The SEC Thursday charged 2 senior executives and their California-based firm with defrauding officers and directors at publicly-traded companies in an elaborate $8 million stock lending scheme.  According to the SEC, Argyll Investments LLC’s purported stock-collateralized loan business is merely a fraud, perpetrated by James Miceli and Douglas McClain, Jr. SEC Findings and Allegations. The scheme was to acquire publicly traded stock from corporate officers and directors at a price discounted from market value, then separately sell the shares for full market value in order to fund the loan, and to use the remaining proceeds from the sale of the collateral for their own personal benefit. Miceli, McClain, and Argyll are alleged to have typically lied to borrowers - telling them that their collateral would not be sold unless a default occurred.  However, since Argyll had no independent source of funds other than the borrowers’ collateral, Argyll often sold the collateral prior to closing the loan and then used the proceeds to fund it.

"Miceli and McClain thought they had devised a foolproof way to make substantial risk-free profits, but their purported business model was nothing more than an illegal get-rich-quick scheme." -- Scott Friestad, Associate Director of SEC Enforcement.

A broker through whom Argyll attracted potential borrowers was also charged in the SEC’s complaint.  The SEC alleges that AmeriFund Capital Finance LLC and its owner Jeffrey Spanier violated federal securities laws by brokering numerous transactions for Argyll while it was not registered with the SEC. Miceli and McClain allegedly induced at least 9 corporate officers and directors since 2009 to transfer ownership of millions of shares of stock to Argyll - as collateral for purported loans.  Miceli and McClain promised to return the stock to the borrowers when the loans were repaid. Instead, the shares were sold without the borrowers’ knowledge before or soon after funding the loans.  In many cases, the proceeds from the collateral sales were used to fund the loans.  Because Argyll typically loaned the borrowers 30-50% less than the current market value of the shares, the company retained substantial proceeds even after funding the loans.  Through these maneuvers, Argyll reaped over $8 million in unlawful gains that Miceli and McClain used in part toward their personal expenses. Charges and Potential Sanctions. Miceli, McClain, and Argyll are each charged with fraud, as well as violating federal securities laws by improperly selling the collateral shares - all of which were restricted securities - into the public markets in unregistered transactions.  They also operated as brokers or dealers without being registered. The SEC’s complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. SEC Staff Credits. Investigation by: Jacob Krawitz, Anthony Kelly, Anik Shah, and supervised by Julie Riewe.  Litigation will be led by Dean Conway. For further details, go to:  [SEC PR 12-46, 3/15/12] and [SEC Complaint].