Monday, January 25, 2016 11:41:01 AM
COMPLAINT
Plaintiff, United States Securities and Exchange Commission (“Commission”), states and alleges as follows against defendants OTC Capital Partners, LLC (“OTC Capital”), Adi M. Elfenbein, and Joseph L. Pittera (collectively, “Defendants”):
SUMMARY
1. From February to June 2011, Elfenbein, through his alter ego company OTC Capital, entered into ten transactions with MusclePharm Corporation (“MSLP”) in which OTC Capital obtained approximately 24 million shares of MSLP penny stock at a deep discount to the market price and then illegally resold those shares to the investing public without complying with the registration provisions of the federal securities laws. OTC Capital and Elfenbein were able to sell this stock to the public only because OTC Capital’s attorney, Pittera, issued baseless legal opinions to MSLP’s transfer agent opining that the shares were “free trading” pursuant to Section 5 of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77e].
https://www.scribd.com/doc/296610440/SEC-v-OTC-Capital-Partners-LLC-Et-Al-Doc-1-Filed-22-Jan-16
2. Each of the transactions followed the same basic pattern. First, OTC Capital purchased “aged debt” from MSLP vendors by paying the vendors cash in the amount of the debt. OTC Capital simultaneously entered into Debt Settlement Agreements with MSLP that contained provisions permitting OTC Capital to convert the newly-acquired debt into MSLP common stock at a deep discount to the market price. OTC Capital then immediately converted the debt to MSLP shares with the intent to immediately sell the shares to the investing public for a large, virtually guaranteed, profit.
3. Before OTC Capital and Elfenbein could resell the shares, however, they needed MSLP’s stock transfer agent to issue the shares without a restrictive legend, which would have prevented their resale in the public markets. MSLP’s transfer agent required legal opinion letters opining that the transactions qualified for an exemption from the registration provisions of the federal securities laws before issuing the MSLP shares to OTC Capital without restrictive legends.
4. To that end, Pittera issued ten opinion letters to MSLP’s transfer agent opining that the securities acquired by OTC Capital in the transactions were “free trading” because any re-sale of the shares by OTC Capital purportedly would comply with Rule 144 of the Securities Act (“Rule 144”) [17 C.F.R. § 230.144]. Rule 144 requires that a purchaser of securities hold such securities until the expiration of a holding period, which was six months in the case of the MSLP securities acquired by OTC Capital. Pittera incorrectly stated in his opinion letters that the Rule 144 holding period had been met as to OTC Capital’s MSLP securities because the holding period could be calculated from the dates of the original vendor invoices underlying the aged-debt that was purchased by OTC Capital.
6. The transfer agent would not have issued the MSLP stock without restrictive legends but for Pittera’s opinion letters. Through his role in creating and supplying the opinion letters, Pittera was both a necessary participant and substantial factor in the illegal unregistered offers and sales of MSLP securities by OTC Capital and Elfenbein.
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