Another Win for the SEC and Retail Investors
The focus on retail investors by the Commission’s Enforcement Division is not new. The agency has long sought to protect retail investors. Over the years the Commission has brought a series of offering and microcap fraud cases along with pump-and-dump manipulations actions, all of which typically target retail investors, often seniors. The task force the Division of Enforcement recently formed to focus on these cases and the number of these actions being brought is new.
Recently the Ninth Circuit Court of Appeals summarily affirmed a grant of summary judgment in favor of the Commission in a long-running offering fraud that targeted retail investors. SEC v. Inteligentry, LTD, No. 17-1664 (9th Cir. Jan. 28, 2019). Inteligentry, Ltd., PlasmERG, Inc. PTP Licensing, Ltd and John Rohner, who formed and controlled each entity, are the defendants.
The claims trace back ten years to 2009 when Defendants began marketing an investment opportunity to acquire shares of a firm that had “developed, tested, and patented an operational ‘plasma engine’ fueled by abundant and inexpensive noble gasses . . . which will replace the internal combustion engine and can run for several months on a single charge of gas mixture at a cost of less than $1,” according to the complaint.
The final plasma engines were perched to roll of the production line shortly, according to promoters. At that point the stock would be worth billions of dollars. The stock is available now; later it would not potential investors were told. The investor funds would finance the completion of the process. Mr. Rohner, the developer, had advanced degrees from MIT.
Investors purchased the shares. About $1.8 million was paid by 98 people based on the claims. Those representations were all false. No invention; no engine; no billion-dollar stock; and no investor money — it had been syphoned off by Mr. Rohner who had no degrees from MIT.
The Circuit Court’s order affirmed the decision of the district court. That court concluded that Defendants had engaged in fraud in violation of Securities Act Section 17(a) and Exchange Act Section 10(b). It ordered the payment of $1,822,825 in disgorgement, $411,100 in prejudgment interest and $750,000 in penalties. See Lit. Rel. No. 24401 (Feb. 15, 2019).