UNITED STATES OF AMERICA
v .
RUFUS PAUL HARRIS ;
BENJAMIN STANLEY ; and
DARRYL HORTON
CRIMINAL INDICTMENT
NO. 1:09-CR-406
(First Superseding)
COUNT ONE
Conspiracy
1. Beginning as early as 2005 and continuing through in or about October 2006, the exact dates being unknown to the Grand Jury, in the Northern District of Georgia and elsewhere, Defendants RUFUS PAUL HARRIS, BENJAMIN STANLEY, and DARRYL HORTON, aided and abetted by each other and others known and unknown to the Grand Jury, did knowingly and willfully and unlawfully combine, conspire, confederate, agree and have a tacit understanding with each other and others known and unknown to the grand jury, to commit certain offenses against the United States, to wit :
OBJECTS OF THE CONSPIRACY
2. To knowingly and willfully execute and attempt to execute a scheme to defraud with regard to the publicly-traded securities of Conversion Solutions Holdings Corporation, and
3. To devise and intend to devise a scheme and artifice to defraud with regard to the publicly-traded securities of Conversion Solutions Holdings Corporation, in violation of Title 18, United States Code, Section 1343 .
BACKGROUND
4. At all times relevant to this indictment:
A. Defendant RUFUS PAUL HARRIS was the founder and Chief Executive Officer of Conversion Solutions Holdings Corporation ("CSHC"), a company registered in Delaware and based in Kennesaw, Georgia .
B. Defendant BENJAMIN STANLEY was the co-founder and Chief Operating officer of CSHC.
C. Defendant DARRYL NORTON was the Chief Financial Officer of CSHC.
D. Waatle Holdings Corporation ("Waatle") was a predecessor corporation, which was formed in 2004 and controlled by Defendants HARRIS and STANLEY. Waatle merged with CSHC, which had previously formed by another individual, in 2005. CSHC then merged again with a publicly-traded entity known as the Furia Organization, Inc., d/b/a Fronthaul Group, in 2006. The surviving company was known as CSHC . The stock of this company was publicly-traded on the Over-The-Counter Bulletin Board . The company was registered under Section 12 of the Securities Exchange Act of 1934, and was required to file reports with the U .S . Securities and Exchange Commission ("SEC"), located in Washington, DC.
E. In its public filings, CSHC purported to be a "diversified holdings corporation, which was formed to originate, fund, and source funding for asset-based transactions in the private market."
F. The Depository Trust Company (DTC) is a member of the U .S. Federal Reserve System and a registered clearing agency with the SEC.
G. CSHC utilized the services of transfer agent, Integrity Stock Transfer, located in Henderson, Nevada, to maintain records of investors and account balances and transactions, to cancel and issue certificates, to serve as the DTC-authorized custodian of CSHC's shares, to transfer CSHC shares to DTC-authorized stock brokers, and to file public documents with the SEC's electronic filing system.
MANNER AND MEANS
5. It was part of the Defendants' conspiracy and the illegal objects thereof:
The Solicitation Of Direct investments or Loans In Exchange For "Convertible Notes"
A. Beginning in approximately August, 2005, CSHC, through Defendants HARRIS and STANLEY, and others, directly and indirectly solicited numerous individuals to invest or lend money to the company in exchange for securities styled as "convertible notes."
B. Defendants HARRIS and STANLEY, and others working for and with CSHC, represented that CSHC owned and maintained hundreds of millions of dollars worth of assets, including a "UCC Security Note" worth as much as $300 million. This Note was supposedly filed by a entity known as Pacific Beach Mortgage Company, supposedly reflected a number of liens filed against various officials and agencies in the Seattle, Washington area, and supposedly was purchased by CSHC for $40 million . The bond investors were told that this and other substantial assets would form the basis of CSHC's ability to raise large amounts of capital for its profitable funding ventures.
C. Over $2 million was invested in CSHC by individuals induced to purchase "convertible notes." These notes called for repayment of the principal, plus interest, at maturity. But they also provided that the company could decide, in lieu of repayment, to convert the note into stock. In other words, the company could and in most if not all cases did decide to give the bondholder equity shares in CSHC instead of any cash payment.
The Representations Regarding Ownership Of Foreign Bonds
D. Beginning in approximately August, 2006, CSHC issued a series of press releases that publicly claimed CSHC's ownership or control of entire issuances of foreign sovereign bonds issued by the Republics of Venezuela and Finland. These bonds were on their face worth billions of dollars and paid tens of millions in annual interest. CSHC also issued or caused to be issued a press release that claimed that CSHC had entered into contracts with as many as four well-known international financial institutions to be "the foundation for our project funding platform."
E. In at least one of these press releases, Defendant HARRIS was quoted as stating that, based on CSHC's acquisition of such large quantities of sovereign debt, "we are looking at a new justifiable reorganization release price of $25 .63 [per share]." At the time, CSHC shares generally traded at less than approximately $1 per share .
F. On or about October 16, 2006, Defendant, RUFUS PAUL HARRIS, also signed and caused to be filed with the SEC an annual report, Form 10-K, for CSHC. This report was filed under Defendant HARRIS'S electronic signature, as CEO. According to this report and its attachments, CSHC maintained as much as $800 million in assets, $500 million of which was in the form of foreign sovereign bonds as stated in at least some of the press releases, and most of the remainder was attributed to the so-called "UCC Security Note." Also according to this report and its attachments, CSHC`s income included $19,869,792 in interest revenue from those bonds. According to the documents, this interest revenue constituted CSHC's only income.
G. Defendants BENJAMIN STANLEY and DARRYL HORTON assisted in the creation of the 10-K and other information about CSHC during the time period of the scheme. Both STANLEY and HORTON provided and assisted in providing false and misleading information to an accountant who prepared financial statements in connection with the 10-K.
Conversion Solution's Actual Assets And Income
H. In fact, as the Defendants knew, CSHC had little if any assets of any value and did not own or control the foreign sovereign bonds that it claimed to have . CSHC also had little if any in the way of revenue or profits from any business activity.
I. While billions of dollars worth of bonds had in fact been issued in major securities offerings by the Republics of Finland and Venezuela, those bonds were widely owned and traded in the public markets. None of those bonds were owned by CSHC, much less all of them. CSHC never received any interest payments for any of these bonds, much less $19 million, as the Defendants knew .
J. The "UCC Security Note" was never purchased for $40 million by CSHC, as the Defendants knew, and in any event was not a legitimate asset with any value (much less $310 million). The supposed "Note" included, among other things, statements such as:
Commerce consists of energy and the cooperative exchange (transaction) of energy. The Lien Claimant's Lien is based upon the two fundamental energy/cooperation (Commercial) Maxims of the Orthodox Hebrew/Jewish Commercial Code (HJCC) and the corresponding Christian Code which are given as follows . . . . . The Orthodox Hebrew/Jewish Commercial Code (HJCC) is such an excellent Commercial Code that the IRS is the prime imitator and perverter of it, covering their fraud of the commercial process (i .e ., lack of assessment under affidavit) by creating a mental diversion known as the Internal Revenue Code (Title 26 of the United states Code) which is so totally superfluous in commerce that there is never any legitimate ground or reason to cite it . Ledger - the Commercial damages to lien claimants U.S. Constitutionally guaranteed rights is $7,410,000 as detailed in the attached Criminal Complaint Form.
K. Despite the statements in the 10-K, but as the Defendants knew, CSHC received little if any income from any business operations. The only material source of revenue was from the investments solicited from the bondholders. Of over $2 million invested by the bondholders, approximately $300,000 was paid to Defendants HARRIS and STANLEY each in just over a year, with the majority of the remainder of the money going to other salaries and expenses. Defendant NORTON was also promised approximately $300,000 in salary but had not yet begun to draw the salary when the conspiracy collapsed in late 2006. All Defendants had received substantial amounts of stock in the company.
The Stock Price Appreciation For CSHC And The Attempted Sales
L. During the weeks that the misrepresentations were being publicly disseminated via press releases and SEC filings, CSHC's stock price on the open market more than tripled. The stock, which was a "penny-stock" trading for less than $1 per share in August 2006, appreciated to more than $3 per share in October 2006.
M. During October 2006, when he knew the stock price of CSHC was artificially inflated as a result of the false public statements, Defendant RUFUS PAUL HARRIS transferred and caused CSHC to transfer more than 1,000,000 shares of CSHC stock to close family members, who then attempted to sell substantial quantities of stock at inflated prices of between $2-$3 per share .
N. During October 2006, when he knew the stock price of CSHC was artificially inflated as a result of the false public statements, Defendant BENJAMIN STANLEY transferred and caused CSHC to transfer substantial quantities of stock to close family members who sold in the open market at artificially inflated prices of between $2-$3 per share. Defendant BENJAMIN STANLEY subsequently received a substantial portion of the profits of this trading.
O. During October 2006, when he knew the stock price of CSHC was artificially inflated as a result of the false public statements, Defendant DARRYL HORTON transferred and caused CSHC to transfer substantial quantities of stock in CSHC to family members and others, who sold in the open market at artificially inflated prices of between $2-$3 per share . Defendant DARRYL HORTON subsequently received a substantial portion of the profits of this trading.
P. None of the Defendants disclosed by way of public filing or press release that they and their families were engaged in such insider transactions in CSHC stock, or that (as Defendants knew) the public filings and press releases during this time included material misstatements about the company's assets and business, or that (as Defendants knew) the stock price was artificially inflated as a result of the these misstatements. To the contrary, during the time that these insiders were selling or attempting to sell their stock, through family members, press releases being filed on behalf of CSHC management stated an anticipated price of up to $25 .63 per share for CSHC.
All in violation of Title 18, United States Code, Section 2349.
COUNT TWO
Scheme to Commit Securities Fraud
1. The Grand Jury includes by incorporation and re-alleges Paragraphs 1-5 of Count One, above.
2. In or about at least September and October 2006, in the Northern District of Georgia, the Defendants, RUFUS PAUL HARRIS, BENJAMIN STANLEY, and DARRYL HORTON did knowingly and wilfully execute and attempt to execute a scheme and artifice to defraud other persons, in connection with stock securities of CSHC, and to obtain, by means of false and fraudulent pretenses, representations, and promises, any money and property in connection with the purchase and sale of stock securities of CSHC, an issuer with a class of securities registered under Section 12 of the
Securities Exchange Act of 1934 ("The Exchange Act") (Title 15, United States Code, Section 781), and that was required to file reports under Section 15(d) of The Exchange Act, all in violation of Title 18, United States Code, Sections 1348 and 2 .
COUNTS THREE THROUGH SEVEN
Scheme to Commit Wire Fraud
1. The Grand Jury includes by incorporation and re-alleges Paragraphs 1-5 of Count One, above.
2. In or about at least September and October 2006, in the Northern District of Georgia, the Defendants, RUFUS PAUL HARRIS, BENJAMIN STANLEY, and DARRYL NORTON did, for the purpose of executing the scheme and artifice to defraud, and attempting to do so, and for obtaining money and property by means of materially false and fraudulent pretenses, representations, and promises, did knowingly and willingly cause to be transmitted by means of wire and radio communications in interstate commerce, certain signs, signals and sounds, that is, electronic communications, as described below:
Counts Date Description (on or about)
3: 9/19/2006 Email communication from Rufus Harris to Integrity Stock Transfer, regarding purported Waatle shareholders
4: 9/26/2006 Electronic filing of SEC Form 8-K
5: 9/28/2006 Electronic transfer of 1,000,000 Conversion Solutions shares for the benefit of LS, Defendant Stanley's wife, effectuated by Integrity Stock Transfer
6: 9/29/2006 Facsimile communication from Defendant Horton to Integrity Stock Transfer attaching purported list of Waatle shareholders
7: 9/29/2006 Electronic filing of SEC Form 8-K/A
all in violation of Title 18, United States Code, Sections 1343 and 2.
COUNT EIGHT
False Certification of Financial Statement (Against Defendant Harris)
1. The grand jury incorporates and re-alleges paragraphs 2 and 4 above of Count One above, as if fully re-stated herein.
2. On or about October 16, 2006, in the Northern District of Georgia and elsewhere, the Defendant, RUFUS PAUL HARRIS, falsely certified as CSHC's Chief Executive Officer that CSHC's annual report, Form 10-K, filed as required by the Securities and Exchange Act of 1934 (Title 15, United States Code, Sections 78m and 78o(d)), fairly presented, in all material respects, the financial condition and results of CSHC's operations, and that the report complied with all other requirements of Title 18, United States Code, Section 1350, in that the Defendant knew, contrary to his certification, that the annual report did not comply with those requirements and contained material misstatements about CSHC's assets, income and business, in violation of Title 18, United States Code, Sections 1350(c)(1) and 2.
FORFEITURE PROVISION
Upon conviction of one or more of the wire fraud (Title 18, United States Code, Section 1343) or securities fraud (Title 18, United States Code, Section 1348) offenses alleged in Counts One through Seven of this Indictment, Defendants RUFUS PAUL HARRIS, BENJAMIN STANLEY, and DARRYL HORTON shall forfeit to the United States pursuant to Title 18, United States Code, Section 981(a)(1) (C) and Title 28, United States Code, Section 2461 any property constituting or derived from proceeds obtained directly or indirectly as a result of said violations, including but not limited to:
One 2007 Bentley Black VIN# SCBBR93W478041216.
If, as a result of any act or omission of the defendants, any property subject to forfeiture:
a. cannot be located upon the exercise of due diligence ;
b. has been transferred or sold to, or deposited with, a third person ;
c. has been placed beyond the jurisdiction of the Court ;
d. has been substantially diminished in value ; or
e. has been commingled with other property which cannot be subdivided without difficulty ;
the United States intends, pursuant to Title 18, United States Code, Section 2461(c), incorporating Title 21, United States Code, Section 853(p), to seek forfeiture of any other property of said defendant up to the value of the forfeitable property .
A TRUE BILL
S/S
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11/09/2009 28 SUPERSEDING INDICTMENT as to Rufus Paul Harris (1) counts 1s, 2s, 3s-7s, 8s; Benjamin Stanley (2) counts 1s, 2s, 3s-7s; and Darryl Horton (3) counts 1s, 2s, 3s-7s with FORFEITURE PROVISION. (alc) (Entered: 11/10/2009)
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