SEC Charges Penny Stock Company Executives in New Jersey With Issuing False Press Releases to Inflate Stock Price

The Securities and Exchange Commission today charged father-and-son executives at a New Jersey-based penny stock company for issuing false and misleading press releases while secretly selling thousands of their own stock shares into the market.  They agreed to pay nearly $325,000 and accept officer-and-director bars to settle the SEC’s charges.

Conolog Corporation’s public filings state that it manufactures communications equipment primarily for use by electric utilities, fiber optic service providers, and the military.  The SEC alleges that Conolog issued three consecutive press releases in early 2010 with distorted information at the behest of chairman and then-CEO Robert Benou with assistance from his son and company president Marc Benou.  Among the company’s mischaracterizations were that Conolog had secured $1.9 million in new equipment orders when, in fact, only $50,000 worth of new orders had been received at the time.  Conolog also created the misimpression that it had developed new fiber optic technology that was fully vetted and ready for commercial use and sale.  Marc Benou was quoted saying it “surpassed our expectations in field tests” when in reality there had been no independent third-party testing as implied in the press release.  The “testing” was merely an in-house demonstration of the product.

“Information released by a company into the marketplace must be truthful and substantiated so investors can make well-informed trading decisions,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “The Benous caused Conolog Corporation to issue press releases with false and misleading information that was used to promote the stock to unwitting investors.”

According to the SEC’s complaint filed in federal court in Newark, N.J., Robert Benou hired a public relations firm to promote Conolog’s stock using the false and misleading statements from the press releases.  The promotional efforts significantly increased the company’s stock price and trading volume, and Robert and Marc Benou made combined profits of more than $81,000 through undisclosed sales of some of their stock holdings at the artificially inflated prices.  They also each violated the federal securities laws requiring company insiders to disclose information about their holdings and transactions in company stock so other investors are aware of their moves. 

“Officers and directors of public companies must promptly report their own purchases and sales of company stock so the marketplace has the benefit of knowing what insiders are doing with their shares,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office.  “Robert and Marc Benou ignored their responsibilities to shareholders as they bought and sold Conolog stock over the years without informing investors about their transactions on a timely basis.”

The SEC’s complaint charges Conolog Corporation and the Benous with violating the antifraud provisions of the federal securities laws.  The complaint charges Robert and Marc Benou with violating securities law provisions requiring officers and directors of public companies to report their transactions in the company’s stock within two business days, and requiring all owners of more than 5 percent of a company’s stock to timely report the size of their holdings and any material changes to them.

Robert Benou agreed to settle the charges without admitting or denying the allegations by paying $77,490 in disgorgement of illegal profits made from selling Conolog stock as the misleading press releases were issued.  He also must pay prejudgment interest of $12,400 and a penalty of $177,490, and will be permanently barred from acting as an officer or director of a public company or participating in penny stock offerings.  Marc Benou agreed to settle the charges by paying disgorgement of $4,191 plus prejudgment interest of $671 and a penalty of $51,250.  He will be barred for at least two years from acting as an officer or director of a public company or participating in penny stock offerings.  The settlement is subject to court approval.

The SEC’s investigation has been conducted by Justin P. Smith and George N. Stepaniuk of the New York office and supervised by Mr. Wadhwa.