(CN) – A consulting firm sold hundreds of millions of shares based on patently false information about a nonexistent government contract, the SEC says in Orlando Federal Court. The SEC claims Big Apple Consulting took in $9.5 million as part of a larger fraud run by CyberKey, whose owner has been sentenced to 8 years in prison.
The SEC previously sued Utah-based CyberKey and its former CEO James Plant for securities fraud and obstruction of justice.
Plant advertised a fictitious $25 million purchase order from the U.S. Department of Homeland Security to bolster the price of CyberKey shares in an unregistered public offering; he was sentenced to 97 months in prison in March this year. CyberKey sold, or allegedly sold, flash drives and other electronic devices.
Defendants in the Big Apple case are accused of helping carry out the scheme. They include MJMM Investments, Marc Jablon, Matthew Maguire, Mark Kaley, and Keith Jablon.
According to the new complaint, MJMM Investments was given shares in monthly allotments in exchange for Big Apple’s promoting CyberKey to prospective investors.
The agreement gave MJMM the opportunity to buy an unlimited number of the unregistered shares directly from CyberKey at a 50 percent discount to market price, the complaint states.
Big Apple provided an “all-inclusive” promotional campaign for CyberKey that included business and sales development, consulting, Web site design and investor relations. Its staff also conceived, drafted, edited and timed press releases, and employed telemarketers.
Despite knowing that CyberKey’s assertions about its DHS contract were untrue, the defendants based their entire campaign on the misrepresentations, the SEC says.
Big Apple and MJMM acted as brokers by participating in securities transactions at key points in the chain of distribution, and held themselves out as underwriters though they were never registered with the SEC, the SEC says.
MJMM and Big Apple acquired more than 700 million CyberKey shares and sold them for at least $9.6 million, kept more $7.5 million, and sent $2 million back to CyberKey, the SEC says.
The SEC seeks an injunction, disgorgement and civil penalties.