U.S. Securities and Exchange Commission building in Washington, D.C.

Three Israeli residents accused of operating a shell factory, along with an attorney and accountant accused of aiding and abetting their actions, have agreed to a settlement with the U.S. Securities and Exchange Commission, federal regulators announced Friday.

Sharone Perlstein, Aric Swartz and Hadas Yaron are accused of creating at least 15 shell companies that were set up with phony business plans and management. Some of the companies issued initial public offerings. While making it appear otherwise, in reality the three remained in control of the companies' share, selling some of them for a profit of almost $2 million, according to filings in the U.S. District Court for the Eastern District of New York.

“The law requires truthful disclosures about a company and its business operations to protect investors,” Marc Berger, the director of the SEC's New York Regional Office, said in a statement. “Here, we worked closely with foreign authorities to expose how the defendants spun up sham business plans, inserted placeholder shareholders and with the assistance of gatekeepers filed false documents to reap over $1.8 million from companies that sold as worthless shells.”

Federal regulators said the deceit was pulled off with the assistance of Washington, D.C., attorney Jonathan Strum and Alan Weinberg of the Baltimore accounting firm Weinberg & Baer.

Regulators said Strum drafted false and misleading registration statements and periodic reports, and signed off on fraudulent opinion letters. Weinberg, an Israeli resident, allegedly issued misleading audit reports for at least seven of the shell companies. Despite what regulators called numerous audit failures and red flags, Weinstein gave the companies a clean bill of health.

Additionally, Weinstein's business partner, Simcha Baer, was alleged to have mishandled portions of the audits, while repeatedly back-dating and falsifying documentation that was sent to the SEC, according to regulators.

The settlement, in which the defendants neither admit nor deny the allegations, involves permanent injunctions and disgorgements that total $1.66 million. Perlstein, Swartz and Yaron have also agreed to the entry of penny stock bars, according to prosecutors. In a statement, their attorney, Baker Botts partner Seth Taube, said his clients were “pleased to have resolved this matter and to have this investigation and case behind them.”

Weinberg, Baer and their firm accepted an accounting ban, while Strum, along with Swartz, are banned from practicing before the commission.