The Caveat Emptor may have something to do with the company's association with the shady firm Vincent and Rees LLC who has had SEC complaints previously on another stock fraud scheme.
from the last Q https://backend.otcmarkets.com/otcapi/company/sec-filings/12654169/content/html
On October 7, 2016, the Company entered in convertible note agreement with a private and accredited investor, Vincent & Rees, LC, in the amount of $74,000, unsecured, accruing interest at a 12% interest rate, with principal and interest amounts due and payable upon maturity on October 7, 2017. After six months, the note holder has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time at a 40% discount to the current market value.
On February 2, 2017, the Company entered in convertible note agreement with a private and accredited investor, Vincent & Rees, LC, in the amount of $56,000, unsecured, accruing interest at a 12% interest rate, with principal and interest amounts due and payable upon maturity on February 2, 2018.
from SEC complaint (different stock fraud charge leveled against Rees)
https://www.sec.gov/litigation/complaints/2012/comp-pr2012-82-2.pdf
Defendant David Rees, a securities attorney, also played a significant part in
facilitating the fraud.
pages 7-10
26. Before obtaining Recycle Tech for Sepe and Halperin, the professional shell
provider contacted Rees. After discussing the deal with the shell provider, Rees confirmed he
could convert Recycle Tech’s debt into purportedly free-trading shares and issue an opinion
letter formalizing the transaction. The professional shell provider then referred Halperin to
Rees’s law firm, Vincent & Rees.
B. Halperin Hires Rees to Convert Recycle Tech’s Debt
into Unrestricted Stock Shares and Complete the Reverse Merger
27. In late January 2010, Halperin retained Vincent & Rees to coordinate the
purchase, assignment, and subsequent conversion of Recycle Tech’s debt into purportedly
free-trading stock. Halperin also asked Rees to issue an opinion letter regarding the transactions,
and he provided Rees with the necessary documents and signatures for the transaction.
28. Rees directed and supervised the drafting of the necessary documents to convert
Recycle Tech’s debt into purportedly free trading stock. These documents included:
(a) the purchase and assignment agreement of Recycle Tech’s purported three
promissory notes and subsequent assignment of stock to a list of 22
assignees (the “Assignees”); and
(b) the necessary non-affiliate letters and conversion letters for the Assignees,
whereby they ultimately received purportedly converted free trading
Recycle Tech stock.
29. Halperin provided Rees’ law firm with the list of Assignees, who included
Halperin, OTC Solutions, Pudong, Rees, and others. Halperin also coordinated the process of
obtaining the necessary signatures from the assignees for the conversion and non-affiliate letters.
Additionally, he provided other necessary documents to Rees’ law firm, including, a Recycle
Tech corporate resolution.
30. Ultimately, Halperin wired payment to Vincent & Rees
Page 8 of 28
31. While Rees prepared the legal documents necessary to execute the fraud, Halperin
and Sepe set up Recycle Tech for acquisition. Based on their instructions, on January 28, 2010,
the professional shell provider purchased the majority of Recycle Tech’s stock and the shell
provider’s founder and president replaced the existing Recycle Tech officers as the sole officer.
32. At the same time, Sepe initiated the promotional side of the scheme. He engaged
OTC Solutions and Pudong to tout Recycle Tech stock through their various newsletters. Sepe
promised each promoter more than two million free-trading shares of Recycle Tech stock as
compensation.
C. Rees Issues a False Legal Opinion Letter Making
Misstatements and Relying on False or Outdated Documents
33. Rees oversaw the drafting of a letter opining the Assignees had complied with
Rule 144 of the Securities Act, 17 C.F.R. § 230.144 (the “Opinion Letter”), and consequently,
did not need to register the planned offering of Recycle Tech stock. The Opinion Letter also
stated 25 million newly-issued shares of Recycle Tech stock, converted from its debt, should be
issued without a restricted legend.
34. On January 29, 2010, Rees signed the Opinion Letter and sent it to Recycle
Tech’s transfer agent. The Opinion Letter, however, contained false representations, misapplied
Rule 144, and relied on several false or outdated documents.
35. Rule 144 contains a series of conditions that, if properly met, will provide a
reselling shareholder a safe harbor from the Securities Act’s registration requirements and allow
resale of restricted shares of stock. Here, Recycle Tech conveyed stock to the Assignees. The
shares, however, were restricted because they were acquired directly or indirectly from the issuer
in a chain of transactions not involving a public offering. Moreover, the Assignees did not meet
-8-
Page 9 of 28
Rule 144’s required conditions. Instead, Rees misapplied the Rule’s requirements, and
accordingly, its safe harbor was unavailable to the Assignees.
36. First, the Opinion Letter falsely represented that Recycle Tech was not a public
shell company and therefore could qualify for Rule 144 safe harbor consideration. To the
contrary, Rees received at least one communication from the shell provider indicating Recycle
Tech was a shell company. Prior to signing the Opinion Letter, Rees never performed any due
diligence concerning Recycle Tech’s status as a shell company.
37. Second, the Opinion Letter misapplied Rule 144’s holding requirements for the
Assignees. Pursuant to Rule 144, the Assignees were required to hold the securities for six
months from the date they bought and fully paid for the securities. The Opinion Letter, however,
miscalculated the holding period. It incorrectly “tacked back” the Assignees’ holding time
period to the dates Recycle Tech allegedly incurred the debt – February 26, 2008, August 1,
2008, and June 15, 2009. In fact, there is no provision in Rule 144(d)(3) permitting such
“tacking back.”
38. The proper calculation would have begun the holding period from the Assignees’
date of acquisition of the convertible note, January 26, 2010. As a result, Rees incorrectly
concluded the Assignees had met their twelve-month holding requirement.
39. Third, Recycle Tech was delinquent with respect to its obligation to file an Item
2.01 Form 8-K reporting the completion of the reverse merger transaction and including the
requisite audited financial statements of Green Building. Therefore, Rule 144 was not available
under Rule 144(c)(1)(i) because of this lack of adequate current public information.
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Page 10 of 28
40. Fourth, the Opinion Letter relied on several false or outdated documents. For
example, two of the three promissory notes referenced in the Opinion Letter were fabricated, and
one note was backdated more than two months. These were the very notes converted into
purportedly unrestricted stock.
41. Simple due diligence – namely contacting the original holder of the debt – would
have revealed two of the three notes were fabricated and not connected to any actual debt.
Moreover, the third promissory note is dated June 15, 2009. To the contrary, the company
actually incurred this debt on August 29, 2009.
42. The Opinion Letter also relied on an outdated board resolution authorizing the
issuance of the shares. Recycle Tech’s old board signed the resolution, and Rees did not contact
the new board to confirm the resolution was still effective.
D. Rees’ Opinion Letter Ignored Several Red Flags
43. The Opinion Letter also ignored several red flags concerning certain of the
Assignees who were likely to evade registration requirements.
44. First, Rees failed to note the conversion of Recycle Tech’s $34,000 debt into 25
million free trading shares would double the company’s then outstanding shares. Rees knew, or
should have known, that some individuals receiving the shares were likely to immediately sell
these shares into the market. For example, Rees intended to sell, and did in fact sell, the shares
Dump Their Recycle Tech Stock
81. Taking advantage of Recycle Tech’s artificially raised stock price, a number of
the Defendants sold their shares.
82. From February 23, 2010 to March 2, 2010, Halperin sold 1,130,000 shares for
$235,060.
83. From February 22, 2010 to February 25, 2010, OTC Solutions sold 2,325,000
shares for $441,722.
84. On February 23, 2010, Pudong sold 2,325,000 shares for $456,457.
85. On February 23, 2010, Rees sold 25,000 shares for $5,982.
page 26...Disgorgement...Issue an Order directing Sepe, Halperin, OTC Solutions, Thompson, Pudong, Fung, Rees,
and Charter Consulting to disgorge all ill-gotten gains, including prejudgment interest, resulting
from the acts or courses of conduct alleged in this Complaint.
page 27...Issue an order barring Rees from providing professional legal services to any person in
connection with the offer or sale of securities pursuant to, or claiming, an exemption under
Section 4(1) of the Securities Act, including, without limitation, participating in the preparation
or issuance of any opinion letter related to such offerings based on his violations of Sections 5(a)
and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) a
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