SEC Files Fraud Action Tied To Sale of Cellular Licensing

The sale of spectrum to operate cell phones can yield millions of dollars in profits. This notion was at the center of an action brought by the SEC against six individuals and eleven entities. Investors who purchased interests in entities that were supposed to secure such valuable rights from the FCC. Unfortunately the spectrum involved could not be used by cell phone companies. SEC v. Janus Spectrum LLC (D. Ariz. Filed April 6, 2015).

The action was brought against two groups: 1) The Janus Spectrum defendants which include the company; David Alcorn, a founder and managing director; and Kent Maerki, a founder and former owner of the company; and 2) the fundraising entity defendants which included four individuals – Daryl Bank, Bobby Jones, Terry Johnson and Raymond Chadwick – and eleven entities variously controlled by and/or affiliated with these four individuals.

At the center of the action is a 2004 FCC plan to reconfigure the 800 MHz portion or band of the wireless spectrum. The plan, in part, separated the frequencies on which public safety systems operate from those used by commercial wireless carriers. The portion of the band called Expansion Band or Guard Band could not be used by the wireless carriers.

Janus Spectrum provided services to over 20 fundraising entities in the preparation of FCC license applications. The firm’s clients include all of the fundraising entities named as defendants. Janus Spectrum, along with Messrs. Alcorn and Maerki, also encouraged investment in the fundraising entity defendants and made specific referrals to those firms. In making those referrals Janus Spectrum and Messrs. Alcorn and Maerki told investors that the 800 MHz spectrum in the Expansion Band and Guard Band could be used by major wireless carriers. That representation was made despite the fact that two years before the first securities offering a representative of Sprint told the Janus Spectrum defendants that the wireless carriers could not use Expansion Band and Guard Band. The next year – 2011 – the primary engineer for Janus Spectrum essentially reiterated this statement to Mr. Alcorn.

The fund raising defendants offered investors the opportunity to purchase an interest in one of the firms or to become members in an association. Overall the fundraising defendants brought in over $12.4 million from investors between May 2012 and October 2014. About half of those funds went through Janus Spectrum. A small portion of those funds were used to prepare applications for FCC use. Significant portions were kept by Messrs. Alcorn and Maerki with other portions going to the four individuals tied to the fundraising entities.

The Commission’s complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a)(1). The case is pending.