Los Angeles – A former Malibu businessman has been sentenced to 60 months in federal prison for conspiring to sell unregistered securities which generated $1,663,190 in illegal profits and a related tax fraud charge.
Mervin Barclay Davis, 69, who has been in federal custody since 2013, was sentenced yesterday by United States District Judge John F. Walter. In addition to the five-year prison term, Judge Walter ordered Davis to pay restitution of $225,000 to investor victims and $466,500 to the Internal Revenue Service.
Davis pleaded guilty in 2014 to one count of conspiracy and one count of subscribing to a false tax return.
According to court documents, beginning in 2005 and continuing through 2007, Davis conspired with others to sell unregistered stock through his affiliation with Clearvision, Inc., which purported to be a public relations and media company that specialized in promotional videos for small to mid-sized companies. Clearvision often received unregistered stock as payment for its services from its corporate clients.
Davis and others at Clearvision identified small, private companies interested in raising capital, including Powerlock International (Powerlock) and International Telecommunications, Inc. (ITLS). Davis offered to take the companies public through mergers with publicly traded shell companies. Davis and others told these companies that Clearvision could help them obtain new investors and funding for their business. As part of this arrangement, Davis required that the companies provide him and Clearvision with shares of company stock.
In many instances, the total amount of shares that Davis and Clearvision received from the corporate client totaled more than 10 percent of the total outstanding shares of that company. To circumvent and evade reporting requirements that follow from owning or controlling more than 10 percent of a company's outstanding shares, Davis arranged to have some of the shares that he received deposited into a nominee account that he controlled.
Davis directed the unregistered stock of these companies to be sold through the nominee account, generating illegal profits from those sales. Through the sales of the unregistered ITLS securities, Davis generated approximately $779,914 in illegal profits.
“This fraud scheme was extremely complicated in that it involved shell companies, nominee accounts and unregistered stock from multiple companies, all of which were used to conceal the defendant's participation in the crime,” said United States Attorney Eileen M. Decker. “Despite the sophistication of this massive fraud scheme, law enforcement unraveled the intricate details in order to hold the defendant accountable. My office will continue to prosecute sophisticated criminal schemes to vindicate the rights of American taxpayers and investors.”
Davis also profited from artificially inflating the price and volume of certain penny stocks, including the stock of Powerlock. Through this scheme, Davis and his son generated approximately $883,276 in illegal profits from their sale of Powerlock stock.
Davis falsely reported that he had $92,000 in total income in 2006, which resulted in a tax loss to the IRS.
“Yesterday's sentencing demonstrates how federal law enforcement will work together to help put an end to the criminal behavior of those who prey on investors for their personal financial gain,” stated IRS Criminal Investigation's Acting Special Agent in Charge Anthony J. Orlando. “IRS CI's criminal investigators will continue to use their financial expertise to identify and trace complex financial transactions and help put a stop to this and other types of stock manipulation schemes.”
The investigation of Davis was conducted by the Federal Bureau of Investigation and IRS Criminal Investigation. FINRA's Criminal Prosecution Assistance Group provided assistance during the investigation.
The case was prosecuted by Assistant United States Attorney Sarah J. Heidel of the Major Frauds Section.
USAO – California, CentralUpdated December 21, 2016
Central District of California DOJ / 16-309 / December 20, 2016