MANHATTAN (CN) - Two men pocketed $12 million by lying about their Electronic Game Card company, driving the company's market cap to $150 million before it crashed to zero, the SEC claims in Federal Court.
The SEC sued Lee Cole and Linden Boyne, CEO and CFO, respectively, of their Electronic Game Card Inc., which they claimed sold credit-card sized electronic games. It claims they took investors for $12 million in ill-gotten gains from 2006 to 2009 before the scheme tumbled to zero.
The SEC also sued Kevin Donovan, who allegedly joined the scheme in 2009, claiming he was "aware of their fraud or recklessly disregarded it."
The fourth and final defendant, Timothy Quintanilla, CPA, "issued clean audit opinions for EGMI's year-end financial statements for 2006, 2007, and 2008, even though those statements were riddled with material misstatements and omissions," the SEC says.
Cole, 51, is a British citizen who lives in Spain and England.
Boyne, 69, lives in Surrey, England.
Donovan, 50, lives in Los Angeles.
Quintanilla, 44, lives in Laguna Niguel, Calif.
The complaint states: "Between 2006 and 2009, Lee Cole and Linden Boyne served, respectively, as the CEO and CFO of Electronic Game Card, Inc. ('EGMI'), a publicly owned company that purported to be a seller of credit-card sized electronic games. Throughout that period, Cole and Boyne repeatedly lied to the investing public about the company's operations and financial status.
"At Cole's and Boyne's direction, EGMI claimed that it owned a bank account worth over $10 million, held millions of dollars in investments, and had millions of dollars in annual revenue. In fact - and unbeknownst to investors - the bank account did not exist, most of EGMI's purported investments were in closely held entities affiliated with Cole and Boyne, and many of EGMI's purported contracts were phony. Cole and Boyne bolstered their lies by providing falsified documents to the company's outside auditors. As a result of its material misstatements, EGMI's outstanding common stock - which is now worthless - was once valued at over $150 million.
"Those misrepresentations and others like them were just part of a scheme that Cole and Boyne orchestrated through EGMI to reap approximately $12 million in unlawful gains. While they were making material misrepresentations to inflate EGMI's stock price, Cole and Boyne were also secretly funneling millions of shares of EGMI stock to Gibraltar-based entities they secretly controlled (the 'Gibraltar Entities') and directing the Gibraltar Entities to sell the shares. Proceeds of those sales were transferred to persons and entities associated with Cole and Boyne for their personal benefit or to EGMI itself."
The SEC seeks disgorgement, penalties and injunctions.
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