Cybersecurity Firm CEO Charged with Fraud

The purpose of the federal securities laws is to bring a new ethics to the marketplace. This point is often made when interpreting the statutes. It is also asserted when looking at a case brought which might appear to be small, technical or insignificant. Yet if there is a violation of the statutes whether big or small the Commission will consider, and if appropriate, initiate the action. The reason is the purpose of the statutes – a new ethics for the marketplace cannot be brought if violations are ignored. One of the most recent actions of this type filed by the agency may be a good illustration, SEC v. Blount, Civil Action No. 4:2-cv-375 (E.D.Tx. Filed April 30, 3034).

Named as a defendant is Jack Blount, the president of Intrusion , Inc., who shares are listed o Nasdaq. Beginning in early 2020, and continuing for about one year, Mr. Blount served as the president and CEO of Intrusion. He used the firm to promote a new cybersecurity product called “Intrusion Shield.” The product was part of a package of services being marketed regarding cyberattacks. Specifically, Intrusion marketed and sold services that supposedly detected, analyzed and reported cyberattacks or misuse of information.

The marketing pitch was successful. During the period Mr. Blount and his firm built a client base which included government defense and security agencies and two commercial customers. Intrusion Shield appeared to be a success. The difficulty was that the sale pitch was based on misrepresentations regarding Mr. Blount’s background, the success of the company, its claimed testing program and certain of its contacts. The Commission filed a complaint which alleged violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Section 10(b).

Mr. Blount resolved the matter, consenting to the entry of a permanent injunction based on the Sections cited in the complaint. He also agreed to the imposition of an officer/director bar. The judgment does not impose any financial penalty based on Mr. Blount’s financial condition. See Lit. Rel. No. 25990 (April 30, 2024).