General Crime

* Stephen Durland and Jason Knabb guilty for fraud scheme involving Pegasus Wireless Corp.

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A former executive of a technology company once based in Fremont has been sentenced in federal court in San Francisco to two years and nine months in prison for a fraud scheme in which more than 490 million company shares were issued under false pretences. Stephen Durland, 57, of Greensboro, N.C., was formerly chief financial officer of Pegasus Wireless Corp.

The company was based in Fremont until 2007, when it moved to West Palm Beach, Fla. It filed for Chapter 11 bankruptcy reorganization in 2008. Durland was sentenced by U.S. District Judge Jeffrey White on Thursday. He pleaded guilty in March to three counts of conspiracy to commit securities fraud, securities fraud and falsifying books and records.

Former Chief Executive Officer Jason Knabb, 44, of Wenatchee, Wash., pleaded guilty to the same charges in July and is due to be sentenced by White on Nov. 3. Prosecutors said in a sentencing brief that Knabb made $29 million from the scheme and Durland made $2.1 million. The fraud led to dilution of the company’s stock and ultimately to the bankruptcy filing, and caused investors to lose substantial sums of money, prosecutors said in the brief.U.S.

Attorney Melinda Haag said Durland created 31 fake promissory notes representing non-existent debt and then issued more than 490 million shares between May 2005 and January 2008 to satisfy the fabricated debt. Prosecutors said in court papers that Knabb and Durland issued the shares to friends, family and associates who then sold some of the shares to investors and funneled most of the proceeds back to Knabb and Durland.

The prosecutors said Durland cooperated with authorities when he was questioned in September 2010 and provided information that led to the guilty plea by Knabb. Haag said Pegasus stock traded for more $18 per share at the height of the scheme in May 2006 but fell to less than $1 per share by September 2006.

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