Spongetech Delivery Systems, Inc. (fka SPNGQ)

[cowtown jay]

Open Letter to the Senate Judiciary Committee re: Loretta Lynch

This letter concerns the prosecutorial conduct of the US Attorney’s Office in the Eastern District of New York, where Ms. Lynch is currently in charge. It concerns possible neglect to comply with provisions of the Crime Victims’ Rights Act, as well as the Mandatory Victims’ Restitution Act.

It applies to a stock fraud case filed against SpongeTech Delivery Systems (SPNGQ). Certain elements of this case are similar to shareholder complaints in another case, US vs John Doe (Felix Sater). Information about that case can be found in the following link.

http://www.nationalreview.com/article/396640/loretta-lynchs-secret-docket-ryan-lovelace

Unlike the Sater case (at least from my limited knowledge of it), the SpongeTech case also concerns negligence on the part of the SEC, working with the DOJ in this securities fraud case.

Last June, I filed a Motion in the Criminal Court to Amend a Stock Forfeiture Order presented to the judge by the US Attorney, who requested that the defendant’s shares be forfeited to them. The Proposed Order stated that proper discovery was required in order to determine if proceedings should be commenced concerning third parties.

Case 1:10-cr-00600-DLI Document 377 Filed 06/18/14

After filing this motion, the sentencing hearing for the defendant (Moskowitz) was delayed until last November. There was no hearing or decision on my Motion, until the sentencing hearing was concluded, at which time my Motion was denied, and the defendant was given probation, and Ordered to pay restitution to those shareholders who had filed claims, the vast majority of whom were never officially provided direction to file any claim.

To date, no governmental agency has provided a list of shareholders harmed in this case. They have made no attempt to contact us, except via internet websites. Shareholders attempted to access this information in the company’s bankruptcy court. The judge granted subpoena power to us, but the information provided was artificially low, and failed to account for the number of Cede shares reported by the Transfer Agent.

Also to date, no US regulatory or law enforcement action has been taken against parties who benefited from the illegal sell of the company’s shares. This despite the fact that certain of these stock beneficiaries had previous convictions for this same offense, and were permanently enjoined from participating in penny stock offerings.

Notice that I specified that no “US” agency has taken action against these stock beneficiaries.

In December 2011, I filed a Report of Examination to the bankruptcy judge, after reviewing the information he granted us access to obtain, and in which I drew attention to issuances made to four Panamanian companies, which were cleared through Canacccord, a Canadian clearing firm.

Unlike the SEC, the Canadian regulator, the Investment Industry Regulatory Agency of Canada (IIROC), DID take action against the four entities I identified in my Report, as well as against two other entities. They also charged the clearing firm (Canaccord), as well as the broker. These six entities had illegally profited from the sell of 194 million shares of the company’s stock, and total disgorgement Ordered has been over $15 million, so far.

IIROC chides the SEC and the DOJ in their most recent filing in this case. They note the following.

“48. The SEC Civil Complaint named MARE and DIOM as examples of transferees who received shares that had restrictive legends improperly removed, but none of the Panamanian entities or individuals associated with them named in these Particulars were defendants in the SEC’s Civil Complaint or in the related criminal proceedings.”

It should be noted that the 194 million shares that went through Canaccord, came from the cancellation of eight Original Issuance Share (OIS) certificates, sold by the company. However, there were more than the six stock beneficiaries IIROC named, who received shares from these eight certificates. There were a total of 22 stock beneficiaries. The remaining 16 stock beneficiaries did not clear their shares though Canaccord, and were not subject to IIROC regulation.

I have taken steps to enforce the SEC’s compliance with the law in this regard. However, this is a glaring example of the SEC’s unchecked power to exert their discretionary authority, and disregard the law in the process. Shareholders cannot have rights as crime victims, and cannot be protected by the Mandatory Victims’ Restitution Act, if the guilty are not charged. Since the US Attorney’s Proposed Stock Forfeiture Order required proper discovery, the SEC’s abuse of power should have been observed and acted upon. Hopefully, that may yet happen, but shareholders have no reason to be optimistic, as things apparently stand now.

To quote from Judge Cassell, as noted in the Sater case linked above:

“This case has what I would call a ‘business as usual’ feel to it, which leads me to think this is not a one-off, idiosyncratic kind of thing,” Cassell says. “It clearly looks like there’s the potential for this to be going on in a lot of other cases…”

Thank you for your consideration.

Jay P. Booth
SpongeTech shareholder