by T. GormanPosted on Posted in SECActions

    

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).

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by T. GormanPosted on Posted in SECActions

Since the creation of the Securities Exchange Act of 1934 those acting as broker or dealers have been required to register with the Commission. The definition for each term, as originally drafted, is broad. For example, the definition of what constitutes a deal under Exchange Act Section 15(a)(1) is essentially open ended. Many have acted as an unregistered dealer and been changed by the Commission with failure to register. Some of those charged under Section 15(a)(1) have argued that the definition is so broad that it is unconstitutional. While the legal argument may have some appeal, no one has prevailed. Nevertheless, millions and billions of shares of microcap stock are sold each year by unregistered dealers. The Commission’s latest case in this area is SEC v. Tri-Bridge Ventures, LLC, Civil Action No. 3:24-cv-05711 (D.N.J. Filed April 29, 2024).

Named as defendants in the action are: The company and John F. Forsythe, III. The company was founded in about 2016. It is controled by Defendant Forsythe. The firm is now based out of his home in New Jersey. Mr. Forsythe has been associated with 10 brokers over the years.

Over a five-year period, beginning in early 2017 and continuing through at least November 2022, Defendants engaged in the business of buying and selling securities. Defendants conducted this business by: a) entering into convertible notes with microcap issuers or purchasing such notes; b) converting the notes into stock; and c) selling the shares of the microcap issuers into the over-the-counter or OTC markets.

During the relevant period securities were sold of at least 31 issuers. During the period May 2019 to November 2022 Defendants engaged in this business and sold shares of at least 25 issuers yielding over $18 million in gross sales. Neither Defendant is registered with the Commission. The complaint alleges violations of Exchange Act Section 15(a)(1). The case is in litigation. See Lit. Rel. No. 25987 (April 29, 2024).