Jeffrey C. Mack and Lawrence C. Blaney

SEC Obtains Final Judgments Against Two Former Officers in Accounting Fraud

Litigation Release No. 25105 / June 2, 2021

Securities and Exchange Commission v. Jeffrey C. Mack and Lawrence C. Blaney, Civil Action No. 19-cv-918 (PAM/ECW) (D. Minn. Filed April 3, 2019)

On June 1, 2021, the United States District Court for the District of Minnesota entered final consent judgments against two former executives of Digiliti Money Group, Inc., a now-defunct financial technology firm.

The SEC's complaint, filed on April 3, 2019, alleged that, between September 2016 and July 2017, Jeffrey C. Mack, Digiliti's then CEO, and Lawrence C. Blaney, Digiliti's then VP of Sales, induced Digiliti's largest customer into signing sales contracts worth more than $1.8 million by covertly entering into a series of undisclosed side letters with favorable terms for the customer. The side letters allegedly gave the customer an unconditional right to cancel the contracts in the future, a contractual term which would preclude revenue recognition under generally accepted accounting principles (GAAP). According to the complaint, Mack and Blaney concealed the side letters from Digiliti's finance and accounting personnel, Board of Directors, and external auditor and, as a result, Digiliti improperly recognized revenue on the sales in the third and fourth quarters of 2016 and the first quarter of 2017. During this same period, Digiliti raised more than $18 million from investors.

Without admitting or denying the allegations of the complaint, Mack and Blaney consented to the entry of final judgments enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5thereunder, the books and records provisions of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and from aiding and abetting any violations of the books and records and reporting provisions of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The final judgment against Mack also enjoins him from violating the books and records and reporting provisions of Rules 13a-14 and 13b2-2 of the Exchange Act. In addition, Mack and Blaney are both barred from serving as an officer or director of any public company. The final judgments order Mack to pay $71,341.45 in disgorgement and prejudgment interest and a $195,047 civil penalty and Blaney to pay $35,670.73 in disgorgement and prejudgment interest and a $160,000 civil penalty.

The SEC's investigation was conducted by Kristopher S. Heston and supervised by Amy S. Cotter in the Chicago Regional Office. Doressia L. Hutton, Jonathan S. Polish, John E. Birkenheier and Mr. Heston led the litigation.