UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16553 / May 15, 2000
SECURITIES AND EXCHANGE COMMISSION v. RONALD J. MITCHELLETTE, United States District Court for the Northern District of California, San Jose Division, Civil Action
No. C-00-20531 RMW
S.E.C. CHARGES BUSINESS SCHOOL PROFESSOR FOR FRAUDULENT STOCK SALES
On May 15, 2000, the Securities and Exchange Commission ("Commission") sued a business school professor for fraud in the sale of nearly $350,000 of stock in a start-up company that billed itself as an Internet university. The Commission charged that Ronald J. Mitchellette, an adjunct professor at Santa Clara University's Leavey School of Business, sold stock in the start-up to, among other investors, students in his undergraduate courses. In selling the stock, Mitchellette failed to disclose the fact that just two years earlier he had been convicted of perjury and, in a separate Commission action, enjoined for fraud.
The Commission's complaint alleges that Mitchellette, 63, of San Rafael, California, was the founder and CEO of Virtual Education Network, Inc. ("VENI"), a Silicon Valley company established to offer online college courses through its eUniversity.com website. During June and July 1999, Mitchellette and VENI conducted a private placement of preferred stock, raising $320,000 from investors. Mitchellette also sold approximately $24,000 of his own VENI founders stock to students in his undergraduate courses.
In connection with the VENI stock sales, Mitchellette prepared and distributed written materials that touted his years of experience in banking and finance. The complaint alleges that these materials were fraudulent because they failed to disclose Mitchellette's prior regulatory and criminal record. Specifically, Mitchellette failed to disclose that in a 1997 Commission action he consented to a court order enjoining him from violating the antifraud provisions of the federal securities laws, and further consented to an order barring him from associating with any broker, dealer, municipal securities dealer, investment adviser, or investment company. Mitchellette further failed to disclose that he pleaded guilty to perjury in an unrelated federal bankruptcy case, also in 1997. The complaint further alleges that Mitchellette's sale of founders stock to his students violated the registration provisions of the federal securities laws.
During the course of the Commission's investigation, Mitchellette voluntarily returned all funds he raised from his students, and VENI voluntarily returned the proceeds of the preferred stock offering, less money already spent by the company in the course of business.
Simultaneous with the filing of the Complaint, Mitchellette consented, without admitting or denying the allegations, to the issuance of a final judgment permanently enjoining him from committing future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and permanently barring him from acting as an officer or director of a public company. Based on Mitchellette's demonstrated inability to pay, the Commission declined to impose civil penalties.