U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 21060 / May 27, 2009
Securities and Exchange Commission v. Pegasus Wireless Corporation, Jasper Knabb, and Stephen Durland, Case No. 09-2302 (BZ) (ND Cal. filed May 26, 2009)
SEC CHARGES WIRELESS COMPANY EXECUTIVES IN $30 MILLION STOCK DUMPING SCHEME
The Securities and Exchange Commission today announced the filing of securities fraud charges against Pegasus Wireless Corporation and two of its senior officers who defrauded investors by illegally selling hundreds of millions of Pegasus shares they secretly controlled and lying about the transactions in company filings.
The SEC alleges that former CEO Jasper Knabb of Anchorage, Alaska, and Little River, S.C., and former CFO Stephen Durland of West Palm Beach, Fla., together reaped more than $30 million through their securities law violations, using the funds to support their extravagant lifestyles including the purchase of homes, boats, and sports cars.
According to the SEC’s complaint, Knabb and Durland created Pegasus from a dormant shell company around 2005. They then touted several acquisitions in a series of press releases, causing Pegasus’ stock price to soar and briefly giving the company a market capitalization of more than $1.4 billion. Unbeknownst to investors, however, Knabb and Durland are alleged to have secretly controlled hundreds of millions of Pegasus shares through nominees, which they sold to individual investors and dumped on the open market through 2008. Pegasus saw its share price steadily decline to under a penny.
As alleged in the SEC’s complaint, Knabb and Durland accomplished their scheme by issuing hundreds of millions of shares to individuals and entities they controlled, including Knabb’s mother-in-law, his sister-in-law, his then-mistress, and an entity ostensibly managed by Knabb’s personal pilot. The nominees unloaded the shares and funneled millions of dollars to Knabb, Knabb’s wife, and Durland. Knabb and Durland reported none of these transactions in reports with the SEC, and instead falsely told investors they owned only minimal amounts of stock and received no compensation from Pegasus. The SEC further alleges that Knabb and Durland falsely claimed in numerous SEC filings that much of the stock was issued to satisfy a business debt, when in reality this “debt” was entirely fabricated through phony documentation. By February 2008, Pegasus had issued more than 75 percent of its total outstanding shares in this fraudulent manner. The forged documents and false SEC filings concealed the fact that Knabb and Durland were, in essence, printing shares and diluting the interests of innocent shareholders to enrich themselves.
The SEC’s complaint, filed in federal court in San Francisco, charges Pegasus, Knabb, and Durland with violating the antifraud provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Pegasus is also charged with violating the books-and-records requirements of Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, and 13a-13, and Knabb and Durland are charged with aiding and abetting Pegasus’ violations. All three defendants are charged with violations of the registration requirements embodied in Sections 5(a) and 5(c) of Securities Act. The SEC’s complaint also charges Knabb and Durland with falsifying Pegasus’ books and records in violation of Exchange Act Section 13(b)(5) and Rule 13b2-1, falsely certifying Pegasus’ quarterly and annual reports in violation of Exchange Act Rule 13a-14, and with stock ownership reporting violations under Section 16(a) of the Exchange Act and Rule 16a-3 thereunder. Finally, Durland is charged with making false statements to an accountant in connection with an audit in violation of Exchange Act Rule 13b2-2.
The SEC seeks injunctive relief and disgorgement from the defendants, as well as civil penalties and officer-and-director bars against Knabb and Durland. The SEC also seeks to recover assets from two relief defendants — Jasper’s wife Tammy Knabb, 41, also of Anchorage, Alaska, and Little River, S.C., and Aero-Marine, LLC, a Nevada entity secretly controlled by Knabb — who received money through the misconduct.