ecurities and Exchange Commission v. Arista Power, Inc., et al., No. 17-cv-04598 (S.D.N.Y., filed June 19, 2017)
SEC Charges CEO and Attorney With Scheme To Disguise Nature Of Company Financing
The Securities and Exchange Commission announced charges involving a scheme to disguise the nature of a public company’s financing amid financial difficulties, and a corresponding manipulation of the price of the company’s stock perpetrated by an individual previously barred from serving as an officer or director.
According to the SEC’s complaint, filed in federal court in Manhattan, beginning in 2012, Arista began to experience difficulty raising long-term capital for its operations. On the recommendation of William A. Schmitz, Arista’s CEO, Michael T. Hughes, Arista counsel, and Peter Kolokouris, an Arista “consultant” who settled fraud charges with the Commission in the 1990s, Arista raised approximately $1 million through private sales of Arista stock owned by Kolokouris’ family. According to the SEC, in 2012, Schmitz and Hughes helped the Kolokouris family sell their stock to private investors, with the proceeds then used to provide desperately needed financing for the company, but in the guise of a fictitious loan from a purportedly independent third party, which was in fact controlled by Kolokouris. In order to effectuate the stock sales, the complaint alleges that Kolokouris manipulated Arista stock, which inflated the public market price and thereby misled the private investors to believe that they were acquiring the Kolokouris’ family stock at a discount. The complaint further alleges that Arista falsely and misleadingly stated in numerous public filings with the Commission – beginning with a September 10, 2012 Form 8-K – that the financing came from a line of credit with a third-party lender. Kolokouris, Schmitz and Hughes created internal Arista documentation designed to give the false appearance that Arista’s disclosures were consistent with internal corporate records. Lastly, the SEC alleges that Kolokouris and various Kolokouris family members violated Regulation M by purchasing shares while engaged in a distribution of Arista stock.
The SEC’s complaint charges:
- Arista with violating Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) and 13(a)(1) of the Securities Exchange Act of 1934 and Rules 10b-5, 12(b)-20, 13a-1, 13a-11, and 13a-13 thereunder.
- Schmitz with violating Sections 17(a)(1) and (3) of the Securities Act.
- Hughes with violating Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder.
- Kolokouris with violating Securities Act Sections 17(a)(1) and (3), Exchange Act Sections 9(a)(1) and 9(a)(2), and 10(b) and Rule 10b-5(a) and (c) thereunder, and Rule 102 of Regulation M, and aiding and abetting Arista’s, Schmitz’s, and Hughes’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
- Janice Papapanu, Michael Papapanu, Ekaterini Kolokouris, Demitrios Kolokouris, Anastasios Kolokouris, Ioannis Kolokouris, Sophia Kolokouris, Terry Bechakas, 100 Demetrios, Inc., 200 Anastasios, Inc., 300 Ioannis, Inc., 400 Terry, Inc., 500 Sofia, Inc., Just Sell Gold, Inc., and Express Gold Cash, Inc. with violating Rule 102 of Regulation M.
Schmitz has agreed to settle the SEC’s fraud charges, without admitting or denying liability, and has agreed to a three-year officer and director bar, a three-year penny stock bar, and to pay a penalty of $80,000. The settlement is subject to court approval.
The SEC’s investigation has been conducted by Howard Kim, Sandra Yanez, Jack Kaufman, Alan Maza, Celeste Chase and Adam S. Grace in the New York office. The litigation will be led by Mr. Kaufman and Mr. Kim. The case is being supervised by Lara Shalov Mehraban.