SEC Files Two Fraud Actions
The Commission filed two more “to good to be true” fraud actions yesterday. One centered on an offering fraud involving a recycling firm which repeatedly promised investors that it was about to obtain the financing that would move the company forward. Although the funding source continued to change the result did not – no financing. In the Matter of Glenn Johnson, Adm. Proc. File No. 3-17671 (Nov. 8, 2016). A second action centered on an advance fee scheme which promised investors, in part, returns as high as 35% per week which ultimately would give them huge profits. The only profits, however, went to the defendants. SEC v. Smith, Civil Action No. 1:16-cv-4171 (N.D. Ga. Filed Nov. 8, 2016).
Glenn Johnson names as Respondents Mr. Johnson, the President, COO and a director of Feather N Time Corp, d/b/a Nature’s Fuel, and William Sinish, CEO and a director of the same firm. In January 2011 Nature’s Fuel signed a Memorandum of Understanding for the development of seven former manufacturing sites and a landfill in Huntington, Indiana. While the MOU was scheduled to terminate at the end of the month, it had a clause extending the agreement for 30 days after execution. A term sheet was later executed with Company A, the same firm that signed the MOU.
Nature’s Fuel did not have the funding necessary for development. The firm also did not have the necessary permits. A water issue developed. To obtain the necessary operating funds Respondents marketed and sold shares of the firm and its subsidiaries. Over a two year period, beginning in January 2013, about $2,275,000 was raised from over 70 investors. During the period investors were repeatedly assured that the firm’s funding prospects were bright and that it had either been or was about to be obtained. In fact the statements were materially incorrect.
The identity of the firm through which the funding would be obtained continually changed. Over the two year period four different sources were identified. Respondents knew, or were reckless in not knowing, that their statements regarding the particular possible funding source were incorrect. Misrepresentations were also made regarding the existence and terms of purchase agreements for the firm’s products. The Order alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b).
To resolve the matter each Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order. In addition, Mr. Johnson will pay disgorgement of $237,867.85 along with prejudgment interest. Payment, except for $1,200, is waived and no penalty was imposed based on financial condition. Mr. Sinish will pay disgorgement of $302,077.05 and prejudgment interest. Payment of all but $600 is waived based on financial condition.
Smith named as defendants Jeffery Smith, Joseph Carswell and Michael Fullard. Messrs. Smith and Carswell did business as Atlantis Capital, LLC and Capital Funding, LLC, two fictitious companies. Investors were told that Mr. Smith could obtain medium term notes, bank guarantees and standby letters of credit worth millions of dollars for fees of $100,000 and $250,000. Those instruments could be “monetized” and the proceeds loaned to the investor as non-recourse loans. The remaining funds would be invested in debentures that would pay returns of as much as 35% per week. Those returns would pay off the investor loans. Mr. Fullard served as a finder. Investor funds were almost immediately taken by the defendants. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending. See Lit. Rel. No. 23685 (Nov. 8, 2016).