B.C. accountant agrees to U.S. court settlement over alleged role in $150 million stock frauds

A B.C. accountant has agreed to a court settlement with the U.S. Securities and Exchange Commission over his alleged role in two pump-and-dump stock schemes that pocketed more than US$150 million.

In a civil case in the U.S. District Court for the Southern District of New York, the SEC alleged that from at least April 2010 to October 2019, George John Drazenovic, a licensed accountant in B.C., assisted penny stock fraud schemes by at least two distinct groups.

Without admitting or denying the allegations, Drazenovic signed a settlement agreement subject to the approval of the court, according to information released by the SEC.

In pump-and-dump schemes, low-priced stocks, often called penny stocks, are amassed secretly by owners and sold at inflated prices through false promotions. The stocks are then dumped at a profit at the expense of unsuspecting investors.

Drazenovic, 55, who the SEC’s complaint says lives in Burnaby, could not be reached for comment.

The proposed final judgment would permanently bar Drazenovic from participating in the offering of penny stocks in the U.S., generally considered stocks that trade under $5.

It would also bar him serving as an officer or director of a public company for three years. He would be ordered to pay fines and repayment of alleged illicit gains and interest of more than $600,000 US.

The settlement would also prohibit Drazenovic from persuading someone to buy or sell stock, unless the stock is publicly traded and the total stock value of the company was at least US$50 million for 90 consecutive days.

In a related administrative proceeding, Drazenovic agreed to an order that would prohibit him from appearing or practising before the SEC as an accountant.

According to the complaint, Drazenovic helped locate mining and oil and gas property rights for 10 companies, often near existing projects, which were used to promote the penny stocks and which were central to the pump-and-dump frauds.

All the stocks were traded on the U.S. over-the-counter market, a decentralized network that is home to smaller stocks not listed on major exchanges such as the New York Stock Exchange.

The SEC’s complaint alleged that Drazenovic recklessly disregarded that the two groups for which he was working controlled and funded each stock, and were not investing the resources necessary to discover or extract minerals or oil or gas beyond minimal levels.

The SEC said the companies still ran promotional campaigns claiming the projects had realistic, short-term chances of producing large amounts of the minerals or oil or gas. And as the stock prices went up, they sold their shares and used the money from those sales to pay Drazenovic, said the SEC.

The SEC’s complaint filed in court says that one of the alleged pump-and-dump schemes involving Virtus Oil and Gas Corp. resulted in illicit profits of as much as $23.1 million to a group run by Ronald Bauer, a Canadian and U.K. citizen. Bauer, who once lived in Vancouver, was sentenced this year to 20 months for his role in the pump-and-dump scheme.

The SEC alleges that Drazenovic located and alerted the Bauer group to oil and gas lease properties in Utah, one of which covered more than 200 square kilometres, helped purchase some of those properties, worked with operators to spend some money on the properties, and made sure state fees were paid. The group moved about $1 million from a front company to be spent on the oil and gas properties held by Virtus, says the SEC complaint.

“Throughout his work for the Bauer Ring concerning Virtus, Drazenovic knew that the Bauer Ring controlled all, or virtually all, of Virtus’ stock, controlled Virtus’ corporate actions, and supplied Virtus’ funding,” said the SEC.

Between March 2015 and January 2016, Drazenovic received more than $93,000 from the sale of Virtus stock that had risen in price after being highly promoted in the absence of any significant oil and gas discovery or extraction, says the SEC’s complaint.

The SEC noted its investigation received help from the FBI, various securities regulators around the world, including the United Kingdom Financial Conduct Authorit, the B.C. Securities Commission, and the RCMP.

ghoekstra@postmedia.com

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