Have you ever bought anything? Have you ever bought anything expensive? How would you feel if you spent thousands of dollars for an item, and the seller never delivered what you had bought? Now, how would you feel if the quasi governmental agency responsible for the integrity of the transaction was the very reason your seller never delivered your item? What if you were left, now out thousands of dollars, with no item to show for it, and no authority that will listen to your complaint? How would you feel? Angry? Confused? Betrayed? Powerless?
Unbelievable? Impossible? Could this happen in America? You bet it could, and it did, to about fifteen hundred people who bought a little known stock called Bancorp International Group (BCIT), back in 2005.
What follows on this website is the incredible account and explanation of what happened, is currently happening, and yet needs to happen for these very people.
The BCIT Story
The Corporate Identity Theft – A Company gets stolen
As the Securities Exchange Commission (SEC) claimed in Litigation Release No. 20466 Bancorp International Group, Inc., BCIT, (the "Company"), was a victim of corporate identity theft in 2005. Between May and August 2005, the market was flooded with 41 counterfeit stock certificates representing approximately 245,000,000 shares. These counterfeit certificates were produced by fraudsters Mario Pino and Pamela J Thomson. These shares were then introduced and cleared into the public markets by brokers J.H. Darbie (Darbie) and Capital Growth Financial (CGF), and ultimately the Depository Trust and Clearing Corporation (DTCC), the private corporation and self regulated organization (SRO) mandated by Congress for the clearing and settlement of security trades. The number of these counterfeit shares exceeded the easily verifiable legal outstanding share count of 4,890,000 by a factor of fifty.
Due to the appearance of these counterfeit shares and the huge unexplained increase in trading volume (from May to August 2005 the company’s trading volume was 2,076,500,035 shares – 424 times the shares outstanding and 1892 times the shares in the legal public float), the company contacted the SEC, the Financial Industry Regulatory Authority (FINRA, then NASD) and the DTCC to alert them of the anomalous trading activity. Subsequently, due to questions arising about the certainty of the company’s capital structure, the DTCC suspended clearing services on August 11, 2005 though the stock continued to publicly trade until August 31, 2005 when the SEC announced a temporary suspension of trading in the company’s shares from 9:30 a.m. on August 31, 2005, and terminating at 11:59 p.m. on September 14, 2005.
The Company Responds – A straightforward solution, or so we thought
In early September 2005, the company and its executives met with SEC officials in New York City to examine the capital structure uncertainty issue and attempt a solution to the problem. The SEC resolved that the company was basically on its own to clean up the fraudulent shares. So, after consulting legal counsel, the company initiated a civil action against Mario Pino and defendants in the District Court of Oklahoma County, Oklahoma seeking the return of approximately 245,000,000 shares of common stock that were invalidly issued and the defendant’s receipt of proceeds from the sale of those shares.
Shortly thereafter, Darbie and CGF, the brokers which Pino and defendants used to distribute and clear the fraudulent shares filed as intervenors in the lawsuit, claiming they had no foreknowledge of Pino and defendants fraudulent activities. The company then, though of questionable decision, resolved to avoid a long and expensive litigation by settling the lawsuit with the intervenors and the defendants.
Pursuant to the settlement agreement the company recognized the approximately 245,000,000 invalid shares as legal freely tradable stock exempt from registration under Section 3(a)(10) of the Security Exchange act of 1934 in exchange for cash damages by the various parties, detailed in the settlement agreement linked above.
The settlement agreement removed all uncertainty from the company’s capital structure. All the fraudulent shares were recognized under section 3(a)(10) as noted above and the settlement agreement was approved and ordered by Noma D. Gurich, Judge of the District Court.
At this point in time, the “capital structure uncertainty” issue was resolved. There were no more “fraudulent shares”, and BCIT should have regained normal clearing and settlement services from the DTCC and should have been allowed to publicly trade again after the SEC temporary trading suspension by filing a form 15c2-11.
After settling the Pino civil action in January 2006, the company continued its process of regaining “current status” with its financial filings at the SEC. It was current with financial filings by July 2006 and then submitted its form 15c2-11 to NASDAQ for relisting on the OTCBB exchange. After going back and forth with NASDAQ for comments and answers, in October 2006, the 15c2-11 was accepted and the company was relisted on the OTCBB exchange and Legacy Trading was selected as the sponsoring market maker to furnish quoting on the exchange. BCIT should have started trading normally again at this time.
The DTCC Obstructs Justice – Lucy tricks Charlie Brown again and again
After almost a year of accounting, filings, legal work and expenses, BCIT was approved and ready to trade. It appeared on the OTCBB dailylist as noted above, and should have started to trade normally. Somehow though, the DTCC claimed some kind of “clerical error” occurred which has yet to been explained, and as a result Legacy Trading was unable to furnish quoting services on BCIT for four consecutive days and pursuant to SEC Rule 15c2-11, BCIT was delisted from the OTCBB exchange. This was DTCC victory number one in the effort to keep BCIT from trading.
Then in December 2006 the company participated in a conference call with DTCC, NASDAQ, NASD, and SEC representatives to discuss BCIT trading requirements. All parties except the DTCC agreed that BCIT was up to date with filings and was eligible to trade. The DTCC representative however stated that a court order determining which shares were valid would be required before the company’s stock could trade again, even though all fraudulent shares were removed from the market via the settlement agreement in the Pino civil action in Oklahoma. So, since the company was at the mercy of the DTCC to regain settlement and clearing services, they acquiesced and proceeded with the ill fated “shareholder lawsuit” in which all approximately 1500 shareholders were sued for Securities fraud, in an effort to “determine which shareholders held invalid shares.”
Though this April 2007 “Shareholder Lawsuit” was initiated to derive a court order that determined who held valid shares, and most shareholders with common sense replied with documentation of their purchases in the open market, there was an element, in some cases spurred on by various brokers, that endeavored to fight the lawsuit, and even filed countersuits in some cases. As it turned out this case became such a fiasco, “shareholders being sued for buying stock,” that it became clear it would end up being a long, protracted and financially unrealistic effort for the company, and the lawsuit was dropped. The DTCC knew what kind of circus this effort would be and enjoyed victory number two in the effort to keep BCIT from trading.
For the next year, the company had various communications with the DTCC regarding the resumption of trading, and what would be required of the company for this to occur. What the conversations always came down to as a solution was the company issuing share certificates to the DTCC to cover the untold hundreds of millions of shares over and above the initial 245,000,000 Pino counterfeit shares sold by various brokers (E*trade, Ameritrade, Scottrade, Schwab, and many others) to satisfy buying demand in 2005 that the DTCC cleared and settled but for which could not now produce valid certificates.
In April 2008 the company succumbed to the DTCC blackmail and agreed to recognize an additional approximately 550,000,000 shares and to effect a 1 for 200 reverse split and filed a schedule 14A proxy statement in this regard. They also purchased a new CUSIP number and filed the reverse split with the Nevada Secretary of State effective June 27, 2008. We have yet to see this reverse split show up on the OTCBB daily list.
The company had several further communications in August and September 2008 with the DTCC as evidenced by this letter from their legal counsel Conner & Winters. Yet STILL no results or further communication from Isaac Montal at the DTCC. Victory number three by the DTCC in the effort to keep BCIT from trading.
What Can Be Concluded – The Regulatory and Systemic Fraud after the Corporate Fraud
Though put into a situation no fault of their own, the company has spent over four years and nearly $800,000 in legal actions, financial filings and other expenses to correct a problem created by fraudster Mario Pino, facilitated by the brokers Darbie and CGF, and exacerbated by the DTCC.
The company has since satisfied its regulatory requirements with the Nevada Secretary of State where the corporation is domiciled, the SEC with whom the company had filed all their annual and quarterly financial reports, and filed form 15c2-11 with the Financial Industry Regulatory Authority (FINRA/OTCBB) to resume trading.
The DTCC however, to obscure their negligence and liability in clearing the hundreds of millions of naked short shares by brokers, has unilaterally obstructed the company’s efforts to trade via their “Global Lock” on settlement and clearing, and has refused to remove this “Global Lock” or advise the company why it still remains. There are no fraudulent shares remaining in the market after the “Pino Lawsuit” settlement agreement. What “Share Uncertainty” still exists that justifies a “Global Lock?”
This is currently the central issue. From May to August 2005, BCIT traded over 2 billion shares. 245,000,000 of those shares were the original fraudulent Pino shares which were made good via the Oklahoma “Pino Lawsuit” settlement. The remaining shares (some number between 245,000,000 and 2,000,000,000 – to account for some combination of buying and selling) are made up of shares sold by brokers fulfilling buyer demand in 2005. These shares never had legal certificates to back them up. In essence these shares were sold naked short by these brokers and to this date have never delivered a single good certificate. Pursuant to REG SHO Rule 203(b)(3) brokers are compelled to either deliver good shares or go on the open market and purchase them.
This is why the DTCC has blocked BCIT’s efforts to trade again at every turn.
Just who is the DTCC? Well it is owned by its principal users, the “DTC Participants” which just happen to be comprised of the very brokers who are subject to financial harm by being forced to cover the above “naked short” positions if BCIT were allowed to trade again. This situation is simply nothing more than the DTCC, an SRO (Self Regulatory Organization) ignoring its own statutes and regulations; REG SHO Rule 203(b)(3). Rather they are intentionally obstructing BCIT from trading to ensure their owners, the “DTC Participants” have no potential exposure to financial harm.
What Shareholders Want – Just Follow the Rules That Have Been There All Along
As a shareholder base, we want it made clear that we bought shares in the open market through our various brokers whom we have signed contracts with (Rule 15c3-3), and are entitled to receive good shares. All these years since 2005 in limbo land is in violation of statute and unacceptable.
We have not yet sought legal representation because the company’s president Thomas Megas retained Conner & Winters, LLP at great expense toward the end of removing the DTCC “Global Lock.” To date though, their efforts have unfortunately been unproductive. At this point we feel that filing complaints with State Attorney Generals, State Securities regulators and the United States Senate Finance Committee are the means to remedy our situation.
We seek this support to compel the Securities and Exchange Commission to enforce the statutes already in force. Specifically that the SEC exercise its oversight of the DTCC (Securities Exchange Act of 1934 §19(g) and §19(h)) and compel the DTCC and brokers to act according to current statutes, specifically REG SHO Rule 203(b)(3).
We call on these organizations do what is required of them by current statute:
- Since there are no remaining “fraudulent shares” after the “Pino Lawsuit” settlement agreement, for the DTCC to lift the “Global Lock” and resume settlement and clearing services for Bancorp International Group, Inc.
- And, for the DTCC and brokers abide by REG SHO Rule 203(b)(3) and either facilitate the delivery of physical stock certificates to all shareholders desiring such as required by Uniform Commercial Code § 8-508 or ensure current shareholder positions are backed up by good shares purchased through the open markets.
Statutes That Apply in the Case of Bancorp International Group, Inc.
- Rule 203(b)(3) If a participant of a registered clearing agency has a fail to deliver position at a registered clearing agency in a threshold security for thirteen consecutive settlement days, the participant shall immediately thereafter close out the fail to deliver position by purchasing securities of like kind and quantity.
The Securities Exchange Act of 1934
- Section 6(b)(5) This statute limits the authority of the SEC and the SROs by prohibiting them from regulating and selectively enforcing rules and statutes, in a way that is discriminatory against equity investors and issuers in favor of others. By "allowing" fails to occur through selective non enforcement of existing statutes and rules, the SEC and SROs are doing exactly that.
- Section 9 This statute makes it unlawful to create a false or misleading appearance of active trading in any security registered on a national securities exchange, or to create a false or misleading appearance with respect to the market for any such security, and to effect any transaction in a registered security which involves no change in the beneficial ownership. False and misleading statements are also unlawful under this Section. Trading, confirming, taking money for and crediting fake and undefined securities in place of the real contracted for securities are violations of this federal statute.
- Rule 10b-10 The trade confirmation rule. This SEC rule requires broker-dealers to confirm the identity, quantity and price of securities obtained on behalf of customers. When the brokers receive nothing but "fails to receive" rather than the contracted for securities, the brokers should not confirm the trade and confirm the quantity of the contracted for securities, because none have been obtained. When "fails" occur, broker-dealers confirm the trade to customers anyway, creating a false confirmation statement.
- Rule 15c3-3 The customer protection rule. This rule requires broker-dealers to promptly obtain and securely maintain securities, even in the event that securities are not delivered by the settlement date. Doing nothing is not an option.
- Rule 15c6-1 The settlement cycle rule. This is the first line of defense and is the foundation of the market. It spells out the settlement date delivery requirement of securities. As long as the contracted for securities are delivered by the settlement date, all is good and all is as it should be. When delivery does not occur by the settlement date, there is a "fail to deliver.”
- Section 17A Statute requires that settlement and clearing of securities be linked and that they happen promptly and accurately. It also requires that trades effect the transfer of record ownership of securities. When trades fail and phantom securities are delivered instead, these requirements are all violated.
- Rule 17f-1 Every reporting institution shall report the discovery of any counterfeit securities certificate to the Commission or its designee, to a registered transfer agent for the issue, and to the Federal Bureau of Investigation within one business day of such discovery. Every transfer agent shall make the reports required above only if it receives notification of the loss, theft or counterfeiting from a non-reporting institution or if it receives notification other than on a Form X-17F-1A or if the certificate was in its possession at the time of the loss. Every reporting institution that originally reported a lost, missing or stolen securities certificate pursuant to this Section shall report recovery of that securities certificate to the Commission or its designee and to a registered transfer agent for the issue within one business day of such recovery or finding. Every reporting institution that originally made a report in which criminality was indicated also shall notify the Federal Bureau of Investigation that the securities certificate has been recovered.
- Rule 19(g) Every self-regulatory organization shall comply with the provisions of this title, the rules and regulations thereunder, and its own rules, and (subject to the provisions of section 17(d), paragraph (2) of this subsection, and the rules thereunder) absent reasonable justification or excuse enforce compliance.
- Rule 19(h) The appropriate regulatory agency for a self-regulatory organization is authorized, by order, if in its opinion such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title, to suspend for a period not exceeding twelve months or revoke the registration of such self-regulatory organization, or to censure or impose limitations upon the activities, functions, and operations of such self-regulatory organization, if such appropriate regulatory agency finds, on the record after notice and opportunity for hearing, that such self-regulatory organization has violated or is unable to comply with any provision of this title, the rules or regulations thereunder, or its own rules or without reasonable justification or excuse has failed to enforce compliance.
- FINRA Conduct Rule IM-2310-2 Fiduciary duty to customers by broker-dealers. Taking money from customers for the purchase of securities, but not actually obtaining them and misrepresenting this failure to obtain securities by misrepresenting the identity and quantity of securities in customer accounts and filing false trade confirmations, is against the interest of the customers.
- NASD Rule 3370 is a delivery rule and instructs that no NASD member shall execute a short sale unless the member makes an “affirmative determination” that the member will receive the security from the customer or can borrow the security on behalf of the customer.
Uniform Commercial Code
- § 8-501b A person acquires a security entitlement if a securities intermediary: indicates by book entry that a financial asset has been credited to the person's securities account; receives a financial asset from the person or acquires a financial asset for the person and, in either case, accepts it for credit to the person's securities account; or becomes obligated under other law, regulation, or rule to credit a financial asset to the person's securities account.
- § 8-508 A securities intermediary shall act at the direction of an entitlement holder to change a security entitlement into another available form of holding for which the entitlement holder is eligible, or to cause the financial asset to be transferred to a securities account of the entitlement holder with another securities intermediary.
- NRS 78.235 Stock certificates: Validation; facsimile signatures; uncertificated shares and informational statements; replacement.
- Except as otherwise provided in subsection 4, every stockholder is entitled to have a certificate, signed by officers or agents designated by the corporation for the purpose, certifying the number of shares in the corporation owned by the stockholder. A corporation has no power to issue a certificate in bearer form, and any such certificate that is issued is void and of no force or effect.
This website has been put together by the BCIT Shareholders Group to educate the public, to encourage discussion and to advocate public action regarding the fraud that has been perpetrated on shareholders of BCIT. As a visitor to this website, take a few minutes; visit the various pages via the links at left to become more familiar with the specific history, facts and events of the BCIT saga. Peruse the many official documents and exhibits for a first hand account.