Stephen Durland (57) of Greensboro, North Carolina, was sentenced by the San Francisco federal court to two years and nine months of prison time for his part in a fraud scheme which occurred when he was CFO of Pegasus Wireless Corp. The company was then based in Fremont. The fraudulent scheme took the form of more than 490 million shares in the company being issued under false pretences. The company moved to West Palm Beach in Florida and filed for bankruptcy reorganization (Chapter 11) in 2008.
Durland’s sentence was pronounced by United States District Judge, Jeffrey White. At the start of his trial in March, Durland pleaded guilty to three counts of securities fraud, conspiracy to commit securities fraud and for falsifying records and books.
The former CEO of the company, Jason Knabb (44) of Wenatchee, Washington, also pleaded guilty when charged with the same crimes in July. Knabb will also be sentenced by Judge White. Prosecutors said that Knabb profited by $29 million from the scheme and $2.1 was Durland’s cut of the money.
How the Fraud was Committed
According to Melinda Haag, U.S Attorney, Durland created 31 counterfeit promissory notes which represented fictional debts. He then went on to issue more than 290 million shares in the duration of May 2005 to January 2008 in order to pay back the fictitious debt.
Prosecutors said that Durland and Knabb issued the shares to their family, friends and associates. These people proceeded to sell the shares to other investors and then gave the majority of the proceeds back to the duo.
What is Securities Fraud?
Securities fraud is a blanket term which applies to a variety of activities, all of which involve deception – either by deceiving investors of a company or through financial manipulation of the markets.
According to the Securities Exchange Act (1934) and the Securities Act (1933), the Securities Exchange Commission (SEC) must ensure regulatory control of the financial industry. The SEC is allowed to add more policies to those that already exist, to maintain that control. Securities Fraud carries the maximum prison sentence of 10 years or the accused will be asked to pay a fine. In some cases, the accused will be given both a fine and a prison sentence, depending on the circumstances of the crime.