Back in the 90s and early 00s a very common con was the “Reg S” scam. Using an exemption from the registration requirements companies could sell stock with virtually no disclosure, nor oversight. The catch, the shares could only be sold to non-US persons or institutions. Americans were forbidden to purchase Reg S stock.
Boiler rooms would buy huge blocks of Reg S stock at massive discounts from the trading price of the shares on the open market. Then, some of the stock would be spread around to various nefarious stock promoters to create demand and volume.
The boiler rooms would then furiously call foreigners offering them shares of hot “US-listed” company X. Even better, the call scripts would read, is that these shares are available at a discount, but only if you buy now.
As a hypothetical example, the boiler room baddies buy stock from a company, or from insiders, at $1, while the shares were actually trading at $4, and would offer them to the suckers at $3, pocketing the $2 “rip“.
But what’s the harm, you ask? The buyer still got a share of stock at $3, and the market price is $4 How can he lose?
Easy. The shares are not eligible to be resold for at least 1 year. This fact is usually left out of the boiler room sales pitch. By the time the year is up, the share price is usually back down to the $1 the boiler room paid, if not less. The foreign sucker? Left holding worthless paper.
Although not as common as it once was, every once in a while, the Reg S scam pops up again. Going through the recent filings for recidivist securities scoundrel Harmel S. Rayat controlled, magic stem cell wound care scam RenovaCare (RCAR), we can see the footprints of what was, most likely, a recent Reg S con.
RenovaCare claims to be working on a medical device to spray stem cells onto wounds, speeding their healing. You can check out more of their crazy claims on their webpage.
Although US listed, with an address in Scottsdale, AZ (owned by Harmel S. Rayat) the majority of the “work” being performed, if any, appears to be done by a German company and German individuals.
In early 2018 the shares of RCAR suddenly started to move on increased volume, reaching a crescendo, above $12, on the 23rd of February, before quickly collapsing.
And prices continued to fall, as volume rapidly disappeared.
Did anything happen in February 2018 that might explain this?
From RCAR‘s quarterly report, available here, we can look at “Item 2. Unregistered Sales of Equity Securities” and see the following:
There are 6 very interesting transactions starting on the 3rd of February and ending on the 22nd of February.
- On February 3, 2018, Thomas Bold, the Company’s President, CEO and Interim Chief Financial Officer received 44,083 shares of common stock on a cashless basis, that is, they cost him $0.00 per share. Free stock.
- On February 11, 2018, an unnamed consultant received 17,480 shares for $0.00 per share.
- On February 12, 2018, Dr. Gerlach received 457,480 shares for $0.00 per share.
- On February 13, 2018, a nameless holder received 100,000 shares at $1.10 per share.
- On February 22, 2018, Kenneth Kirkland, a member of the Company’s board of directors, received 41,033 shares for $0.00 per share.
- On February 22, 2018, Mr. Sierchio, a member of the Company’s board of directors, received 35,028 shares for $0.00 per share.
And upon reading further we find out that these shares were issued under an exemption from the registration requirements pursuant to, you guessed it, Regulation S.
In all, about 695k shares were issued in February at an average cost of just $0.16. Makes one wonder what an offshore boiler room could sell those for, when the shares were trading for $12.
Reg S deals would certainly not be unknown to Harmel. He was already busted by the SEC twice for sleazy stock scams. Once in 2000 and again in 2003. But nothing seems to faze the amazing Mr. Rayat, as David Baines, from the Vancouver Sun, discovered in a great piece from 2007, see here, about Harmel’s solar scam, then called Octillion (OCTL).
Today, Octillion is known as Solarwindow Technologies (WNDW), and is still controlled by Harmel. They do have a fancy new webpage, however: