SEC v. Lin, et al.

Violations Charged

Sections 5(a) and 5(c) of the Securities Act

Case Overview

Wensheng Lin and Sheng Li Chen, two traders in China's Guangdong province, bought roughly 8.4 million shares of the shell company behind Immage Biotherapeutics (IMMG) for about $31,000, a third of a cent per share. The shares traced back to a Nevada shell whose original 'investors' were 38 straw purchasers in South Africa. No registration statement covered the resales.

In the spring of 2017, promotional websites began touting IMMG on the heels of a company press release, and the price ran as high as $1.62. Lin and Chen sold into the run-up, netting over $1.8 million combined, and began wiring proceeds to Hong Kong. The Commission suspended trading on April 4, 2017 and obtained an emergency asset freeze days later.

What Joe Did

Joe was the principal investigator and filed three declarations in the case. In them, he described tracing the Epicure Charcoal shell from its Nevada incorporation through the 38 South African subscription agreements and the sequentially numbered cashiers' checks behind them, reviewing the brokerage records for the accounts in Guangdong, China, and confirming that no registration statement covered the sales. He described participating in the calls in which supposed investors stated they never paid for their shares, never received them, and never received any proceeds. The three filings supported the emergency freeze application, the default judgment with its profit calculations, and the Rule 60(a) motion identifying the specific brokerage accounts.

Outcome

The freeze intercepted wires headed to Hong Kong and locked up $1.2 million. Default judgments followed, setting net profits of $1,220,649.56 for Lin and $582,728.79 for Chen.

Records Analyzed

• Incorporation & EDGAR filings
• Subscription agreements
• Bank records & cashiers' checks
• Transfer agent records
• Brokerage records
• Wire request forms