Adviser on Chinese Reverse Mergers Is Charged in a Securities Fraud Case; Federal prosecutors call him something else: a “master of manipulation” who reaped tens of millions of dollars in illegal profits

http://www.nytimes.com/2015/09/11/business/dealbook/adviser-on-chinese-reverse-mergers-charged-with-fraud.html?emc=edit_dlbkpm_20150910&nl=business&nlid=36114517&_r=0

Adviser on Chinese Reverse Mergers Is Charged in a Securities Fraud Case

By ALEXANDRA STEVENSONSEPT. 10, 2015

Benjamin Wey has described himself as a “leading Wall Street American financier” who helped Chinese companies sell shares in the United States. Federal prosecutors call him something else: a “master of manipulation” who reaped tens of millions of dollars in illegal profits. The F.B.I. arrested Mr. Wey at his Manhattan home on Thursday and charged him with securities fraud, wire fraud, conspiracy and money laundering in an eight-count indictment unsealed in a federal court in Manhattan.By Thursday afternoon Mr. Wey was before a judge in federal court in Manhattan for the second time this year. In June, he was found liable of sexual harassment and defamation in a trial for a lawsuit that was salacious fodder for tabloid newspapers.

Mr. Wey, the founder of the Wall Street advisory firm New York Global Group, is now accused of fraudulently taking Chinese companies public in the United States through reverse mergers — a process that involved buying the shell of an American company that had been publicly listed, according to the indictment unsealed on Thursday. Prosecutors contend that Mr. Wey used family members to help build secret ownership positions in the companies he took public and to manipulate their shares to reap tens of millions of dollars.

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Benjamin Wey, right, of New York Global Group, ouside Manhattan Federal Court in June.CreditFrank Franklin II/Associated Press

Together with his banker, Seref Dogan Erbek, who is based in Geneva, Mr. Wey falsified the sales, volume, demand and price of the shares of the companies they took public, according to the charges. The Federal Bureau of Investigation and federal prosecutors in Manhattan also charged Mr. Erbek, who remains at large.

“Ben Wey fashioned himself a master of industry, but as alleged, he was merely a master of manipulation,” Preet Bharara, the United States attorney in Manhattan, said in a statement on Thursday, adding that Mr. Wey “refused to let the securities laws or the rules of fair marketplace get in the way of his dishonest scheme.”

In a separate civil complaint filed on Thursday, the Securities and Exchange Commission accused Mr. Wey and Mr. Erbek of fraud. The S.E.C. also accused Mr. Wey’s wife, Michaela Wey, and his sister Tianyi Wei, as well as two lawyers, Robert Newman and William Uchimoto, of fraud.

“Mr. Wey denies the charges against him and looks forward to clearing his name,” David Siegal, Mr. Wey’s lawyer, said in an email.

The F.B.I. first set its sights on Mr. Wey in 2012, when it raided his officeson Wall Street and searched his home. At the time, reverse mergers had come under regulatory scrutiny for losing investors billions of dollars after some companies were accused of exaggerating their assets and accounting fraud.

But Mr. Wey’s scheme went beyond fraudulent accounting, according to prosecutors. Between 2007 and 2011 Mr. Wey identified Chinese companies that wanted to raise money in the United States and offered his firm’s services in facilitating reverse mergers. Mr. Wey would merge the Chinese companies with shell companies, in which he had a significant stake through family members including his wife and his sister. These companies included Deer Consumer Products, a maker of kitchen appliances, and CleanTech Innovations, a windmill maker, according to the indictment.

After the reverse mergers, Mr. Wey would give shares in the companies to friends, family members, employees and business associates to artificially inflate the number of shareholders to create the impression that the company was mature enough to move from over-the-counter trading to the Nasdaq stock market.

With Mr. Erbek’s help, Mr. Wey would then manipulate the share price of the companies he took public by trading between various family accounts, according to the indictment. At one point, Mr. Wey was so explicit in his instructions to manipulate the share price of CleanTech that Mr. Erbek intervened to tell him to be less blatant, court filings on Thursday showed. In an email to Mr. Wey, Mr. Erbek wrote: “Obviously, we need to be careful to give such orders/make such comments. I may explain it over the phone; please call me if you have time.”

Mr. Wey, who sometimes spells his last name Wei, also caused shares in certain companies to go up by manipulating trades between the accounts of family members, the indictment says. In one instance outlined by prosecutors, after doing this he turned around and promoted a sudden increase in price to prospective investors in the company. Afterward, he sold the shares in each account at the inflated price, generating millions of dollars, according to federal prosecutors.

The proceeds from such trades went into the bank accounts of relatives in places like Hong Kong and Switzerland, prosecutors said. Later, the money would be repatriated to the United States. In one instance, $20 million in cash was transferred from a Hong Kong account in his sister’s name to an account in the United States controlled by Mr. Wey and his wife. The money was used for lavish purchases like a Ritz-Carlton Hotel apartment in Battery Park in New York, federal prosecutors said. These fund transfers were typically reported on the tax returns under Ms. Wey’s name as untaxable gifts from a foreign person, prosecutors said.

On Thursday, Mr. Wey was released on a $10 million bond co-signed by his wife and another person, and secured by equity in a Sag Harbor, N.Y., house. He will be subject to home detention.

Mr. Wey, who once registered his full name as a trademark according to hisLinkedIn profile, was in the news this year as the details of his involvement with Hanna Bouveng, a Swedish model and former employee, emerged through a messy lawsuit. Ms. Bouveng accused Mr. Wey of sexual harassment and defamation, and in June, he was found liable by a jury in a Federal District Court in Manhattan. Ms. Bouveng was awarded $18 million.

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