U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18842 / August 23, 2004
Accounting and Auditing Enforcement
Release No. 2084/ August 23, 2004
SECURITIES AND EXCHANGE COMMISSION v. Piranha, Inc., et al., Civil Action No. 3 :04-CV-1829-N, USDC, NDTX (Dallas Division)
SEC Sues Piranha, Inc. and Its Former CEO and CFO for Accounting Fraud and Market-Manipulation Scheme
The Securities and Exchange Commission filed a civil lawsuit on August 23, 2004 in federal district court in Dallas, Texas, alleging an accounting-fraud and market-manipulation scheme involving the stock of Piranha, Inc., a development-stage technology company formerly traded on the OTC Bulletin Board. The SEC alleges that the scheme was orchestrated by Piranha's former CFO and principal shareholder Richard S. Berger, 70, of Chicago, Illinois, and the company's former CEO Edward W. Sample, 53, of Plano, Texas.
According to the SEC's complaint, Piranha issued numerous misleading press releases, during 2000 and 2001, presenting the company as a promising software-technology company with the potential for huge earnings when, in truth, the company never developed a commercially marketable product and generated virtually no revenue. Piranha is also alleged to have filed false reports with the SEC that materially overstated the value of the company's principal asset, a mathematical algorithm from which the company intended to develop various software products. These reports also failed to disclose and wrongly accounted for $675,000 that Berger allegedly misappropriated from the company. During the scheme, Piranha's stock price reached $65 per share, giving the company a market capitalization of over $596 million within just four months of its inception. The complaint also alleges that Berger profited from the scheme by selling more than $1.5 million of Piranha shares individually and through his wife, Linda A. Shaughnessy, of Chicago, Illinois, who acted as his nominee in selling the shares.
The SEC's complaint alleges that Piranha, Berger, and Sample violated the anti-fraud provisions of the federal securities laws found in Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5; that Berger violated Section 17(a) of the Securities Act of 1933; that Piranha, aided and abetted by Berger and Sample, violated the issuer-reporting and internal-controls provisions found in Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13; that Berger and Sample violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1, which prohibit falsifying books and records of SEC reporting companies; and that Berger violated Exchange Act Rule 13b2-2 by making false statements to an accountant.
The SEC is seeking permanent injunctions against Piranha, Berger, and Sample, civil penalties and officer-and-director bars against Berger and Sample, and disgorgement plus prejudgment interest against Berger. The SEC also named Shaughnessy as a relief defendant, solely for the purpose seeking disgorgement of the proceeds from her stock sales. Finally, without admitting or denying the allegations in the complaint, Sample consented to the entry of a permanent injunction; a five-year officer-and-director bar; and a $25,000 civil penalty. Sample's settlement is subject to Court approval.
SEC Complaint in this matter