Stephen Durland, a former Palm Beach, Florida, accountant made a fortune as an investor . . . sort of. He’s accused of operating a $30 million investment scam in California. If convicted, Durland could be looking at 25 years in prison, plus a $5 million fine.
The charges were filed January 10th by the U.S. Attorney’s office in the Northern District of California. Durland and co-defendant, Jasper Knabb of Anchorage, Alaska and Little River, SC, are accused of secretly controlling millions of shares of stock in Pegasus Wireless, a company that once operated out of Fremont, California.
Knabb was the president of Pegasus and Durland was the chief financial officer. The U.S. Securities and Exchange Commission says the two men acquired significant holdings in Pegasus. They promoted the stocks in what is being called a pump and dump scheme causing the company's value to soar.
In 2006 through 2008, the SEC says the men dumped the stocks on individual investors, after which the stock price plummeted to just pennies a share. The complaint reports that Durland and Knabb used the proceeds to buy luxury homes, boats, and cars.
Pump and dump occurs when investors promote a stock they themselves hold. Based on their own endorsement of the stock, they create a surge of interest from other individuals. The stock price soars, the scammers sell off their holdings at a significant profit, and then the price generally plummets.
The particulars of how different pump and dump schemes vary, but one way it is done is using the wrong phone number approach. Scammers make phone calls and leave messages as if the secret information is intended for someone else. The callers reveal details about a stock they claim is about to go through the roof. Unsuspecting individuals think they’ve accidentally gotten a hot tip and buy the stock. Once the price of the stock is falsely pumped, the scammers sell their shares and reap a short-term gain. Soon the stock price falls to the true value and the new owners are left with huge losses.
This is not the first time Durland and Knabb have faced a legal battle over investment practices. In 2007, investors and other principals sued them in a federal court in West Palm Beach, Florida. That suit was dismissed, but complainants were able to outline the connection between Durland and Knabb and other questionable business ventures.
In 2009 the SEC took them to civil court on the same charges they now face involving Pegasus Wireless. That complaint specifies that the two men “touted a series of significant acquisitions that caused Pegasus’s stock price to rise precipitously, briefly giving this once unheralded penny stock a market capitalization of $1.4 billion.” The outcome of this complaint is unclear at this time.
The current charges also reveal that Durland was the accountant or an officer for companies that were represented by Palm Beach attorney Donald Mintmire, who was found guilty in 2005 of obstruction of justice in connection with another pump and dump scheme. He was sentenced to 21 months in prison.