U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23363 / September 25, 2015
Securities and Exchange Commission v. Taj Jerry Mahabub, GenAudio, Inc. and Astound Holdings, Inc., Civil Action No. 1:15-cv-02118 (D. Colo., filed September 25, 2015)
SEC Charges Colorado Audio Company and Its CEO with Fraudulent Stock Offerings
The Securities and Exchange Commission ("Commission") filed a civil injunctive action on September 25, 2015, in the United States District Court for the District of Colorado relating to the fraudulent offer and sale of stock in GenAudio, Inc. The Commission charged GenAudio, Inc. (“GenAudio”), a Colorado corporation, its corporate successor in interest, Astound Holdings, Inc. (“Astound”), a Delaware corporation, and GenAudio’s founder and chief executive officer, Taj Jerry Mahabub, a resident of Broomfield, Colorado, with the fraudulent and unregistered offer and sale of more than $6.8 million in GenAudio stock.
According to the Commission's complaint, from approximately March 2010 through April 2012, GenAudio raised more than $4.5 million in two private placements of its common stock based in large part on representations that Apple, Inc. (“Apple”) planned to acquire GenAudio or enter into lucrative licensing agreements to incorporate its technology across Apple’s products worldwide. The Commission’s complaint alleges that GenAudio and Mahabub told prospective investors that Apple’s senior management advocated acquiring GenAudio’s technology, and that a third party had valued GenAudio’s technology at more than $1 billion. However, the Commission alleges that in fact, GenAudio had only demonstrated its technology and had technical discussions with mid-level Apple personnel, none of whom had indicated that Apple was interested in a transaction with GenAudio. The Commission further alleges that during the scheme, Mahabub falsified documents and pocketed more than $2.3 million through his offer and sale of his personal stock in GenAudio.
The Complaint alleges that, based on this conduct, GenAudio and Mahabub violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Commission further alleges, in the alternative, that Mahabub is liable as a control person under Section 20(a) of the Exchange Act for GenAudio’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and that Mahabub aided and abetted GenAudio’s violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Finally, the Commission’s complaint alleges that as GenAudio’s successor in interest, Astound Holdings is liable for GenAudio’s fraudulent and unregistered stock offerings. The Commission's complaint seeks permanent injunctions, third-tier civil penalties, disgorgement plus prejudgment interest, and other relief against all of the defendants.