Undefined Cooperation is Basis For SEC Settlement
The Commission accepted a settlement offer from one of three Respondents in an offering fraud action. It was based in part on cooperation and an undertaking to appear and testify for the staff in the future. In resolving the proceeding the agency agreed to reduce the primary fraud charge to one based on negligence. Disgorgement and prejudgment interest was imposed but waived based on financial condition. No penalty was levied. There was no explanation. Nor was their any explanation of what constituted cooperation. In the Matter of Edward M. Daspin, Adm. Proc. File No. 3-16509. If the SEC wants to encourage cooperation full disclosure – a discussion of what was done and what was obtained – would aid the cause.
Respondent Lawrence Lux settled with the SEC. The other Respondents in the proceeding, initially filed on April 23, 2015, are Edward Daspin, founder and control person of three related Companies, and Luigi Agostini, a director and COB of the Companies. Related entities include three Companies and two entities that are consultants to the three Companies.
Beginning in December 2010, and continuing for another 18 months, two of the Companies raised about $2.47 million from seven investors, at least $2 million of which was raised fraudulently. Mr. Daspin, the organizer of the scheme, targeted unemployed professional and solicited them for what was called a job interview. At the interview the executives were solicited to invest in the Companies with a series of false statements. The Companies never generated any revenue and quickly burned through the investor funds.
Respondent Lux served as a director and CEO of the Companies. He was aware, according to the Order, that they were controlled by Mr. Daspin. He also knew that Mr. Daspin had a criminal conviction and a string of failed ventures. A key part of Mr. Lux’s job was to solicit investors. He thus acted, along with Mr. Daspin, as an unregistered broker.
The Companies met their demise when they produced a charity fundraising in El Paso, Texas in March 2012. The event ended with a $500,000 loss, consuming most of their remaining cash. By June 2012 they were out of cash and ceased operation. The Order alleged violations of Exchange Act Sections 10(b) and 15(a) and Securities Act Sections 5(a), 5(c) and 17(a)(2) and (3). The action was initially to be set for hearing.
Mr. Lux had settled with the Division, consenting to the entry of a cease and desist order based on Securities Act Sections 5(a), 5(c) and 17(a)(3) and Exchange Act Section 15(a). He also agreed to be barred from the securities business and from engaging in any penny stock offering. In addition, Mr. Lux will pay disgorgement of $36,853.21 and prejudgment interest. Payment is waived based on financial condition. In addition to cooperating Mr. Lux agreed to accept service of a subpoena from the staff and appear for testimony.