MYRTLE BEACH — A federal prosecutor wants former Little River resident Jasper “Jay” Knabb to spend more time in prison than she initially recommended because Knabb continues to be evasive about his finances after pleading guilty last year to master-minding a $40.8 million pump-and-dump stock scheme related to the Pegasus Wireless Corp. technology firm he founded.
The 46-year-old Knabb – who admits to defrauding about 600 people nationwide out of millions of dollars – solicited many of his investors from the Myrtle Beach area. He is scheduled to be sentenced on three felony charges on June 7 in San Francisco.
Melinda Haag, the U.S. attorney prosecuting the case, initially recommended a 6 1/2-year sentence for Knabb. In court documents filed last week, however, Haag said she wants Knabb to spend an additional nine months in prison – for a total of 7 1/4 years – because of his failure to accept responsibility for his crimes and the “lack of candor” he’s shown during a pre-sentence financial investigation.
The prosecutor’s recommendation varies widely from the 17 1/2-year sentence urged by the federal probation office and the 40-month sentence Knabb has requested.
Knabb, in a written statement, told probation officers that he feels remorseful for his crimes.
“I recognize that I followed the wrong course of action and regret the decisions that I was making at that time in my life,” Knabb said in the written statement. “I feel misled by people whom I mistakenly trusted and feel like I, in turn, misled people who trusted me.”
Knabb’s lawyer said this month that his client’s remorse should contribute toward a lighter sentence.
Haag, however, questions whether Knabb truly has changed his ways.
Haag, in the court documents, points to several eBay transactions that appear to show Knabb is disposing of his assets. Knabb, however, told investigators that the eBay account belongs to his wife, Laura Valaas. Records show that over the past 3 1/2-years, Knabb sold 6,757 items – including a Ford F-350 truck and three Rolex watches – totaling nearly $64,000 through the eBay account.
Haag also states that Knabb failed to pay an electrician for about $20,000 of work he had done this year to his home in East Wenatchee, Wash. The work purportedly was for a company Knabb’s wife owns called Skadi Nordic, a ski accessory business which operated out of the home’s garage. Valaas is a former competitive cross-country skier. Court records show Knabb repeatedly promised to pay the electrician but never came up with the money. He then threatened legal action against a collection agency that tried to recoup the payment.
While both instances “involve a relatively small amount of money and have little bearing on restitution,” Haag said in the court filing, they show Knabb has not been fully cooperative with investigators and continues to engage in improper financial deals.
In an unrelated incident, Knabb filed a police report in August stating that someone entered through an unlocked window at one of his East Wenatchee homes and stole several items, including three limited-edition Mont Blanc pens worth $31,500. Police documents show Knabb filed a claim against his homeowner’s insurance to cover his losses from the theft. No arrests have been made in the burglary.
It is at least the second burglary Knabb has reported in about a decade. On Nov. 15, 2001, Knabb told North Myrtle Beach police that diving and other nautical equipment worth more than $30,000 had been stolen from a boat parked in the driveway of his home. An insurance fraud investigation showed Knabb knew where the purportedly stolen items were when he filed the police report and he was charged in July 2002 with filing a false police report and presenting a false claim for an insurance payment. Court records show the solicitor’s office declined to prosecute the charges.
Knabb’s most recent criminal charges involve the Pegasus Wireless company that manufactured a wireless product called Cynalynx, which was supposed to digitally stream videos from a computer to a television. The product didn’t work, however, and eventually led to the company’s failure.
Starting in mid-2005, Pegasus issued a series of positive but misleading press releases that drove the company’s stock price from about $6.50 per share to more than $18 per share by early 2006. As the price increased, Knabb and co-defendant Stephen Durland – the company’s chief financial officer – secretly issued about a half billion shares of Pegasus stock to friends and family members, who then liquidated the shares and funneled most of the proceeds back to Knabb and Durland.
About $29 million in proceeds from the stock sale went to Knabb, $6.1 million to Knabb’s friends and family and $2.1 million to Durland, according to court documents. Durland pleaded guilty to securities fraud last year and is serving a 33-month sentence.
The scheme diluted the value of the company’s stock for other shareholders, eventually leading Pegasus to file for bankruptcy protection in January 2008. The company’s stock price plummeted to less than a penny at the time of the bankruptcy filing.
Prosecutors have presented testimony from Pegasus investors who said they have suffered financial and emotional trauma from the scheme concocted by Knabb, who once was chief executive of BeachAccess, a failed Myrtle Beach Internet provider that was a subsidiary of Knabb’s BIFS Technology Corp.
“The actions of Mr. Knabb were reprehensible,” Haag said in a court filing earlier this year. “There is no explanation for Mr. Knabb’s actions other than greed. A scheme of this magnitude, which caused so much pain and suffering, deserves a significant sanction.”
Mortgage fraud sentencings scheduled
Several area residents are scheduled to be sentenced this week in federal court in Florence for their admitted roles in mortgage fraud schemes here.
Myrtle Beach resident Joseph Guernsey and Benedict “Gus” Olberding – a Charlotte, N.C., mortgage broker – will be sentenced Thursday on felony bank fraud charges related to the sale of a Murrells Inlet home once owned by Olberding’s wife.
Guernsey and Olberding pleaded guilty to the charges last year. The men admit to including false information on loan applications so a third party could obtain three mortgages totaling $1 million in the sale. The mortgages were never paid and the home wound up in foreclosure. The charges carry maximum sentences of 30 years in prison, but the men could get two years or less under federal sentencing guidelines.
Alissa Smith and Jim Putnam – the husband and wife who pled guilty last year to conspiring to defraud the United States – will be sentenced Friday.
Smith’s charge involves a $265,000 payment her company – Casa Mia LLC – received from the sale of a condominium at 704 S. Ocean Blvd. in North Myrtle Beach. That payment was based on a fraudulent invoice, according to prosecutors.
Putnam’s charge involves a $36,500 payment his Celebrity Vacations LLC received from the sale of a condominium at 507 S. Ocean Blvd. in North Myrtle Beach. That payment was based on a fraudulent invoice, according to prosecutors.
Both fraudulent payments were included on HUD-1 settlement statements presented to banks that provided mortgages for the condos.
Each conspiracy charge carries a maximum sentence of five years in prison and a $250,000 fine.
In addition, the S.C. Real Estate Commission issued an order against Smith earlier this year denying her application for a real estate sales license based on her guilty plea to the mortgage fraud charge. Smith had been selling real estate with a provisional sales license that expired in September. Testimony during her application hearing in February showed Smith continued to sell real estate without a license afterward. Commissioners told Smith to stop selling real estate without a license.
Blackwell guilty in unemployment fraud
Horry County resident James H. Blackwell pleaded guilty in federal court last week to one felony charge of making false statements to the U.S. government related to unemployment benefits he was not entitled to receive.
Blackwell admits that he falsely claimed on unemployment insurance forms that he had not worked during a period of time in 2008 when he was collecting federal benefits totaling $8,995.
Blackwell faces a maximum sentence of five years in prison, a $250,000 fine and up to three years of supervised release. A sentencing date has not been scheduled.
Contact DAVID WREN at 626-0281.