A BOILER ROOM FRAUD
Investment fraud cases with consumers losing their hard earned cash keep on surfacing. On Monday, the SEC brought two of these cases. On Tuesday, the Commission and the U.S. Attorney’s Office for the Southern District of Florida filed cases involving what the SEC labeled as “boiler room fraud” that began as early as 1998. Whether it is the turbulent economic times and the market crisis, the opening of the flood gates with the giant Ponzi schemes or that regulators have figured out how to find these cases, they just keep coming.
SEC v. 3001 AD, LLC, Case No. 09-Civ-81453 (S.D. Fla. Filed Sept. 29, 2009) names as defendants the company and Jimmy Barker, Robert Landrach, Marc Rifkin, Ronald Bowsky, Jack Maddock and Michael Weidgans. The parallel criminal case adds two individuals. Both cases center on the fraudulent sale of shares in 3001 AD and its related entities. The company, which ceased operations in 2008, purportedly developed and sold virtual reality products mainly for video game systems. From the late 1990s, the defendants raised about $20 million by selling interests in the company and its related entities. Those interests, sold for $5,000 each, were treated as interchangeable.
From a boiler room in Delray Beach, Florida, defendants marketed the interests primarily through telemarketer using a variety of misrepresentations to separate unsuspecting investors from their cash. These included:
• IPO: Investors were told that 3001 AD would soon be conducting an IPO. At one point, a press release titled to this effect was posed on their website. Preparations for the offering never went forward.
• Commissions: The documents given to investors said the commissions were 8%. Investors were never told that frequently from 10% to 40% of their investment went for commissions to the defendants.
• Business relationships: A press release told the public that Microsoft was negotiating a contract to license certain rights from the company. Another release claimed Apple had interest. Investors were also told that Disney was negotiating with the company. All of these claims were false
The criminal cases also allege that investors were promised $29,000 profit annually on each $5,000 investment.
The Commission’s complaint alleges violations of Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b) and 15(a). See also Litig. Rel. 21227 (Sept. 29, 2009).
The criminal charges include securities fraud, wire and mail fraud, conspiracy and making a false statement to the SEC. See also http://www.usdoj.gov/usao/fls/PressReleases/090929-03.html. Both cases are in litigation.