Clients of TJ Management

[scion]

B. Admitted Facts

Scucci formed Protégé in January 2010, and Beach formed Capital Edge in May 2010.

Scucci and Beach were the sole managing members of their respective companies. Docket No. 1; Complaint, ¶ 31. Protégé describes itself as in the business of marketing consulting and investing. Id. ¶ 14. Capital Edge describes itself as in the business of marketing consulting. Id. ¶ 15.

Scucci and Beach caused Protégé and Capital Edge to enter into wrap around agreements involving several Penny Stock Issuers. Id. ¶ 31. Pursuant to the wrap around agreements, an officer, employee, or other person, usually closely associated with the Penny Stock Issuer (“Affiliate”), who was purportedly owed money by the Penny Stock Issuer for more than one year, assigned the right to collect from the Penny Stock Issuer to a new third party, here either Protégé or Capital Edge. Id. ¶ 32. In addition, the wrap around agreements purported to amend the initial debt agreements to authorize Protégé or Capital Edge to convert the Penny Stock Issuer’s debt into shares of the Penny Stock Issuer’s common stock at a deep discount (usually 50%) to the prevailing market price. Id. ¶ 33. Protégé and Capital Edge almost always elected to receive shares of the Penny Stock Issuer’s stock pursuant to the convertibility option in the wrap around agreement shortly after executing the agreement. Id. ¶ 34.

In order to obtain and sell the purportedly “free trading” shares, Scucci and Beach obtained attorney opinion letters from Defendant Cameron H. Linton, Esq. and other attorneys. Id. ¶¶ 1, 4, 36, 38-41, 51-52, 59, 65, 71, 77, 82. The opinion letters concluded that Protégé and Capital Edge could rely on the safe harbor of Securities Act Rule 144 [17 C.F.R. § 230.144] to claim that the newly-issued securities were exempt from the registration requirement of Section 5 of the Securities Act. Id. ¶¶ 38-40, 77, 82. The reasoning in the opinion letters was incorrect, and there was no legal basis for Protégé and Capital Edge to sell the stocks without registering them or complying with the requirements of Rule 144. Id. ¶¶ 4, 40, 54, 61, 67, 73, 79, 84.

Between March 2010 and April 2011, Protégé and Capital Edge acquired approximately 3.3 billion shares of purportedly unrestricted stock pursuant to conversions under the wrap around agreements. Id. ¶ 44. After receiving the purportedly unrestricted stock, Protégé and Capital Edge typically held the securities for only a few days or weeks before selling them into the public markets. Id. ¶ 45. To sell the securities, Protégé and Capital Edge used numerous securities brokerage accounts controlled by Scucci and Beach. Id. ¶ 45. Protégé and Capital Edge’s cumulative proceeds from their sales of the stock acquired under the wrap around agreements were more than $1.5 million. Id. ¶ 46.

1. Sales of Hall of Fame Beverages, Inc. Stock

During the period March 2010 through January 2011, Protégé and Capital Edge entered into six wrap around agreements involving Hall of Fame Beverages, Inc. (“Hall of Fame”). Id. ¶ 50. The wrap around agreements allowed Protégé and Capital Edge to acquire purportedly unrestricted Hall of Fame stock at a 50% discount to the prevailing market price. Id. ¶ 50. Upon signing the wrap around agreements, Protégé and Capital Edge obtained approximately 2.68 billion shares of Hall of Fame stock by converting approximately $915,000 of Hall of Fame debt into stock. Id. ¶ 50.

Protégé and Capital Edge sold the purportedly unrestricted stock into the market, generally within days or weeks of their issuance. Id. ¶ 53. Protégé’s proceeds from its sales of Hall of Fame stock were approximately $1.17 million, and Capital Edge’s proceeds were approximately $194,033. Id. ¶ 53. Protégé and Capital Edge’s sales of Hall of Fame stock were not registered and not exempt from the registration requirement and, therefore, violated Section 5 of the Securities Act. Id. ¶¶ 54-55.

2. Sales of Viper Networks, Inc. Stock

On approximately March 3, 2010, Protégé entered into a wrap around agreement involving Viper Networks, Inc. (“Viper Networks”). Id. ¶ 58. The wrap around agreement allowed Protégé to acquire purportedly unrestricted Viper Networks stock at a 50% discount to the prevailing market price. Id. ¶ 58. Immediately upon signing the wrap around agreement, Protégé converted $20,000 of the Viper Networks debt into approximately 3.2 million shares of stock. Id. ¶ 58.

Protégé sold the purportedly unrestricted stock into the market within approximately five months of its issuance. Id. ¶ 60. Its proceeds from its sales of Viper Networks stock were approximately $27,111. Id. ¶ 60. Protégé’s sales of Viper Networks stock were not registered and not exempt from the registration requirement and, therefore, violated Section 5 of the Securities Act. Id. ¶¶ 61-62.

3. Sales of Chromocure, Inc. Stock

On approximately March 9, 2010, Protégé entered into a wrap around agreement involving Chromocure, Inc. (“Chromocure”). Id. ¶ 64. The wrap around agreement allowed Protégé to acquire purportedly unrestricted stock at a 50% discount to the prevailing market price. Id. ¶ 64. Immediately upon signing the wrap around agreement, Protégé converted $50,000 of the Chromocure debt into approximately 500 million shares of stock. Id. ¶ 64.
Protégé sold the purportedly unrestricted stock into the market within weeks of its issuance. Id. ¶ 66. Its proceeds from its sales of Chromocure stock were approximately $79,295. Id. ¶ 66. Protégé’s sales of Chromocure stock were not registered and not exempt from the registration requirement and, therefore, violated Section 5 of the Securities Act. Id. ¶¶ 67-68.

4. Sales of Hybrid Energy Holdings, Inc. Stock

On approximately June 25, 2010, Protégé entered into a wrap around agreement involving Hybrid Energy Holdings, Inc. (“Hybrid Energy”). Id. ¶ 70. The wrap around agreement allowed Protégé to acquire purportedly unrestricted Hybrid Energy stock at a 50% discount to the prevailing market price. Id. ¶ 70. Immediately upon signing the wrap around agreement, Protégé converted $25,000 of the Hybrid Energy debt into approximately 2.5 million shares of stock. Id. ¶ 70.

Protégé sold the purportedly unrestricted stock into the market within approximately 60 days of its issuance. Id. ¶ 72. Protégé’s proceeds from its sales of Hybrid Energy stock were approximately $20,875. Id. ¶ 72. Protégé’s sales of Hybrid Energy stock were not registered and not exempt from the registration requirement and, therefore, violated Section 5 of the Securities Act. Id. ¶¶ 73-74.

5. Sales of Ingen Technologies, Inc. Stock

On approximately June 15, 2010, Capital Edge entered into a wrap around agreement involving Ingen Technologies, Inc. (“Ingen Technologies”). Id. ¶ 76. The wrap around agreement allowed Capital Edge to acquire purportedly unrestricted Ingen Technologies stock. Id. ¶ 76. Immediately upon signing the wrap around agreement, Capital Edge converted approximately $34,615 of the Ingen Technologies debt into approximately 192.3 million shares of stock. Id. ¶ 76.

Capital Edge sold the purportedly unrestricted stock into the market within 60 days of its issuance. Id. ¶ 78. The proceeds from Capital Edge’s sales of Ingen Technologies stock were approximately $45,133. Id. ¶ 78. Beach’s and Capital Edge’s sales of Ingen Technologies stock were not registered and not exempt from the registration requirement and, therefore, violated Section 5 of the Securities Act. Id. ¶¶ 79-80.

6. Sales of Undersea Recovery Corporation Stock

On approximately June 20, 2010, Capital Edge entered into a wrap around agreement involving Legal Access Technologies, Inc., the predecessor to Undersea Recovery Corporation (collectively, “Undersea Recovery”). Id. ¶ 81. The wrap around agreement allowed Capital Edge to acquire purportedly unrestricted Undersea Recovery stock. Id. ¶ 81. Within a day of signing the wrap around agreement, Capital Edge converted $10,000 of Undersea Recovery debt into approximately 9.5 million shares of stock. Id. ¶ 81.

Capital Edge sold a large portion of the purportedly unrestricted stock into the market within one year of its issuance. Id. ¶ 83. The proceeds from Capital Edge’s sales of Undersea Recovery stock were approximately $10,374. Id. ¶ 83. Beach and Capital Edge’s sales of Undersea Recovery stock were not registered and not exempt from the registration requirement and, therefore, violated Section 5 of the Securities Act. Id. ¶¶ 84-85.

C. Protégé, Capital Edge, and Beach Violated Section 5 of the Securities Act

Section 5(a) of the Securities Act prohibits the direct or indirect sale of securities through the mail or interstate commerce unless a registration statement has been filed and is in effect, and therefore, violated Section 5 of the Securities Act. Id. ¶¶ 84-85.

Extract -
Doc 37 PDF file
http://www.scribd.com/doc/110228800/SEC-v-Scucci-Et-Al-Doc-37-Filed-15-Oct-12