U.S. Securities and Exchange Commission
Litigation Release No. 21976 / May 24, 2011
Securities and Exchange Commission v. e-Smart Technologies, Inc., et al., Civil Action No. 1:11-cv-00896-JEB (United States District Court for the District of Columbia) (May 13, 2011)
SEC Charges e-Smart Technologies and Senior Executives with Securities Fraud
On May 13, 2011, the Securities and Exchange Commission (“Commission”) filed a civil action in the United States District Court for the District of Columbia against e-Smart Technologies, Inc. (“e-Smart”) and related individuals and entities, charging them with securities fraud and other violations of the federal securities laws. The Commission alleges, among other things, that e-Smart, its Chief Executive Officer, Mary A. Grace (“Grace”), and its Chief Technology Officer, Tamio Saito (“Saito”), each violated the anti-fraud provisions of the federal securities laws by making materially fraudulent statements to the public in e-Smart’s 2006 annual report filed with the Commission on October 24, 2007. In that filing, Grace and Saito falsely represented that e-Smart’s product—a multi-functional biometric identification verification system (also known as a “smart card”)—had certain technical capabilities that it did not actually possess and was ready for immediate deployment, when in fact it was not. The complaint further alleges that e-Smart and its CEO Grace issued a fraudulent press release on February 26, 2008, claiming that e-Smart had executed a contract with a well-known South Korean company for the sale of twenty million e-Smart “smart cards.” In actuality, the executed supply contract did not include any obligation on the part of the South Korean company to purchase even a single “smart card.”
Additionally, the complaint alleges that from approximately early 2005 through 2007, e-Smart, Grace, two related companies, IVI Smart Technologies, Inc. (n/k/a e-Smart Technologies International, Inc.) (“IVI”) and Intermarket Ventures, Inc. (“Intermarket”), and three stock promoters acting as unregistered broker-dealers, Kenneth A. Wolkoff (“Wolkoff”), George Sobol (“Sobol”), and Robert J. Rowen (“Rowen”), each violated the registration requirements of the Securities Act of 1933 (“Securities Act”) through unregistered stock offerings of approximately four hundred million shares of e-Smart stock, which generated tens of millions of dollars in ill-gotten gains.
The Commission’s complaint also alleges that e-Smart failed to make required periodic reports, failed to keep and maintain accurate books and records and failed to devise and maintain effective internal accounting controls. The complaint alleges that Grace aided and abetted these violations. The complaint further alleges that Grace and Saito violated the ownership reporting requirements for officers of a public company by failing to file reports of ownership and changes of ownership with the Commission, and that Grace violated the certification requirements for a principal officer of a public company by certifying false SEC filings.
The complaint further alleges that e-Smart violated Sections 5(a) and (c) of the Securities Act and Sections 10(b), 13(a), and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The complaint alleges that Grace violated Sections 5(a) and (c) of the Securities Act and Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5, 13a-14 and 16a-3 thereunder and that Grace aided and abetted violations of Section 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The complaint alleges that IVI, Intermarket, Wolkoff, Sobol and Rowen violated Sections 5(a) and (c) of the Securities Act, and Wolkoff, Sobol and Rowen also violated Section 15(a) of the Exchange Act. Finally, the complaint alleges that Saito violated Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder.
In its complaint, the Commission seeks a final judgment permanently enjoining the defendants from future violations of the foregoing provisions, ordering each defendant to disgorge all ill-gotten gains, plus prejudgment interest, ordering each defendant to provide an accounting of all monies received, ordering each defendant to pay civil penalties, barring Grace, Saito, Wolkoff, Sobol and Rowen from engaging in any offering of a penny stock, and barring Grace and Saito from serving as an officer or director of a public company.