Securities Fraud, Shell Companies & Federal Enforcement

A shell company is a corporation that legally exists but has no real operations — and it is the raw material of securities fraud. A company already SEC-registered with publicly traded stock is worth hundreds of thousands of dollars to anyone who wants to sell stock to the public without the scrutiny of an IPO.

Cane didn't buy shells — she manufactured them, converting real operating companies (Dynamic Associates, MW Medical) into empty vessels she controlled, then used them to sell stock.

Reference: Shell corporation (Wikipedia)  · Investor.gov — microcap stock 

In a reverse merger a private company (Tele-Lawyer) is "acquired" by a public shell (Dynamic), but the private owners end up controlling the combined entity — going public overnight with no IPO, no underwriter due diligence, no advance SEC review.

A simultaneous 153:1 reverse split diluted original public holders by 99.35%; the Tele-Lawyer (Cane family) holders took 85.7%.

Reference: Reverse takeover (Wikipedia)  · Reverse stock split 

A CUSIP is a 9-character code that uniquely identifies a security — a Social-Security number for a stock. A name change (MW Medical → Davi Skin) issues a new CUSIP and forces a share exchange — the moment restricted shares can be quietly converted to free-trading shares. Davi Skin's CUSIP 238528103 register is the forensic proof of the scheme.

Reference: About CUSIP  · CUSIP identifiers  ·  CUSIP Master File (PDF)

To file with the SEC you must first obtain a CIK (Central Index Key) and a CCC (CIK Confirmation Code) through EDGAR and pay the applicable filing fees. The application binds a real, identified person or entity to every submission — that is the entire point of the identifier system.

Holding yourself out as a securities attorney, obtaining a personal CIK, and signing federal filings under a name that is not your legal name is not a clerical slip — it is a federal crime. A materially false or misleading statement in the information-statement machinery these filings feed is barred by 17 C.F.R. §240.14c-6, on top of the wire-fraud and false-certification exposure. That "Wallace" was filing as CEO and a Section 16 insider under a name that was not her real legal name — while Cane signed under a backdated identity — measures the sophistication and the lengths of the fraud.

Reference: EDGAR filing fees  · EDGAR CIK / CCC how-to  · 17 C.F.R. §240.14c-6 

Public companies disclose through standardized filings, each with its own trigger:

• 10-K / 10-KSB — annual report; financial statements plus the beneficial-ownership table listing everyone who owns more than 5%.
• 10-Q / 10-QSB — quarterly financials, filed every three months.
• 8-K — current report, due within four business days of any material event (merger, bankruptcy, change of officers).
• DEF 14A — definitive proxy statement; the ownership table and board nominees.
• Schedule 13D — anyone acquiring more than 5% with intent to influence control.
• Schedule 13G — the short form, available only to passive investors who claim they are not seeking control.
• Forms 3 / 4 / 5 — insider ownership (initial / changes / annual summary). Cane's Form 5 is the filing that carries the backdated name change.

Federal law draws a bright line at 5%: below it you are effectively invisible; above it you must file a 13D or 13G disclosing your identity, share count, and intentions. Cane's family members each filed a passive 13G rather than the joint 13D their coordinated 85.7% control required, and the four LOM nominees were calibrated at exactly 3.97% — just under the trigger.

Reference: 15 U.S.C. §78m(d) (Cornell LII)  · 17 C.F.R. §240.13d-1 — 13D / 13G 

Beneficial ownership means you control or benefit from shares even if someone else is the registered holder. Cane reported 48.7% individually — under the 50% line — while parents Herb & Shirley Cane, brother Stuart Cane, and the Mekelburg siblings held another 36.4%, for 85.7% coordinated control. All five family filings landed the same day (29 Jun 2001); none disclosed the group — which would have required a joint 13D.

The operative rule is the §13(d)(3) group: when two or more holders act together to acquire, hold, or dispose of an issuer's stock, the law treats them as a single person whose holdings are aggregated. Five same-day passive 13Gs by one family — each individually over 5% — that conceal the coordinated 85.7% bloc under Cane is the classic signature of an undisclosed group.

Reference: 17 C.F.R. §240.13d-3 — beneficial ownership  · §240.13d-5 — acquisition by a group 

A spin-off distributes a subsidiary's shares to the parent's shareholders, creating a second public company — tax-free under IRC §355. MW Medical was spun from Dynamic 1:1 on 11 Mar 1998, giving Cane two public shells with the same ownership — doubling her capacity to issue and sell stock, untaxed.

§355 carries strict anti-abuse tests — a genuine business purpose, a five-year active trade or business on both sides, and continuity of interest — and an express "device" prohibition (§355(a)(1)(B)) that denies the tax-free treatment when the distribution is principally a device to bail out earnings or distribute stock for sale. A shell spun off only to multiply sale vehicles satisfies none of them.

Reference: 26 U.S.C. §355 (Cornell LII)  · Corporate spin-off (Wikipedia) 

Regulation S lets U.S. issuers sell to foreign investors without registration; after a holding period the restrictive legend is removed and shares become free-trading. Removal requires a legal opinion letter. Cane was simultaneously the beneficial owner, the corporate attorney, and the opinion-letter author — writing herself permission slips to sell her own stock, with no independent review.

Reference: 17 C.F.R. §230.901 — Regulation S  · Rule 144 (§230.144) 

CEDE & Co. is the nominee of the Depository Trust Company. Once shares are deposited there they become anonymous — the register shows "CEDE & Co.," not the real owner. That is how the family bloc disappeared. The Pacific Stock Transfer register shows 36 sequential certificates (Nos. 2029–5323) — the last traceable point before the shares vanished into DTC.

See the register: the Davi Skin Active Shareholder Report (Pacific Stock Transfer) — the 36 CEDE deposits and the four LOM nominee certs (5309–5312).³⁵

The transfer agent (Pacific Stock Transfer, Las Vegas) keeps the official ownership registry and relies on the company attorney's opinion to release restricted shares. If that attorney is dishonest — or is secretly the owner — the agent has no way to detect the fraud. The system runs on trust; the trust was exploited.

Reference: SEC — about transfer agents  · Stock transfer agent (Wikipedia) 

MW Medical filed Chapter 11 on 22 Jan 2002. Wallace held a manufactured $615,871 secured claim over all assets — first in line, wiping out every outside shareholder. 11 U.S.C. §1145 then made the reorganization shares automatically free-trading — no registration, no legend, no waiting period.

Manufacturing the secured claim to seize that priority — and filing the case to extinguish the outside shareholders rather than to reorganize a real business — is itself bankruptcy fraud under 18 U.S.C. §152. The §1145 exemption exists for honest reorganizations; here it was used to launder insider stock into free-trading public shares.

Reference: 11 U.S.C. §1145 (Cornell LII)  · 18 U.S.C. §152 — bankruptcy fraud 

Cane operated as Michael A. Cane through at least late 2003 (a Clark County deed recorded 19 May 2004 shows both names), yet reported the change to the SEC as 28 Jun 2001 — backdated ~2.5 years. The backdating severed the investigative trail: anyone tracing the Davi Skin chain hits "Michael A. Cane" and finds no link to the current operator.

SOX §302 requires the CEO/CFO to personally certify each report is accurate; §906 imposes criminal penalties (up to $5M / 20 years) for willful false certifications. Across CIKs 878146 and 1059577 the enterprise filed 40 SOX certifications under penalty of perjury while concealing the family bloc, the CEDE accumulation, and the offshore structure.

Reference: 15 U.S.C. §7241 — §302 cert  · 18 U.S.C. §1350 — §906 cert  · Sarbanes-Oxley (Wikipedia) 

On 3 Apr 2007, certs 5309–5312 issued 573,847 sh (3.97%) each to four LOM Securities (Bermuda) nominees — Arch, Hepburn, Chloe, Sunshine. With the CEDE deposits the enterprise controlled 76.69% of the float, sold for $6,385,033 into Bank of Bermuda (1010-956504) and N.T. Butterfield (20.006.840.351501.100).

A qui tam suit is brought by a private "relator" for the United States under the False Claims Act (31 U.S.C. §§3729–3733). The relator files under seal; DOJ may intervene; recovery shares run 15–30%. The Cane enterprise touched federal funds many ways — Medicare ($49.3M), SEC-regulated securities, SBA pandemic loans, Fed lending, Fannie Mae — each false claim carrying treble damages.

Example:  the filed qui tam complaint ·  filed PDF · 31 U.S.C. §§3729–3733 — False Claims Act 

RICO (18 U.S.C. §§1961–1968) reaches anyone who conducts an enterprise through a pattern of racketeering (≥2 predicate acts in 10 years). Here: hundreds of false SEC filings, 40 false SOX certs, wire/mail fraud, money laundering — across four states, two countries, six CIKs, 25 years. Civil RICO allows treble damages plus fees.

Reference: 18 U.S.C. §1961 et seq. (Cornell LII)  · RICO Act (Wikipedia) 

U.S. persons with foreign accounts over $10,000 must file an FBAR with FinCEN. Willful penalties reach the greater of ~$144,886/account/year or 50% of balance. Neither Cane nor Wallace filed FBARs from 2005 to present on the Bermuda accounts — estimated exposure exceeding $72M over 21 years.

In the complaint:  §VI-C — FBAR & Asset Concealment (defendant-by-defendant table) · 31 U.S.C. §5314 — FBAR  · FinCEN BSA e-filing 

What makes this engineered rather than opportunistic is the stack: identity (backdated name) · ownership (passive 13Gs hiding 85.7%) · entity transformation (four re-skins, new CUSIPs) · bankruptcy (extinguish outside equity) · legend removal (attorney = owner) · anonymization (CEDE) · offshore calibration (4 × 3.97%) · liquidation ($6.39M offshore). Every layer defeats a specific safeguard — executed in sequence by one concealed person.