Court Enters Final Judgment Against Microcap Executive and Co-Defendant Involved in Fraudulent Scheme
Litigation Release No. 24123 / April 30, 2018
Securities and Exchange Commission v. Christopher R. Esposito, et al., No. 16-CV-10960 (D. Mass. filed May 26, 2016)
The Securities and Exchange Commission announced that on April 30, 2018, 2018, the U.S. District Court for the District of Massachusetts entered a default judgment in an ongoing enforcement action against Christopher R. Esposito, the owner and Managing Director of Lionshare Ventures, LLC (Lionshare), in a case involving an alleged scheme to defraud investors by misappropriating investor funds and concealing the ownership and control of a publicly traded company. The court also entered a final judgement by consent on December 11, 2017, against another defendant in the case, Rene Galizio.
The SEC's complaint, filed on May 26, 2016, alleged a two-part scheme involving Esposito, Lionshare, and several co-defendants. First, Esposito raised more than $550,000 in investor funds through an unregistered offering of Lionshare securities and then misappropriated $375,000 for his personal benefit. According to the complaint, Esposito spent almost $300,000 of the funds raised on personal expenses and used $75,000 to acquire control of a Massachusetts-based, publicly traded company, Cannabiz Mobile, Inc., by purchasing all of its convertible debt.
In the second phase of the scheme, the SEC's complaint alleged that Esposito and Lionshare, together with co-defendant Anthony Jay Pignatello of Manhattan Beach, California, concealed Esposito and Lionshare's de facto control of Cannabiz and a large percentage of Cannabiz's securities in order to evade SEC Rule 144, which limits securities sales by certain company affiliates, such as control persons. Esposito allegedly did this by, among other things, installing co-defendant James Gondolfe as the sole officer and director of Cannabiz - even though Esposito and Lionshare secretly controlled the company - to make false statements in Cannabiz's public filings with the SEC and other documents. According to the SEC's complaint, Esposito paid third-party stock promoters to tout Cannabiz stock in order to increase its price and trading volume. Both during and after this promotional campaign, Esposito sold significant amounts of Cannabiz convertible debt to others for a profit of almost $304,000. Esposito, Pignatello, and Galizio also allegedly sold millions of shares of Cannabiz stock directly into the public market for a profit.
The final judgment, which was entered against Esposito by default by the Honorable Allison D. Burroughs of the U.S. District Court for the District of Massachusetts, enjoins Esposito from future violations of Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgment also orders Esposito to pay, on a joint and several basis with Lionshare, disgorgement and pre-judgment interest in the total amount of $1,107,413 and a civil penalty of $160,000. Additionally, the final judgment against Esposito bars him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, and permanently bars him from participating in an offering of a penny stock.
On December 11, 2017, the Court entered a final judgment by consent against Galizio. That judgment enjoined Galizio from future violations of Section 5 of the Securities Act and ordered her to pay disgorgement of $22,500 and a civil penalty of $7,500. The judgment also barred Galizio from participating in an offering of a penny stock.
The SEC's litigation in this matter continues against Pignatello.