SEC v. James L. Schmidt II, Eastern District of New York (Jan. 1, 2014) — Complaint

Andrew M. Calamari 
Amelia A. Cottrell 
Alexander Vasilescu 
Adam S. Grace 
(/;)
Justin A. Alfano 01 
-o
John Lehmann 
N 
w 
New York Regiona l Office 
SECURITIES AND EXCHANGE COMM ISS ION 
-o 
:X
Brookfield Place 
200 Vesey Street, Room 400 
N 
(._<)
New York, NY 10281 
w
(212) 336-0178 (Yasilescu) 
KUt\JT.7
L, 
J
•
UNITED STATES DISTRICT COURT 
EASTERN DISTRICT OF NEW YORK 
SECURITIES AND EXCHANGE COMMISSION , 
Plaintiff~ 
4 .. _ _ "\ 
v. 
COMPLAINT 
JAMES L . SCHMIDT II , 
Defendant. 
Plaintiff Securities and Exchange Commission ("'Commission"),  for its Complaint against 
Defendant James L. Schmidt II (" Defendant"), alleges: 
SUMMARY 
I. This is an action against a  lawyer who used his status as an attorney to he lp insure 
the success of a scheme to defraud investors. With aggressive boiler room tactic s and a network 
of fake investment firms that used cold callers (the "Cold Callers"), internet advettising and 
fraudulent w ebsites promising high rates of return and discounted stock prices, Defendant's 
associates succeeded 
in Juring investors into purchasing securities by sending their money to 
Defendant. 

2. Defendant was a key player in the scheme , who used his status as a lawyer to lend 
legitimacy to the underlying fraudulent scheme. Defendant ' s role was to receive wire transfers 
of investor funds and, unbeknownst to investors, relay the money on to Speight and IST, after 
deducting a two percent 
fee for himself. The investors who sent their money to Defendant ended 
up receiving from Speight and 1ST counterfeit securities that were not wotth the paper they were 
printed on. 
3. 
At leas t $2 .7 mill ion of investor money !lowed through Defendant's account, and 
he got 
to keep approximately $54,000 of that money as his fee for acting the part of a legitimate 
attorney purportedly facilitating securities transactions between 
the inve stors and the issuers. 
When Defendant transferred the balance 
of the investment funds to Speight or 1ST, he knew or 
recklessly disregarded that they would 
sp lit the funds with the Cold Callers. In other words, 
Defendant knew or recklessly disregarded that 
he was facilitating a fraudulent scheme. 
VIOLATIONS 
4. By virtue of the conduct alleged herein Defendant , directly or indirectly , s ingly or 
in concert , has engaged and is engaging in acts, practices and cour ses of business that constitute 
violations 
of Section 17(a) of the Securities Act of 1933 ('' Securities Act") , 15 U.S.C. § 77q(a) , 
Section I 
O(b) of the Securities Excha nge Act of 1934 (the " Exchange Act") ,  15 U .S.C . § 78j(b ), 
and Exchange Act Rule I 
Ob-5, 17 C.F.R. § 240.1 Ob-5. 
5. By virtue of the conduct alleged herein Defendant , directly or indirectly , singly or 
_jn concert, has engaged__and....a.re.._engaging in acts,__pL~es_and c.Q..urses of business t_hat aided and 
abetted violations of Section 17(a) of the Securities Act , 15 U.S.C. § 77q(a) , Section I O(b) of the 
Exchange Act , 15 U.S.C. § 78j(b), and Exc hange Act Rule I Ob-5, 17 C.F.R. § 240.1 Ob-5. 
2 


NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 
6. The Commission brings this action pursuant to the authority conferred upon it by 
Section 20(b) of the Securities Act, 15 U .S.C. § 77t(b), and Section 2 1 (d) of the Exchange Act, 
15 U.S.C . § 78u(d), seeking to restrain and enjoin permanently Defendant from engaging in the 
acts, practices , and courses of business alleged herein. 
7. The Commission seeks a Final Judgment ordering Defendant to disgorge his ill-
gotten gaii1s and to pay prejudgment interest thereon , ordering Defendant to pay a civil monetary 
penalty pursuant 
to Section 20(d) of the Securities Act, 15 U.S.C . § 77t(d), and Section 21 (d) of 
the Exchange Act, 15 U.S .C. § 78u(d), prohibiting Defendant from participating in an offering of 
penny stock pursuant to Section 20(g) of the Securities Act, 15 U.S.C. § 77t(g) , and ordering 
Defendant 
to repatriate assets. 
JURISDICTION AND VENUE 
8. This Colll1 has jurisdiction over this action pursuant to Section 22(a) of the 
Securities Act, 
15 U .S.C. § 77v(a), and Section 27 of the Exchange Act , 15 U.S.C. § 78aa. 
9. Venue lies in thi~ District pursuant to Section 22(a) ofthe Securities Act, 15 
U.S.C. § 77v(a), and Section 27 ofthe Exchange Act, 15 U.S.C. § 78aa. The Defendant, directly 
and indirectly, has made use 
of the means at1d instrumentalities of interstate commerce , or of the 
mails, 
in connection with the transactions , acts, practices and courses of business alleged herein , 
including 
by the offer and sale and the mailing of securities to residents in this District, and 
communications with potential and actual investors or scheme participants in this District. 
DEFENDANT 
I0. James L. Schmidt II, age 55, is an attorney licensed to practice and in good 
stand i
ng in Florida. Defendant resides in Osprey , Florida, and is a sole practitioner with a 
3 


princi pal place of business in Destin, Florida. 
RELATED PERSONS AND ENTITIES 
11. International Stock Transfer, Inc. ("1ST") is a Florida corporation incorporated 
in 2004, with an office in Palm Beach, Florida. Cecil Franklin Speight is currently the sole 
owner, officer and director 
of IST. Since March 22, 2004, 1ST has been registered with the 
Commission as a transfer agent. 
On June 14,20 13, staff in the Commission 's Office of 
Compliance Inspections and Examinations (the "Staff') conducted an examination of 1ST's 
business 
in which 1ST failed to produce the majority of required records to the Staff. 1ST 
subsequently filed a Form TA-W with the Commission, seeking to withdraw its registration as a 
Transfer Agent. The withdrawal was made effective 
by the Commission on August 3, 20 13. 
12. Cecil Franklin Speight ("Speight"), age 53, is a resident of West Palm Beach, 
Florida. Speight 
is the sole owner, officer, and director of I ST. On July 24, 2014, Speight 
consented 
to the entry ofjudgment against him and 1ST for securities law violations arising out 
of the conduct alleged in this Complaint in the action captioned SEC v. Speight, 14-CV -4435 
(ADS) (E.D.N.Y.). 
At that time , Speight also pleaded guilty to related charges in the parallel 
criminal action captioned 
United States v. Speight, 14-CR-379 (RRM) (E.D.N.Y.). 
FACTS 

The Fraudulent Scheme 

13. Beginning in April 2012, Speight paid for the creation and maintenance of 
websites for certain bogus unregistered financial advisors, including ACI Private Wealth (also 
known as 
ACI Private Client) ("ACI")~_______ _. _____________ 
14. Once Speight funded the creation of the unregistered purported financial advisory 
firm ' s websites, each 
of those business names was used to sell counterfeit securities to members 
4 

of the investing public , including through internet advertising and through "co ld calling." 
1
5. Speight, through 1ST, paid at least hundreds of thousands of dollars of scheme 
proceeds 
to the Cold Callers that were responsible for speaking to and selling securities to 
investors. 
1
6. When the Cold Callers succeeded in making a sale, they wou ld direct investors to 
wire their money to one of two attorneys, including Defendant, typical ly by providing investors 
with wire instructions identifying bank accounts held 
in the names of the attorneys. 
17. Defendant's rol e in the sc heme was to add the appearance of legitimacy to the 
underlying transactions and conceal 
tt·om investors that the money they wired to Defendant's 
account was being misappropriated. Defendant thus knowingly or recklessly engaged 
in 
transactions that operated as a fraud or deceit upon investors , and he substantially assisted 
Speight, 
1ST and the Cold Callers in the fraudu lent sale of counterfeit secu rities. 
18. Defe nd ant controlled the bank account identified on the wire instructions 
provided 
to investors by the Cold Callers, and Defendant agreed with Speight that his bank 
account would 
be used as a pass-through for investor money solicited by the Cold Callers to 
acco unts controlled by Speight. 
19. When investors sent their money to Defendant's account, Defendant did not 
transfer the investors '  money to ACI as some in vestors understood they would. Nor was money 
sent to the supposed issuers of the securities, as wou ld be expected had the securities been 
legitimate. 
20. Rather than providing any legitimate 
lega l services, Defe ndant (doin g the bidding 
of Speight) simply acted as a conduit for investor money , obscuring the fact that investor fund s 
were being misappropriated. 
5 


21. In exchange for these illicit services, Defendant retained approximately 2% of the 
investment funds, which he took as a cut directly from funds received from the investors . 
22. Defendant then transferred 
the remainder of the investor money , by eithe r wire or 
check, into bank accounts 
he ld by 1ST and controlled by Speig ht. 
23. Defendant typically only held investor funds in his account for a matter of days 
before transferring the balance less 
fees to bank accounts held by 1ST and controlled by Speight. 
24. 
In an attempt to avo id raising red flags with his banking institution and alerting 
criminal or civ 
il regulators, Defendant often broke up funds received from investors into a series 
of smaller dollar amount wire transfers to !ST. 
25. Once IST and ·Speight received the money, they mailed counterfeit securities 
cettitlcates 
to the investors. 
26. Through the efforts 
of the ~old Callers who claimed to be affiliated with the 
entities and websites Speight created and through 
other means , from at least May 2012 forward, 
IST received 
at least$3.3 million in investor monies from the offer and sa le of fraudulent 
securities 
to over 70 investors .  Many of these investors are foreign investors , including residents 
of the United Kingdom, Australia, Ireland , and New Zealand. At least II investors are residents 
of the United States, including at least two investors who reside within this District. 
27. 
At least $2.7 million of scheme proceeds , contributed by at least 45 investors, 
flowed through Defendant's bank account 
from th e sale of two differe nt securities. 
6 


The Offer and Sale of Sham "Altmark" Bonds 
28. One of the securities that the Cold Callers sold to investors was a bond that 
promised a 
14% annual rate ofreturn , sup posedly issued by a company called Altmark Holdin gs 
Limited ("Altmark"). 
29. Altmark 
is a Turks & Caicos entity that , since 2007, has created a series of high­
yield bonds that have been held, 
in electronic form, in various accounts of Depository Trust 
Company ("DTC") participant
s. Durin g the relevant time period, Altmark made no interest 
payments through DTC or otherwise 
to any holders of the electronic Altmark bonds. 
30 . From 
at least May 2012 forward, 1ST and Speight created paper Altmark bond 
certificates and mailed them to investors who were solicited 
by the Cold Callers, including 
individuals who claimed to 
be affiliated with ACI. The Cold Callers promised the investors that 
the bonds were 
low risk and would pay a high rate of return. 
31. The paper Altmark bond certificates Speight peddled to 
investors were 
counterfeits. 
32. 
1ST issued these phony paper certificates as Altmark's transfer agent, and Speight 
signed the cet1ificates as a director 
of Altmark even though he was not an Altmark director. 
33. Having promised a 
14% rate of return, Speight and 1ST used some limited 
investor monies to pay purported periodic interest payments. However, 
in April 2013, 1ST 
mailed a letter to inve stors informing them that Altmark was suspending all intere st  payments . 
1ST made no fw1her " interest'' payments thereafter. 
34. Defendant knew or recklessly disregarded facts that would have 
led any 
reasonable attorney 
in his position to conclude that Speight was engaged in the sale of fraudulent 
securities. For instance , Defendant received complaints 
fi·om at least six different investors, 
7 


including questions about the apparently counterfeit nature of the securities, the lack of interest 
payments and their inability to contact the Cold Callers. Defendant collaborated with Speight to 
craft responses to the complaining investors, which he knew or recklessly disregarded were false . 
35. Defendant falsely identified 
himself to complaining investors as a form of 
" escrow" agent for !ST. However, Defendant knew or recklessly disregarded that he was not an 
escrow agent. Indeed, there was no escrow agreement of any  kind with anyone, let alone with 
the issuer of securities. 
36. Defendant also falsely identified 
himself to complaining investors as a "suspense 
agent" for 
1ST who operated a "suspense account" that preliminarily received funds from 
investors while the 
"compliance department" at 1ST analyzed whether the potential investors met 
certain qualifications for investing under federal securities law. This representation was 
knowingly 
or reck lessly false. 1ST did not have a compliance department, 1ST did not provide 
Defendant with any information indicating that it  vetted investor qualifications, and Defendant 
never returned investor money as non-compliant with federal securities law. 
37. 
Defendant's email responses to investors were often inconsistent with each other, 
inc! uding with respect to Defendant's description of the nature of the underlying seller of the 
securities (e.g., suggesting to 
some investors that the bonds were sold directly by th e  issuer, 
while telling others that  the bonds were sold on the secondary market) and 1ST's relationship 
with the Cold Callers (e.g. , vouching for ACI as one 
of 1ST's "clients" in response to one 
investor, while telling another investor that 1ST had no affiliation with ACI). 
38. 
Defendant also received cogies of Altmark certificates tb~bor-=--=~h:.::.-=-----­'-'-e Se-'-'i"'-t's'-----­
s ignature as a  director of the company .  Defendant knew Speight was not a  director of Altmark. 
The Offer and Sale of Sham "PDL" Securities 
39. Speight and 1ST also fraudulently offered and sold stock certificates purportedly 
8 


issued by a  Belize entity called "POL Portfolio (XIX) Ltd." ("POL"). 
40. POL is  a corporate shell, not a real business entity. It never had any legitimate 
business operations, income producing assets, 
or employees. 
41. Speight signed the certificates as President of POL, although he knew that POL 
was nothing more than a shell and that the investor money used to purchase such certificates 
would not be used to fund 
any legitimate POL business. 
42. As with 1ST's Altmark certificates, the POL certificates are sham documents and 
were worthless :  they contain an " ID No.," but no CUSIP; the certificates purport to be common 
stock certificates, but the offering materials inconsistently represent that the "shares" will receive 
a  fixed interest rate of20%; and the offering materials contain references to "Notes" rather than 
shares. The offeri ng  materials also represent that POL had registered a global note 
in the name 
of a  nominee with DTC, but, contrary to the representations in the offering materials , no such 
POL note is  held by 
DTC. 
43. As with the Altmark scheme , Defendant provided misleading information to 
investors who complained about their purcha ses of fake POL stock. For instance, in May 2013, 
Defendant falsely told an investor that 1ST conducted " threshold 'due dilige nc e· and comp liance 
verifications prior to agreeing to act as a  transfer 
I settlement agent"  for the POL stock. Given 
that POL is a fictitious entity that was created by Speight using 1ST funds ,  Defendant had no 
basis to make this false representation. 
Speight and 1ST's Misuse of Investor Monies 
44. 1ST and Speight misappropriated and did not give issuers  investor funds . 
45. 1ST Cold Callers provided investors with wire instructions that directed investors' 
funds to the Defendant's account. 
9 


46 . In connection with the offer and sale of Altmark securities. 1ST and Speight 
arranged for investors to wire their funds 
to Defendant's and another attorney's bank accounts . 
4
7. All investor money that came into these two attorney accounts was transferred to 
1ST, except tor bank charges and amounts identified as attorney's fees. Monies did not come 
into IST from any other source besides the two attorney accounts. 
48. 1ST's records show that 
1ST received over $2.7 million from at least 52 investors 
over approximately a one year time period 
in connection with the offer and sale of Altmark 
securities, including at least $2 .6 mill 
ion wired to Defendant's bank account from at least 43 
investors. Bank records corroborate that 1ST received money in approximately the same amount 
from Defendant during such period . 
49. Of the approximate ly $2.6 million in investor money that 1ST received from 
Defendant in connection with the offer and sale of Altmark securities, none was paid to the 
purported issuer 
of the securities that were supposedly purchased by investors. 
50. 1ST's records also show that investors wired funds to Defendant's bank acco unt in 
connection with the offer and sale of POL securities. 
51 . 1ST received from Defendant at least $180 ,000 of investor money wired to 
Defendant from at least 2 investors over approximately a one year time period in connection with 
the offer and sale 
ofPDL securities.  Bank records corroborate that 1ST received money in 
approximately the same amount from Defendant during such period . 
52 . 
Of the $ 180,000 in investor money that IST received from Defendant in 
connection with the offer and sale of POL securities, none was paid to the purported issuer of the 
securities that were supposedly purchased by investors. 
10 


FIRST CLAIM FOR RELIEF 

(Violations of Sections l7(a) ofthe Securities Act) 

53. The Commission rea ll eges and incorporates by reference herein each and every 
allegation contained 
in paragraphs I through 52 of this Complaint. 
54. Defendant , directly or indirectly, 
si ngly or in concert, knowingly or recklessly, by 
use of the means or instruments of transportation or communication in interstate commerce, or of 
the mai Is, in the offer or sale of securities, acting with the requisite state of mind, (a) em ployed 
devices , schemes 
and artifices to defraud; (b) obtained money or property by means of untrue 
statements 
of material fact or omissions to state a material fact necessary to make the statements 
made, 
in light of the circumstances under whic h they were made, not misleading; and (c) 
engaged 
in transactions , practice s, or a co urse of business which operated or would operate as a 
fraud or deceit upon purchasers. 
55. By engaging in the conduct described above, Defendant has violated , and unless 
enjoined will again violate , Section I 7(a) 
of the Securities Act, 15 U.S.C. § 77q(a). 
SECOND CLAIM FOR RELIEF 
(Violation s of Sectio n lO{b) of the Exchange Act and Rule lOb-5 thereunder) 
56. The Commission real leges and incorporates by reference herein each and every 
allegation conta 
ined in paragraphs I .through 52 of this Complaint. 
57. Defendant, directly or indirectly, singly or 
in concert, by use of th e means or 
instruments 
of tran sportation or communication in in ters tate commerce, or of the mails, in 
connection with the purchase or sa le of securities, knowingly or recklessly, has: (a) employed 
devices, schemes 
and atiifices to defraud ; (b) made untrue statements of material fact, or omitted 
to state material facts necessary in order to make the statements made, in light of the 
circumstances under which they were made , 
not misleading; and (c) engaged in transactions, 
1 I 


acts, practices and courses of business which operated or would have operated as a fraud or 
deceit upon any person . 
58. 
By reason of the foregoing , Defendant has violated, and unless enjoined will 
again violate, Section 
IO(b) ofthe Exchange Act, 15 U.S.C. § 78j(b), and Rule !Ob-5, 17 C.F.R. 
§ 140.1 Ob-5 , promu !gated thereunder. 
THIRD CLAIM FOR RELIEF 

(Aiding and Abetting Speight and IST's Violations 
of Section 17(a) of the Securities Act 

and Section lO(b) 
of the Exchange Act and Rule lOb-S thereunder) 

59. The Commission realleges and incorporates by reference herein each and every 
allegation contained 
in paragraphs I through 52 ofthis Complaint. 
60. Speight 
and 1ST, directly or indirectly , singly or in concert, by use of the means or 
instruments 
of transportation or communication in interstate commerce, or of the mails, in 
connection with the offer, purchase, or sale of securities, knowingly or recklessly, have: (a) 
emp loyed devices , schemes and artifices 
to defraud; (b) made untrue statements of material fact , 
or omitted 
to state material facts necessary in order to make the statements made, in Iight of the 
circumstances under which they were made , not misleading; and (c) engaged 
in transactions, 
acts, practices and courses 
of business which operated or would have operated as a fraud or 
deceit upon any person. 
61. Defendant knowingly or recklessly substantially assisted Speight a
nd 1ST's 
violations 
of Section 17(a) of the Securities Act and Section 10(b) ofthe Exchange Act and Rule 
I
Ob-5 thereunder . 
62. 
By reason of the foregoing, Defendant aided and abetted violations of and. unless 
enjoined, will continue 
to aid and abet violations of Section 17(a) of the Securities Act, 15 
U.S.C. §§ 77q(a), and Section IO(b) ofthe Exchange Act , 15 U.S.C. § 78j(b) and Rule IOb-5 
12 


thereunder, 17 C.F.R. § 240.1 Ob-5 . 
PRAYER FOR RELIEF 
WHEREFORE, 
the Commission respectfully requests that the Court enter fina l 
judgments against the Defendant granting the following relief: 
I. 
Permanently , restraining and enjoining Defendant, his agents, servants, employees and 
attorneys and all persons in active concert or participation with him. who receive actual notice of 
the injunction by personal service or otherwise, and each of them, from future violations of 
Section I 7(a) of the Securities Act, I 5 U.S .C. § 77q(a), Section I O(b) of the Exchange Act, I 5 
U.S.C. 
§ 78j(b), and Exchange Act Rule I Ob-5, I 7 C.F.R. § 240. I Ob-5, and from future 
violations 
of and/or aiding and abetting violations of Section I 7(a) of the Securities Act, I 5 
U.S.C. 
§ 77q(a), Section I O(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Exchange Act Rule 
I Ob-5, 17 C.F.R. § 240. I Ob-5. 
II. 
Ordering Defendant to disgorge his ill-gotten gains, plus prejudgment interest, and suc h 
other and further amount 
as the Court may find appropriate. 
III. 
Ordering Defendant to a pay civil money penalty pursuant to Section 20( d) of the 
Securities Act, 
I 5 U.S.C. § 77t(d), and Section 2 I ( d)(3) of the Exchange Act , 15 U.S. C. § 
78u(d)(3 ). 
13 


---------------------------------
IV. 
Permanently barring Defendant from participating in an offering of penny stock, pursuant 
to Section 20(g) 
ofthe Securities Act, 15 U.S.C. § 77t(g) , and Section 2\(d)(6) ofthe Exchange 
Act, 
15 U.S.C. § 78s(d)(6). 
v. 
Such other and further relief as to this  Court deems just and proper. 
Dated: New York, New York 
September 
23 , 2014 
By . ~~ 
Amelia A. Cottrell 
Associate Regional Director 
Of Counsel: Attorney for Plaintiff 
Andrew 
M. Calamari SECURITIES AND EXCHANGE COMMISSION 
Alexander Vasilescu 3 World Financial Center, 
Room 400 
Adam 
S. Grace New York , NY \0281 
Justin 
A. Alfano (212) 336-0178 (Vasilescu) 
John Lehmann 
14 

Andrew M. Calamari 
Amelia A. Cottrell 
Alexander Vasilescu 
Adam S. Grace 

(/;)
Justin A. Alfano 01 

-o
John Lehmann N 

w 
New York Regiona l Office 
SECURITIES AND EXCHANGE COMM ISS ION 

-o 
:XBrookfield Place 

200 Vesey Street, Room 400 N 

(._<)New York, NY 10281 
w(212) 336-0178 (Yasilescu) 

KUt\JT.7
L, 

J
•UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF NEW YORK 

SECURITIES AND EXCHANGE COMMISSION , 

Plaintiff~ 
4 .. _ _ "\ 

v. 
COMPLAINT 

JAMES L . SCHMIDT II , 

Defendant. 

Plaintiff Securities and Exchange Commission ("'Commission"), for its Complaint against 

Defendant James L. Schmidt II (" Defendant"), alleges: 

SUMMARY 

I. This is an action against a lawyer who used his status as an attorney to he lp insure 

the success of a scheme to defraud investors. With aggressive boiler room tactic s and a network 

of fake investment firms that used cold callers (the "Cold Callers"), internet advettising and 

fraudulent websites promising high rates of return and discounted stock prices, Defendant's 

associates succeeded in Juring investors into purchasing securities by sending their money to 

Defendant. 



2. Defendant was a key player in the scheme , who used his status as a lawyer to lend 

legitimacy to the underlying fraudulent scheme. Defendant ' s role was to receive wire transfers 

of investor funds and, unbeknownst to investors, relay the money on to Speight and IST, after 

deducting a two percent fee for himself. The investors who sent their money to Defendant ended 

up receiving from Speight and 1ST counterfeit securities that were not wotth the paper they were 

printed on. 

3. At leas t $2 .7 mill ion of investor money !lowed through Defendant's account, and 

he got to keep approximately $54,000 of that money as his fee for acting the part of a legitimate 

attorney purportedly facilitating securities transactions between the inve stors and the issuers. 

When Defendant transferred the balance of the investment funds to Speight or 1ST, he knew or 

recklessly disregarded that they would sp lit the funds with the Cold Callers. In other words, 

Defendant knew or recklessly disregarded that he was facilitating a fraudulent scheme. 

VIOLATIONS 

4. By virtue of the conduct alleged herein Defendant , directly or indirectly , s ingly or 

in concert , has engaged and is engaging in acts, practices and cour ses of business that constitute 

violations of Section 17(a) of the Securities Act of 1933 ('' Securities Act") , 15 U.S.C. § 77q(a) , 

Section I O(b) of the Securities Excha nge Act of 1934 (the " Exchange Act") , 15 U .S.C . § 78j(b ), 

and Exchange Act Rule I Ob-5, 17 C.F.R. § 240.1 Ob-5. 

5. By virtue of the conduct alleged herein Defendant , directly or indirectly , singly or 

_jn concert, has engaged__and....a.re.._engaging in acts,__pL~es_and c.Q..urses of business t_hat aided and 

abetted violations of Section 17(a) of the Securities Act , 15 U.S.C. § 77q(a) , Section I O(b) of the 

Exchange Act , 15 U.S.C. § 78j(b), and Exc hange Act Rule I Ob-5, 17 C.F.R. § 240.1 Ob-5. 

2 


http:engaged__and....a.re


NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 

6. The Commission brings this action pursuant to the authority conferred upon it by 

Section 20(b) of the Securities Act, 15 U .S.C. § 77t(b), and Section 2 1 (d) of the Exchange Act, 

15 U.S.C . § 78u(d), seeking to restrain and enjoin permanently Defendant from engaging in the 

acts, practices , and courses of business alleged herein. 

7. The Commission seeks a Final Judgment ordering Defendant to disgorge his ill-

gotten gaii1s and to pay prejudgment interest thereon , ordering Defendant to pay a civil monetary 

penalty pursuant to Section 20(d) of the Securities Act, 15 U.S.C . § 77t(d), and Section 21 (d) of 

the Exchange Act, 15 U.S .C. § 78u(d), prohibiting Defendant from participating in an offering of 

penny stock pursuant to Section 20(g) of the Securities Act, 15 U.S.C. § 77t(g) , and ordering 

Defendant to repatriate assets. 

JURISDICTION AND VENUE 

8. This Colll1 has jurisdiction over this action pursuant to Section 22(a) of the 

Securities Act, 15 U .S.C. § 77v(a), and Section 27 of the Exchange Act , 15 U.S.C. § 78aa. 

9. Venue lies in thi~ District pursuant to Section 22(a) ofthe Securities Act, 15 

U.S.C. § 77v(a), and Section 27 ofthe Exchange Act, 15 U.S.C. § 78aa. The Defendant, directly 

and indirectly, has made use of the means at1d instrumentalities of interstate commerce , or of the 

mails, in connection with the transactions , acts, practices and courses of business alleged herein , 

including by the offer and sale and the mailing of securities to residents in this District, and 

communications with potential and actual investors or scheme participants in this District. 

DEFENDANT 

I0. James L. Schmidt II, age 55, is an attorney licensed to practice and in good 

stand ing in Florida. Defendant resides in Osprey , Florida, and is a sole practitioner with a 

3 




princi pal place of business in Destin, Florida. 

RELATED PERSONS AND ENTITIES 

11. International Stock Transfer, Inc. ("1ST") is a Florida corporation incorporated 

in 2004, with an office in Palm Beach, Florida. Cecil Franklin Speight is currently the sole 

owner, officer and director of IST. Since March 22, 2004, 1ST has been registered with the 

Commission as a transfer agent. On June 14,20 13, staff in the Commission 's Office of 

Compliance Inspections and Examinations (the "Staff') conducted an examination of 1ST's 

business in which 1ST failed to produce the majority of required records to the Staff. 1ST 

subsequently filed a Form TA-W with the Commission, seeking to withdraw its registration as a 

Transfer Agent. The withdrawal was made effective by the Commission on August 3, 20 13. 

12. Cecil Franklin Speight ("Speight"), age 53, is a resident of West Palm Beach, 

Florida. Speight is the sole owner, officer, and director of I ST. On July 24, 2014, Speight 

consented to the entry of judgment against him and 1ST for securities law violations arising out 

of the conduct alleged in this Complaint in the action captioned SEC v. Speight, 14-CV -4435 

(ADS) (E.D.N.Y.). At that time , Speight also pleaded guilty to related charges in the parallel 

criminal action captioned United States v. Speight, 14-CR-379 (RRM) (E.D.N.Y.). 

FACTS 


The Fraudulent Scheme 


13. Beginning in April 2012, Speight paid for the creation and maintenance of 

websites for certain bogus unregistered financial advisors, including ACI Private Wealth (also 

known as ACI Private Client) ("ACI")~_______ _. _____________ 

14. Once Speight funded the creation of the unregistered purported financial advisory 

firm ' s websites, each of those business names was used to sell counterfeit securities to members 

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of the investing public , including through internet advertising and through "co ld calling." 

15. Speight, through 1ST, paid at least hundreds of thousands of dollars of scheme 

proceeds to the Cold Callers that were responsible for speaking to and selling securities to 

investors. 

16. When the Cold Callers succeeded in making a sale, they wou ld direct investors to 

wire their money to one of two attorneys, including Defendant, typical ly by providing investors 

with wire instructions identifying bank accounts held in the names of the attorneys. 

17. Defendant's rol e in the sc heme was to add the appearance of legitimacy to the 

underlying transactions and conceal tt·om investors that the money they wired to Defendant's 

account was being misappropriated. Defendant thus knowingly or recklessly engaged in 

transactions that operated as a fraud or deceit upon investors , and he substantially assisted 

Speight, 1ST and the Cold Callers in the fraudu lent sale of counterfeit secu rities. 

18. Defe nd ant controlled the bank account identified on the wire instructions 

provided to investors by the Cold Callers, and Defendant agreed with Speight that his bank 

account would be used as a pass-through for investor money solicited by the Cold Callers to 

acco unts controlled by Speight. 

19. When investors sent their money to Defendant's account, Defendant did not 

transfer the investors ' money to ACI as some in vestors understood they would. Nor was money 

sent to the supposed issuers of the securities, as wou ld be expected had the securities been 

legitimate. 

20. Rather than providing any legitimate lega l services, Defe ndant (doin g the bidding 

of Speight) simply acted as a conduit for investor money , obscuring the fact that investor fund s 

were being misappropriated. 

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21. In exchange for these illicit services, Defendant retained approximately 2% of the 

investment funds, which he took as a cut directly from funds received from the investors . 

22. Defendant then transferred the remainder of the investor money , by eithe r wire or 

check, into bank accounts he ld by 1ST and controlled by Speig ht. 

23. Defendant typically only held investor funds in his account for a matter of days 

before transferring the balance less fees to bank accounts held by 1ST and controlled by Speight. 

24. In an attempt to avo id raising red flags with his banking institution and alerting 

criminal or civ il regulators, Defendant often broke up funds received from investors into a series 

of smaller dollar amount wire transfers to !ST. 

25. Once IST and ·Speight received the money, they mailed counterfeit securities 

cettitlcates to the investors. 

26. Through the efforts of the ~old Callers who claimed to be affiliated with the 

entities and websites Speight created and through other means , from at least May 2012 forward, 

IST received at least$3.3 million in investor monies from the offer and sa le of fraudulent 

securities to over 70 investors . Many of these investors are foreign investors , including residents 

of the United Kingdom, Australia, Ireland , and New Zealand. At least II investors are residents 

of the United States, including at least two investors who reside within this District. 

27. At least $2.7 million of scheme proceeds , contributed by at least 45 investors, 

flowed through Defendant's bank account from th e sale of two differe nt securities. 

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The Offer and Sale of Sham "Altmark" Bonds 

28. One of the securities that the Cold Callers sold to investors was a bond that 

promised a 14% annual rate ofreturn , sup posedly issued by a company called Altmark Holdin gs 

Limited ("Altmark"). 

29. Altmark is a Turks & Caicos entity that , since 2007, has created a series of high ­

yield bonds that have been held, in electronic form, in various accounts of Depository Trust 

Company ("DTC") participants. Durin g the relevant time period, Altmark made no interest 

payments through DTC or otherwise to any holders of the electronic Altmark bonds. 

30 . From at least May 2012 forward, 1ST and Speight created paper Altmark bond 

certificates and mailed them to investors who were solicited by the Cold Callers, including 

individuals who claimed to be affiliated with ACI. The Cold Callers promised the investors that 

the bonds were low risk and would pay a high rate of return. 

31. The paper Altmark bond certificates Speight peddled to investors were 

counterfeits. 

32. 1ST issued these phony paper certificates as Altmark's transfer agent, and Speight 

signed the cet1ificates as a director of Altmark even though he was not an Altmark director. 

33. Having promised a 14% rate of return, Speight and 1ST used some limited 

investor monies to pay purported periodic interest payments. However, in April 2013, 1ST 

mailed a letter to inve stors informing them that Altmark was suspending all intere st payments . 

1ST made no fw1her " interest'' payments thereafter. 

34. Defendant knew or recklessly disregarded facts that would have led any 

reasonable attorney in his position to conclude that Speight was engaged in the sale of fraudulent 

securities. For instance , Defendant received complaints fi·om at least six different investors, 

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including questions about the apparently counterfeit nature of the securities, the lack of interest 

payments and their inability to contact the Cold Callers. Defendant collaborated with Speight to 

craft responses to the complaining investors, which he knew or recklessly disregarded were false . 

35. Defendant falsely identified himself to complaining investors as a form of 

" escrow" agent for !ST. However, Defendant knew or recklessly disregarded that he was not an 

escrow agent. Indeed, there was no escrow agreement of any kind with anyone, let alone with 

the issuer of securities. 

36. Defendant also falsely identified himself to complaining investors as a "suspense 

agent" for 1ST who operated a "suspense account" that preliminarily received funds from 

investors while the "compliance department" at 1ST analyzed whether the potential investors met 

certain qualifications for investing under federal securities law. This representation was 

knowingly or reck lessly false. 1ST did not have a compliance department, 1ST did not provide 

Defendant with any information indicating that it vetted investor qualifications, and Defendant 

never returned investor money as non-compliant with federal securities law. 

37. Defendant's email responses to investors were often inconsistent with each other, 

inc! uding with respect to Defendant's description of the nature of the underlying seller of the 

securities (e.g., suggesting to some investors that the bonds were sold directly by th e issuer, 

while telling others that the bonds were sold on the secondary market) and 1ST's relationship 

with the Cold Callers (e.g. , vouching for ACI as one of 1ST's "clients" in response to one 

investor, while telling another investor that 1ST had no affiliation with ACI). 

38. Defendant also received cogies of Altmark certificates tb~bor-=--=~ h:.::.-= - - --- ­'-'-e S e-'-'i"'- t' s'-----­

s ignature as a director of the company . Defendant knew Speight was not a director of Altmark. 

The Offer and Sale of Sham "PDL" Securities 

39. Speight and 1ST also fraudulently offered and sold stock certificates purportedly 

8 




issued by a Belize entity called "POL Portfolio (XIX) Ltd." ("POL"). 

40. POL is a corporate shell, not a real business entity. It never had any legitimate 

business operations, income producing assets, or employees. 

41. Speight signed the certificates as President of POL, although he knew that POL 

was nothing more than a shell and that the investor money used to purchase such certificates 

would not be used to fund any legitimate POL business. 

42. As with 1ST's Altmark certificates, the POL certificates are sham documents and 

were worthless : they contain an " ID No.," but no CUSIP; the certificates purport to be common 

stock certificates, but the offering materials inconsistently represent that the "shares" will receive 

a fixed interest rate of20%; and the offering materials contain references to "Notes" rather than 

shares. The offeri ng materials also represent that POL had registered a global note in the name 

of a nominee with DTC, but, contrary to the representations in the offering materials , no such 

POL note is held by DTC. 

43. As with the Altmark scheme , Defendant provided misleading information to 

investors who complained about their purcha ses of fake POL stock. For instance, in May 2013, 

Defendant falsely told an investor that 1ST conducted " threshold 'due dilige nce· and comp liance 

verifications prior to agreeing to act as a transfer I settlement agent" for the POL stock. Given 

that POL is a fictitious entity that was created by Speight using 1ST funds , Defendant had no 

basis to make this false representation. 

Speight and 1ST's Misuse of Investor Monies 

44. 1ST and Speight misappropriated and did not give issuers investor funds . 

45. 1ST Cold Callers provided investors with wire instructions that directed investors' 

funds to the Defendant's account. 

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46 . In connection with the offer and sale of Altmark securities. 1ST and Speight 

arranged for investors to wire their funds to Defendant's and another attorney's bank accounts . 

47. All investor money that came into these two attorney accounts was transferred to 

1ST, except tor bank charges and amounts identified as attorney's fees. Monies did not come 

into IST from any other source besides the two attorney accounts. 

48. 1ST's records show that 1ST received over $2.7 million from at least 52 investors 

over approximately a one year time period in connection with the offer and sale of Altmark 

securities, including at least $2 .6 mill ion wired to Defendant's bank account from at least 43 

investors. Bank records corroborate that 1ST received money in approximately the same amount 

from Defendant during such period . 

49. Of the approximate ly $2.6 million in investor money that 1ST received from 

Defendant in connection with the offer and sale of Altmark securities, none was paid to the 

purported issuer of the securities that were supposedly purchased by investors. 

50. 1ST's records also show that investors wired funds to Defendant's bank acco unt in 

connection with the offer and sale of POL securities. 

51 . 1ST received from Defendant at least $180 ,000 of investor money wired to 

Defendant from at least 2 investors over approximately a one year time period in connection with 

the offer and sale ofPDL securities. Bank records corroborate that 1ST received money in 

approximately the same amount from Defendant during such period . 

52 . Of the $ 180,000 in investor money that IST received from Defendant in 

connection with the offer and sale of POL securities, none was paid to the purported issuer of the 

securities that were supposedly purchased by investors. 

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FIRST CLAIM FOR RELIEF 

(Violations of Sections l7(a) ofthe Securities Act) 


53. The Commission rea ll eges and incorporates by reference herein each and every 

allegation contained in paragraphs I through 52 of this Complaint. 

54. Defendant , directly or indirectly, si ngly or in concert, knowingly or recklessly, by 

use of the means or instruments of transportation or communication in interstate commerce, or of 

the mai Is, in the offer or sale of securities, acting with the requisite state of mind, (a) em ployed 

devices , schemes and artifices to defraud; (b) obtained money or property by means of untrue 

statements of material fact or omissions to state a material fact necessary to make the statements 

made, in light of the circumstances under whic h they were made, not misleading; and (c) 

engaged in transactions , practice s, or a co urse of business which operated or would operate as a 

fraud or deceit upon purchasers. 

55. By engaging in the conduct described above, Defendant has violated , and unless 

enjoined will again violate , Section I 7(a) of the Securities Act, 15 U.S.C. § 77q(a). 

SECOND CLAIM FOR RELIEF 
(Violation s of Sectio n lO{b) of the Exchange Act and Rule lOb-5 thereunder) 

56. The Commission real leges and incorporates by reference herein each and every 

allegation conta ined in paragraphs I .through 52 of this Complaint. 

57. Defendant, directly or indirectly, singly or in concert, by use of th e means or 

instruments of tran sportation or communication in in ters tate commerce, or of the mails, in 

connection with the purchase or sa le of securities, knowingly or recklessly, has: (a) employed 

devices, schemes and atiifices to defraud ; (b) made untrue statements of material fact, or omitted 

to state material facts necessary in order to make the statements made, in light of the 

circumstances under which they were made , not misleading; and (c) engaged in transactions, 

1 I 




acts, practices and courses of business which operated or would have operated as a fraud or 

deceit upon any person . 

58. By reason of the foregoing , Defendant has violated, and unless enjoined will 

again violate, Section IO(b) ofthe Exchange Act, 15 U.S.C. § 78j(b), and Rule !Ob-5, 17 C.F.R. 

§ 140.1 Ob-5 , promu !gated thereunder. 

THIRD CLAIM FOR RELIEF 

(Aiding and Abetting Speight and IST's Violations of Section 17(a) of the Securities Act 


and Section lO(b) of the Exchange Act and Rule lOb-S thereunder) 


59. The Commission realleges and incorporates by reference herein each and every 

allegation contained in paragraphs I through 52 ofthis Complaint. 

60. Speight and 1ST, directly or indirectly , singly or in concert, by use of the means or 

instruments of transportation or communication in interstate commerce, or of the mails, in 

connection with the offer, purchase, or sale of securities, knowingly or recklessly, have: (a) 

emp loyed devices , schemes and artifices to defraud; (b) made untrue statements of material fact , 

or omitted to state material facts necessary in order to make the statements made, in Iight of the 

circumstances under which they were made , not misleading; and (c) engaged in transactions, 

acts, practices and courses of business which operated or would have operated as a fraud or 

deceit upon any person. 

61. Defendant knowingly or recklessly substantially assisted Speight and 1ST's 

violations of Section 17(a) of the Securities Act and Section 10(b) ofthe Exchange Act and Rule 

IOb-5 thereunder . 

62. By reason of the foregoing, Defendant aided and abetted violations of and. unless 

enjoined, will continue to aid and abet violations of Section 17(a) of the Securities Act, 15 

U.S.C. §§ 77q(a), and Section IO(b) ofthe Exchange Act , 15 U.S.C. § 78j(b) and Rule IOb-5 

12 




thereunder, 17 C.F.R. § 240.1 Ob-5 . 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that the Court enter fina l 

judgments against the Defendant granting the following relief: 

I. 

Permanently , restraining and enjoining Defendant, his agents, servants, employees and 

attorneys and all persons in active concert or participation with him. who receive actual notice of 

the injunction by personal service or otherwise, and each of them, from future violations of 

Section I 7(a) of the Securities Act, I 5 U.S .C. § 77q(a), Section I O(b) of the Exchange Act, I 5 

U.S.C. § 78j(b), and Exchange Act Rule I Ob-5, I 7 C.F.R. § 240. I Ob-5, and from future 

violations of and/or aiding and abetting violations of Section I 7(a) of the Securities Act, I 5 

U.S.C. § 77q(a), Section I O(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Exchange Act Rule 

I Ob-5, 17 C.F.R. § 240. I Ob-5. 

II. 

Ordering Defendant to disgorge his ill-gotten gains, plus prejudgment interest, and suc h 

other and further amount as the Court may find appropriate. 

III. 

Ordering Defendant to a pay civil money penalty pursuant to Section 20( d) of the 

Securities Act, I 5 U.S.C. § 77t(d), and Section 2 I ( d)(3) of the Exchange Act , 15 U.S. C. § 

78u(d)(3 ). 

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---------------------------------

IV. 

Permanently barring Defendant from participating in an offering of penny stock, pursuant 

to Section 20(g) ofthe Securities Act, 15 U.S.C. § 77t(g) , and Section 2\(d)(6) ofthe Exchange 

Act, 15 U.S.C. § 78s(d)(6). 

v. 

Such other and further relief as to this Court deems just and proper. 

Dated: New York, New York 
September 23 , 2014 

By . ~~ 
Amelia A. Cottrell 
Associate Regional Director 

Of Counsel: Attorney for Plaintiff 
Andrew M. Calamari SECURITIES AND EXCHANGE COMMISSION 
Alexander Vasilescu 3 World Financial Center, Room 400 
Adam S. Grace New York , NY \0281 
Justin A. Alfano (212) 336-0178 (Vasilescu) 
John Lehmann 

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