Attorney Virginia K. Sourlis Found Liable for Aiding and Abetting Securities Fraud by Issuing False Legal Opinion in Connection with Illegal Stock Offering
On November 20, 2012, the Federal District Court in SEC v. Greenstone Holdings, Inc., et al., 10 civ. 1302 (S.D.N.Y.), granted the SEC partial summary judgment against attorney Virginia K. Sourlis, holding Sourlis liable for aiding and abetting securities fraud by issuing a false legal opinion that certain of her co-defendants used to obtain illegally more than six million shares of unrestricted stock of Greenstone Holdings, Inc.
According to the SEC's summary judgment motion, in early 2006, Sourlis intentionally authored a materially false and misleading legal opinion, which Greenstone used to illegally issue over six million shares of stock in unregistered transactions. Among other things, Sourlis falsely described promissory notes, note holders, and communications with those holders, none of which actually existed. The SEC asserted that, contrary to Sourlis' fraudulent opinion letter, the stock issuance did not qualify for an exemption from registration under the federal securities laws.
In finding Sourlis liable for fraud, at the November 16, 2012 hearing on the SEC's summary judgment motion, the District Court stated that Sourlis' opinion "represents that Ms. Sourlis spoke to note-holders which did not exist . . . And several other facts for which there was no evidentiary support." The Court further stated that Sourlis' opinion "represented as fact matters that were contrary to fact, and to me the most egregious representation was the representation that the writer of the letter had spoken to the original note-holders which is repeated in the letter."
The Court held Sourlis liable for aiding and abetting securities fraud under Section 10(b) of the Securities Exchange Act of 1934 but denied the SEC summary judgment against Sourlis for primary liability under Section 10(b). The Court also reserved decision on the SEC's non-fraud claim that Sourlis violated Section 5 of the Securities Act of 1933. On the basis of the Court's November 20 liability holding, the SEC intends to seek from the Court against Sourlis injunctive relief, financial penalties, disgorgement, and a penny stock bar.
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