X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
The Atlanta Regional Office of the Securities and Exchange Commission has filed fraud actions against two Southeastern companies, alleging that they engaged in “pump-and-dump” schemes in which companies distribute bogus information to pump up share prices, only to dump the stock and leave investors with huge losses. One of the companies in the SEC’s sights is Alpharetta, Ga.-based Mobile Ready Entertainment Corp., whose Web site says it sells, markets and develops wireless software applications and entertainment content for mobile devices; the other company is Natchez, Miss.-based U.S. Sustainable Energy Corp., which says it can produce biofuel from soybeans. Katherine Addleman, the SEC’s regional director, said the number of pump-and-dump schemes her 35- to 40-lawyer office sees doesn’t seem to be affected by the economy. In fiscal year 2007, the most recent year for which data are available, Addleman said about 5 percent of the cases brought by the SEC’s national enforcement program involved these schemes. The SEC’s Atlanta office, which covers five states, alleges that Mobile Ready and its former co-CEOs committed fraud and engaged in insider trading and violations of securities registration requirements. Their methodology, as outlined in the complaint, included taking Mobile Ready public by essentially inserting it into the shell of a defunct public company. Although that process is legal, Addleman said it allows companies that use it to sidestep certain SEC registration processes that would provide useful information to investors. The SEC alleges that the defendants issued some 16 press releases, some of them misleading, which pumped up share prices, and that the former co-chief executives then illegally dumped their own restricted, unregistered shares, nabbing a profit of about $140,000. In its complaint, the government alleges that Mobile Ready’s two former principals, Michael H. Magolnick and Craig A. Mora, “knew or were severely reckless in not knowing” that press releases containing “baseless projections of future revenue, misleading overstatements of business relationships, and identified contracts for future business that did not exist,” were false. The complaint was filed July 14 in U.S. District Court for the Northern District of Georgia by the SEC’s senior trial counsel, Alex Rue, and Aaron W. Lipson, a senior staff attorney. One press release projecting revenue of $10.1 million in 2007 and $14.8 million in 2008 pushed share prices from 7 cents to 11 cents a share, a 57 percent increase, according to the complaint. Addleman said that certain press releases pushed trading volume as high as 3.5 million shares per day. “Basically, we’re talking about 500 percent increases over the average trading volume prior to these false press releases,” she said. During the time these releases were issued, the SEC alleges that Magolnick and Mora each received 76.9 million restricted, unregistered shares of Mobile Ready stock. Legends on the certificates for the shares stated that they could not be sold to the public without prior registration or an exemption. Addleman said the two men then sought an opinion from their lawyers saying they’d qualify for an exemption to the SEC’s rule requiring registration of restricted shares, Rule 144. But, according to the complaint, their representations to counsel “contained multiple false statements.” And, the complaint continues, without getting the required exemption, the two men sold more than 4 million of their shares. In addition to seeking disgorgement of profits and permanent injunctions to prohibit the defendants from violating various securities laws, the SEC also seeks to bar Magolnick and Mora from participating in any more penny stock offerings or companies. Neither Magolnick nor Mora could be reached for comment. A home telephone number for Mora in Cumming, Ga., was no longer in service; Magolnick’s voice mail says he is no longer with Mobile Ready but does not offer any contact information. An e-mail to Mobile Ready’s investor relations address – the company does not appear to have a listed telephone number – was not returned. Dana L. Choi, an attorney with Holland & Knight in Miami whom the SEC says has represented Mobile Ready and Mora in the past, did not return an e-mail message; her assistant said she was out of town and was not checking voice mail. Web pages for companies Magolnick and Mora have owned or worked for in the past provide some insight into their backgrounds. Magolnick’s profile on one of these pages identifies him as a member of American Mensa, the group for people whose IQ is in the top 2 percent of the population; another profile says he “received his certification in corporate governance” from Tulane University Law School and “attended MBA seminars and executive education classes through the Wharton School at the University of Pennsylvania.” Mora’s profile lists a variety of executive-level technology-related jobs he has held and says he has degrees in graphic design and finance from the University of Arkansas. The case is SEC v. Mobile Ready Entertainment Corp. SOYBEAN CLAIMS On July 17, the SEC sought an injunction in U.S. District Court for the Southern District of Mississippi against Sustainable Energy, its CEO and his live-in companion. Among the allegations: that the penny-stock company had, through press releases, teleconferences with investors and postings on its Web site, “claimed to have a patent pending process with a plant which could produce more than three times as much biofuel as its competitors from the same amount of raw materials.” The SEC also alleges that the company claimed it could produce five gallons of biofuel from one bushel of soybeans and that it could make biofuel for 50 cents a gallon. “What we allege is that this is fraudulent on many levels,” said Addleman. “One, they extrapolate numbers from what they claimed was testing on a mini-reactor, and . . . not from any facility they had up and ready. Secondly, experts are telling us that these are unreasonable numbers in any respect, both in terms of the prices and the [fuel] production level.” Finally, she said, the company had neither the patents it claimed to have, nor the full scale commercial reactor needed to produce biofuel from soybeans. According to the government’s complaint, Sustainable Energy claimed if it combined its technology with another company it planned to merge with, it could achieve an immediate market value of between $9 billion and $12 billion. The press releases making these allegedly bogus claims, according to the complaint filed by SEC senior trial counsel Rue and staff attorney John G. Westrick, served to pump up stock prices even though the company has generated only “nominal revenues” since its inception and had “no reasonable basis” for stating it could achieve billions of dollars in market value. “Those claims were utterly false,” the complaint says. But during the time period in which the SEC is alleging the company made its false claims, share prices moved from 25 cents to 45 cents a share, Addleman said, adding that some earlier press releases pushed share prices above 70 cents. “In early 2007,” she said, “there were certain days on which trading volume reached in excess of 4 million shares per day. That is a fairly substantial market for this microcap penny stock.” With the stock price pumped up and the market actively trading, the SEC alleges, Sustainable Energy’s CEO, defendant John H. Rivera, directed his girlfriend, defendant Alice M. Price, to sell some 2.6 million shares at what the government says were artificially inflated prices. “A substantial portion of the proceeds from these sales were transferred from Price’s brokerage account to a bank account held jointly with Rivera,” the SEC alleges. “Some of these funds were used to fund [Sustainable Energy's] operations.” The SEC’s action claims Price was unjustly enriched and gleaned more than $721,000 in profit; the government is seeking disgorgement of those funds. Neither Rivera nor Price could be reached by press time. A voice mail message left for Rivera at Sustainable Energy and an e-mail sent to the company’s investor relations address did not receive responses. A spokeswoman for the company’s outside investor relations consulting firm, Redwood Consultants in Novato, Calif., said Rivera “probably would not be available this week.” The SEC is seeking, among other things, an injunction to prevent Sustainable Energy from engaging in similar practices and a disgorgement of “illegally obtained funds” along with civil money penalties. In the meantime, the company appears to have moved its operations from Natchez to Baytown, Texas. An article dated Feb. 1 in the Baytown Sun newspaper said that a local joint venture between the Baytown Green Energy Consortium and Sustainable Energy would be producing 24,000 gallons of biofuel per day within 90 days – or around the beginning of May. The energy consortium’s Web site lists no contact information but presents a slide show – accompanied by audio of “America the Beautiful” – showing what appear to be photographs of the biofuel production plant. The case is SEC v. U.S. Sustainable Energy Corp.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.