SEC Obtains Summary Judgment Win On Liability Against All Defendants in a Penny Stock Fraud Case
On February 19, 2014, the United States District Court for the Northern District of New York in Albany, New York granted the Securities and Exchange Commission's motion for summary judgment on liability against all defendants, StratoComm Corporation; its CEO Roger D. Shearer; and its former Director of Investor Relations, Craig Danzig, on all charges against them, including violations of the antifraud provisions and registration requirements of the federal securities laws.
The SEC alleged that StratoComm, acting at Shearer's direction and with Danzig's assistance, issued and distributed public statements falsely portraying the penny stock company as actively engaged in the manufacture and sale of telecommunications systems for use in underdeveloped countries, particularly Africa. In reality, the company had no product and no revenue. The SEC argued that StratoComm, Shearer and Danzig sold investors more than $4 million worth of StratoComm stock in unregistered transactions. The SEC also alleged that Shearer used much of that money for his own purposes, including to help pay restitution he owed in connection with his guilty plea in a prior criminal proceeding.
In granting summary judgment in favor of the SEC, the court found that StratoComm violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The court also found that Shearer violated Sections 5(a) and 5(c) of the Securities Act, aided and abetted StratoComm's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and found him liable as a control person for StratoComm's violations. Finally, the court found that Danzig violated Sections 5(a), 5(c), and 17(a) of the Securities Act, violated Section 15(a) of the Exchange Act, and aided and abetted StratoComm's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
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