Jackie Gross

Jackie Gross
Nationality	American
Occupation	Securities dealer (former)
Known for	SEC enforcement action for Regulation S securities fraud

Jackie Gross is an American former securities dealer who was the subject of an enforcement action by the United States Securities and Exchange Commission (SEC) for orchestrating a fraudulent scheme to distribute nearly $15 million in stock of U.S.-based companies to overseas investors. In January 2007, Gross settled the charges by agreeing to pay approximately $1.6 million in disgorgement and penalties without admitting or denying the allegations.

Early Life and Career

Jackie Gross operated in the securities industry through two corporate entities: Telvest Communications, LLC and Morgan Spaulding, Inc. These companies served as vehicles through which Gross conducted securities transactions, particularly those involving the sale of stock to investors outside the United States under Regulation S of the Securities Act of 1933. Regulation S provides an exemption from SEC registration requirements for securities offerings made to non-U.S. persons outside the United States, and was designed to facilitate legitimate international capital raising.

Legal Case

The Fraud Scheme

In June 2005, the SEC filed a complaint alleging that from late 2001 through September 30, 2003, Gross, Telvest Communications, and Morgan Spaulding engaged in a fraudulent scheme to distribute stock of U.S.-based companies to overseas investors.

The scheme exploited the Regulation S framework by deceiving foreign investors about how their purchase payments would be allocated. Investors were led to believe that nearly all of the purchase price they paid would be remitted to the issuing companies whose stock they were buying. In reality, approximately 55 to 70 percent of the purchase price was diverted away from the issuers and instead paid to Gross, Morgan Spaulding, and Telvest; to overseas brokerage firms as undisclosed commissions; and as "finder fees" to promoters who helped recruit investors.

The SEC described this as a fraud built on geographic distance and legal technicality, in which the physical separation between the overseas investors and the U.S. operations, combined with language barriers, made it difficult for victims to discover the true allocation of their funds.

Co-Defendant

John Flanders was also named as a co-defendant in the case. The SEC alleged that Flanders acted as an unregistered broker-dealer in connection with the scheme, facilitating securities transactions without the required SEC registration.

Charges

The SEC charged Gross with violations of:

• Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (antifraud provisions)
• Section 17(a) of the Securities Act of 1933 (fraud in the offer or sale of securities)
• Section 20(a) of the Exchange Act (control person liability)

Flanders was additionally charged with violations of Section 15(a) of the Exchange Act for operating as an unregistered broker-dealer.

Outcome

On January 9, 2007, Gross settled the SEC's charges without admitting or denying the allegations. The settlement required Gross to pay:

• $1,589,000 in disgorgement of ill-gotten gains
• $182,098 in prejudgment interest

The total settlement of approximately $1.6 million represented a significant portion of the funds that had been diverted from the overseas investors. Gross also consented to a permanent injunction prohibiting future violations of the federal securities laws.

The case highlighted the vulnerabilities inherent in cross-border securities transactions and the potential for abuse of regulatory exemptions designed for legitimate international offerings.