U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23373 / September 30, 2015
Securities and Exchange Commission v. David P. Godwin and Anthony G. Roth, Civil Action No. 15-cv-01414 (C.D. Ill., filed September 30, 2015)
SEC Charges Executives for Defrauding Investors in Financial Fraud Scheme
The Securities and Exchange Commission announced that it charged two former executives of ContinuityX Solutions, Inc. with fabricating nearly all of the company's revenue and enriching themselves in the process. Metamora, Illinois-based ContinuityX was a publicly traded company that claimed to sell Internet services to businesses. The company is now in bankruptcy and its former CEO was criminally charged last year with six counts of wire fraud for conduct related to the SEC's allegations.
The SEC's complaint, filed in federal court in Illinois, charges ContinuityX's former CEO David P. Godwin and former chief financial officer Anthony G. Roth with engineering a scheme to inflate the company's revenues. ContinuityX reported revenues of $27.2 million from April 2011 to September 2012, but the complaint alleges that 99 percent of it came from fraudulent and fictitious sales. Godwin and Roth used the allegedly fraudulent SEC filings to raise millions of dollars from investors in a private offering of ContinuityX securities, the complaint further alleges.
According to the complaint, Godwin and Roth enriched themselves through their allegedly fraudulent conduct, as Godwin received $1.3 million in compensation from ContinuityX and Roth received $351,800 in compensation and $456,098 of profits from sales of ContinuityX stock.
In one alleged scheme, Godwin and Roth approached companies to become a straw buyer of services from Internet providers, promising them they would not have to pay for the services and would receive a portion of the commissions paid to ContinuityX by the providers. ContinuityX allegedly reported the commissions from the sham sales as revenue in its quarterly and annual reports. In another scheme, Godwin is alleged to have fabricated service orders and to have caused ContinuityX to recognize revenue from these fake transactions.
The SEC's complaint filed in federal court in Peoria, Illinois, charges Godwin and Roth with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 13a-14, 13b2-1, and 13b2-2. The complaint also alleges that Godwin and Roth aided and abetted ContinuityX's violations of Sections 13(a), and 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, and 13a-13.
The SEC's complaint seeks permanent injunctive relief; disgorgement, plus prejudgment interest thereon; civil penalties; an officer and director bar under Section 21(d)(2) of the Exchange Act; and an order requiring the defendants to reimburse ContinuityX pursuant to Section 304 of the Sarbanes-Oxley Act of 2002.
ContinuityX, in a separate administrative action, agreed to an order revoking the registration of its securities.
The SEC's investigation, which is continuing, has been conducted by Justin M. Delfino and Ann M. Tushaus of the Chicago Regional Office under the supervision of Assistant Regional Directors Steven L. Klawans and Scott J. Hlavacek. Daniel J. Hayes and Alyssa Qualls will lead the SEC's litigation efforts.
