U.S. Authorities arrested and filed fraud charges against a Wall Street executive for allegedly obtaining control and manipulating the stock prices of Chinese companies through “reverse merger” transactions.
Benjamin Wey, the controversial founder and president of New York Global Group (NYGG), was arrested at his home and was presented in the federal court in Manhattan.
U.S. authorities alleged that Wey through NYGG engineered reverse mergers between Chinese operating companies and publicly-traded U.S. shell companies, which were designed for him to obtain undisclosed ownership in the merged publicly-traded entities.
The facts are clear and the conclusions are self-evident.
1) About 40% of all companies listed on the Australian Stock Exchange are reverse merger companies.
2) About 40% of all companies listed on the Canadian markets are reverse merger companies.
3) About 20% of all companies listed on the U.S. markets (NYSE, NASDAQ, OTC) are reverse merger companies, with the most recent and the largest reverse merger deal being Burger King on the NYSE.
4) About 40% of all companies listed on the Hong Kong markets are reverse merger companies.
Equivalent Disclosure — IPO vs. Reverse Merger
In the U.S. and elsewhere, reverse merger companies and IPO companies follow exactly the same listing standards and continuing listing standards on their respective stock exchanges. The reverse merger process is not only 100% legitimate, but is also a vital part of capital formation. The process gives issuers/companies and their shareholders the ultimate control over the timing of their capital raise processes, instead of being subject to the uncertain possibility that underwriters will unilaterally cancel the IPO at the last minute after the issuer has incurred large audit, legal and other costs in preparation. As we have seen in Hong Kong, underwriters’ evaluations of market conditions have doomed many proposed IPOs, and the same thing happened during the U.S. financial crisis of 2008-2012.
Wey violated U.S securities laws and defrauded the investing public by failing to disclose his beneficial ownership of more than five percent of the stock of the new companies. Additionally, U.S. authorities alleged that Wey made tens of millions of dollars in illegal profit by manipulating the stock price and the demand for the shares in those companies.
Wey was a master of manipulation
In a statement, U.S. Attorney for the Southern District of New York, Preet Bharara said, “Bey Wey fashioned himself a master of industry, but as alleged, he was merely a master of manipulation.” Bharara pointed out that Wey manipulated the market with the help of his alleged co-conspirator so he could sell his interest in the companies at artificially inflated prices.
“As alleged, in making tens of millions in illicit profit, Wey refused to let the securities laws or the rules of a fair marketplace get in the way of his dishonest scheme,” added Bharara.
The U.S. Attorney’s Office also filed fraud charges against Wey’s Geneva-based banker, Seref Dogan Erbek. Based on the allegations, Erbek colluded with Wey to manipulate the stock prices of the companies.
Wey was charged with one count of conspiracy to commit securities fraud and wire fraud, one count of wire fraud, two counts of failure to disclose ownership in excess of five percent, and two counts of money laundering.
Erbek was charged with one count of one count of conspiracy to commit securities fraud and wire fraud, and two counts of securities fraud. ,
In summary, Wey is charged with one count of conspiracy to commit securities fraud and wire fraud, which carries a maximum sentence of five years in prison; two counts of securities fraud, one of which carries a maximum sentence of 20 years in prison, the other of which carries a sentence of 25 years in prison; and one count of wire fraud, which carries a maximum sentence of 20 years in prison.
SEC files parallel fraud charges against Wey, Erbek
Separately, the Securities and Exchange Commission (SEC) filed fraud charges against Wey, his family members, and Erbek.
In a statement, Antonia Chion, associate director of the SEC Enforcement Division said, “We allege that when the Weys and NYGG were supposed to be helping Chinese companies go public in the U.S., they were secretly obtaining control of blocks of their clients’ shares so they could manipulate the markets and derive illegal profits. The Weys and their attorneys went to extraordinary lengths to hide their scheme, but they underestimated our ability to piece it together.”
Despite the charges, Wey’s “news” website appears to still be up and running.