xo. /:-34. n-lzzgraphics8.nytimes.com/packages/pdf/business/reilly_criminal_com… · fraudulently...

UNITED STATES DISTRICT COURT

SOUTH ERN DISTRICT OF FLO RIDA

xo. /:-34. N -lzz.o

UNITED STATES OF AM ERICA

VS.

W ILLIAM J. REILLY,

Defendant.

/

CRIM INAL COVER SHEET

Did this matter originate from a m atter pending in the N orthern Region of the United States

Attorney's Office prior to October 14, 2003? Yes X No

Did this matter originate from a matter pending in the Central Region of the United States

Attomey's Office prior to September 1, 2007? Yes X No

Respectfully submitted,

W IFREDO A. FERRER

UNITED STATES TTOM EY

BY:Harold Schimkat

Assistant United States Attorney

Court No. A5500567

99 N. E. 4th Street

M iam i, Florida 33132-21 1 1

TEL (305) 961-9298FAX (305) 530-6168

Case 1:12-mj-03436-BLG Document 1 Entered on FLSD Docket 10/24/2012 of 21

AO 9 1 (Rev. 08/09) Criminal Complaint

U NITED STATES D ISTRICT COURTfor the

Southern District of Florida

United States of America

V.

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CRIM INAL COMPLAINT

1, the complainant in this cmse, state that the following is true to the best of my knowledge and belief.

On or about the datets) of 05/25/2012 through 06/13/2012 in the county of Broward and Palm Beach in the

Southern District of Florida , the defendantts) violated:

Code Section

15 U.S.C. jj77e(a), 77q(a), and77x', and 15 U.S.C. jj78j(b) and77K., and 17 C.F.R. 5240.10b-5

Offense DescriptionSecurities Fraud

This criminal complaint is based on these facts:

See attached affidavit.

O Continued on the attached sheet.

/-Complainant 's signature

Timothy W right, Special Anent, FBIPrinted name and title

Sworn to before me and signed in my presence.

Date: g' - J 3- ) *---'Judge 's signature

City and state: Miami, FL Barry L. Garber, Magistrate JudqePrinted name and title


AFFIDAVIT

Affiant, Timothy W right, first being duly sworn, deposes and states as follows:

Introduction

I nm a Special Agent with the Federal Bureau of Investigation (ççFBl''). Since

2006, l have been assigned to the FBI M iami Division's corporate and securities fraud squad. ln

that capacity, l am authorized to conduct investigations into criminal violations committed

against the United States including, but not limited to, securities fraud, investment fraud, bank

fraud, wire fraud, and mail fraud. I am also authorized to apply for and execute arrest warrants

for offenses enumerated in Titles l 5 and 18 of the United States Code. One of my current

assignm ents is to ad as a case agent for an ongoing undercover investigation targeting penny

stoek fraud in Florida. This investigation is being eonducted by the FBl with the assistance of

the Division of Enforcement of the U.S. Securities and Exchange Commission (çiSEC'').

2. l am submitting this affidavit in support of the related criminal complaint and

arrest warrant in this matter. This affidavit is intended to set forth the basis for believing that

WILLIAM JOSEPH REILLY (i1Reil1y'') has willfully violated the registration and antifraud

provisions of the federal seeurities laws, specitically 15 U.S.C. jj 77e, 77q, and 77x, and 15

U.S.C. jj 78j, 78ff, and 17 C.F.R. j 240.10b-5 promulgated thereunder. This Affidavit is based

on information personally known to me as well as information provided to me by other law

enforcement officers and other third parties during the course of the FBI's permy stock

investigation. Because this aftsdavit is only intended to show probable cause in support of the

related criminal complaint and arrest warrant, it does not contain everything that law

enforcement knows about this m atter at this time.

1


Factual Backaround

A. Reilly's Background

Reilly is currently a resident of Boca Raton, Florida. ln 1978, Reilly received a

1aw degree from St. John's University School of Law. ln 1979, he was admitted to practice law

in the State of New York. For a signitkant portion of his professional career, Reilly practiced

business and securities law on behalf of various coporate clients located in the United States.

His practice consisted of, in part, providing legal advice to companies engaged in initial public

offerings under the federal securities laws and assisting public companies with filing periodic

reports with the SEC.

On February 2, 2009, the SEC filed a civil lawsuit against Reilly and several other

defendants in the Southern Distrid of New York. See SEC v. Forest Resources M anagement

Corp., et a1., 09-ClV-00903-Rakoff. ln its complaint, the SEC alleged that Reilly and the other

defendants had violated the registration and antifraud provisions of the federal securities laws by

fraudulently obtaining free-trading shares of a shell company -- Forest Resources M anagement

Corp. ('tForest Resources'') -- and then selling those shares to the general public after publishing

false and m isleading information about Forest Resourees in order to artifkially increase demand

for the company's stock. The SEC specitically alleged, in pat't, that Reilly had prepared false

and misleading letters to Forest Resources's stock transfer agent in order to cause the transfer

agent to improperly issue millions of shares of free-trading stock (stock that could be

immediately sold in the seeondary markets) to Reilly and his eodefendants instead of restricted

stock (stoek that is prohibited from being immediately resold in the secondary markets). The

SEC further alleged that Reilly had prepared a fraudulent Fonn 8-K that was filed with the SEC

containing false and m isleading information about Forest Resources's business activities.


5. Reilly agreed to settle the lawsuit with the SEC without admitting or denying the

allegations in the SEC'S complaint. On October 15, 2009, the district court entered judgment

against Reilly. The Court's judgment, in part, ordered that Reilly was (a) permanently restrained

and enjoined from violating the antifraud provisions of the federal securities laws set forth at

Section 10(b) of the Securities Exchange Ad of 1934 CtExchange Act'') and Rule 10b-5

promulgated thereunder; (b) permanently restrained and enjoined from violating the registration

provisions of the federal securities laws set forth at Section 5 of the Securities Act of 1933

(issecurities Act''); (c) prohibited from acting as an oftscer or director of any company with

secmities registered with the SEC pursuant to Section 12 of the Exchange Act or which filed

periodic reports with the SEC under Section 15(d) of the Exchange Act; (d) permanently barred

from participating in a penny stock offedng including engaging in activities with an issuer for

pumoses of inducing or attempting to induce the purchase or sale of any penny stock; and (e)

ordering Reilly to disgorge his ill-gotten gains and pay a civil penalty. On May 19, 2010, the

Court entered a follow up judgment ordering Reilly to pay to the SEC disgorgement and

prejudgment interest in the nmotmt of $102,969.35 and a civil penalty of $130,000.

6. During the same time period, Reilly also agreed to settle an administrative

proceeding to be brought against him by the SEC based on the same underlying conduct at issue

in the SEC'S Forest Resources civil lawsuit. Reilly agreed to settle the administrative proceeding

without admitting or denying the allegations against him. As a result, on October 27, 2009, the

SEC entered an order formally instituting the administrative proceeding and ordering Reilly's

suspension from appearing or pradicing before the SEC as an attorney with the right to reapply

for reinstatement after three years. To my knowledge, Reilly has never applied for

reinstatem ent.

3


On December 12, 201 l , the SEC filed a civil lawsuit against Reilly in the

Southern District of Florida seeking a court order enforcing his compliance with the SEC'S

administrative order of October 27, 2009. See SEC v. W illiap J. Reilly, 1 1-CIV-81322-DM M .

In its complaint, the SEC alleged that Reilly had violated the SEC'S administrative order by

providing a legal opinion to M adison Ave. M edia, lne., that was included, with Reilly's

knowledge, in a Form S-8 registration statement tsled with the SEC. On April 16, 2012, Judge

Middlebrooks granted the SEC'S motion for a defaultjudgment and he ordered Reilly to comply

with the SEC'S administrative order.

8. Around the same time of the SEC'S tsling of the lawsuit assigned to Judge

Middlebrooks, Reilly was also the subjed of an investigation by the Grievance Committee for

the Tenth Judicial District in the State of New York. The subjed matter of the Grievance

Committee's investigation involved one of Reilly's corporate clients and was not related to the

Forest Resources litigation. In November 201 1, Reilly submitted an affidavit to the Grievance

Committee offering to tender his resignation as an attorney and counselor-at-law . ln so doing,

Reilly aeknowledged that he could not defend himself on the merits against charges of

misappropriation of and failure to account for client funds and failure to properly cooperate with

the Commitlee's investigation. On M ay 8, 2012, the Supreme Court of New York, Appellate

Division, Second Judicial Department, issued an Opinion & Order accepting Reilly's resignation

and disbarring him from the practice of law in New York.

B . The SEC'S Registration Process to Sell Securitiesin the United States

ln general, absent a valid exem ption under the federal securities laws, a11 sales of

securities (including common stock) in the United States must be registered pursuant to Sedion 5

of the Securities Act. ln order to register securities for sale, Section 5 requires that a

4


ikregistration statement'' be filed with the SEC containing information about the issuer of the

securities and the nature of the securities offering.

Section 5 of the Securities Act essentially creates a three stage process for the sale

of securities through a registered offering. First, before the registration statement is filed with

the SEC, there can be no offers to sell or offers to buy the securities in question pursuant to

Section 5(c). 15 U.S.C. j 77e(c).Second, after the issuer files a registration statement with the

SEC, oral offers and certain written offers (consistent with the prospectus requirements of the

Securities Act) to sell the securities are pennitted to be made pursuant to Section 5(b). 15 U.S.C.

j 77e(b). However, during this period, there can be no actual sales (defined to also include

ticontract of sale'') of the secmities that are in registration. Once the SEC deems the registration

effedive, the securities in question can be sold in a publie offering pursuant to Sedion 5(a). 15

U.S.C. j 77e(a), These time periods are generally referred to as (a) the pre-filing period; (b) the

waiting period; and (c) the post-effective period. Buyers of the securities in the post-effective

period receive free-trading shares that generally can be resold to other persons without any

restrictions. A company that goes public through this process engages in what is commonly

referred to as an initial public offering ($tlPO'').

1 1 . As noted, there are a number of exceptions to Section 5's requirement that

securities can only be sold pursuant to this registration process. One of the important exceptions

is for iltransactions by an issuer not involving a public offering'' under Section 442) of the

Securities Act. 15 U.S.C. j 77d(2).Such transactions are often xeferred to as çtnon-public'' or

iiprivate'' offerings and there are various rules and procedures governing how such transactions

can be engaged in to ensure that the offerings are exempt from Section 5's registration

requirements. The general rationale for this exemption is that a company (an çûissuer'') should


not have to undertake the expense of complying with Section 5's registration requirements where

the nature of the private offering (including, in part, the amount of money being raised in the

offering, the number of investors participating in the offering, the level of sophistication of the

investors, and the amount of information available to the prospective investors) is suffcient to

ensure that the protedions afforded by the Securities Act are not needed under the particular

circumstances of the offering at issue.

12. Stock that is issued by a company in a private or non-public offering is, in

general, not free-trading stock. Rather, the stock is itrestricted stock'' meaning that it cnnnot be

immediately resold by the buyer to the general public. In many instances, the stock issued in

such transactions will be issued by the company's stock transfer agent (essentially a third party

that performs the administrative fundion of issuing and redeeming share certificates on behalf of

the company) and it will have a legend imprinted on it stating that, in effect, such stock is

restricted stock and cannot be immediately resold in the market absent compliance with Sedion

5 of the Securities Act. W here the company itself issues the stock in such transactions, the share

certitk ates may not have a legend imprinted on them . Regardless, the buyer of stock in a non-

publie offering is subjed to various restridions on his ability to resell the stock including

restrictions on how long he must hold the stock before reselling it and restrictions concerning the

manner in which such stock can be resold. These restrictions are intended to prevent issuers

from circumventing Section 5's registration requirement by selling securities in a non-public

offering to a buyer who then turns around and engages in a distribution of such securities to the

general public by selling it on the open market or othem ise.

13. Another important exemption is for çltransactions by any person other than an

issuer, underwriter, or dealer'' pursuant to Section 441) of the Securities Act. 15 U.S.C. j 77d(1).

6


The pumose of this exemption is to allow individual and institutional investors to buy and sell

securities that trade on the public markets without having to undertake to have a registration

statement for each sale tiled with the SEC. For purposes of this section, the tenn ttunderwriter''

is detined by Section 2(c)(1 1) of the Securities Act to mean ûtany person who has purchased from

an issuer with a view to, or offers or sells for any issuer in connection with, the distribution of

any security. . . . 15 U.S.C. j 77b(1 1) (emphasis added). The term Stissuer,'' for purposes of

defining underwriter under Section 2(c)(1 1), includes tûany person directly or indirectly

controlling or controlled by the issuer, or any person under direct or indirect common control

with the issuer.'' Id. ln detining underwrher in terms of transactions engaged in with a view

towards distribution, Congress distinguished between transactions involving trading in secmities

of public companies in the secondary markets and transactions done for the pupose of engaging

in a distribution to the general public of a company's (or control person's) securities without the

filing of a registration statement. Therefore, a transaction involving a person deemed to be an

underwriter (such as a transaction involving a person - the léunderwriter'' - buying stock from a

control person with the intent to resell the stock on the open market) is not exempt from Section

5's registration requirements.

14. ln addition to these registration provisions, the federal securities laws contain

antifraud provisions set forth at Section 17(a) of the Securities Act (15 U.S.C. j 77q) and Sedion

l0(b) of the Exchange Act (15 U.S.C. j 78j(b)) and Rule 10b-5 promulgated thereunder (17

C.F.R. j 240.10b-5) relating to the sale of securities in the United States. Section 24 of the

Securities Ad (15 U.S.C. j 77x) and Sedion 32 of the Exchange Act (15 U.S.C. j 78f9 make

willful violations of the federal securities laws (including the registration and the antifraud

provisions) criminal offenses against the United States. Moreover, the antifraud provisions of

7


the Securities Act and the Exchange Act apply to securities transactions regardless of whether

the securities are sold in public or private transactions.

Caribbean Pacific Marketing, lnc. andthe FBI's Undercover Investigation

15. On January 20, 2012, Caribbean Pacific Marketing, Inc. (lscaribbean Pacific'')

was incorporated in the State of Florida. The initial officers and directors of the company were

T.H., a Massachusetts resident who had previously tngaged in some business dealings with

Reilly, and S.R., Reilly's daughter and a resident of Florida. T.H. was designated as Caribbean

Pacitic's president and S.R. was designated as its secretary. Reilly himself is not referred to in

the incorporation documents filed with the State of Florida.

16. On M arch 2, 2012, Caribbean Pacific filed a Form D with the SEC. The Form D,

submitted under the signature of T.H., retlected that the company had sold $30,000 of stock to

eight investors in a non-public transaction pursuant to Rule 504(b)(1)(iii). Rule 504 is an SEC

rule that allows companies to sell securities (usually restricted securities) in a non-public or

private offering without registering under Section 5 of the Securities Ad as long as the company

complies with the conditions set forth in the rule.

17. On M arch 9, 2012, Caribbean Pacific filed a Form S-1 registration statement with

the SEC. The registration statement described Caribbean Pacific as a development stage

company with minimal assets and no revenues or operations. lts business plan was to try to

develop a line of all-natural sun-care and skin-care products. The registration statement stated

that the eompany intended to engage in an initial public offering of its comm on stock of at least

500,000 shares and up to a maximum of 1,000,000 shares at a price of $0.15 per share, which

qualified the company's stock as a ûûpenny stock.'' The registration statement further stated that

the proceeds of the offering would be used Sçto pay for offering expenses, the implementation of

8


(the company'sq business plan, and for working capital.'' The registration statement stated that

T.H. was the company's president and that K.M. (Reilly's brother-in-law) was the company's

secretary. Both T.H. and K.M . were also the only two persons listed in the registration statement

as directors of the company. The registration statement also stated that T.H. and K.M . each

owned 5% of the company's stock and that a person with the initials J.K.P. owned 2524. Finally,

the registration statement noted that Cmibbean Pacitic's common stock would be çisold on our

behalf by (K.M. and T.H.I, our two ofticers and directors'' and that they would not receive any

commissions or proceeds ltfrom the offering for selling shares on (the company's) behalf.''

1 8. Caribbean Pacifc's registration statement was amended and re-tiled several times

between March 2012 and August 2012 in response to inquiries from the SEC'S Division of

Corporation Finance. Among other things, the registration statement was amended to note that

Caribbean Pacitic qualitied as an l'emerging growth company'' under the recently enacted

Jumpstart our Business Startups Act ('IJOBS Act'') and that, as a result, it would be exempt from

various offering, auditing, and reporting requirements applicable to other public companies. The

amended registration statements also noted that the company intended to sell its shares outside of

the United States. None of the registration statements tiled by Caribbean Pacitk with the SEC

mentioned Reilly by name or disclosed that he was aftiliated with the company in any way.l

' The FBI has conducted two telephone interviews of T.H. over the last several weeks. T.H

., a 68 year old residentof Massachusetts who winters in Florida, told the FBI that Reilly had contacted him around the beginning of this

year and asked T.H. to become involved with Caribbean Pacific in return for receiving some stock in the company.

T.H. essentially told the FBI that he had little to no involvement with matters relating to the company and that he

deferred to Reilly and the company's outside attorney, R.L., as to the company's registration process with the SEC.

In fact, T.H. told the FBl that he had only spoken with the company's SEC attorney on one occasion and that he had

met the company's auditor, H.R., on one occasion when he was introduced to him by Reilly earlier this year. T.H.

informed the FBI that he never actually received any stock in the company from Reilly. T.H. acknowledged that hedid not know basic information about the Caribbean Pacific such as whether the company had a bank account or

whether the company had a stock transfer agent. T.H. said his primary role was going to be getting involved inmanufacturing the company's products aher the completion of the company's IPO.


19. On April 26, 2012, Reilly sent an email to a business associate who resides in

Florida, which contained information about Cmibbean Pacific, including a copy of the Form S-1

that had been tiled with the SEC. The email included material in which Reilly offered to sell

shares of Caribbean Pacific that he owned through a com orate entity in his name. The email

included a one page 'lterm sheet'' outlining the terms of a çsproposed lnvestment Private Sale) in

Caribbean Padfic Marketing, Inc.'' The term sheet stated that the securities being offered were

500,000 shares of common stock at a price of $.05 per share for a total of $25,000. The

tûofferor'' was listed as ççW illiam J. Reilly & Assoc., LLC'' and the closing date listed for the

offering was on or before iéApril 30, 2012.'' The email also included a ûishare Subscription

Agreement'' for the purchase of shares, which outlined the terms of the private offering being

offered to ivaccredited investors'' as defined by Regulation D of the federal securities laws.

20. The em ail w ith the term sheet for the private offering and other supporting

material was sent by Reilly's business associate to an individual who was cooperating in the

FBI's investigation (tSCHS'') targeting fraud in the permy stock market in Florida. The CHS was

cooperating with the FBl as a result of having previously engaged in criminal activity in the

Southern District of Florida. Following the CHS'S receipt of the email, he contacted Reilly and

thereafter had a series of communications with Reilly by telephone and email (instrumentalities

of interstate commerce) over the next several months.He also met with Reilly in person on

several occasions. The FB1 recorded the CHS'S communications and meetings with Reilly on

video and audio tape.

In these m eetings and com munications with the CHS, Reilly explained that

Caribbean Pacitic had filed a registration statement with the SEC to engage in an 1PO later that

summ er in which the company would sell 500,000 to 1,000,000 shares of comm on stock at a

10


price of $0.15 per share. Reilly offered to sell the CHS in a private, pre-lpo transaction, 500,000

shares of Caribbean Pacitsc at $0.05 per share, a portion of which Reilly stated would eome from

his own personal holdings in the company. Reilly discussed with the CHS that this would allow

the CHS to make a quick profh by selling the shares the CHS bought for $0.05 per share at the

higher price established by the eompany's IPO.Reilly assured the CHS during their

conversations that his associates had already lined up the buyers to participate in Caribbean

Pacific's IPO. Reilly also informed the CHS during these conversations that he owned 9.2% of

Caribbean Pacific's common stock and that he was acting as an advisor or consultant to the

company because he had been barred from being an offcer of a public company.

To induce the CHS to engage in this transaction, Reilly agreed to back date the

documents relating to the CHS'S purchase of the 500,000 shares to Janum'y 2012 to make it

appear as if the CHS'S transaction had taken place in January as part of the company's initial

distribution of Caribbean Pacific's stock to the company's private stockholders. Reilly explained

that this would allow the restridion on the CHS'S stock to be removed early so that the CHS

could sell his stock, along with the initial shareholders, around the time of Caribbean Pacific's

IPO, which Reilly expeded to take place in the immediate future. Reilly told the CHS that he

had an attonwy in Palm Beach County lined up to issue an opinion letter enabling the CHS to

convert his restricted stock to free trading shares by making it appear that the CHS had owned

the stock for six months when in fact he had not.

To assure the CHS that he would be able to sell this stock post-lpo, Reilly

explained to the CHS that he had been working on several business deals for Caribbean Pacitic

that would be armounced around the time of the 1PO to generate interest in the company's stock.

Reilly stressed to the CHS that this was confidential, non-public information. Reilly told the


CHS that one of these deals involved Cmibbean Pacitk acquiring a real estate eompany based in

Florida that was developing a resort community in Belize. Reilly said that the real estate

company would become a subsidiary of Caribbean Pacific post-lpo and that the company would

issue a series of press releases (that had already been drafted) relating to this endeavor to

generate interest in the company in the investment community. Reilly also told the CHS that he

had already arranged for two promotional firms to be involved with publishing information about

Caribbean Pacifc and these business projeds. Reilly further added that the two promotional

firms had already lined up the buyers for the stock to be issued in Caribbean Pacific's IPO,

which Reilly stated was oversubscribed.

ln M ay 2012, the CHS, under the FBI's supervision, agreed to purchase the

500,000 shares of stock that Reilly was offering to sell pursuant to the term sheet Reilly had

previously sent his business associate. To effeduate the sale, the CHS and Reilly signed a

Stcommon Stock Purchase and Sales Agreement'' pursuant to which the CHS bought 500,000

shares of Caribbean Pacific's common stock from téW illiam J. Reilly & Assoc. LLC .'' The

purchase price stated on the agreement was $25,000 or $0.05 per share. The purchase agreement

specitically stated that the common stock being purchased by the CHS constituted Strestricted

securities,'' that the shares had not been registered for sale with the SEC, and that the CHS

agreed not to sell or distribute any of the securities being purchased in violation of the Securities

Act. Despite this express language, Reilly back dated the closing date listed in the agreement to

itlanuary 20, 2012.99 The purpose in doing so was, as Reilly had discussed with the CHS, to

make it appear that the CHS had owned the stock for six months (consistent with SEC rules

regarding how long a purchaser of stoek in a private offering must hold restrided stock before

reselling it) when Caribbean Pacific engaged in its lPO later that summer.


25. On May 25, 2012, Reilly met with the CHS at a Dunkin' Donuts in Fort

Lauderdale to complete the transaction. The CHS gave Reilly a check for $15,000 payable to

liw illiam J. Reilly,'' as Reilly had previously agreed that the CHS could pay an initial $15,000

for the shares and the remaining $10,000 after the IPO when Reilly provided the opinion letter

from the attonwy falsely stating that the CHS'S shares could be converted to free trading shares

because, in part, the CHS had owned them for six months. The CHS dated the eheck çilanuary

20, 201299 to make it appear that the transaction had been completed months earlier. Reilly, in

turn, provided the CHS with a share certificate for 500,000 shares of Caribbean Pacitic common

stock. The share certifcate was also dated çélanuary 20, 2012.5' The share certiticate Reilly

provided the CHS did not contain a restrided stock legend leading me to believe that Reilly

issued these shares from the share certificates provided when Caribbean Pacific was tirst

incop orated in the State of Florida.

the check at the CHS'S bank.

Following this m eeting, Reilly went in person and cashed

26. On M ay 12, 2012, a letter under T.H.'S signature and dated Febrtzary 2012 was

tiled with the Florida Division of Corporations removing S.R. (Reilly's daughter) as Caribbean

Pacific's secretary and replacing her with K.M .

27. ln June 2012, Reilly engaged in second transaction with the CHS. In this

transaction, Reilly agreed to sell to the CHS stock from Caribbean Pacific's lPO even though the

lPO had not yet taken place and the SEC had not yet declared Caribbean Pacific's Fonn S-1 to

be effective, in violation of the company's waiting period. As a result, on June 13, 2012, the

CHS signed a copy of the two-page Slsubseription Agreem ent'' that Caribbean Pacitk had

submitted to the SEC with its initial registration statement.The Subseription Agreement stated

that the CHS had purchased 33,333 shares of Caribbean Pacifc's common stock for 1k$5,000'' or


$0.15 per share. On the same day, Reilly emailed the signature page bearing the CHS'S nnme

and address to T.H. in M assachusetts who wrote ûçAccepted'' on the signature page and who

signed it as president of Caribbean Pacific. Reilly then emailed the fully executed agreement to

the CHS later that day.

28. To complete this transaction, the CHS wired $5,000 of FBI funds to Reilly's bank

account at JP M organ Chase. Reilly did not provide the CHS with a stock certificate for this

transaction because the lPO had not yet taken place. Based oll the FBl's investigation and my

understanding of the securities industry, the share certiûcates for the stock issued as part of

Caribbean Pacific's lPO would be issued by the' company's stock transfer agent rather than by

Reilly or whoever else controlled the share certifkates included with the initial Florida

incoporation documents. Further, at the time of this transadion, Caribbean Pacific's Form S-1

on file with the SEC listed a Nevada company named Empire Stock Transfer Co. as the

company's stock transfer agent. However, a representative of Empire Stock Transfer recently

informed 1aw enforcement that Empire Stock Transfer has never been Caribbean Pacitk 's

transfer agent.

29.

agency conducted a consensual interview of Reilly at a Denny's Restaurant in Boca Raton,

On July 31, 2012, agents with the FBI and another federal law enforcement

Florida. During the interview, agents informed Reilly that he had been dealing with a

confidential human source as part of an undercover FBI investigation and they questioned Reilly

about the Caribbean Pacific transactions that he had conducted with the CHS.

30. As to the first transaction, Reilly adm itted that he had provided a backdated

Caribbean Pacitic stock certificate to assist the CHS in getting around the securities regulations

regarding how long restricted stock had to be held before it could be converted to free trading

14


stock that could be sold in the secondary markets. Reilly admitted that he knew he was violating

the securities laws in doing so and he stated that he had used the money from the sale to pay for

various personal expenses.

31. As to the second transaction, Reilly admitted to receiving an additional $5.000

from the CHS for the purchase of Caribbean Pacifie stock during the company's tlquiet period''

while the company's registration statement was under review by the SEC. Reilly said that he

only told T.H. that someone wanted to subscribe to buy shares in the lPO and that he did not tell

T.H. that he, Reilly, was going to receive money for the shares Reilly was selling to the CHS.

Reilly also stated that he thought he only provided T.H. with the signature page of the CHS'S

subscription agreement, which did not mention the $5,000 as having been paid in advance of the

IPO. Reilly further stated that he did not turn over the $5,000 to the company, but kept it to pay

for his own personal expenses. Reilly stated that he knew it was illegal to sell the stock and

accept money during the isquiet period.''

Reilly further stated that he was a Caribbean Pacific shareholder and an advisor

and consultant to the company.He stated that, because of his past problems with the SEC, he

could not be an officer of a public company.He also stated that he did not raise or receive any

money other than the money he received from the CHS. Reilly also discussed other matters not

pertinent to the FBI's penny stock investigation. At the end of the interview, Reilly stated that

he was going to try to hire an attorney to resolve the criminal matters he was facing.

In late August 2012, Caribbean Pacifc's attorney sent two letters to the SEC'S

Division of Corporation Finanee asking the SEC to accelerate its approval of Caribbean Paeific's

registration statement. As a result, on August 29, 2012, the SEC declared effedive Caribbean

Pacitk 's amended registration statement filed with the SEC on August 24, 2012. That


registration statement states, in part, that the company maintains a bank account at JP Morgan

Chase Bank and that the company's stock transfer agent is Empire Stock Transfer. On

September 5, 2012, Caribbean Pacitic fled a written prospectus with the SEC relating to its IPO .

The written prospedus, inconsistent with the tsnal registration statement, states that Caribbean

Pacific's bank account is maintained at PNC Bank and that the company's stock transfer agent is

Pacific Stock Transfer Co.

34. Caribbean Pacific's Form S-1 registration statements and the company's written

prospectus were materially false and misleading in that they failed to disclose to potential

investors that Reilly was an affliate of the company through his domination and control of the

company's activities and his substantial ownership of the company's shares. The Form S-l's

and written prospedus also failed to disclose Reilly's prior SEC history (including that a federal

district courtjudge had issued an order that, in part, barred Reilly from being an officer or

director of a public company and barred Reilly from participating in a penny stock offering) and

that Reilly had been disbarred from practicing law in the State of New York. The company's

filings also failed to disclose Reilly's unlawful sales of stock to the CHS and Reilly's scheme

with others to generate investment interest in Caribbean Pacitic's IPO through the prearranged

publication of press releases announcing Caribbean Pacific's acquisition of the real estate

company developing a resort project in Belize including the use of third party investor relations

firms to stir up interest in the company's prospects.

On September 19, 2012, the real estate company referred to by Reilly in the

recorded conversations with the CHS issued a press release almouncing that it had retained the

accounting 151411 of Rattray & Associates, CPA, to become a fully audited company and

othenvise touting the company's prospects. Rattray & Associates appears to be a business entity

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affiliated with H.R., the auditor of the fnancial statements included in Caribbean Pacific's SEC

filings. The press release issued by the real estate company notes that it is not a tçpublic

company as of this date'' and warns that the information contained in the release constitutes

fom ard-looking statements under the securities laws.

36. On October 9, 2012, the real estate company issued another press release

announcing that it was to be a tifeatured company'' at an investment conference to be held at the

Harvard Club in New York City on October 1 1, 2012. The press release states that

Undiscovered Equities, lnc., a firm providing information regarding the stock market to

institutional and individual investors, was the host of the investment eonference. According to

filings with the Florida Depm ment of State, Division of Coporations, Undiscovered Equities is

located in Boca Raton, Florida. lts president and sole diredor is K.M ., one of the promoters

Reilly mentions by name on tape as being hired to do promotional work for Caribbean Pacific in

connection with its IPO and its plnnned acquisition of the real estate company with the resort

project in Belize. The FBI is continuing its investigation of these matters.

Conclusion

37. Based on the condud described above, I submit that there is probable cause to

believe that Reilly willfully violated Section 5 of the Securities Act by selling 500,000 shares of

Caribbean Pacitic common stock to the CHS on May 25, 2012, by use of the means and

instruments in interstate commerce, in a transaction for which the SEC had not declared effective

a registration statement filed with the SEC, in violation of 15 U.S.C. jj 77e(a) and 77x. l have

reviewed this matler with the U.S. Attom ey's Oftke and l do not believe that this transadion fell

under a valid exemption to Section 5's registration requirements.

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38. Based on the conduct described above, I submit that there is also probable cause

to believe that Reilly willfully violated Section 5 of the Securities Act by selling 33,333 shares of

Caribbean Pacific common stock to the CHS on June 13, 2012, by use of the means and

instrum ents in interstate commerce, while Caribbean Pacific's registration statem ent was filed

with the SEC but not yet deemed effective, in violation of 15 U.S.C. jj 77e(a) and 77x. As with

the tirst transaction, l have reviewed this matter with the United States Attonwy's Oftke and I

do not believe that there is a valid exemption from Section 5's registration provisions for this

transaction.

I further submit that there is probable cause to believe that Reilly willfully

violated the antifraud provisions of the federal securities laws by, using the means and

instnlmentalities of interstate commerce, selling the 33,333 shares of Caribbean Pacitic common

stock to the CHS on June 13, 2012, and then misappropriating the $5,000 in proceeds from that

sale for his own personal use instead of providing the proceeds of that sale to Caribbean Pacific

in confonnity with tenns of Cmibbean Pacific's Form S-1 that states that all funds from the IPO

would be used for the eompany's business purposes, in violation of 15 U.S.C. jj 77q(a) and 77x,

and 15 U.S.C. jj 78j(b) and 78ff, and 17 C.F.R. j 240.10b-5 promulgated thereunder.

40. l further submit that there is probable cause to believe that Reilly willfully

violated the antifraud provisions of the federal securities laws by, using the means and

instrumentalities of interstate commerce, causing Caribbean Pacific to file a false and misleading

Fonn S-1 registration statement and written prospectus with the SEC in connection with

Caribbean Pacific's IPO because those docum ents om itted to state m aterial inform ation relating

to Reilly's dom ination and control of the company and his prior SEC history and his disbarment

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as an attorney in New York, in violation of 15 U.S.C. jj 77q(a) and 77x, and 15 U.S.C. jj

278j(b) and 78ff, and 17 C.F.R. j 240.10b-5 promulgated thereunder.

FURTHER YOUR AFFIANT SAYETH NAUGHT.

N

Zx----TIMOTHY WRIGHT, SPECIAL AGLNTFEDEM L BUREAU OF INVESTIGATION

Sworn tgx and subscribed beforeme this N<#X e day of October, 2012

BARRY L. ARBER

UNITED STATES M AGISTRATE JUDGE

2 Based on the transactions described herein. I submit that there is probable cause to believe that Reilly is also in

contempt of Judge Rakoff's order in the Forest Resources case, which prohibits Reilly from further violating the

registration and antifraud provisions of the federal securities laws and prohibits Reilly from participating in a penny

stock offering. However, my understanding from consulting with the United States Attorney's Om ce is that venue

for a contempt of court charge under 1 8 U.S.C. j 40 1 would be in the Southern District of New York. Accordingly,I am not, at this time, requesting this Court to issue an arrest warrant based on Reilly's apparent violation of Judge

Rakoff's order.

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