CAPITAL FORMATION – THE WRONG WAY

The CEO and President of Magnum d’Or Resources, Inc., Joseph Glusic, had a plan to bolster the cash of the company through stock sales. Magnum is a Fort Lauderdale, Florida based company which converts scrap tires into rubber compounds. Under the plan t stock would be registered with the SEC, sold into the market and the proceeds plowed back into the company. Basic capital formation.

Not quite. A few shortcuts were taken on the way. A Form S-8 registration statement was used. That Form permits the company to register shares for sale to company employees and consultants under certain circumstances. Specifically, services have to be performed. Those services cannot be in connection with capital-raising transactions or to promote the stock. If the shares are not issued for permissible services, they are not unregistered.

The company registered shares on an Form S-8. It represented that shares would be issued to consultants who rendered services to the company.

By July 2008 shares were being issued to Shannon Allen, Dwight Flatt and David Sciucca. Each is an unemployed consultant. Each had a brokerage account at Gibraltar Global Securities in the Bahamas. Each deposited most of the shares in their respective brokerage accounts. Typically those shares were sold into the market within 30 days. The proceeds were then either wired directly from the brokerage account or a personal bank account to the company. Promissory notes were then executed by each individual reflecting a loan of the proceeds to Magnum.

During the time period the stock was being sold the company issued press releases about its operations. For example, one noted that the company had more than $130 million in contracts for its products. Another claimed the company had secured $15 million in financing which would be used to expand the company. A third touted a plan to acquire a tire land fill. Trading volume for the shares of the company surged.

The plan did produce cash for the company through the sale of stock. However, the only services performed by Messrs. Allen, Flatt and Sciucca were selling the shares, forwarding the money to the company and signing the promissory notes. The representations in the S-8 were false. The shares were unregistered.

The press releases were also false. The order contracts did not require any minimum purchase and actually resulted in few sales and little revenue. The financing was continually delayed and never closed. The tire company that owned the land filed for Chapter 11 and the deal did not close.

The Commission however filed an enforcement action naming as defendants the company and Messrs. Glusic, Allen, Flatt and Sciucca. SEC v. Magnum D’Or Resources, Inc., Case No. 0:11-cv-60920 (S.D. Fla. Filed April 29, 2011). The complaint alleges violations of Securities Act Sections 5and 17(a) and Exchange Act Section 10(b) as to the company and Mr. Glusic and Section 5 as to the other individual defendants.

The company and Mr. Glusic settled with the SEC, consenting to the entry of permanent injunctions based on each Section cited in the complaint. Mr. Glusic also agreed to pay disgorgement of $1,878 along with prejudgment interest and a $50,000 civil penalty. In addition he agreed to the entry of an officer and director bar and a penny stock bar. Mr. Allen settled, consenting to the entry of a permanent injunction based on Securities Act Section 5. He also agreed to pay disgorgement of $80,742 along with prejudgment interest and a $25,000 civil penalty. In addition he agreed to the entry of a 5 year penny stock bar and to cancel about 1.4 million shares of Magnum stock. A separate administrative proceeding was initiated to determine if the registration of Magnum’s shares should be revoked. The other two defendants did not settle.