Securities and Exchange Commission v. Jonathan C. Gilchrist, Civil Action No. 4:13-cv-00163 (S.D.Tex.)

SEC Obtains Final Judgment Against Jonathan C. Gilchrist for Fraud and Registration Violations

The Securities and Exchange Commission recently announced that on August 15, 2013, the Honorable Lynn N. Hughes of the United States District Court for the Southern District of Texas entered summary judgment in favor of the Commission and against Jonathan C. Gilchrist finding that Gilchrist had violated the antifraud and registration provisions of the federal securities laws. On August 16, 2013, Judge Hughes entered a final judgment imposing monetary and other relief.

In rendering summary judgment in favor of the Commission, the Court found that Gilchrist, acting as the president and chairman of Mortgage Xpress, Inc. (subsequently renamed The Alternative Energy Technology Center, Inc.), authorized the unregistered offer and sale of six million company shares to himself and two entities he controlled, improperly maintaining that the offer and sale were exempt from registration under Rule 504 of Regulation D of the Securities Act of 1933. The Court further found that the company could not claim a Rule 504 exemption from registration because it was a development stage company at the time of the sale in February 2008.

The Court further found that Gilchrist effected match trades in company securities through brokerage accounts he controlled, thereby driving the per share price from $1.00 per share immediately after a reverse stock split on January 18, 2008 to $2.41 per share, at which point Gilchrist arranged for promoters to tout the company to further drive up the price to $3.75 per share before the Commission suspended trading in the stock. Into this inflated market, Gilchrist made unregistered sales of 229,661 shares, which the Court found generated illicit proceeds of $692,146.38.

The final judgment entered by the Court bars Gilchrist from serving as an officer or director of any company that is required to register its securities with the Commission, from acting as a broker or dealer, and from trading in stocks with a per share price less than five dollars. The final judgment also orders Gilchrist to pay to the Commission $842,493.40 in disgorgement and prejudgment interest.

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