Another way to describe a "publicly traded shell" is, a company that no longer does any actual business (or very little) and that has been registered with the SEC under the Securities and Exchange Act of 1933. The SEC registration permits shares to be listed on a public exchange. If you are some sort of criminal with nefarious intent to launder millions of dollars, you need shares that have already gone through the SEC registration process. (If you decided to start fresh, with a brand new registration, for the purpose of using the newly registered shares to launder funds, the SEC, per standard practices and processes, will look into the background of the officers and directors, which is not something criminals and fraudsters like to do.)
San Toy and Apollo Steel check most of the boxes for being useful money laundering candidates. The actual merger in 1958 looks suspicious on its face.
The table below describes the merger and final structure. The main takeaway is Apollo Industries, a new company, is created using the old shares of San Toy, where:
- 48.57% of Apollo Industries is owned by the pre-merger owners of Apollo Steel.
- 28.83% of Apollo Industries is owned by the pre-merger owners of American Nut & Bolt.
- 22.50% of Apollo Industries is owned by the pre-merger owners of San Toy Mining.
The "First Look" - Not Suspicious & Suspicious Parts
To review, one way to launder large sums of money (consideration), is to use a publicly trade shell company. The method, especially before computers and more recent laws and regulations, permitted a higher level of anonymity when moving funds around compared to bank wires or suit cases of cash.Apollo Steel Looks Like a Real Business
Approximately concurrent with Step 2 above, Apollo Industries merged with NUMEC. NUMEC was created in 1956 by Zalman Shapiro and a few affiliates and was essentially a “non-public” holding company, created with the intent to hold some assets (likely intellectual property) and eventually acquire and hold fixed and tangible assets. Very simply, the decision to get into the HEU smuggling business required a company to market to investors and to have an entity that can hold the tangible assets (shares of subsidiaries and the physical plant, etc.)NUMEC’s purchase of Apollo Steel looks like it had a legitimate business purpose. Since NUMEC was getting into the Uranium Process business, it needed facilities and equipment. Apollo Steel owned (or leased) the land and buildings in Apollo, Pennsylvania, so it would make sense to buy Apollo Steel and its hard assets, (land or leases, buildings, equipment, administrative infrastructure, industrial zoning permits, etc.) Aside from having capital assets, Apollo’s location was probably ideal. Since it was in the Pittsburgh area, the large blue-collar workforce would have provided a source of labor.
Pittsburgh was also an important hub for nuclear technology. The Bettis Atomic Power Laboratory, where the Nuclear Navy got started, was an hour from Apollo and Shippingport Atomic Power Station, on the Ohio River was also close buy. The Town of Transfer, Pennsylvania as in short driving distance from all of these locations as well. The Pittsburgh area’s atomic status would have provided the necessary technical workers and scientists, and also supplies of Uranium that could be enriched.
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| Pittsburgh Area |
What was the Point of merging the San Toy Mining Company?
Unlike, Apollo Steel, it does not appear that merging San Toy into Apollo Industries had any material business purpose. Nevertheless, it did have publicly traded shares. Whoever owned 100% of the San Toy shares prior to the merger was now a 22.5% owner after the merger.(Another opportunity to obfuscate the true corporate control and ownership of Apollo Industries via the described merger arises from the transaction. While the San Toy owners owned at least 22.5% of the New Apollo Industries, they could actually own and control more. Very simply, if “John Q. Smith” a made up name for this example, owned 100% of San Toy before and 22.5% after, and “John Q. Smith” owned 100% of American Nut & Bolt before the merger and 28.83% after, then at the end of the day, post merger, we can say John Q. Smith owns 50.8% of Apollo Industries.)
Accumulating Enough Shares to Effect a Merger
One of the challenges of using a public company as a shell company, for either legitimate or illegitimate purposes, is actually accumulating the physical shares. A company that has shares that are held by many people and entities (say a few thousand) has to accumulate enough shares or proxy votes to effect the merger. If there are a few thousand shareholders, notifying these shareholders can be costly and time consuming. If the company has been around a few decades, like in the case of Apollo Steel and San Toy, then the actual owners of the shares will be very difficult to track down. Shares could have been passed down to heirs, or sitting in a safe deposit box that has not been opened in 30 years. A shell company is generally not an operating company, so it is not generating a profit, so it is not paying a dividend. When a stock does not pay a divided for years at a time, most share owners are not notifying the company or transfer agent that they moved, because its not like a nice check from the company is arriving in the mail a few times a year, which would be the case if the company paid a dividend.Since San Toy was an old company (formed about 1905) and was not paying dividends, but enough shares were accumulated to effect the merger, we can deduce that the San Toy Shares were in a relatively few number of shareholder’s hands.
Another Level of Anonymity
Every US exchange listed shell company is incorporated in a US state. Each state has different laws of Incorporation. Some states are better to incorporate than others. Many companies incorporate in Delaware because, in part, the names of the incorporating owners and officers, do not need to be disclosed publicly. That is, ABC Company, Incorporated in Delaware, lists an “Agent” or “Registered Agent” as the person that is to be contacted, or where documents are mailed to. The agent then passes the documents to the true owners. (As an example, Delaware charges a small annual incorporation tax, the owners pay the tax, via the agent.) In short, any business an entity has with a Delaware Corporation is done through an agent, this would include IRS correspondence, or the receipt of a summons from another jurisdiction, etc. In contrast, a state like New Jersey must list the owners and officers on its incorporation documents, so one would be able to look up XYZ Corp. (Incorporated in NJ) and see that “Bill Taylor” is the sole owner of XYZ Corp.San Toy was Incorporated in Maine
The fact that San Toy was Incorporated in Maine raises a “yellow” flag for the time being (not “red”, just yellow.) We don’t see many Maine Incorporated companies, so San Toys state of incorporation is a little strange. Apollo Steel and American Nut & Bolt were both incorporated in Pennsylvania. When all three companies were incorporated or formed, back in the early 1900’s, picking a state would be more of a matter of geographical convenience rather than what state was best suited, from a legal point of view, to incorporate in.Unlike Apollo Steel, San Toy does not list the owners and officers on the 1958 merger documents. San Toy only has an “Agent” listed, whose name was Joseph B. Campbell, as allowed under Maine Incorporation laws at the time. (The “Agent” or Clerk, as listed on the merger documents, is typically a lawyer. They are generally allowed to sign corporate documents on behalf of the owners.) It appears Joseph B. Campbell was a member of the Maine Senate at the time and would eventually go on to become Maine Senate President.
[Side Note: Mr. Campbell deserves a deeper look.]
[Side Note, even though some states have laws to facilitate anonymity, and some don’t, there is nothing nefarious about a corporations owner’s to remain unknown to the public, including for commercial reasons. Anonymous corporate owners are still required to follows all Federal and State laws and the names of those owners are available through legal processes and agreement.]
[Side Note: Were the Maine Incorporation Laws changed in the early 1950s to provide for more anonymity?]
The San Toy Mining Company was a Big Deal back in the Day
Generally, when you need a public shell company, you have a pretty wide selection of firms. The wide selection arises from the unintended consequence of a business failure on the part of the shell. The public company became a shell because the business failed. (A shell company has a name, tradable shares, incorporation documents, but little or no underlying business or prospects for revenue and profitability.)The Public Shell “Failure” component falls into two categories, which we’ll call;
- 1.) Never Got off the Ground and
- 2.) Crashed and burned.
“Never Got off the Ground” companies just never achieved the greatness that their owners envisioned when they took the company public. These make up the bulk of existing Shell Companies. Crashed and burned public companies are rarer. These companies were once profitable, or had meaningful revenue and prospects. The “Never Got off the Ground” variety likely never attracted much attention as a worthwhile investment by professional investors, so the shares are likely spread between hundreds or thousands of small individual investors, with only a few large “chunks” in the hands of insiders.
The Crash and Burn variety was likely accumulated by professional investors, strategic investors (similar healthier companies) and other deep pocketed entities looking to acquire enough shares to effect control, and have the funds to do so.
San Toy looks more like a Public Shell Company that had Crashed and Burned at one point, rather than some company that never got going.
To be continued – The Charles M. Schwab takeover attempt of San Toy Mining
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