U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23099 / September 30, 2014
Securities and Exchange Commission v. Lee Cole, et al., Civil Action No. 12-CV-8167
Court Imposes Injunctions and Monetary Sanctions of Nearly $30 Million Against Former CEO and CFO of Electronic Game Card
The United States Securities and Exchange Commission announced that, on September 22, 2014, Judge Richard J. Sullivan of the U.S. District Court for the Southern District of New York issued an opinion and order imposing financial sanctions of more than $29.6 million on Lee Cole and Linden Boyne, the former CEO and CFO of Electronic Game Card Inc. (EGMI).
The Commission's complaint, filed in November 2012, alleged that Cole and Boyne orchestrated a fraudulent scheme in which EGMI enticed investors by claiming, among other things, that it had millions of dollars in annual revenue, millions of dollars in investments, and an off-shore bank account worth more than $10 million. In fact, many of EGMI's purported contracts were phony, the purported investments were actually in related-party entities affiliated with Cole or Boyne, and the bank account did not exist. Cole and Boyne bolstered these lies by providing falsified documents to the company's outside auditors. As a result of these and other false statements, EGMI's outstanding common stock was once valued as high as $150 million. The company subsequently filed for bankruptcy protection and its stock is now worthless. While they were making material misrepresentations to inflate EGMI's stock price, Cole and Boyne funneled millions of shares of EGMI stock to entities based in Gibraltar that they secretly controlled. They directed the Gibraltar-based entities to sell the shares, reaping proceeds of more than $12.3 million.
In August 2013 and based upon Cole's and Boyne's failure to comply with multiple court orders, Judge Sullivan entered default judgment against Cole and Boyne with respect to each of the Commission's 14 claims against them. Granting a motion for relief made by the Commission, Judge Sullivan's recent order holds Cole and Boyne jointly and severally liable for disgorgement of $12,345,908.74 plus $2,324,842.25 in prejudgment interest and requires each to pay a civil penalty of $7,500,000.00. Judge Sullivan's order also permanently enjoins Cole and Boyne from violating the securities laws, serving as officers or directors of any public company, and participating in any activities involving the offer of penny stocks.
In addition to Cole and Boyne, the Commission action named as defendants former EGMI CEO Kevin Donovan and the company's former outside auditor Timothy Quintanilla. In September 2013 and pursuant to a settlement agreement between Donovan and the Commission, Judge Sullivan issued a final judgment as to Donovan that permanently bars him from participating in an offering of penny stock, bars him from serving as an officer or director of certain companies for five years, and permanently enjoins him from violating Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The action against Quintanilla is pending.
For further information see Litigation Release 22529 (November 9, 2102).