SEC Charges Telemarketers With Fraudulent Securities Offerings

The Securities and Exchange Commission has charged a virtual reality technology company, its principals, and three former sales agents for conducting a fraudulent offering scheme that garnered investors primarily through telemarketer sales out of a boiler room in the company’s Delray Beach, FL. offices.

The SEC alleges that 3001 AD, LLC and Jimmy L. Barker, Robert J. Ladrach, Marc S. Rifkin, Ronald B. Bowsky, Jack Maddock and Michael Weidgans raised approximately $20 million from about 500 investors nationwide through fraudulent offerings of securities which touted the company’s virtual reality products, including a helmet system tracking players’ head movements to provide a 360-degree view in a video game.

According to the SEC, investors were told in the offering materials that the sales commissions paid on their investments were dramatically less than they actually were. The company also stressed plans for an initial public offering to its investors, while no steps were actually being taken toward going public, the SEC claimed. And prestigious business relationships between 3001 AD and Microsoft, Apple, and former Disney CEO Michael Eisner were touted to investors even though such relationships never existed, according to the SEC’s claims.

“3001 AD promised a profitable future from the marketing and sale of its products, but instead was merely creating its own virtual reality for investors,” said Glenn Gordon, Associate Director of the SEC’s Miami Regional Office, in a statement. “These offerings were laced with false claims of an ever-pending IPO and high-profile business relationships, and investors were unaware that their money was being used to pay boiler room commissions of up to forty percent of every dollar they contributed.”

The SEC’s complaint, filed in U.S. District Court for the Southern District of Florida, charged 3001 AD, LLC; its principals Jimmy L. Barker, Robert J. Ladrach and Marc S. Rifkin; and three former sales agents Ronald B. Bowsky, Jack W. Maddock and Michael J. Weidgans with making several material misrepresentations and omissions to investors in the offer and sale of units of 3001 AD and a myriad of general partnerships.

According to the SEC’s complaint, the defendants avoided telling investors that 3001 AD and the partnerships paid up to five times more than the 8 percent sales commissions disclosed in offering materials. In telephone sales calls, Web site postings, press releases, personal meetings, and conference calls, they repeatedly failed to disclose the excessively large sales commissions to investors.

The SEC alleged that the defendants (with the exception of Maddock) repeatedly misrepresented to investors for several years that 3001 AD was preparing to conduct an IPO in the near future, telling investors different versions of the purported pending IPO story. According to the SEC, the defendants issued a press release titled “We’re Going Public” that falsely identified progress with the SEC as well as “NASDAQ acceptance” of 3001 AD. However, 3001 AD was never prepared to conduct an IPO, according to the SEC’s complaint.

The company did not take any steps to draft and file the required registration statement for an IPO, and did not collect the information required for a registration statement, according to the SEC. 3001 AD never had any audited financial statements, even though two years of audited financial statements are required to conduct an IPO. The company also lacked the necessary capital to conduct an IPO, the SEC said.

The SEC further alleged that Barker, Ladrach, Rifkin, and Weidgans misrepresented 3001 AD’s business relationships while soliciting investors. For instance, 3001 AD, Barker, and Ladrach touted that their company would soon be signing contracts with Microsoft when in fact Microsoft expressed no interest in 3001 AD’s technology or in contracting with them. Similarly, these defendants and Rifkin misstated that the company’s purported negotiations with Microsoft had triggered Apple’s interest in a virtual reality game system for use with its Macintosh computer and the iPod. This was impossible because, according to the SEC, Apple had not even received the product that they claimed Apple was “reviewing” at that time.

Additionally, Barker, Ladrach, Rifkin, and Weidgans falsely claimed 3001 AD was the target of a possible buyout by Michael Eisner. They touted purported meetings and promising negotiations; however Eisner had in fact already rejected their attempts at forging a business relationship.

The SEC’s enforcement action charged 3001 AD and the defendants with violating 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, and charges Barker, Rifkin, Bowsky, Maddock and Weidgans with violating Section 15(a) of the Exchange Act. The SEC is seeking permanent injunctions, disgorgement and financial penalties against all defendants and the imposition of officer and director bars against Barker, Ladrach, and Rifkin.

The U.S. Attorney’s Office for the Southern District of Florida conducted a parallel investigation of this matter, and has filed charges including wire fraud and mail fraud against 3001 AD’s principals, sales agents, and others for their involvement in this scheme.