Friday, August 08, 2003
Copyright © Las Vegas Review-Journal

Five indicted in fraud scheme

Longtime shell game in securities alleged

Five people, including two attorneys and two former attorneys, were indicted Thursday in Las Vegas in connection with a $14 million securities fraud scheme.

The 64-count indictment was filed against Las Vegas lawyers Daniel Chapman and Sean Flanagan, disbarred Las Vegas lawyer Shawn Hackman, former New York lawyer Herbert Jacobi and stock transfer agent James Farrell of Salt Lake City.

A warrant was issued Thursday afternoon for Farrell's arrest, while summonses were issued for the four other defendants. An arraignment has been scheduled for Sept. 5.

According to the indictment, the defendants conspired with each other from about July 1995 until about November 2001 to commit securities fraud, mail fraud, wire fraud, money laundering and other crimes.

The document accuses the defendants of assisting Las Vegas businessmen Peter Berney and Robert Potter with schemes that involved creating fraudulent public shell corporations and causing their securities to be sold in public markets. Berney and Potter had been participating in such schemes since at least 1994, according to the indictment.

Berney and his associates obtained dormant private corporations from many sources, the document alleges, then installed "nominee" officers and directors who were mere figureheads and had nothing to do with running the companies.

"In June of 1999, Peter Berney fled the United States to avoid criminal charges, leaving behind stocks of several shell corporations that he had fraudulently formed and had merged with private companies, and also leaving behind several shell corporations that had not yet been merged," the indictment alleges.

Berney, 57, and Potter, 55, later were indicted by federal grand juries in Las Vegas and New York.

After Berney fled the country, according to the indictment returned Thursday, Potter and the five other men, "decided to take up where Berney left off, merging the shell corporations and selling the stock that was in nominee names, keeping the proceeds for themselves."

Swiss authorities arrested Berney in Zurich in February 2000. His criminal cases are pending.

Potter found himself in more trouble in June 2001, when he and Jacobi were charged in New York with conspiring to receive stolen FBI records from Las Vegas private investigator Michael Levin, a former FBI agent.

All three men entered guilty pleas in the case. As part of his plea agreement, Jacobi agreed to resign from the New York bar and stop practicing law.

In June 1999, according to the indictment returned Thursday, Berney had Potter deliver several shell corporations to the law offices of Chapman & Flanagan for safekeeping while he was out of the country.

These corporations included Professional Mining Consultants, Dream Team International and K-9 Protection.

"The defendants sold these shell corporations and kept the proceeds for their benefit," the indictment alleges. "The defendants also sold, for their own benefit, other stocks held in the names of Peter Berney's nominees."

Those included stocks of Aimrite Holdings and Progress Watch, formerly known as Travelmasters.

According to the indictment, the defendants used some of the proceeds of the fraudulent stock sales "to further fraudulent sales to the public."

The document claims Berney, concerned with potential exposure to criminal prosecution or civil liability arising from his illegal stock trading activities, sought Jacobi's advice around the end of 1994.

"Jacobi advised Peter Berney that he had possible exposure for securities violations and income tax evasion and subsequently advised Peter Berney that he had to start structuring his companies differently to avoid liability," the indictment alleges.

As part of his scheme, according to the document, Berney used stock transfer agents, including Farrell's Alpha Tech Stock Transfer, to transfer stocks he controlled.

"It was further part of his scheme to defraud that Peter Berney hired attorneys, including defendants Shawn Hackman, Sean Flanagan and Daniel Chapman, to issue false and misleading legal opinions that the stocks of shell corporations were 'freely tradable' pursuant to federal securities laws, when in fact, they were not," the indictment alleges.

Around March 1999, according to the document, Berney and Potter funded the establishment of Chapman & Flanagan, a professional legal corporation, to assist them in their illegal stock trading activities.

The indictment also accuses Chapman and his firm of filing false and misleading registration statements with the Securities and Exchange Commission.

The Nevada Supreme Court disbarred Hackman in April 2002 after he was accused of misappropriating client funds. Hackman, 34, had been licensed in Nevada since October 1996.

Federal officials either declined comment or were not available for comment. None of the defendants could be reached.