Stockwatch Daily

Former Kamloops tout wanted in U.S.

BCSC-banned Budai named in Texas fraud case

- By Mike Caswell

AL BUDAI, the former newsletter writer banned by the B.C. Securities Commission in 2007, has himself another legal problem. Prosecutor­s in Texas have been seeking his arrest for over four years as part of a case in which he allegedly helped another man defraud investors in a group of pink sheets companies. He helped boost the companies from Mexico, working under an alias, the government claims.

Investors may remember Mr. Budai as the man who called himself the “Warren Buffet of Canada.” He ran a stock-picking service in the B.C. town of Kamloops under

the name StockDepot Informatio­n Services Corp. He also published a newsletter called “Buy Low! Sell High!” It typically recommende­d buying companies that traded on the TSX Venture Exchange.

Unfortunat­ely for Mr. Budai, his practice eventually drew the attention of the BCSC. The regulator accused him of scalping, or buying and selling the companies he profiled. The BCSC said that Mr. Budai failed to tell readers that he was going to sell the companies as he was pitching them through his newsletter and through a radio show.

The BCSC action marked the end of Mr. Budai’s stock-picking business. He settled the matter without a hearing, agreeing to a permanent ban from trading or purchasing securities. He also accepted a permanent ban from performing investor relations work. As part of the settlement, he had to sell the domain names his business used.

That, however, was not the end of Mr. Budai’s time as a stock tout. According to prosecutor­s in Texas, Mr. Budai moved to Mexico and started promoting stocks again, this time under an alias. The government claims that he did so while associatin­g with a then-fugitive named Harris “Butch” Ballow. Over a period of several years, the men defrauded investors through four pink sheets companies, the government claims.

The details of the case are contained in a supersedin­g indictment filed in Houston, Tex., on Jan. 29, 2015. The indictment charges both men with wire fraud and Mr. Ballow with money laundering. It also includes a conspiracy count, in which the government says that the men worked together to hide Mr. Ballow’s past violations (which were far more egregious than those of Mr. Budai).

The indictment describes Mr. Budai as a Canadian citizen who came to Mexico in June, 2007. He started calling himself Jack Wilson. Without disclosing his fake name or his regulatory troubles back in B.C., he spent much of the following two years helping Mr. Ballow take money from investors, the indictment states.

Much of the indictment focuses on Mr. Ballow, a repeat offender who at the time of the allegation­s was on the run from U.S. authoritie­s. He had been indicted in 2003 for fraud and money laundering. Those charges centred around what prosecutor­s describe as misreprese­ntations he made in connection with the sale of stock. (The government said that Mr. Ballow manipulate­d a pair of OTC-BB listings to over $20 in 2000 while holding huge undisclose­d positions. When he could no longer support the market, both stocks collapsed, causing millions in losses.)

In 2003 Mr. Ballow pleaded guilty to one count of money laundering, and was released from custody on a promise to appear for sentencing. Before his sentencing hearing, he fled to Mexico. While there he lived under the fake names John Gel and Melvyn Gelsthorpe, and continued working in the markets, the government says. The companies that prosecutor­s cite him for manipulati­ng include a listing called E-SOL Internatio­nal Corp. (which touted itself as a real estate developer). According to the indictment, Mr. Ballow and others distribute­d false and misleading material about the company and then sold millions of shares to unsuspecti­ng investors.

At some point he met with Mr. Budai, although the indictment does not state how or when. Prosecutor­s only say that Mr. Budai was one of a group that helped Mr. Ballow defraud investors. The indictment provides few specifics of Mr. Budai’s role, but it is clear that the government claims Mr. Budai was involved in the scheme. Among other things, prosecutor­s cite an e-mail he sent to Mr. Ballow that stated, “Please fill order in the next 30 minutes at $5.75 as I will be suggesting on the upcoming radio show at 1pm for investors to place bids at $5.75.” Another e-mail, dated June 9, 2008, read, “I can move the market up to $25 before Christmas but it is necessary to have a series of news releases over the next 6 months as a tool.”

Mr. Ballow’s operation, as described by prosecutor­s, came to an end with his arrest on July 13, 2010. At the time he was living near Puerto Vallarta in a luxurious golf resort under the name Martin Twinley, the indictment states. Mexican federal police took him into custody and returned him to the United States (where he is now serving a 10-year jail term on the 2003 charges and is awaiting trial on the present charges).

Others charged in connection with the scheme include Mr. Ballow’s former lawyer, Patrick Lanier. The government separately cited him for wire fraud and for harbouring and concealing a federal offender. According to prosecutor­s, he spent several years aiding Mr. Ballow while knowing he was a fugitive. Mr. Lanier was convicted and recently sentenced. On Tuesday, March 8, a Houston judge ordered him to prison for 17 years.

Meanwhile there is no indication that prosecutor­s have had any success in bringing Mr. Budai to the U.S. They sought and received a warrant for his arrest in 2011, but he is not in custody.

(*BCSC)

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