U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19407 / September 29, 2005
Securities and Exchange Commission v. Gary L. Valinoti, Civil Action No. 1:05CV01922 (D.D.C.) (JR)
SEC Sues Former CEO and President of Jag Media Holdings, Inc. for Making Unregistered Sales and Transfers of Securities
On September 29, 2005, the Commission filed a civil injunctive action in the United States District Court for the District of Columbia against Gary L. Valinoti, the former CEO, president and chairman of the board of directors of Jag Media Holdings, Inc. ("Jag Media"), for making unregistered sales and transfers of securities of the company in violation of Section 5 of the Securities Act of 1933 ("Securities Act").
The Commission's complaint alleges that a privately-held company, of which Valinoti was an officer, reverse merged with a publicly-traded shell company in March 1999 to become JagNotes.com (subsequently renamed Jag Media). The complaint further alleges that an officer of the publicly-traded shell company arranged for 250,000 shares of the shell company to be sold to Valinoti in connection with the merger. According to the complaint, the sale of 250,000 shares to Valinoti was not registered with the Commission, as required under Section 5 of the Securities Act.
The Commission's complaint further alleges that Valinoti improperly realized $1.83 million by selling 130,000 of his 250,000 shares on the Nasdaq over-the-counter bulletin board ("OTCBB") between March and April 1999. The complaint also alleges that, between April and June 1999, Valinoti: (i) transferred 112,000 of his 250,000 shares as consideration for an ownership interest in another company; and (ii) transferred an additional 6000 shares to a public relations firm as compensation for services rendered to JagNotes.com. The sales and transfers for value, the complaint alleges, were not registered with the Commission, as required under Section 5 of the Securities Act. According to the complaint, within one year of having received the 118,000 shares from Valinoti, the transferees subsequently sold them on the OTCBB for approximately $1.1 million.
Without admitting or denying the allegations of the complaint, Valinoti agreed to settle the Commission's charges by consenting to the entry of a final judgment that would permanently enjoin him from violating Section 5 of the Securities Act and hold him liable to disgorge approximately $2.9 million in illicit gains and to pay $1.39 million in pre-judgment interest thereon. In partial discharge of approximately $571,700 of Valinoti's $2.9 million disgorgement obligation, the final judgment would also order Valinoti to: (i) pay $50,000 in cash; (ii) direct the cancellation of his existing holdings of Jag Media securities, valued at approximately $421,700 for settlement purposes; and (iii) relinquish his existing options to purchase shares of the company, which were granted to him by Jag Media and are valued at approximately $100,000 for settlement purposes.