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A
Superior Court judge has ordered Brian Smith
of Spring Lake to pay $5,193,280 in penalties
and restitution for violating the New Jersey
Uniform Securities Law by fraudulently operating
a publicly-traded penny stock shell company,
Digital Gas Inc., fraudulently issuing stock
and issuing false press releases to boost
the value of that stock.
Superior
Court Judge Thomas W. Cavanagh, entering a
final decision in a suit brought by the Attorney
General and the New Jersey Bureau of Securities,
permanently barred Smith from the securities
industry, and ordered Smith and Digital Gas
to pay $4,693,280 in restitution. The judge
also ordered Smith and Digital Gas to each
pay $500,000 in civil penalties, and ordered
Lynn Smith, Smith’s wife and defendant,
to disgorge $809,237 in funds she received
from her husband’s scheme.
Judge
Cavanagh filed his decision on Monday following
a 10-day civil trial which concluded in June
in his Monmouth County courtroom. He found
that for seven years, from 1999 to 2007, Smith
sold unregistered Digital Gas securities to
at least 200 investors but was not a registered
agent. The judge also found that Smith issued
press releases that manipulated the price
and demand for Digital Gas and concluded that
Brian and Lynn Smith used investor funds for
their personal benefit, including home improvement
and mortgage expenses related to their Spring
Lake home.
The
Bureau of Securities had obtained a temporary
order in October 2006 freezing the assets
of Digital Gas and the Smiths. While Digital
Gas is currently in a Chapter 7 Bankruptcy
in Michigan, the Smiths’ assets, including
their home in Spring Lake, are subject to
collection efforts by the Bureau of Securities.
“This
case is another example of why investors need
to carefully research company backgrounds
before investing their hard earned money,”
Attorney General Anne Milgram said. “It
is also why we urge consumers to check with
our Bureau of Securities to determine whether
securities are properly registered.”
Digital
Gas was a Michigan-based corporation that
publicly traded on the Over-The-Counter market
as DIGG.PK. The Bureau of Securities charged
that Digital Gas was a shell corporation with
no known business operations, although its
Website claimed it was a business incubator
for new technologies in the energy and natural
resource fields. The judge found it had no
bank accounts in its name, and that Smith
used fraudulent corporate resolutions to cause
a transfer agent to issue shares of the stock.
Attorney
General Milgram thanked Bureau of Securities
Investigator Thomas LaGreca, Supervising Investigator
Michael McElgunn, and Investigator Isaac Reyes
for their work on the case, and also thanked
former Chief of Enforcement Richard Barry
and former Supervising Investigator James
Lane. Deputy Attorneys General Anna Lascurain,
Christopher W. Gerold and Toral M. Joshi handled
the matter for the Division of Law. Gerold
and Joshi represented the state at the trial.
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