FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced securities fraud charges accusing a New York businessman and his software company of making false statements to investors while raising more than $3 million to fund operations.
The SEC’s Enforcement Division alleges that Gregory Rorke falsely told investors that he possessed millions of dollars in liquid assets to personally guarantee their purchase of promissory notes issued by Navagate Inc., which claimed to create and sell computer software to help companies automate certain processes in sales and customer relations. Rorke emphasized that he was an experienced businessman and former professor at Columbia Business School, and he signed and distributed a personal financial statement to investors. However, virtually all of the liquid assets and real estate he claimed as his own in the financial statement actually belonged solely to Rorke’s wife, who did not pledge any of her assets in connection with the securities offering and had no obligation to make good on Rorke’s personal guarantee. Ultimately, Navagate defaulted on the notes and Rorke did not adhere to his promise to pay investors under his personal guarantee.
The SEC’s Enforcement Division further alleges that when asked for proof that he owned one of the main pledged assets, Rorke covered up his lie by tampering with an account statement to hide the fact that the account belonged solely to his wife. Rorke also initially failed to disclose and later materially understated the extent of corporate tax problems at Navagate, which owed at least $1 million in payroll taxes to the IRS for which Rorke was personally liable. As Rorke faced pressure from investors to pay down this liability, he lied in a sworn affidavit that he had sent the IRS a check for $350,000.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Rorke, who lives in Bronxville, N.Y.
“Rorke comforted investors with a personal guarantee to back their investments in Navagate with his own pledged assets,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Yet he repeatedly made false statements about his ownership of the pledged assets, even tampering with documents to cover his tracks.”
In a separate administrative proceeding, the SEC’s Enforcement Division filed charges against Gregory Osborn and his New Jersey-based broker-dealer Middlebury Securities LLC, which served as the placement agent in selling Navagate securities. The SEC’s order states that Osborn and Middlebury Securities repeatedly assured investors that Rorke’s personal guarantee was a good reason to enter into the deal despite knowing or recklessly disregarding that Rorke’s claim was false and he did not solely possess the assets listed in the personal financial statement. Osborn and Middlebury Securities also orchestrated payments to some earlier Navagate investors by fraudulently using proceeds from additional investors despite knowing or recklessly disregarding that such payments are not permitted.
Osborn and Middlebury Securities agreed to partially settle the case against them with disgorgement and penalties to be determined at a later date. Osborn agreed to be permanently barred from the securities industry and Middlebury Securities agreed to be censured. They each consent to the entry of injunctions barring them from violating or causing violations of the federal securities laws.
“Osborn and Middlebury Securities collected significant placement agent fees while boldly highlighting Rorke’s personal guarantee and assuring investors it was a sound investment opportunity,” said Amelia A. Cottrell, Associate Director of the SEC’s New York Regional Office.
The SEC’s orders allege that Rorke, Navagate, Osborn, and Middlebury Securities violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Rorke also is charged with causing Navagate’s violations of those provisions, and Osborn and Middlebury Securities are charged with willfully aiding and abetting and causing Navagate’s violations.
The SEC’s investigation was conducted by Lara Shalov Mehraban, Jorge Tenreiro, Alexander Janghorbani, and Michael Birnbaum in the New York office, and supervised by Ms. Cottrell. The SEC’s litigation will be led by Mr. Janghorbani and Mr. Tenreiro. The examination of Middlebury Securities that led to the investigation was conducted by Steve Vitulano, Michael J. McAuliffe, Simone Celio Jr., and Sean M. O’Brien. The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the Federal Bureau of Investigation, and the U.S. Attorney’s Office for the Southern District of New York.