U.S. Securities and Exchange Commission
Litigation Release No. 18835 / August 18, 2004
SECURITIES AND EXCHANGE COMMISSION v. PETER WARREN AND EXO-BRAIN, INC. (FORMERLY E-BRAIN SOLUTIONS, LLC) Civil Action File No. 1:04-CV-2403 (N.D. Ga.).
SEC CHARGES PETER WARREN AND EXO-BRAIN, INC. WITH CONDUCTING FRAUDULENT, UNREREGISTERED OFFERINGS OF SECURITIES
The Securities and Exchange Commission (the "Commission") announced that on August 18, 2004, it filed a complaint in the United States District Court for the Northern District of Georgia against Peter Warren and Exo-Brain, Inc. ("Exo-Brain"), which was formerly known as E-Brain Solutions, LLC ("E-Brain LLC"). The complaint alleges that in 2000 and 2001, the defendants raised up to $12.4 million from investors in a series of fraudulent, unregistered offerings of securities. At the time of the conduct alleged in the complaint, Warren was a part time resident of, and Exo-Brain was located in, Chattanooga, Tennessee. Warren controlled E-Brain LLC and Exo-Brain.
The Commission's complaint alleges that the defendants fraudulently offered and sold securities to investors at a time when no registration statement was filed with the Commission in connection with the offers and sales, and no exemption from registration existed. The complaint alleges that in offering documents, the defendants falsely claimed to have developed a working prototype that could be used to make computers more user friendly, by enabling a person to operate a computer with voice command, and in numerous foreign languages. The defendants also falsely represented that the company had built a launch product or commercially available product when no such product existed, and also misrepresented, among other things, the company's financial situation.
The complaint alleges that the offerings of E-Brain LLC should be integrated into a single unregistered offering because, in part, the offerings did not cease for more than a six month period of time, the sales of securities by E-Brain LLC all shared the same purpose-to fund the software development business controlled by Warren, and E-Brain LLC was involved in a single plan of financing. The complaint further alleges, for several reasons, that the offerings of the successor company, Exo-Brain, should be integrated with the earlier offerings of E-Brain LLC, which were not exempt from the registration requirements of the Securities Act.
The complaint alleges that by their conduct, the defendants violated Sections 5(a), 5(c) 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 Commission seeks, with respect to each defendant, permanent injunctions, accountings, disgorgement, prejudgment interest and civil penalties. The Commission also seeks an officer and director bar against defendant Warren.