SEC Files Offering Fraud, Microcap Fraud Actions

Microcap fraud and offering fraud cases are staples of SEC enforcement. The agency added to its totals in these areas, filing an additional offering fraud and microcap fraud action. SEC v. Mogler, Civil Action No. 15-cv-01814 (D. Ariz. Sept. 11, 2015); SEC v. Babini, Civil Action No. q:15-cv-13348 (D. Mass. Sept. 14, 2015). Neither settled. Both are in litigation.

Mogler is an offering fraud action. The complaint names five men as defendants: Jason Mogler, James Hinkeldey, Casimer Polanchek, Brian Buckley and James Stevens. It involves ten companies, many of which are controlled by, or affiliated with, one of the defendants. For example, Pangaena Investment Group LLC is controlled by Messrs. Mogler and Palanchek. Tri-Core Business Development LLC was affiliated with Messrs. Mogler and Hinkeldey while Tri-Core Mexico LLC was managed by Mr. Stevens.

The scheme centered around the supposed development of beachfront property in Mexico, the operation of recycling facilities and the acquisition of foreclosed residential properties that would be resold. Various entities used by the defendants were supposedly involved in one of these lines of business.

Investors were solicited to over a period of years beginning as early as October 2006 for some investments. Investors were variously told about one or more of the businesses. Overall about 225 investors parted with over $18 million based on representations that their funds would be used to develop one of the lines of business. Investors were also assured that the investment was safe.

In fact the representations were false. Virtually all of the investor funds were diverted to the personal use of the defendants. The complaint alleges violations of Exchange Act Section 10(b) and Securities Act Section 17(a). The case is in litigation. See Lit. Rel. No. 23347 (Sept. 15, 2015).

Babini names as defendants Marco Babini, Samuel Brown and Edward Withrow. It involves Endeavor Power Corporation. In 2012 Mr. Withrow became chairman of Endeavor following a merger of another company he controlled with one controlled by Marco Babini. The two men held over 40 million shares of the company through a series of foreign accounts.

The three defendants planned to manipulate the share price by raising it from about 7 cents per share to 25 cents. The three defendants coordinated with an individual who supposedly had substantial experience in the area but who in fact was a person working with the FBI.

A series of steps were taken to tout the stock in an effort to increase the share price. For example, Mr. Babini arranged to have his trades reported twice, thereby exaggerating the demand for the stock. Required filings such as Schedule 13D were not made. Before the price increased sufficiently to sell the covertly owned shares, the SEC suspended trading, thwarting the scheme. The complaint alleges violations of Exchange Act Sections 9(a)(2), 10(b), 13(d) and 16(a) along with each subsection of Securities Act Section 17(a). The case is in litigation. See Lit. Rel. No. 23346 (Sept. 14, 2015). A parallel criminal action was filed by the U.S. Attorney’s Office for the District of Massachusetts.