SEC Charges Company President in Fraudulent Microcap Scheme
Litigation Release No. 25519 / September 23, 2022
Securities and Exchange Commission v. Christopher P. Vallos, No. 1:22-cv-11613 (D. Mass. filed September 23, 2022)
The Securities and Exchange Commission today charged Ohio resident Christopher P. Vallos, a former President and Chief Executive Officer of a publicly traded microcap company, with engaging in a fraudulent scheme to sell his stock to the public while concealing his identity and control over the company. Vallos previously agreed to plead guilty to criminal charges for the same conduct and was recently sentenced to 24 months in prison. He has agreed to settle the SEC's action on terms that will include, among other things, bars from serving as an officer or director of a public company and from participating in penny stock offerings.
The Commission's complaint alleges that, as President and CEO of the company, Ohio-based Gold Lakes Corp., Vallos had the ability to direct its management and policies, and through a series of sham transactions and misleading statements to market intermediaries concealed his identity in order to appear to be just an ordinary investor seeking to sell his shares. The complaint alleges that the federal securities laws require that, before selling stock, a person with the ability to control a company must comply with certain registration requirements, sale restrictions, and disclosure obligations. According to the complaint, during the course of the scheme Vallos made false and misleading statements to a lawyer, transfer agent, and broker-dealer all designed to conceal the fact that the true owner of the Gold Lakes shares was also its President and CEO. The complaint further alleges that Vallos sold his shares for a profit and that his scheme deprived investors of the benefit of the disclosures required by federal securities laws.
Vallos was charged criminally by the U.S. Attorney's Office for the Northern District of Ohio for his involvement in the scheme and his attempt at a similar scheme with a second microcap company. On August 19, 2022, after pleading guilty to one count of securities fraud in United States v. Vallos, No. 22-CR-00010-SL (N.D. Ohio), Vallos was sentenced to a term of incarceration of 24 months, three years of supervised release, and a $25,000 punitive fine.
The SEC's complaint, filed in the U.S. District Court for the District of Massachusetts, charges Vallos with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Vallos consented to the entry of a final judgment permanently enjoining him from further violations of the charged provisions, permanently barring him from participating in an offering of penny stock, and imposing an officer and director bar. The settlement is subject to court approval.
The SEC's investigation was conducted by J. Lauchlan Wash, Trevor Donelan, Amy Burkart, and Amy Gwiazda of the SEC's Boston Regional Office. The SEC appreciates the assistance of the Cleveland Office of the FBI and the U.S. Attorney's Office for the Northern District of Ohio.