A $50 Million Stock-Fraud Probe, 6 Defendants and a Picasso

(Bloomberg) -- U.S. prosecutors lifted the veil on a $50 million international stock-manipulation scam that got shut down after the alleged culprits suggested to an undercover FBI agent that they buy a Picasso to launder illicit profits.

It’s the “only market that is unregulated,” one of the alleged wrongdoers boasted in a conversation that was secretly recorded, U.S. prosecutors said as they handed down an indictment in Brooklyn, New York, against six people on Friday.

The ill-fated art deal was just one part of an alleged scam that sprawled from the gilded Mayfair neighborhood in London to the island nation of Mauritius in the Indian Ocean. The alleged perpetrators range from a U.K. stockbroker with hundreds of millions of dollars under management to a bank in Budapest and the prosecution shows penny stocks continue to attract scrutiny from regulators across the globe.

Among those charged with securities fraud or money-laundering conspiracies are employees of Beaufort Securities Ltd., the chief executive of Loyal Bank in St. Vincent and a London art dealer. Four companies including Loyal Bank were also indicted.

The U.K. Financial Conduct Authority placed Beaufort Securities and Beaufort Asset Clearing Services into administration, a form of bankruptcy. Both firms are owned by Beaufort International Associates Plc, which is based near the iconic “Gherkin” building in the heart of London and where the chief executive and biggest single shareholder is Tanvier Malik, according to company filings. He wasn’t charged. The parent company isn’t in administration.

“I’m just as flabbergasted as everyone else,” said Nick Piazza, chief executive of Kiev-based SP Advisors, which bought a stake in Beaufort in 2014. “We were just kind of a passive shareholder but we were hoping they’d do well and we’d get our investment back. Unfortunately, something has gone haywire.”

Arvinsingh Canaye, of Mauritius, a Beaufort manager, was arrested Thursday. He pleaded not guilty in federal court in Brooklyn. A bail hearing is scheduled for March 6. Beaufort officials didn’t immediately respond to requests for comment.

Pump-and-Dump

During the alleged fraud, which ran from March 2014 to February 2018, the defendants all conspired to conceal the ownership and control of publicly traded companies in the U.S. and manipulated the price and trading volume of the stocks, in what were essentially "pump-and-dump" scams, prosecutors said.

The scam came to light as U.S. investigators were probing brokerages in Belize that were suspected of market manipulation. A wiretap revealed a broker managing some of those trades was using Beaufort Securities, according to the indictment. The broker was later caught saying he was winding down his firm and transferring some of his clients to Beaufort, the U.S. said.

The Beaufort Securities unit specializes in helping tiny companies sell shares to the public through the AIM market, a lightly-regulated junior bourse run by London Stock Exchange Group Plc. The firm arranged 65 deals in 2017, more than twice as many as any other, and raised about 43 million pounds ($59 million) for clients; most of the companies were minnows involved in exploring for oil, gas and minerals.

Undercover Agent

An undercover FBI agent posed as a prospective client in October 2016 and met with Beaufort employees in London, the U.S. said. The agent said he was interested in opening accounts to engage in multimillion-dollar trades that would manipulate the price and volume of stock.

The Beaufort employees created accounts for the agent even though they told him the firm couldn’t accept U.S. citizens as clients. But there were “ways around it,” they told him, according to the U.S.

During a subsequent meeting, the agent asked the Beaufort employees to help him launder money he claimed to have made in an earlier scam. The employees introduced the agent to the owner of Mayfair Fine Art Ltd. in London, with one of the employees suggesting they could purchase art and “clean the money.”

The Picasso

Later they proposed buying “Personnage, 1965” -- a Picasso -- for $6.7 million pounds ($9.2 million). Matthew Green, the owner of Mayfair, agreed to arrange the resale of the painting, according to the U.S. The money-laundering scam was stopped before the sale was completed, prosecutors said.

Contact information for Green, or Mayfair, couldn’t be immediately found. Green was charged in the case. Mayfair wasn’t.

The collapse of the Beaufort companies left dozens of clients scrambling to find a replacement broker. Under U.K. rules, firms that only had one broker or adviser will need to appoint a new one or face suspension in the trading of their shares.

Among those affected is Kibo Mining Plc, a Galway, Ireland-based precious-metals explorer. Kibo said Friday it hasn’t yet received any proceeds from a share placing carried out by Beaufort, which was intended to raise about 750,000 pounds.

The U.S. Securities and Exchange Commission filed a related civil lawsuit in Brooklyn.

(An earlier version of this story was corrected to say Malik wasn’t charged in the case.)

©2018 Bloomberg L.P.