U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21515 / May 5, 2010
Accounting and Auditing Enforcement Release No. 3131 / May 5, 2010
Securities and Exchange Commission v. Spongetech Delivery Systems, Inc., RM Enterprises International, Inc., Steven Y. Moskowitz, Michael E. Metter, George Speranza, Joel Pensley and Jack Halperin, Civil Action No. 10-CV-2031(DLI) (E.D.N.Y.) (filed May 5, 2010)
SEC Charges Spongetech Delivery Systems, Inc., its Senior Officers, and Others for a "Pump and Dump" Scheme Involving Fictitious Customers and Sales
The Securities and Exchange Commission ("Commission") filed today a civil injunctive action in the United States District Court for the Eastern District of New York against Spongetech Delivery Systems, Inc. ("Spongetech"), affiliated company RM Enterprises International, Inc. ("RM"), Chief Executive Officer Michael Metter ("Metter"), Chief Financial Officer, Chief Operating Officer, Chief Accounting Officer and Secretary Steven Moskowitz ("Moskowitz"), Jack Halperin ("Halperin") and Joel Pensley ("Pensley"), two of Spongetech's former attorneys, and George Speranza ("Speranza"), a stock promoter, for their roles in a massive pump and dump scheme.
The Commission's complaint alleges that:
Beginning as early as April 2007, and continuing to the present, Metter, Moskowitz, and Spongetech engaged in a scheme to increase demand illegally for, and profit from, the unregistered sale of publicly-traded stock in Spongetech, a company that sells soap-filled sponges. Metter, Moskowitz, and Spongetech accomplished this by, among other things, "pumping" up demand for Spongetech stock through false public statements about non-existent Spongetech customers, bogus sales orders, and phony revenue. They also repeatedly and fraudulently understated the number of Spongetech's outstanding shares in press releases and public filings. The purpose of flooding the market with false public information was to fraudulently inflate the price for Spongetech shares so Metter, Moskowitz, and Spongetech could then "dump" the shares by illegally selling them to the public through affiliated entities in unregistered transactions.
Metter, Moskowitz, and Spongetech illegally distributed approximately 2.5 billion Spongetech shares in unregistered transactions through RM Enterprises and other affiliates, which acted as conduits for Metter, Moskowitz, and Spongetech to distribute restricted shares in unregistered transactions to the public. Metter, Moskowitz, Spongetech, and RM Enterprises used false and baseless attorney opinion letters rendered by Pensley and by Halperin to distribute shares of Spongetech to the public. Pensley and Halperin made false or misleading statements in their attorney opinion letters to Spongetech's transfer agents who then improperly removed the restrictive legends from Spongetech shares. Metter, Moskowitz, and Spongetech also used false and misleading attorney opinion letters, forged in Pensley's name and in the name of a fictitious lawyer, David Bomart, which Moskowitz transmitted and caused to be transmitted to Spongetech's transfer agents.
Speranza participated in the fraud by, among other things, creating internet websites and virtual office space for the fictitious customers with which Spongetech claimed to be doing millions of dollars of business so that actual or prospective shareholders would believe the customers were legitimate. Metter, Moskowitz, and Spongetech also spent portions of their illicit profits to advertise with professional sports teams and events to support their claims that Spongetech was prosperous, such as highly visible sponsorship deals with professional teams in Major League Baseball, the National Football League, the National Basketball Association, the National Hockey League, and the United States Tennis Association.
The Commission seeks preliminary and permanent injunctions against Spongetech enjoining it from violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-13, 15d-1, 15d-11, and 15d-13; and RM Enterprises enjoining it from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.
The Commission also seeks preliminary and permanent injunctions against Metter and Moskowitz enjoining them from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, Exchange Act Rules 10b-5, 13b2-1, 13b2-2 (Moskowitz only), and 15d-14, and Section 304 of the Sarbanes-Oxley Act of 2002, from aiding and abetting Spongetech's violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Exchange Act Rules 12b-20, 13a-13, 15d-1, 15d-11, and 15d-13; enjoining Speranza from violating Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and from aiding and abetting violations of Sections 10(b) of the Exchange Act and Exchange Act Rule 10b-5; and enjoining Pensley and Halperin from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5.
The Commission further seeks civil penalties, disgorgement with prejudgment interest of all ill-gotten gains, and accountings from all defendants; asset freezes against Spongetech, RM Enterprises, Metter and Moskowitz; conduct-based bars against Halperin and Pensley; officer and director bars against Metter and Moskowitz; penny stock bars against Metter, Moskowitz, Speranza, Pensley and Halperin; as well as forfeiture proceedings against Metter and Moskowitz pursuant to Section 304 of the Sarbanes-Oxley Act of 2002.
Today, the United States Attorney's Office for the Eastern District of New York announced that it had arrested Metter and Moskowitz for conspiracy to commit securities fraud and obstruction of justice. The Commission acknowledges the assistance and cooperation in this investigation of the U.S. Attorney's Office for the Eastern District of New York, the Federal Bureau of Investigation, the Internal Revenue Service, and the Financial Industry Regulatory Authority.
The Commission's investigation is continuing.
See Also: SEC Complaint