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2. Lund’s scheme involved several steps. After taking

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scion Member Level  Wednesday, 12/02/09 01:03:44 PM
Re: scion post# 14
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2. Lund’s scheme involved several steps. After taking control of a private company, including a nominee president and directors, he issued 150,000 shares of the company to himself and 150,000 shares in the name of each nominee director. Lund maintained control over those shares. When the opportunity arose, he initiated a 25:1 forward stock split of his private company, increasing the private company shares under his control to 15 million. He then created a new company – Mosaic – by orchestrating a reverse-merger between his private company and a public shell.

3. After the merger, the 15 million shares Lund controlled were no longer shares of the private company, but instead represented a right to newly issued restricted shares of Mosaic. Lund effectively controlled over 30% of Mosaic’s total outstanding shares. In addition, Lund set himself up as Mosaic’s transfer agent. As Lund knew, the issuance of these Mosaic shares was not registered under the Securities Act of 1933 (“Securities Act”). Because these were newly issued securities and they were under the control of a control person, Lund, as Mosaic’s transfer agent, should have ensured that the securities were properly marked with a restrictive legend, warning brokers and other market participants that the shares could not be freely re-sold. Instead, Lund fraudulently ensured that the certificates did not have such a restrictive legend, misrepresented to market participants that the shares under his control were free trading, and tried to cover up his illegal distribution by creating bogus transfer agent records. He immediately distributed millions of those shares for resale into the public to consultants working for Mosaic who sold substantial shares into the public market. Lund also promptly began selling his own shares into the public market, reaping $700,000 in illegal proceeds.

4. Months after the merger, during the same time regulators began making inquiries related to Mosaic, Lund took an even further step to try to hide his misconduct. He tricked an attorney into providing a backdated and false opinion letter describing the shares as free trading and stating that the shares could be transferred without a restrictive legend. Lund added this backdated letter to his transfer agent files and produced it to the Commission staff. Finally, he testified falsely to Commission staff that he had relied on the opinion letter when he removed the restrictive legends.


Case 2:09-cv-01050-SA Document 2 Filed 11/30/2009
Complaint
SEC v. Lund, et al.
http://www.sec.gov/litigation/complaints/2009/comp21317.pdf

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