(CN) - A former energy executive must face charges that he committed microcap fraud by allegedly doubling the value of his company in statement to regulators, a Chicago federal judge ruled.
High Velocity Alternative Energy Corporation specializes in refining and blending petroleum products for the automotive and manufacturing industries. Its product line relies on recycled spent oils and glycols.
With Richard Carter serving as president and CEO in March 2008, High Velocity allegedly told the Securities and Exchange Commission that it had landed two large contracts to supply automotive products.
Though these contracts did not actually exist, the announcement boosted High Velocity's reputation, according to an SEC complaint. The company's stock price allegedly rose over 100 percent and 25 percent, respectively, on the days following two separate bogus press releases.
The SEC claims Carter, in his capacity as CEO, reviewed and approved both press releases knowing that they were false, and that he tried to sell personal High Velocity stock after the news of the first nonexistent contract hit the market.
In a motion to dismiss, Carter said the SEC had failed to adequately allege that he, rather than the corporate attorney and director who directly wrote the press releases, "made" the statements.
U.S. District Judge Robert Gettleman disagreed, saying Carter's relationship to a press release author is analogous to a speaker and his speechwriter. "Like a 'speaker,' defendant may not have authored the contents of the press releases but was made aware of them and knew that he would be held accountable," the Nov. 28 decision states.
"In addition, the quotation attributed to defendant in the first press release is a strong indicator that defendant 'made' the statement regarding that false contract," Gettleman added.
Carter must answer the complaint by Dec. 28.
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