Wall Street financier Benjamin Wey, most recently in the news after losing an $18 million sexual harassment suit, has been charged by a federal grand jury with conspiracy, securities fraud and money laundering in connection with what prosecutors described as a reverse merger scheme “between Chinese companies and U.S. shell companies” in which he “illegally” concealed his ownership and manipulated share prices.
Reverse mergers involve private firms that purchase shell companies that are already publicly traded, allowing the private company to effectively go public while avoiding the disclosures and scrutiny required by an initial public offering.
Preet Bharara, the U.S. attorney for the Southern District of New York, said in a press release that Wey made “tens of millions in illicit profit” through his alleged schemes. He “fashioned himself a master of industry, but as alleged, he was a master of manipulation,” Bharara said. Wey was arrested at his Manhattan home and released on a $10 million bond, according to the Wall Street Journal.
Neither Wey nor his lawyer responded to phone calls and e-mail requests for comment from The Washington Post. But the lawyer, David Siegal, told Reuters that “Mr. Wey denies the charges against him and looks forward to clearing his name.”
This is not the first time Wey has been in the news this year. In June, a jury in a Manhattan federal court awarded a 25-year-old former model who briefly worked for Wey $18 million after finding Wey sexually harassed and defamed her. Wey’s attorneys in the case, who denied the charges brought by Hanna Bouveng, are seeking a new trial in that case or a reduction in what they called the “jury’s strikingly excessive” award of damages.
The indictment, unsealed Thursday, accused Wey, among other things, of identifying “various Chinese operating companies desirous of raising capital in the U.S. markets” and then, through his own company, New York Global Group, arranging their merger with “shell companies” in which Wey, through various nominees, secretly “held significant ownership stakes”
Since the stock of these companies traded only in over-the-counter markets in low volumes, the indictment said, the shares lacked liquidity and could not be sold in significant quantities. “To address this problem,” Wey would arrange to have the companies apply for listing on Nasdaq, “which would have the effect of increasing market interest and liquidity.”
To satisfy Nasdaq’s listing requirements — which include a minimum of 300 shareholders with at least 100 shares of common stock each — the indictment alleged that Wey “deceptively caused shares” to be transferred to “dozens” of his friends, employees and business associates and their family members as “gifts or unsolicited bonuses.”
In some cases, these people “never actually received the share certificates and had no idea they owned such shares,” according to the indictment.
In this way, the indictment stated, “Wey was able to create the appearance of a bona fide shareholder base.” The indictment said that in each case, “the ruse” was successful and Nasdaq approved the listings.
The indictment charged that Wey and a co-conspirator, Seref Dogan Erbek — a Swedish banker who was also charged — then engaged in various forms of “manipulation” to “artificially maintain the stock price” of the companies. Erbek could not be located for comment by The Post or other news organizations.
The money reaped from these transactions, including $20 million in cash in one case cited in the indictment, was moved through “overseas accounts” held in the name of a Wey sibling and then back to accounts in the United States “that Wey and/or Wey’s wife controlled.” The indictment alleged “Wey and his wife used that money to purchase, among other things, an apartment at the Ritz-Carlton Hotel in the Battery Park neighborhood of New York.”
Wey and the co-conspirator “are believed to have profited in the tens of millions, while victim shareholders were left holding the bill,” said FBI Assistant Director-in-Charge Diego Rodriguez in a press release.
The eight-count indictment included conspiracy, securities fraud, wire fraud and money laundering, among other charges. If convicted, Wey could face scores of years in prison.
In a separate action, the Securities and Exchange Commission announced civil charges against Wey. The SEC alleged, in a press release, “that Benjamin Wey and New York Global Group (NYGG) typically structured reverse mergers between clients and publicly-traded shell companies in such a way that he and other family members secretly obtained ownership interests of more than five percent of the newly listed companies.”
The release continued: “To avoid detection and evade SEC reporting requirements as beneficial owners, they divided their shares among a vast network of foreign accounts and generated tens of millions of dollars in illegal profits as they sold the securities into artificially inflated markets. The illicit profits eventually circled back to Wey and his wife, who used the money to finance a lavish lifestyle.”