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Briton held in £9m stock scam 11/02/03

A British man suspected of defrauding investors in Britain, Australia and New Zealand in a £9.5 million stock scam has been arrested in Laos, a diplomat and US officials said.

Michael Newman was arrested along with two Thai citizens at the international airport in the Laotian capital, Vientiane, on September 24 and 300,000 US dollars (£176,000) was seized from him, state media had reported. Information is restricted in the tightly-controlled communist country.

The reports said all three were charged with trying to take "money out of the country without permission". It was not clear what punishment they face.

The British and US embassies declined to comment. The Thais' identities were not immediately known.

Newman allegedly ran a so-called "boiler room" in Vientiane for several years from a building on the banks of the Mekong River, according to several sources and US documents.

They said last week that Newman, whose age and hometown were not immediately known, employed dozens of Americans and Britons to fraudulently sell stocks to overseas investors by telephone.

Boiler room workers phone potential investors and sell shares at inflated prices, or in non-existent companies, usually for high commissions.

Newman and 20 others have also been named in a civil lawsuit filed separately by the US Securities and Exchange Commission (SEC) in the state of Utah on October 16.

The suit says the defendants took part in a "massive scheme to defraud foreign investors of more than US 16 million".

At least £7 million, raised in January-September 2003, went to Newman, while some of the other defendants divided up the rest, said an SEC lawyer, Thomas Melton.

"We are still finding more money," he told The Associated Press by telephone from Salt Lake City, Utah.

On October 16, The FBI also raided offices of at least one company linked to the scheme in Salt Lake City, Mr Melton said.

It is not known how US authorities will proceed with the case. The US and Laos have no extradition treaty.

Western diplomats in Vientiane have been denied access to Newman, who is believed to be at a jail in the capital, said a foreign diplomat.

The SEC lawsuit claims Newman and the other defendants used high-pressure tactics on investors, mainly in Britain, to sell shares in five US companies: Stem Genetics, F10 Oil & Gas Properties, Diversified Financial Resources Corporation, Valesc Holdings and NCI Holdings.

The lawsuit says some were front companies with no assets, and their stock prices were manipulated to impress potential investors.

It claims Newman and his US accomplices defrauded more than 1,100 investors and transferred it to offshore accounts.

A source close to one of Newman's associates told the AP that up to 60 people worked at the recently disbanded boiler room.

"If you were good you could probably make three to four thousand dollars a week," he said. "They were paying everybody in US dollars and it's tax free."

A similar scandal rocked Thailand in 2001, when dozens of foreigners were arrested in Bangkok and deported.

AP

Britons 'fleeced by the boys from the Boiler Room'
By Alex Spillius in Laos and Becky Barrow in London
(Filed: 08/11/2003)

More than 1,100 investors have lost up to £200,000 each after handing over their money to a web of companies that allegedly used the unscrupulous business tactics depicted in the film The Boiler Room.

The ingredients of this type of boiler room are a ruthless bunch of sales people and a list of potential investors who like to take risks.

One of the alleged masterminds is Michael Newman, a Briton, who based his operations in Laos, the South East Asian country sandwiched between Thailand and Vietnam.

This was - in the words of America's Securities and Exchange Commission (SEC), which has launched an investigation - "a massive scheme to defraud foreign investors", and one that raised more than £10 million in just nine months this year.

Mr Newman is one of 21 individuals and companies named by the SEC in its civil action which chronicles the spider's web of companies, countries and bank accounts used to perpetuate the alleged fraud.

His salesmen, who persuaded people from Britain, Australia and New Zealand to invest tens of thousands of pounds, were based in the former Brunei embassy, a palatial building with high gates.

Locals say that they did not fit easily into the charming, socially conservative city of Vientiane, the capital of Laos, situated on the banks of the Mekong river.

Foreigners tend to be backpackers who come to Laos to visit its Buddhist temples and shrines, but these people were different.

One foreign resident said: "Many were wide boys with crew cuts and tattoos. A lot of them sounded very East End. You just don't see people like that here. They were very scary.

"They started picking fights in bars. One time they broke a pool cue over the head of a tourist. Another time 20 of them sat with their shirts off in a popular restaurant with prostitutes from Thailand on their laps."

One drunken night some boasted about earning nearly £2,500 a week which was paid in cash, a huge wage for anybody living in one of the world's poorest countries.

Investors, such as Richard, a 40-year-old geological consultant who put in £50,000, were left feeling angry and humiliated after backing what they thought were small American companies.

He said: "It was very slick. Initially, they were not that pushy. I looked at the companies' websites, and it all seemed legitimate.

"I suppose you could say it was greed, but I thought of securing my daughter's university education, paying off the mortgage, even retiring a bit earlier."

Little is known of Mr Newman, who also goes by the name of Marcus Wiseman. He is in custody in Vientiane after being arrested in September while allegedly attempting to leave Laos with nearly £180,000 in cash. The legal limit is £1,200.

It is understood that he comes from north-west England, and has moved between Thailand and Laos for several years.

Official SEC documents allege that the investment company and its associates, mainly Americans, "lied to investors about the companies they promoted, and kept the vast majority of investor funds for themselves, allowing only a minuscule amount of the funds to go to the companies they promoted". The share price of the various companies appeared to rise, but this was largely due to insider dealing.

The mostly British salesmen were based in Laos, but it is claimed that they pretended to be in Japan and worked for a company registered in the British Virgin Islands. Some of Mr Newman's associates were from Salt Lake City, Utah, the Mormon capital of America.

A judge in Utah has granted a temporary restraining order and asset freeze on Sukumo, one of the companies involved. Mr Newman is president of the company.

Ken Israel, the district administrator for the SEC, could offer little hope for the investors. He said: "It would be very speculative to say we may actually find money that could be recovered."

Briton's £180,000 confiscated in Laos
Laotian authorities have seized £182,000 from a British businessman and two Thai colleagues when they arrived at the capital's international airport.

Officials at Wattay Airport in Vientiane confiscated the funds last Wednesday and charged the unidentified men of trying to take "money out of the country without permission" and violating a foreign currency decree.

It was unclear whether the suspects were detained, but the report said the men "are under legal procedures" and the confiscated funds are being held at the Bank of the Lao People's Democratic Republic.

Laotian officials were not immediately available for comment.

A spokesman at the British Embassy in Bangkok said consular officials were aware of reports about the seizure and were seeking clarification from Lao authorities. Britain does not have an embassy in Laos.

Associated Press - 29th September 2003

Briton arrested in £12m shares scam

November 09, 2003

Michael Sheridan, Bangkok and Peter Conradi

IT looked like another routine trip for Michael Newman as the British businessman sauntered past green-uniformed guards at the quiet airport in Vientiane, the capital of Laos, to check in for a Thai Airways flight to Bangkok on September 24.

To his dismay, however, customs officials pulled him aside. When they opened his bag they found that it contained $300,000 (£177,500) — a vast sum in a country with an annual gross domestic product of £190 a head.

It is against the law to take more than £1,200 out of Laos without official approval. Newman was detained and no outsider has been allowed to see him since.

As the Lao authorities probed deeper, they found that Newman, 42 — who has also used the name Marcus Wiseman — was already under surveillance by American government investigators.

The businessman emerged this weekend as the central figure in a “boiler-room racket” alleged to have defrauded 1,100 investors in Britain, Australia and New Zealand of more than £9.46m in eight months this year. His planned trip to Thailand, with a cash-filled suitcase, is believed to have been one of many that he made.

Sources close to the inquiry said it had found traces of more than £12m transferred through bank accounts in Laos controlled by Newman — who has been named by the US Securities and Exchange Commission (SEC) as a defendant in a lawsuit seeking to freeze his assets and get repayment of the funds.

The alleged fraud may be much larger. British regulators are also studying the case with a view to possible action on behalf of investors, some of whom bought tens of thousands of pounds of shares — now almost worthless. They were sold these over the telephone by people believed to have been working for Newman in his “boiler room” in Vientiane.

Some of the victims are considering a class action against banks in America which they accuse of continuing to handle payments to Newman’s companies after warnings of possible fraud.

Robert Clark, 39, a builder from Bracknell, Berkshire, who lost £20,000, said he sent an e-mail in June to a bank in Arizona to which he had transferred the money, pointing out his suspicions. The bank is among three named by the SEC in the report as having been used by Newman’s alleged accomplices to transfer money from investors to Newman’s account in Bangkok.

“The banks did not do anything at the time to stop that,” Clark said. “If they had knowledge that this was happening, they should have done something about it.”

Newman’s position is under review by a committee including officials of the Central Bank of Laos, the police, the foreign ministry and the state prosecutor’s office.

Sources in Vientiane said the businessman was being held under “light” conditions of detention at the immigration department and was able to enjoy meals sent in to him from L’Opera, the best Italian restaurant in the city.

Pressure from the American and Australian governments has nevertheless prompted the regime to take what one American official called “a very serious view of this case”.

A British diplomat flew to Vientiane from Bangkok last week to seek consular access to Newman, but was refused permission to visit him. There is no British embassy in Laos.

The operation is believed to have been centred on a “boiler room” in a mansion that once housed the embassy of Brunei. A sign on the door announced it as the headquarters of International Investment Holdings, a company in the Sukumo Group controlled by Newman.

It contained 50 cubicles from which Sukumo salesmen — many of them British — subjected potential clients to high-pressure telephone sales pitches to buy shares.

Police also found scripts in each cubicle detailing how staff were to persuade customers to send money to nominated escrow accounts in the United States. The premises, together with another suite of offices inside the former South Korean embassy, have been sealed.

Vientiane, a slow-paced town of dusty streets and Buddhist temples, normally attracts small numbers of western visitors who come in search of peace and eastern culture. By contrast, the Sukumo sales team had spent freely, boasting in local bars of being paid up to £2,366 a week.

“They roared around town on motorbikes and brought Thai girls up from Bangkok,” said one western resident.

“The Laotians were shocked by their aggressiveness and eventually somebody must have decided to act.”

Newman also reputedly opened a nightclub, known locally as the “Blue Member Club”, on the outskirts of Vientiane, mainly to cater for the salesmen. He is believed to have shares in a similar establishment in Bangkok.

Court documents filed by the SEC in Salt Lake City, Utah, on October 16 allege that Sukumo Group Ltd and five other companies which Newman controlled were central to “a massive scheme to defraud foreign investors of more than $16m”.

According to the SEC documents, Sukumo told investors that their money was going to buy shares in five small American companies specialising in potentially high-yielding fields such as genetic research.

The SEC alleges that Newman and others “lied to investors about the companies they promoted and kept the vast majority of investor funds for themselves”. Some directors of the companies also allegedly rigged the prices of their shares and made false claims about the businesses.

The SEC has named 21 defendants in the civil lawsuit, including two Utah men, Gino Carlucci, 25, and David Wolfson, 24, who, it alleges, formulated the scheme with Newman. It accuses the three men of signing offshore agreements under which 70% of the money sent by investors was paid over to Newman as Sukumo’s “commission”.

Most of the British investors were owners of small businesses and company directors. Many began with modest investments of £3,000-£5,000, but were gradually persuaded to part with £20,000 or more after the first shares they bought appeared to be performing well.

It was only later that they found the shares were “restricted”: they could not be sold for a year, by which time they were worthless. The salesmen continued calling until September, about a fortnight before Newman’s arrest.

Paul Plummer, 40, from Bradford, West Yorkshire, who bought £23,000 of shares in three tranches earlier this year, said that he considered his money lost. “My life savings have gone,” he said.

A typical sales pitch induced gullible savers to buy stock in a small American company called Stem Genetics, promoted as an exciting opportunity to cash in on cutting-edge research.

According to the SEC, Stem Genetics was “nothing more than a shell company” without even any researchers. Nonetheless, by June it had raised more than £2.95m from investors persuaded of its potential by Newman’s sales force.

Sukumo’s share of the take was transferred electronically from America to Laos and withdrawn in cash by Newman, who would take the money in suitcases to Bangkok, said sources close to the American investigation.

It is not clear whether there are any grounds for charges against Newman under the Laotian legal code, apart from those related to the alleged currency violation. Local law allows the authorities to detain suspects for up to a year without trial.

BUSINESSMAN SENTENCED TO 7 YEARS JAIL
EKAPHONE PHOUTHONESY, February 16, 2004

A British business, Michael Newman, who was arrested last September while attempting to smuggle money out of Laos, has been sentence seven years and six months imprisonment and ordered to pay nearly US$6 million in fines and back taxes, a local newspaper reported last week.

The Vientiane People's Court sentenced Newman, with two of his Thai friends, in late January. According to a report by the Pathet Lao newspaper, the accused businessmen were charged with many crimes such as owning communication equipment without permission, possession of drugs and breaking the country's tax payment regulation.

Newman, 42, a British national was also found guilty of conducting illegal business operations, which were harmful to the Lao economy.

According a press release from the court given to the newspaper, Newman employed foreigners to work in Laos without permission from the Ministry of Labour and Social Welfare from 2002-2003.

In this case, he was fined US$229,050 and 5 million kip. He was also found guilty of breaking vehicle control regulations and illegally owning radio communication equipment. In this case, he was fined US$46,565.

He was asked to repay US$1,448,800 for illegally making international telephone calls and fined 50 per cent of the smuggled money (US$310, 000).

The press release says that the authority has impounded US$300,000 and some items of value from Newman, and these are now on sale in order to raise the money to pay the fines (which amount to US$5,937,000) while some money left will be returned to him.

Bounlab Luangkhamdeng, a Thai national who was arrested with Newman, was also sentenced to two years and six months imprisonment and fined 500,000 kip and another 800 million kip for income tax, but according to the court, he has already paid 400 million kip. Phongchay Sayaseng another Thai national was given a two- year term of imprisonment and fined 500,000 kip and 365 million kip for income tax.

According to the press statement the court heard that in June 2001, Mr Newman came to Laos to see Mr Bounlab and discuss the possibility of setting up a company. Later the two men formed the Lao-Inter company at Ban Samakyxay. Newman took 80 percent of the total investment while Mr Bounlab took 20 per cent. At first the company secured 200,000 customers through some assistance from a company in the United States. During this period of time, there were 30 foreigners working in the company.

At the beginning of 2002, the company (which was selling shares) formed a branch in Vientiane and invested another US$150,000 in communication equipment. In this branch, Mr Phongchay was given a job as a law co-ordinator. In June 2002, the company invested more than US$400,000 to expand its operations in Vientiane and employed 90 foreign workers.

The company ran its business at night because it was daytime in the target countries and worked the business by telephone, email and the Internet. It operated three Internet channels, 17 telephone numbers and one fax.

The company's income was deposited into an account at the Lao-Viet Bank and the Thai Military Bank in Vientiane so as they could withdraw it easily. The company had registered funds of US$223,000 and a current account of US$ 45,400.

Initially, the business operation of the company looked simple, however it was not. It turned out that the company worked secretly and Bounlab's and Phong's salaries were said to be as high as US$10,000 per month, according to the press release.

According to earlier reports from Associated Press and other foreign news services Newman allegedly ran a so-called "boiler room" in Vientiane for several years, employing dozens of Americans and Britons to fraudulently sell stocks to overseas investors by telephone.

Boiler room workers phone potential investors and sell shares at inflated prices, or in non-existent companies, usually for high commissions.

The reports said Newman and 20 others had also been named in a civil lawsuit filed separately by the US Securities and Exchange Commission (SEC) in the state of Utah on October 16.The suit says the defendants took part in a "massive scheme to defraud foreign investors of more than US$ 16 million".

On October 16, The FBI also raided offices of at least one company linked to the scheme in Salt Lake City.

The SEC lawsuit claims Newman and the other defendants used high-pressure tactics on investors, mainly in Britain, to sell shares in five US companies: Stem Genetics, F10 Oil & Gas Properties, Diversified Financial Resources Corporation, Valesc Holdings and NCI Holdings. The lawsuit says some were front companies with no assets, and their stock prices were manipulated to impress potential investors.

It claims Newman and his US accomplices defrauded more than 1,100 investors and transferred it to offshore accounts.

Overseas boiler room feels the heat: SEC case marks breakthrough
By - Of the Post-Dispatch(c)2004, St. Louis Post-Dispatch 06/11/2004

MESA, Ariz. - The corporate headquarters of NCI Holdings Inc. was a rented mailbox in one of the many strip shopping centers in this desert boomtown.

The chief executive, Gino Carlucci, was a dance club disc jockey, party promoter and convicted felon. Although he never graduated from college, he claimed in the company's Securities and Exchange Commission filings to have a law degree.

The SEC says Carlucci and his partners used mailboxes in Mesa and Phoenix to process at least $16 million in fraudulent stock sales to 1,100 foreign investors, who were solicited by a group of unlicensed Asian brokerages.

NCI Holdings was little more than an empty shell. Other companies whose stock was peddled abroad by the same brokerages had similar shortcomings: meager sales, nonexistent profits, minimal assets and limited potential.

The brokers presented a more compelling tale of pending buyouts, big government research grants and other breakthroughs.

After foreign investors realized they were duped and assembled reams of evidence for the SEC, authorities moved to shut down the ring.

The agency filed a civil suit in October against Carlucci and 20 other individuals and companies, including Sukumo Ltd., a boiler room in Laos that sold shares under several names.

The suit, in federal court in Salt Lake City, marks the first major case the SEC has brought against a foreign boiler room selling shares in publicly traded U.S. companies.

The agency made the case a priority because of the number of publicly traded companies involved and the amount of money changing hands, said Kenneth D. Israel Jr., director of its Salt Lake City office.

"If we view it as a serious problem, we make the time to do it," he said. "This case we viewed as a significant fraud."

The SEC has charged Carlucci, Sukumo and their allies with conspiring to defraud investors in NCI Holdings, Diversified Financial Resources Corp., Stem Genetics Inc., Valesc Holdings Inc. and F10 Oil and Gas Properties Inc.

Most of the stock buyers lived in Britain, Australia and New Zealand.

The suit charges that the defendants lied to investors about the companies' prospects and that only a small percentage of the money raised through stock sales actually went to the businesses.

For instance, Sukumo brokers told some investors that Stem Genetics was getting a $300 million federal research grant. The startup had no lab or scientists on staff.

Sukumo got 70 cents to 85 cents of every dollar raised from investors. But the transaction statements sent to investors showed a commission of 2 percent. Other middlemen took a cut of what little remained as escrow or finder's fees, the SEC said.

Besides being president of NCI Holdings, Carlucci, 35, functioned as the escrow agent for Diversified Financial Resources and Stem Genetics. The SEC says Carlucci collected more than $700,000 for his efforts.

Although the brokers were overseas, the stock scheme had its roots in the United States. The SEC said in its lawsuit that the middleman is David M. Wolfson, 24, of Salt Lake City. He is the son of Allen Z. Wolfson, who was imprisoned last year in connection with another stock fraud case. The elder Wolfson had previous convictions for bank fraud, illegal campaign contributions and securities fraud; he spent time in prison in the 1980s and 1990s.

The SEC contends that Allen Wolfson, mindful that he might be headed back behind bars, turned over some of his business operations to his son in late 2002 and early 2003. His behind-the-scenes presence looms large in the case.

SEC filings, incorporation documents and other records show:

Allen Wolfson created Stem Genetics, installing a longtime friend, Dr. Richard Youngblood, as president. The plastic surgeon had no experience in stem cell research, the company's purported field.

NCI Holdings' majority shareholder was an investment partnership headed by Allen Wolfson's nephew Richard D. Surber, 31.

Diversified Financial was headed by another Wolfson associate, John R. Chapman. The two men are defendants in still another SEC case, filed in September 2002. That case is pending.

Since the SEC filed the Sukumo case, NCI Holdings has been converted into an apparel company, Dark Dynamite Inc. F10 now is GFY Foods Inc., which operates three sandwich-and-smoothie shops in fitness centers in Illinois and Indiana.

Claiming jurisdiction

Even before the SEC moved against the ring, Laotian police had detained Sukumo's head, British citizen Michael Sydney Newman.

He and two Thai nationals were stopped at the airport in Vientiane. Authorities seized the equivalent of $308,000 and charged Newman with attempting to take currency out of the country without permission.

The ring might have escaped the SEC's action had it not made three mistakes:

The U.S. companies used Sukumo as a sales agent rather than selling their shares directly to the brokerage as the SEC's rules for offshore stock placements stipulate.

The companies and Sukumo had investors route the money for their stock purchases to banks in the United States, instead of financial institutions in another country.

They also had American escrow agents divide up the cash and send out the share certificates.

Those arrangements put enough of the activity on U.S. soil for the SEC to claim jurisdiction.

The defendants say in court filings that they broke no laws. And they argue that the SEC lacks jurisdiction because all the investors live outside the United States.

Just as the brokers at Sukumo operated behind false names, so did Carlucci. His real name is Gene D. Odice. He adopted an alias in the mid-1990s after a divorce resulted in multiple restraining orders against him and, ultimately, a no-contest plea to felony stalking.

Court and police records show that Odice and Carlucci share a birth date and Social Security number.

Newman, 42, the head of Sukumo, has been convicted in Laos. He was sentenced in February to 7 1/2 years in prison and fined nearly $6 million. The offenses included conducting an illegal business operation, making illegal international telephone calls, violating tax rules and possessing drugs.

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