(CN) - A smart card technology firm that lied to investors in a desperate attempt to keep the company afloat must pay over $21 million to the SEC, a federal judge ruled.
On its website, e-Smart portrays itself as being on the front line of defense against financial fraud, identity theft and other forms of cybercrime. Specifically, the company produces "smart cards," wallet-sized cards with a built-in identity-verification system based on biometric data such as the user's fingerprint.
But the U.S. Securities and Exchange Commission maintains e-Smart's business model was "pie in the sky," and the smart cards could not protect consumer information as promised.
A federal judge ruled against e-Smart CEO Mary Grace last year for not filing required documents with the SEC and trying to persuade investors to buy unregistered securities in her faltering company.
"Investors ponied up millions of dollars" based on Grace's misleading claims that big contracts were just around the corner, U.S. District Judge James Boasberg said in a 2014 ruling.
The firm's chief technology officer, Tamio Saito, was also condemned by a federal judge for lying to promote the sale of securities in e-Smart Technologies and failing to file required ownership statements.
On Thursday, Boasberg entered a final judgment "in this epic doorstop of a case."
The judge ordered e-Smart and Grace to disgorge $15 million for selling unregistered securities and $6 million for issuing a misleading press release.
He also found that Grace must pay part of the disgorgement, having failed to show that she did not personally benefit from the unlawful securities sales.
"Ignoring the court's explicit entreaty, Grace baldly asserts that some (or all) of the money was spent on certain unspecified but purportedly legitimate business expenses, and that she, too, is a victim, with the companies owing her $4.25 million in salary and other expenses that she has yet to receive," Boasberg wrote in the 21-page ruling.
He ordered Grace to pay $265,000, plus interest, of e-Smart's $6 million Exchange Act violation penalty.
Boasberg also imposed a $2 million civil penalty - half of what the SEC requested - against Grace for her leading role in the scheme.
"This amount takes into consideration both the factors weighing in favor of a sizeable penalty - namely, Grace's scienter, the millions of dollars of investor losses, and Grace's refusal to recognize the wrongfulness of her actions," alongside evidence that some investors knew e-Smart did not have contracts it claimed to have, and the 10-year bar prohibited Grace from serving as an officer of another company, the ruling states.