A federal district court judge in Washington, D.C., has ruled that a suit filed against e-Smart Technologies by the U.S. Securities and Exchange Commission in 2011 can move forward, Courthouse News Service’s Securities Law Review reports.
E-Smart produces wallet-sized “smart cards” with a built-in identity–verification system based on biometric data, usually the user’s fingerprint, that supposedly protect users’ bank accounts against financial fraud and identity theft. In its complaint against the company, the SEC alleges that the company, its officers and two of its affiliates defrauded investors by failing to file several required reports, including a crucial registration statement for a massive sale of stock, and failing to keep its accounts in order, according CNS Securities Law Review reports.
U.S. District Court Judge James Boasberg wrote in his memorandum opinion that the SEC believes that e-Smart’s signature product does not work as advertised and has never been close to ready for production. CNS Securities Law Review reports that a default judgment has been entered against the corporate defendants, and the court has approved a consent judgment against two of the three brokers involved in the sale of unregistered e-Smart stock.
The bulk of Boasberg’s ruling, which he issued on March 12, focuses on a 2006 SEC filing by the company that made several lofty claims about the smart card, including that it met international standards. CEO Mary Grace and chief technology officer Tamio Saito signed the document though they knew the information on it to be false, according to the SEC.
Boasberg wrote that, according to the SEC, Grace lied on numerous occasions to potential and current investors and to the e-Smart board of directors about significant funding commitments and lucrative contracts she pretended she had obtained on the company’s behalf, CNS Securities Law Review reports.
“In one instance, she approved a press release stating that e-Smart had signed a contract ‘to deliver to Samsung 20 million’ smart cards,” Boasberg wrote. “According to the SEC, however, Samsung had not ordered any cards from e-Smart. Rather, the two companies had executed a supply contract, which gave Samsung ‘the option of purchasing cards from e-Smart’ under agreed-upon term, ‘but Samsung S1 was also entitled to choose not to place any purchase orders from e-Smart.’”
The SEC has met its burden of specificity in accusing Grace and Saito of violating at least five separate mandates of securities statutes and regulations, CNS Securities Law Review reports.