When a Mississippian is tapped to head a publicly traded company, it’s normally news. That’s why it was interesting to see the absolute absence of press coverage (particularly from Patsy Brumfield and the Daily Journal or the Mississippi Business Journal) associated with Oxford native and former FBI agent Philip Halbert “Hal” Neilson, who has been a very public figure in Mississippi, after he got chosen to lead Here Enterprises this week.

Here Enterprises trades on what is known as “the pink sheets” or the OTCBB which is a relatively low volume exchange under the ticker (HRTE.PK), which finished trading on Wednesday 5/23 at $0.0006/share (that’s six ten-thousandths of a dollar or six one-hundredths of a cent). That makes the total market capitalization of HRTE at $491,400 (with 819,000,000 shares outstanding). We covered a little bit about what Here Enterprises did, but how Neilson, who spent the last two decades at the FBI got chosen to run a public traded microcap company isn’t immediately intuitive. However, his immediate predecessor was a professional motocross racer, so that may give some guidance.

These “microcap” stocks are sometimes affiliated with fraudulent “pump and dump” schemes where insiders accumulate large amounts of shares over time, manipulate trades and they pay internet marketers and boiler rooms (often overseas) to hype stocks and create a false market. Here Enterprises has issued (at least in the past) these similar Regulation S shares, which are targeted to trade overseas.

Something else that Here Enterprises shares is common ownership with a financial mastermind that has just been served an enforcement action by the SEC for $35,000,000 in securities fraud one week before Neilson was named CEO.

SEC enforcement action against Nicholas Louis Geranio, Kaleidoscope Real Estate & others

The company that Neilson now is taking over is riddled with deep connections to Geranio’s companies and associates (Kaleidoscope Real Estate and the Good One, Inc.), and are really too numerous to go into detail on. These common owners span at least seven or eight similarly situated pink sheet companies.

Here is the original stock distribution of Here Enterprises. Notice that Geranio’s Kaleidoscope Real Estate was a major shareholder. Acadia LLC and Bayou Business (both Nevada based) are also listed similarly as shareholders of Deltron (aka “Blu Vu”), which was mentioned in the complaint as one of the “pump and dump” companies for Geranio. The Good One, Inc. (run by Geranio’s former wife) was engaged by Here Enterprises in 2011 for a major PR/stock promotion campaign. Not surprisingly, it was unsuccessful in raising the stock price.

Mark Ryun
PO Box #28
Haleiwa, HI 96712 (hometown of Geranio)
1,675,000(2) 20.45%

Acadia, LLC
131 E. Oakland Dr., Saint Rose, LA 70087
450,000 5.49%

EcoInnovation, LLC
59-574 Makana Rd.
Haleiwa, HI 96712 (hometown of Geranio)
475,000 5.80%

Bayou Business LLC
4041 Williams Blvd., Suite A9 #192 (the address of a UPS Store in Kenner)
Kenner, LA 70065 800,000 9.77%

Kaleidoscope Real Estate Inc.
3540 W. Sahra #461
Las Vegas, NV 89102 (Geranio’s ex-wife)
475,000 5.80%

David Sayid
408 West 57th Street, Ste. 8E
New York, NY 10019
700,000 8.55%

Amber Sunset Ventures, LLC
172 E. Bullion, Marysvale
UT 84750
500,000 6.11%

According to the SEC, the scheme worked as follows.

The Commission brings this securities fraud action seeking relief from Defendants’ critical role in a $35 million scheme to manipulate the market and to profit from the issuance and sale of stock through offshore boiler rooms.
2. From approximately April 2007 to September 2009 (“the relevant time period”), the scheme worked as follows: Nicholas Louis Geranio (“Geranio”) organized eight U.S. companies (the “Issuers”); installed management, including his longtime business partner Keith M. Field (“Field”); and entered into consulting agreements with the Issuers through his alter-ego companies The Good One, Inc. and Kaleidoscope Real Estate, Inc. (“Kaleidoscope”). Through The Good One’s and Kaleidoscope’s consulting agreements, Geranio set up a common system to raise money through the Issuers’ sale of Regulation S shares to offshore investors by boiler rooms that Geranio recruited. Regulation S stock is stock that is exempt from registration with the Commission because it is offered solely to investors who are located outside the United States.
3. Field, an officer, director and/or investor-relations representative of each of the Issuers, drafted materially misleading business plans, marketing materials, and website material for the Issuers. The offshore boiler rooms provided these materials to investors as part of their fraudulent solicitation efforts.
4. Geranio directed traders, including Field, to engage in matched orders and manipulative trades to establish artificially high prices for at least five of the Issuers’ stock and to deceptively convey to the market the impression that 25 legitimate transactions had created bona fide prices for the stock.
5. This manipulation was critical to the scheme. In particular, the boiler 27 rooms, as part of their fraudulent solicitation efforts, informed the investors that 28 they were offering them Regulation S shares at a discount to the then publicly traded stock price. Thus, the manipulation of the publicly-traded stock price allowed the boiler rooms to sell the Regulation S shares at a higher price to the overseas investors.
6.The boiler rooms, teams of unregistered telemarketers operating mostly from Spain, used high-pressure sales tactics and material false statements and omissions to induce the investors (many of them elderly and located in the United Kingdom) to buy the Issuers’ Regulation S stock. Based on a structure created by Geranio, the boiler rooms directed the investors to send their money to escrow agents in the U.S.
7. Under Geranio’s oversight, the escrow agents paid 60% to 75% of the approximately $35 million in proceeds to the boiler rooms as their sales markups, kept 2.5% as their fee, ‘and paid the remaining proceeds to the Issuers. The Issuers’ (or in some cases the escrow agents) then funneled approximately $2.135 million of the proceeds of the Regulation S sales to Geranio, through The Good One and Kaleidoscope. The Issuers and the escrow agents paid Field approximately $279,000.

Keep in mind that these are just the charges and that Geranio hasn’t been convicted here (though he was in 2000 when he settled “emergency enforcement action that the Commission filed against him on April 30, 1999, consenting to an injunction against future violations of the antifraud provisions for his role in an alleged offering fraud involving California Laser Company”). By the way, here’s a fascinating recap of Geranio’s colorful business background.

However, the connections between Hal Neilson’s Here Enterprises and the tentacles of Geranio are undeniable. The timing of Neilson being named CEO approximately one week after Geranio’s enforcement action was served on him is curious as well. Seemingly not uncoincidentally, Deltron (“Blu Vu”) also named a new CEO on about the same day as Neilson was named.

Let’s see if the Daily Journal (his hometown paper) and the MS Business Journal (the state’s business paper of record) pick up on this and run with it. Odds are that the Daily Journal will not, but that the MS Business Journal might.

Lots of the homework has already been done. Happy hunting.