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Offering frauds continue to be the focus of the SEC
Enforcement Division. Echoing claims from other recent cases, such as In the
Matter of Scuderi Group, Inc., Adm. Proc. File No. 3-15344 (Filed May 30,
2013) (repeated share placements made under a claimed exemption which were one
years long unregistered offering) Michael Bartoszek and his controlled entity,
Laidlaw Energy Group, Inc., sold company shares in 35 unregistered tranches
over a period of four years. In fact the sales were one integrated, illegal
offering. SEC v. Laidlaw Energy Group, Inc., Civil Action No 13 Civ 3837
(S.D.N.Y. Filed June 5, 2013).
Laidlaw was founded in 2002 by Mr. Bartoszek. The company
intended to build a portfolio of facilities that would produce power by burning
wood chips and other organic wastes. It acquired one facility in 2006 which was
not viable two years later. Interest in another was acquired and sold in 2010.
From inception Laidlaw only had two sources of revenue.
The 2010 sale referenced above and stock sales. While a public relations firm
was retained and positive press releases were issued, investors were not told
negative facts such as the firm's lack of a revenue source. Likewise, investors
were not told that in 2007 the outside auditors issued a going concern opinion.
Despite the lack of revenue, beginning in 2005 or 2006
the firm developed a relationship with a group identified only as the
Purchasing Entities. At the time Laidlaw's shares were quoted by the OTC
Markets Group, Inc., formerly known as the Pink Sheets. Between August 2006 and
January 2010 Laidlaw sold approximately 2 billion shares to the Purchasing
Entities in 35 unregistered offerings. The firm was paid $1,259,550 in cash for
the shares. No registration statement was in effect. While the transactions
were purportedly made based on Rule 504(b)(1)(iii), that exemption only applies
to limited offers not exceeding $1 million if other conditions are met. Here
Laidlaw's solicitations were, in effect, one continuous offering which exceeded
the dollar limitations of the Rule, according to the complaint.
The Purchasing Entities almost immediately resold the
shares acquired from the company in the secondary market. Mr. Bartoszek knew
that this was the intent of the Purchasing Entities. Nevertheless, in Form 10
registration statement with the Commission in January 2010 for Laidlaw shares
the Purchasing Entities were represented as holding over 80% of Laidlaw's
shares. Later the Form 10 was withdrawn before it became effective.
Later that same year Mr. Laidlaw filed a Form S-1
registration statement for Laidlaw with the Commission for a secondary offering
of common stock. This registration statement repeated the same false claim as
the Form 10 regarding the share ownership of the Purchasing Entities. The
misrepresentation was omitted in a subsequent amendment.
In two three month periods between December 2009 and June
2011 Mr. Bartoszek sold shares of the company which constituted over 1% of the
float. At the time of the transactions Laidlaw was not a reporting company and,
according to the complaint, the market price did not reflect the true condition
of the company. This resulted from the fact that the periodic press releases
and internet postings of the company rarely disclosed any negative facts. Thus
the share price reflected the positive information released by the company.
The complaint alleges registration violations and insider
trading, citing Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act
Section 10(b). The case is in litigation. See also Lit. Rel. No. 22714
(June 5, 2013).
ABA Seminar: Fifth
Annual FCPA Update: Protecting Your Business in the Future: Lessons from the
New DOJ-SEC FCPA Guide, June 19, 2013 from 1:00 -2:30 p.m. EST. The discussion
will focus on building effective compliance systems and conducting M&A due
diligence. Co-moderators: Thomas Gorman and Frank Razzano. Panel: John Buretta,
Principal Deputy to the Assistant AG, DOJ; Charles Cain, Assistant Director,
FCPA Unit, SEC Division of Enforcement; Catherine Razzano, Assistant General
Counsel, General Dynamics Corporation; Steve Siegal, Senior Counsel, Northrop
Grumman Corporation; Ryan Ong, President, U.S. China Business Counsel. Live in
Washington, D.C at 600 14th St. N.W., Penthouse (no charge for ASECA
members attending live in Washington who pre-register by sending an e-mail to
email@example.com). Webcast nationally by the ABA and available in other
Dorsey & Whitney offices. For further information please click here.
For more commentary on developing securities
issues, visit SEC Actions, a blog by Thomas
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