This week a defendant in the American Fire Retardant Corporation stock fraud investigation was sentenced to federal prison for his role in the scheme.
Tarun Mendiratta, of Weston, was sentenced to prison, pay a fine of $150,000, and spend three years on supervised release after previously pleading guilty to conspiracy and tax evasion charges.
In sentencing Mendiratta, United States District Judge Terry J. Hatter specified that Mendiratta's custodial term consists of one year and one day in federal prison, followed by six months at a community corrections center and six months of home detention.
According to his plea agreement, between July 2003 and February 2004, Mendiratta received approximately 1.18 billion shares of American Fire, stock that was publicly traded on the Over-the-counter Bulletin Board. Mendiratta received the stock from co-conspirator Stephen F. Owens, the principal of American Fire. The stock he received from Owens had a market of value of approximately $3.3 million.
The American Fire stock that Mendiratta received from Owens was unrestricted and free-trading, the type of stock that is issued to employees, consultants, and advisors who provide bona fide services to the company. This type of stock is registered with the US Securities and Exchange commission through the use of Form S-8. When an issuer uses Form S-8 registration in violation of SEC rules, the stock is deemed unregistered and cannot be offered or sold in without a registration statement being filed with the SEC or a legitimate exemption from registration.
As a part of the scheme, Mendiratta requested that Owens fraudulently issue American Fire stock to two of his aunts in an effort to conceal his ownership of the stock from federal authorities. Neither Mendiratta nor his aunts performed any bona fide services for American Fire that were worth the amount of stock issued to them.
Mendiratta knew that the stock American Fire had issued to him was unregistered and it was issued in violation of federal securities laws. Throughout 2003 and 2004, Mendiratta caused the American Fire stock to be sold in the stock market.
Mendiratta also admitted that, with respect to the tax evasion charge, he failed to report approximately $329,811 in income from the sale of Marmion Industries Corporation stock on his 2005 individual tax return. Mendiratta had received and sold millions of shares of Marmion industries stock in 2005. His failure to report the sale of his stock on his 2005 tax return resulted in a tax loss of approximately $92,347.
Hatter ordered Mendiratta to surrender to the Bureau of Prisons on July 19.
The investigation and prosecution of Mendiratta was conducted by IRS -- Criminal Investigation, the Federal Bureau of Investigation and United States Attorney's Office for the Central District of California.