South Florida Arbitration & Litigation Lawyer Blog
Securities and Exchange Commission v. 8000, Inc., Jonathan E. Bryant, Thomas J. Kelly, and Carl N. Duncan, Esq., Civil Action No. 12-CV-7261 (S.D.N.Y.)
September, 2012:
SEC Charges Company and its Two Principals and Attorney in Stock Manipulation Scheme
The Securities and Exchange Commission recently announced the filing of an eforcement action, in federal court in New York charging 8000, Inc., Jonathan E. Bryant, Thomas J. Kelly, and Carl N. Duncan, Esq. for their roles in a scheme to manipulate 8000, Inc.’s stock price. The complaint charges the defendants misrepresented 8000, Inc.’s financial condition to investors while simultaneously selling, or facilitating the sale of, the company’s securities in violation of the antifraud and securities registration provisions of the federal securities laws. According to the complaint, the defendants’ scheme increased the volume of trading in 8000, Inc., by 93% and the company’s stock price from less than $0.01 per share to $0.42 per share between November 2009 and October 2010.
Securities of 8000, Inc., a Virginia-based company, were quoted on OTC Pink operated by OTC Markets Group LLC (OTC Markets). The complaint alleges that Bryant and Kelly disseminated financial reports and press releases falsely representing that 8000, Inc. had millions of dollars in capital financing and revenues when, in fact, the company had neither. The complaint further alleges that, as they drove 8000, Inc.’s stock price higher with the false information, Bryant, of Hole Town, Barbados, sold 56.8 million shares of 8000, Inc. into the market, reaping substantial profits. The shares that Bryant sold were allegedly “restricted” shares that he should not have sold into the market at that time. Kelly, of Levittown, Pennsylvania, allegedly profited from the scheme by buying and selling the company’s securities in the secondary market.
The Commission’s complaint charges that Duncan, who served as securities counsel to 8000, Inc., participated in the scheme by providing false legal opinions to the company’s transfer agent that improperly removed the restrictions on Bryant’s shares and enabled Bryant to unlawfully sell the restricted shares into the market. According to the complaint, Duncan also provided false legal opinions to OTC Markets that ensured that 8000, Inc.’s common stock would continue to be quoted on OTC Pink. Duncan, of Bethesda, Maryland, received one million shares of 8000, Inc. from Bryant, but was impeded from selling those shares after the Commission issued an order on November 4, 2010, suspending trading in the securities of 8000, Inc.
The Commission alleges that 8000, Inc. violated Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and that Kelly and Bryant violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) and that they aided and abetted the violations of Section 17(a) and Section 10(b) of the Exchange and Rule 10b-5 by 8000, Inc. The Commission also alleges Bryant is liable for 8000, Inc.’s violations of Section 10(b) and Rule 10b-5 as the company’s control person and that Bryan violated Sections 5(a) and 5(c) of the Securities Act. The Commission is seeking permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against 8000, Inc., Bryant and Kelly, and against Bryant and Kelly penny stock bars.
Duncan, who has agreed to settle the matter subject to Court approval, without admitting or denying the allegations in the Commission’s complaint, consented to the entry of a final judgment that would permanently enjoin him from violating Sections 5(a), 5(c), and 17(a)(2) of the Securities Act and from preparing or issuing any opinion letter in connection with the offer or sale of securities pursuant to, or claiming an exemption under, Section 4(1) of the Securities Act and Rules 144 and 802 under the Securities Act, including without limitation, signing an opinion letter or preparing an opinion letter to be signed by another person, related to such offering. The final judgment would also permanently bar Duncan from participating in the offering of any penny stock and order him to disgorge the $15,570 in legal fees that he received from Bryant and to pay $524.98 in prejudgment interest and a $25,000 civil penalty. Duncan, in a related administrative proceeding to be instituted by the Commission, has also agreed to be permanently suspended from appearing or practicing before the Commission as an attorney.
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