “key component of Canada's anti-money laundering and anti-terrorist financing regime.”

Identifying beneficial ownership, the agency’s new guidance states, will remove “the anonymity of the individuals behind the transactions and account activities.”

The B.C. government, meanwhile, has gone live with its much-touted Land Ownership Transparency Registry, but has since extended the deadline to register. Property owners have until November 2022 to sign up. The LOTR, the government says, will take action “to end hidden ownership” in order to “crack down on tax fraud and close loopholes.”

But for Mulholland’s case and many others like it, these new measures come too little and far too late.

The U.S. Securities and Exchange Commission still hasn’t collected millions in proceeds from Mulholland’s many frauds. And even though he initially agreed to forfeit the West Vancouver home, Mulholland now claims the home was never his to forfeit in the first place. After all, it was never in his name. It’s owned by a company, which is in turn owned by his wife Delia.

From nightclubs to penny stock fraud

Mulholland’s journey from a luxurious life of mansions and private jets to the destitution of a U.S. prison cell is a meandering tale laid bare in hundreds of pages of court documents from both sides of the border. They paint a picture of a charismatic salesman with the gift of the gab who began dabbling in stock frauds many years before his eventual downfall.

Born in Stanton, California in 1969, Mulholland moved with his family to Calgary shortly after. In 1990, he returned to California to attend college, and began working in sales at brokerage firms and in advertising. Eventually, he became a nightclub owner.

In 1994, the Los Angeles Times called Mulholland and his partners, who were set to open the Thunderbird Nightclub in Newport Beach, “the dream team of local clublife.” In April 1995, the Times reported the club was as busy on weekends “as the best rides at Disneyland.”

But the honeymoon didn’t last long. By the summer of 1995, police officers were testifying to Newport Beach’s city council that the club was plagued by problems. Opponents seeking the club’s closure showed video of a “raucous group of people drinking alcohol, smashing bottles and urinating in a parking lot adjacent to the club.”

After the club’s opponents succeeded, Mulholland attempted to open a restaurant in nearby Costa Mesa — but tribulations with the Thunderbird meant facing an uphill battle with an unfriendly city council.

Ultimately, the city’s planning commission denied Mulholland’s bid.

It would be many years before Mulholland’s name popped up in the news again — but when it did, the problems were considerably more serious. Mulholland had spent the intervening years dabbling in the securities industry, working in advertising and eventually becoming “self-employed” from 1996 until his arrest.

In December 2011, the U.S. Securities and Exchange Commission filed a lawsuit in Nevada over a “classic pump-and-dump scheme” involving a company called Rudy Nutrition, which was helmed by Daniel Ruettiger, the real-life inspiration for the 1993 football movie Rudy.

Mulholland’s 2008 stock promotional work for the company — the “pump” — involved boasting that Rudy Nutrition’s sports drink had outsold Gatorade in test markets. Mulholland sent millions of mailers to potential investors and posted videos including the claim online. Schemers sold millions of shares on an unsuspecting market, luring investors in with false promises of investing in “something special.” The company’s stock went on “a roller-coaster ride,” and the dump generated $11 million in illicit profits.

Mulholland got caught and agreed to repay millions — but the grift was only a prelude to the magnum opus that would be his undoing.

In late 2010, Brian De Wit, then-president of Legacy Global Markets, an offshore broker and investment management company with offices in Belize and Panama, offered Mulholland the opportunity to refer clients to the firm for a fee. In what he would later describe in a letter to the sentencing judge as a “horrific decision,” Mulholland turned down a job with a large toy company to work for Legacy instead.

In short order, Mulholland bought Legacy for $1 million, secretly controlling the firm by buying through a trust while living in California. According to the indictment, he “moved cash and a substantial amount of his securities” to the firm prior to his secret purchase of the offshore brokerage.

By 2012, Legacy was in the crosshairs of an undercover FBI operation. The agency was investigating a group of Belize-based companies, run by a retired American dentist named Robert Bandfield, that offered offshore company formation services. Bandfield’s IPC Corporate Services Inc. and its affiliates, the FBI would learn, were responsible for incorporating thousands of “sham companies” designed to circumvent U.S. securities and tax regulations, hiding beneficial owners behind strawmen nominee shareholders and directors. Mulholland and Legacy, the FBI claimed, were some of IPC’s biggest clients.

As wiretap evidence would later show, such services were crucial for the Mulholland Group. The group used companies set up by Bandfield for pump-and-dump schemes involving dozens of firms. Prosecutors singled out three firms that had been secretly purchased and subsequently manipulated by the Mulholland Group: Cannabis-Rx Inc., Vision Plasma Systems Inc. and Cynk Technology Corp., penny-stock companies traded on over-the-counter exchanges, which enjoy less regulatory scrutiny than NASDAQ or NYSE-listed companies.

In May 2014, Mulholland and De Wit were caught on a wiretap discussing Cynk, a purported online social networking company trading under 10 cents a share at the time. Through companies and accounts set up through Bandfield, the Mulholland Group gained control of Cynk, offloading shares to an associate’s close family members. The company saw little trading volume until the summer of 2014, when Cynk’s shares ballooned from $2.25 to $13.90 despite the company having no revenues or assets. On paper, this pushed the company’s value to more than $4 billion.

On July 11, 2014, the SEC halted trading in CYNK.

By then, authorities were closing in on Bandfield and his crew, while Mulholland maneuvered millions through multiple accounts in the months before his capture.

The use and abuse of shell companies in Canada

The corporate shell games that enabled schemes like Mulholland’s are nothing new, according to Kevin Comeau, a retired Ontario-based lawyer and anti-money laundering advocate. In fact, it’s fair to characterize them as an unintended consequence of the origins of capitalism itself.

“The whole idea of a corporation was invented to promote capitalism in a very good and constructive way,” Comeau said in a phone interview. Limiting the liability of investors, he said, allowed people to risk money without risking their entire nest egg, leading to a massive boon of global economic activity.

“But what it doesn’t do, and never was meant to do, was provide unlimited anonymity,” he added. “Why would the government ever allow that?”

In the late 1980s, Comeau said, the U.S. government began noticing a disturbing trend. Drug dealers were using shell companies to launder funds, while tax evaders were using similar tactics. Prior to that, shell companies had been a somewhat innocuous vehicle, often used by tax planners to help clients minimize their burden, since doing business through a company affords different and sometimes better tax writeoffs than offering services as an individual. But the companies didn’t have to do any actual business; they could hold investments or shares in other companies, or property or other assets, layering true ownership and making controlling persons hard to trace.

582px version of KevinComeau.jpg
‘The whole idea of a corporation was invented to promote capitalism in a very good and constructive way,’ lawyer and money-laundering expert Kevin Comeau told The Tyee. But not to ‘provide unlimited anonymity. Why would the government ever allow that?’

For corporate investigators like Adam Ross, who works with Transparency International Canada, the anonymity afforded by Canadian corporate entities was not a selling point from the get-go, but a problem that evolved over time.

For fraudsters, tax efficiency and limiting liability take a backseat to the unintended benefit of shielding true owners from accountability when police or the taxman come knocking. The seemingly innocuous action of incorporating a company where the true owners aren’t recorded becomes a crucial step in insulating them from efforts to recover ill-gotten gains.

“It’s more recently that people have become aware, and policy-makers have become aware, of how easily entities can be exploited,” Ross said. “It’s taken a long time and a lot of abuse of those structures for things to shift enough that we’re trying to close out that loophole.”

The legitimate benefits of incorporation will be retained even after beneficial ownership transparency rules come into effect, said Ross.

“Removing anonymity shouldn’t hurt Canada’s ability to attract business,” he said. “Corporations will still be as useful.”

However, until the legislation comes into play, the loophole remains.

Another issue is that corporate registries in Canada have tended to be “passive receptacles” for corporate filings where the penalty for fakery is rarely, if ever, enforced; the new legislation will not address this.

Moreover, it’s somewhat unclear how effective the registries will be, as anyone with nefarious purposes in mind will still be able to incorporate in U.S. states with robust company creation industries such as Delaware and Nevada, or offshore tax havens like Nevis, Belize and the British Virgin Islands.

Echoing lawyer Kevin Comeau, Ross said the development of these registries demonstrates a shift in public and policy-makers’ perspectives on the issue. But the measures are not perfect. There’s “a huge disconnect” between Canada’s international reputation as an economically sound and advanced nation and “how opaque and easily exploited our companies are,” he said.

“In Canada we have 14 jurisdictions of corporate registries, so unless the other 13 follow suit and roll out reforms to a similar standard — if it’s not co-ordinated — then the changes aren’t going to work and there will be a race to the bottom,” he said.

“You’ve seen it in the U.S. where Wyoming and Delaware and Nevada and certain states have emerged as kind of go-to jurisdictions for masking corporate ownership, and we’ll get that within Canada. Certain provinces will just be exploited, and we’re not going to fix the situation.”

In B.C., the years-long legal battles that ensued after Mulholland’s arrest are still wending their way through B.C. Supreme Court. Since 2015, the SEC has been battling to secure forfeiture of Mulholland’s West Vancouver mansion, along with the millions still owed for his part in pump-and-dump schemes involving Rudy Nutrition and Vision Plasma Systems.

Hampering the SEC’s efforts is the fact that the West Vancouver home was bought through a company called Vision Crest Consulting Ltd., one of more than a dozen entities set up for Mulholland by a Calgary businessman named David Schindler, a friend of Mulholland’s from Calgary.

According to the SEC, Schindler was Mulholland’s “strawman” in Canada, who unwittingly set up Canadian shell companies to move millions in ill-gotten gains.

Claiming innocence, Schindler told investigators from the Alberta Securities Commission that he was “the guy under the bus,” betrayed by his old friend Gregg.

Vision Crest, Schindler explained to the Alberta Securities Commission in November 2015, had been set up to buy property. It was registered to an address of an unnamed colleague of Mulholland’s in West Vancouver — but the SEC discovered that address was fake. Vision Crest had originally listed Terry Turner, a Utah lawyer and Legacy’s compliance officer, as a company director, and Schindler as an “attorney.” It was Turner, Schindler told investigators, who had “rolled on” Mulholland.

“It’s funny to use this language,” Schindler told the two investigators from the Alberta Securities Commission, who had hauled him in at the behest of the U.S. SEC. “It’s like a movie.”

Turner, Schindler said, had been detained by the FBI and assisted in Mulholland’s apprehension by luring him to Mexico, which lead to Mulholland’s arrest in Arizona.

Later while Mulholland was fighting the charges in the U.S., both Turner and Schindler’s name were scrubbed from Vision Crest’s corporate registration. The fake West Van address was removed. Delia Mulholland was then listed as a director and the company’s address changed to that of the law firm representing her.

In court filings, Delia has denied that Vision Crest is a shell; she claims to be the company’s sole director. In December 2020, the B.C. Supreme Court rejected a bid to quash the forfeiture on a technicality — Delia Mulholland had claimed the seizure was improper because the American order wasn’t in her husband’s name, but Robert Bandfield’s. Since then, Delia Mulholland and Vision Crest have challenged the forfeiture under Canada’s mutual legal assistance treaty with the U.S. as unconstitutional. The matter is set to be back in B.C. Supreme Court in January 2022.

To summarize: the same shell company tactic that enabled Mulholland’s international fraud years earlier has allowed the Mulhollands to cling onto their West Van mansion even while Gregg Mulholland’s multi-million-dollar debt to the SEC remains unpaid.

Schindler declined comment when contacted about this story. Delia Mulholland’s lawyer declined comment, and Delia Mulholland did not return requests for comment.

Meanwhile, B.C.’s director of Civil Forfeiture is locked in its own legal battle with Mulholland’s former colleague Brian De Wit and his wife Paula Psyllakis, who also worked at Legacy. Though the couple was indicted alongside Mulholland, the charges in the U.S. remain outstanding and they deny any wrongdoing. In a civil forfeiture lawsuit, the B.C. government has announced its desire to seize a relatively modest residential property at 1819 Hillcrest Ave. in Saanich, claiming it was used to launder ill-gotten gains from the pair’s alleged involvement in Legacy’s fraud operation. Whether the forfeiture bid succeeds remains to be seen, and a case planning conference is set for Nov. 24, 2021, in Victoria. The couple’s lawyer declined a request for comment.

Similar to Gregg Mulholland and his West Van home, De Wit and Pysllakis have never appeared on the property’s title. On paper, the home is owned by Amalthea Properties Ltd., registered in B.C. in June 2016 with no employees, no website, no offices and no revenues. They say there was nothing nefarious about how they bought the home, claiming the money was loaned to the company by Paula, who had been gifted the funds by De Wit, who earned it through years of securities trading in Central America. The company’s sole director is Paula Psyllakis’s sister Poppy, who runs a dog rehabilitation business. Her name was later removed from the forfeiture lawsuit since she doesn’t own the home, nor the company, nor does she know anything about why she was made a company director in the first place.

“It has nothing to do with me actually. It belongs to my sister, the company,” she said in a phone interview. “It’s not really any of my business. I thought I was just helping my family out.”

There’s nothing illegal about owning property through a company, even if the names of the actual owners are conspicuously absent from incorporation or land title documents. In Canada, there’s no current or forthcoming law against installing a family member or friend or lawyer as a so-called nominee or “strawman” as a director. These companies can open bank accounts, acquire property and take out loans, affording true owners a layer of anonymity under a corporate veil, with publicly accessible information often scarce and hidden behind a cost-prohibitive paywall of government-imposed user fees.

Owning a property through a company means you can sell the shares in the company without changing the title on the property, avoiding property transfer tax. When former finance minister Carole James was asked whether the new legislation would translate into additional taxation of beneficial owners, she said it would not.

While the new legislation on corporate anonymity and land owner registration will hopefully address some of what has allowed fraudsters to act with relative impunity, the new registries are far from perfect.

A victimless crime?

Mulholland, recently moved to a prison camp in Oregon, is now fighting to serve out the rest of his sentence in Canada in order to be closer to his family.

In March, he sued the U.S. Department of Justice in Washington, D.C., after being denied a prisoner transfer request under Canada’s treaty with the U.S.

Mulholland had initially appeared remorseful in his sentencing, saying in his letter to the judge before sentencing that “dejected, shattered, and heart-sick barely describes how sorry I am, and how much I regret my choices.”

But he now claims his role in Legacy’s frauds was “minimal” and “peripheral,” calling money laundering a victimless and “ambiguous crime” in documents prepared as part of his bid to return to Canada. He also claims the U.S. denial of his transfer “may have less to do with the proper review of his request, than the defendant’s efforts to pressure [his] wife in the surrender of her legal equity ownership in her separate property.”

Mulholland’s property in Whistler, his private jet and his Range Rover have slipped away under the weight of the greed that drove him to his eventual downfall. But his wife and two young daughters remain in the West Vancouver home, at least for now. The U.S. government appears to have little sympathy for Mulholland’s plight or requests for transfer, stating in a submission to the court that while the government knew about the assets Mulholland agreed to forfeit when he agreed to plead guilty, it couldn’t be sure he wasn’t hiding anything else.

“Because the Mulholland Group’s operations were international in scope and involved the transfer of money through overseas bank accounts, the government cannot verify that Mulholland has disclosed all of his criminal gains to the government,” U.S. Attorney Capers wrote in response to Mulholland’s sentencing materials.

Meanwhile, the B.C. Securities Commission this summer applied to permanently ban Mulholland from the securities industry, in part, because “the deceptive manufacturing of shell companies causes significant harm to our capital markets.”

For lawyer Kevin Comeau, the federal government’s plans for a beneficial ownership registry will be “revolutionary” to catch criminals, whether they be drug dealers, human traffickers, tax cheats or stock scammers — but he was reticent to comment on any ongoing cases such as Mulholland’s.

“Ultimately, the court will get to the bottom of this, and I have faith in the Canadian judicial system,” he said.

“It’s only after the court has decided what happens and then we can really comment on whether or not justice is done. But my guess is, eventually, it will end up the right way."  [Tyee]

Read more: Rights + Justice

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