Business & Practice

Four Attorneys Fraudulently Registered Stock Sales, SEC Says (1)

June 27, 2019, 7:28 PMUpdated: June 27, 2019, 8:20 PM

Four attorneys and a real estate agent are the latest to face an SEC suit over alleged fraud involving PixarBio Corp. stock.

Henry B. Sargent, Frederick M. Mintz, Alan P. Fraade, Joseph J. Tomasek, and Patrick Giordano ran a “fraudulent and deceptive scheme to disguise public stock sales by corporate affiliates” to evade registration requirements, according to a Securities and Exchange Commission complaint filed June 27 in the U.S. District Court for the District of Massachusetts.

"[B]ased upon the SEC’s prior allegations, we believe we have not violated any laws or done anything wrong and will vigorously oppose the SEC’s action,” Fraade told Bloomberg Law. He and Mintz hadn’t yet had time to review the complaint, he said.

“The SEC’s decision to proceed with this enforcement action before it had gathered all the relevant facts threatens to compromise an innocent person and is an unfortunate misuse of Government resources,” Peter R. Ginsberg, one of Sargent’s attorneys, said. Ginsberg is a partner at Sullivan & Worcester LLP.

Sargent created BMP Holdings LLC in 2014 and issued stock to friends and family as part of a “charade,” the SEC said. He hired Tomasek to put together a “materially false and misleading” form which he filed with the SEC to allow the shareholders to sell their stock to the public, the agency said. The form allegedly claimed the shareholders weren’t affiliated with BMP, even though they were.

An attorney for Tomasek denied the allegations. “Tomasek has built a solid, unblemished reputation based on professionalism, integrity and ethical conduct” throughout his “more than 40 years as a practicing attorney,” Jason C. Moreau, a partner at Pierce Atwood LLP, said. The SEC’s complaint “contains a number factual inaccuracies as to Mr. Tomasek and it is unfortunate that the Commission has decided to include him in this matter.”

PixarBio’s then-CEO, Francis Reynolds, hired Giordano, a real estate agent who runs a website advertising shell corporation sales, to find a shell company to use as part of another alleged scam, the SEC said. Giordano allegedly suggested BMP and recommended that Reynolds hire Mintz and Fraade to handle the acquisition. The Justice Department indicted Reynolds and two PixarBio investors in 2018.

After the merger, Mintz and Fraade allegedly helped Giordano and another investor “evade the restrictions on selling their PixarBio stock to the public,” the SEC said. Sargent made about $631,000 from the unregistered sales of restricted stock, while Giardano took in around $117,000, the complaint said.

Causes of Action: Securities Act §17(a)—Employing a device, scheme, or artifice to defraud, making untrue statements or omitting material facts, or engaging in a transaction, practice, or course of business which operates as a fraud in an interstate offering or sale of securities (15 U.S.C. §77q(a)); Exchange Act §10(b)—Using a manipulative or deceptive device or contrivance for a securities transaction in violation of SEC rules (15 U.S.C. §78j); SEC Rule 10b-5—Employing a device, scheme, or artifice to defraud, making untrue statements or omitting facts, or engaging in any act, practice, or course of business which operates as a fraud or deceit (17 C.F.R. §240.10b-5); Securities Act §5(a)—Sale of unregistered securities (15 U.S.C. §77e(a)).

Relief: Permanent injunction prohibiting all five defendants from violating federal securities laws; disgorgement with interest; civil fines; penny stock bar against all five defendants; permanent injunction prohibiting Mintz, Fraade, and Tomasek from “providing professional legal services to any person or entity in connection with the offer or sale of securities pursuant to, or claiming, an exemption” from registration requirements.

Response: Giordano’s attorney wasn’t listed on the docket and couldn’t be identified for comment.

The case is SEC v. Sargent, D. Mass., No. 19-cv-11416, complaint filed 6/27/19.

(Updated with response from Tomasek's attorney.)

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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