by T. GormanPosted on Posted in SECActions

The SEC brought an action against a reputed “app” manufacturer who sold shares in two different entities beginning first in Colorado and later from Georgia. From each location, and for each entity, the sales pitch was essentially the same. Indeed, investors were told that the second company was just the renamed first. In each instance the result was the same – friends and other investors lost; the defendants profited. SEC v. Gamer, Civil Action No. 1:14-cv-02650 (N.D. Ga. Filed August 15, 2014).

Defendant Heidi Ann Gamer was home from classes at Dartmouth College with her domestic partner in Colorado when she registered defendant Gamer Economic Systems, LLC or GES in that state. The idea was to market interactive software and technology, including applications for smartphones. A prospectus for GES was developed which identified the new technologies. It explained that initial capital would be raised from investors to be used for operations.

Coworker’s family members were the initial investors. They were told that that Ms. Gamer had connections to build apps for political campaigns and expected to sell licensing rights for upwards of $10 million. Cash flowed in for the operation, prompting a wider marketing campaign. Now investors were told about a product called “StoryMap.” This app supposedly permitted television viewers to look up the episodic history of a show and purchase items seen on the set.

Investors from Colorado, New Hampshire and Virginia wired funds to the GES bank account. Over a period of about one year, beginning in August 2011, 17 investors furnished GES and Ms. Gamer with over $400,000. Some received investor agreements which promised quarterly financial statements and 5% of any GES royalties once the firm began to show a profit.

In July 2012 Ms. Gamer and her partner relocated to Atlanta. The location was closer to several software developers. A new entity was formed, defendant Gamer Media Partners or GMP. Investors were not told that GMP was a new entity. Rather, they were told that GES had changed its name.

Again investors were solicited using StoryMap. Some investors were told that there was a $1 million contract to use the technology in the Indian film industry. Others were told that a partnership had been formed that would make available $2 million for the exclusive licensing of StoryMap. In some sales pitches potential investors were told of a $100,000 contract with Dartmouth College and a deal with the Atlanta Falcons. Between August 2012 and May 2013 Ms. Gamer sold interest to 27 investors, raising over $370,000 for interests in GMP.

The contracts did not exist. The funds were not used to develop the business as

represented. Rather, much of the money was diverted to personal use. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 23071 (August 19, 2014).

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by T. GormanPosted on Posted in SECActions

Golf is becoming a recurring theme in insider trading cases. Last month the SEC brought an insider trading action against a group of golf friends. That action, detailed here, was supported by a series of e-mails among the group which documented their scheme. Now the SEC has brought another insider trading case related to golf. This action is also tied to golf but is not supported by e-mails. SEC v. O’Neill, Civil Action No. 1:14-cv-13381 (D. Mass. Filed August 18, 2014).

The action focuses on the June 29, 2010 announcement that Wainwright Bank & Trust Company was going to be purchased by Eastern Bank Corporation. It involves then Eastern Senior Vice-President and Senior Credit Officer J. Patrick O’Neill and Robert Bray, an affiliate of R&B Construction Company.

Mr. O’Neill joined Eastern Bank in early 2010 as a Senior Vice President. At the time he read and acknowledged the insider trading policy of the bank. A few days later the bank asked him to also execute a confidentiality agreement. That agreement stated in part that Eastern was involved in a possible transaction regarding Wainwright and that he would likely receive confidential information. It also noted that he likely would conduct due diligence on the proposed deal and that the information he would obtain was “inside information” under the applicable securities laws. Subsequently, Mr. O’Neil conducted due diligence on Wainwright’s loan portfolios. That work was completed by June 28, 2010.

Messrs. O’Neill and Bray had been friends for many years. Both were golfers and members of the same local country club. Both socialized at the country club bar. The year before Mr. O’Neil joined Eastern Bank R&B Construction hired his college freshman son to do computer work. In June 2010 the son listed Mr. Bray as an employer reference.

On one or more days between May 20 and June 13 the two men were together, according to the complaint. On Monday June 14, 2010 Mr. Bray sold the shares of three other stocks in his brokerage account for total proceeds of over $261,000. He used the proceeds to purchase Wainwright shares. Over a period of days beginning on June 14 he accumulated 31,000 shares of Wainwright stock at a cost of over $288,000. When the deal was announced the share price spiked up 94% giving Mr. Bray profits of almost $300,000.

In August 2010 Mr. O’Neill resigned from the bank after the legal department circulated a FINRA letter which was part of an insider trading inquiry. It iisted names which included his. Just before his resignation from the bank Mr. O’Neill transferred the family home into the name of his wife. Later, when requested to testify during the Commission’s investigation both Mr. O’Neill and Mr. Bray declined to testify, citing their Fifth Amendment privilege. The Commission’s complaint alleges violations of Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 230790 (August 18, 2014).

The U.S. Attorney’s Office for the District of Massachusetts has filed parallel criminal charges against Mr. O’Neill.

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