SEC Charges Four Defendants in Connection with Fraudulent Scheme to Sell Public Company Stock
Litigation Release No. 25546 / September 30, 2022
Securities and Exchange Commission v. David Stephens et al., Civil Action No. 322-cv-01483-AJB-DEB (S.D. Cal. filed September 30, 2022)
The SEC today announced charges against Canadian resident David Stephens and California residents Donald Linn Danks, Jonathan Destler, and Robert Lazerus. According to the SEC's complaint, from at least 2014 to at least November 2018, Stephens, Danks, and Destler engaged in a deceptive scheme to sell publicly traded stock of Quebec-based Loop Industries, Inc. while concealing their ownership of Loop stock and connections with the company. The complaint alleges that Lazerus worked with the group to further the scheme by helping to increase demand for Loop stock by promoting it and brokering sales to a number of investors.
The SEC's complaint alleges that in 2015, Stephens obtained control of a large portion of Loop's stock and engaged in deceptive conduct to evade disclosure and reporting requirements under U.S. securities laws and conceal the amount of stock he controlled. The complaint alleges that between 2015 and 2018, Stephens held his Loop stock in the names of various nominee entities to hide from market participants, such as transfer agents and brokerage firms, that he owned significant amounts of Loop stock. As alleged, Stephens dumped the stock into the public U.S. securities markets to investors who were unaware of his ownership of a significant amount of Loop stock. Stephens allegedly also worked with Danks, who at the time was a member of Loop's board of directors, and Destler, a consultant to Loop, to sell Loop stock in private transactions using a network of entities owned and controlled by Danks and Destler. As part of the scheme, Danks and Destler allegedly made material misrepresentations to brokerage firms to conceal their connections to Loop. The complaint also alleges that Lazerus facilitated the fraud by soliciting investors to buy Loop stock in the public U.S. securities markets, including soliciting an elderly investor who invested millions of dollars in Loop at the same time that Stephens, Danks, Destler, and Lazerus sold Loop stock.
The SEC's complaint, filed in federal court in California, charges Stephens, Danks, Destler, and Lazerus with violating the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5(a) and (c) thereunder. The complaint also charges Danks and Destler with violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder and charges Lazerus with violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and penalties against all defendants. The SEC also seeks bars from serving as an officer or director of a public company against Stephens, Danks, and Destler and penny stock bars against all defendants. The complaint names as relief defendants Daniel Solomita, the President, Chief Executive Officer, and Director of Loop, and 8198381 Canada, Inc., a company Solomita controlled that allegedly received proceeds from fraudulent sales.
The SEC's case is being handled by Trevor Donelan, William Donahue, Alicia Reed, Amy Burkart, Kathleen Shields, and Amy Gwiazda in the SEC's Boston Regional Office, with assistance from Owen Granke and Marlee Miller of the SEC's Office of International Affairs.
The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of California, the Federal Bureau of Investigation, the Financial Industry Regulatory Authority, the Alberta Securities Commission, the British Columbia Securities Commission, the Hong Kong Securities and Futures Commission, the Malta Financial Services Authority, the Monetary Authority of Singapore, the Quebec Autorité des Marchés Financier, and the Royal Canadian Mounted Police.