United States Securities and Exchange Commission

Litigation Release No. 18041 / March 18, 2003

Securities and Exchange Commission v. Wilmer Reid. Funderburk, Edward W. Reckdenwald and Todd Burk Priddy, Civil Action No. A:03-CA-162, (USDC/Western District of Texas)

On March 18, 2003, the Commission filed an insider trading and pump-and-dump case in federal court in Austin, Texas against the former CEO and the former president of BGI Inc. ("BGI"), an Austin company that operates charity donation slot machines. The Commission also named BGI's operations manager in its insider trading action. According to the Commission's complaint, the company touted in press releases, a Commission filing and a newsletter its increased revenues and business expansion without disclosing that many of its machines and bank accounts had been seized by Texas law enforcement authorities for allegedly violating the state's gaming laws. The Commission further alleges in its complaint that the defendants engaged in prohibited insider trading by selling BGI stock before BGI publicly disclosed the seizures, avoiding losses totaling about $562,000.

The defendants are:

• Wilmer Reid Funderburk, age 49 and a resident of Austin, Texas, who was the CEO and chairman of BGI during the relevant period. Funderburk was involved in drafting and issuing the misleading BGI press releases and newsletter. He was also responsible for reviewing and signing the false Commission filing on behalf of BGI. Funderburk sold 100,000 shares of his personally held BGI stock, generating over $436,000, before BGI publicly disclosed the seizures of its machines and machine proceeds;
   
• Edward W. Reckdenwald, age 37, formerly of Austin, Texas, who was BGI's president during the relevant period. Reckdenwald was also involved in drafting and issuing the misleading press releases and newsletter. He sold 20,000 of his personally held shares of BGI stock, generating over $56,000, before BGI publicly disclosed the seizures of its machines and machine proceeds; and
   
• Todd Burk Priddy, age 37, a resident of Austin, Texas, who is BGI's operations manager. Priddy was aware of the seizures of BGI's machines and proceeds, and was aware of BGI's failure to publicly disclose these facts, when he sold 29,000 shares of his BGI stock, generating over $90,000, at a price artificially inflated by the misleading press releases, newsletter and Commission filing.

The Commission alleges in its complaint that between October 2001 and January 2002, BGI, through Funderburk and Reckdenwald, issued misleading press releases and authorized a misleading Internet-based investor newsletter, and that Funderburk was responsible for BGI's filing with the Commission on November 15, 2001 a misleading quarterly report. The BGI press releases, newsletter and quarterly report were materially misleading because, while trumpeting BGI's ongoing revenue growth and business expansion, they contained no reference to recent seizures by Texas authorities — for BGI's possible violations of Texas gaming laws — of a substantial number of BGI's sweepstakes machines and proceeds derived from the machines. During this period, BGI's stock price increased from $0.89 per share to over $5 per share. Prior to publication of the suppressed information — while the BGI stock price was still inflated — Funderburk, Reckdenwald and Priddy sold their BGI stock, collectively avoiding market losses of approximately $562,000.

In its lawsuit, the Commission is seeking permanent injunctions, disgorgement of illegal trading profits with pre-judgment interest, and civil money penalties against Funderburk, Reckdenwald and Priddy for their fraudulent conduct in violation of 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, in addition, for Funderburk's aiding and abetting BGI's violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder in connection with BGI's misleading quarterly report. The Commission is also seeking officer and director bars against Funderburk and Reckdenwald, to prohibit them in the future from serving as officers or directors of any publicly traded company.

On March 18, 2003, the Commission issued a settled cease-and-desist order ("Order") against BGI in which the Commission finds that BGI violated Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13 thereunder [Admin. Proc. 3-11071], in connection with the materially misleading press releases, newsletter and quarterly report. Pursuant to the Order, BGI must cease and desist from committing or causing any violations and any future violations of the antifraud and reporting provisions of the federal securities laws. BGI neither admitted nor denied the findings in the Commission's Order.

The Commission thanks the Texas State Securities Board, the Texas Lottery Commission and the Bexar County District Attorney's Office for their assistance in this matter.

SEC Complaint in this matter

http://www.sec.gov/litigation/litreleases/lr18041.htm