SEC Obtains Final Judgment Against Microcap Consultant Anthony Jay Pignatello Involved in Fraudulent Scheme

On May 26, 2016, the Securities and Exchange Commission (SEC) announced charges against four individuals and two companies for their roles in conducting a scheme to defraud investors. The SEC filed charges against Christopher R. Esposito (“Esposito”), Anthony Jay Pignatello

(“Pignatello”), James Gondolfe (“Gondolfe”), Renee Galizio (“Galizio”), Lionshare Ventures LLC

(“Lionshare”), and Cannabiz Mobile, Inc. (“Cannabiz”), collectively called the “Defedants”.

The fraudulent scheme executed by the Defendants involved misappropriating investors funds and conceling the ownership and control of a publicly-traded company in order to enrich themselves. The Defendants were able to accomplish this by colluding in the sale of hundreds of millions of shares into the public market, in violation of SEC statutes and regulations.

On February 12, 2024, the U.S. District Court for the District of Massachusetts entered a final judgment against Anthony Jay Pignatello of Winchester, Virginia, one of the Defendants of the SEC v. Christopher R. Esposito, et al., Civil Action case. Pignatello was a consultant and Secretary for Cannabiz Mobile, Inc., a publicly traded company purportedly servicing medical marijuana businesses.

Case Summary

In May 2016, the SEC filed a complaint against several individuals and entities, including Christopher R. Esposito, Anthony Jay Pignatello, James Gondolfe, Renee Galizio, Lionshare Ventures LLC, and Cannabiz Mobile, Inc.

The complaint alleges a scheme to defraud investors by misappropriating funds, concealing ownership and control of a publicly-traded company, and engaging in illegal securities sales.

Furthermore, the SEC complaint outlines two phases of the fraudulent scheme. In the first phase, Esposito allegedly raised funds from investors for Lionshare and misused a significant portion of those funds for personal expenses. Additionally, he used investor funds to acquire control of Cannabiz, publicly-traded company servicing businesses in the medical marijuana industry.

Esposito (a) raised more than $550,000 from investors between June 2011 and June 2012 in an unregistered offering of securities in his company Lionshare, (b) spent almost $300,000 of Lionshare investor funds for unauthorized personal expenses; and (c) used $75,000 of Lionshare investor funds to acquire control of Cannabiz by purchasing all of its convertible debt.

During the second phase of his fraudulent scheme, which occurred between May 2012 and August 2015, Esposito, along with Pignatello, worked to conceal his control of Cannabiz and a substantial portion of its securities. Their aim was to profit by circumventing SEC Rule 144, which imposes limitations on securities sales by affiliates, including control persons like Esposito.

To achieve this, Esposito employed various tactics:

a) He installed James Gondolfe as the sole officer and director of Cannabiz, despite secretly controlling the company himself. Gondolfe was used to make false statements in Cannabiz's public filings and other documents, thereby masking Esposito's actual control.

b) Esposito paid third-party stock promoters to promote Cannabiz, aiming to artificially boost its stock price and trading volume.

c) He sold significant amounts of Cannabiz convertible debt to other parties, generating proceeds of nearly $304,000.

d) Alongside Pignatello and Galizio, Esposito sold millions of shares of Cannabiz stock directly into the market, further enriching themselves through these sales.

These actions allowed Esposito and his associates to evade regulatory scrutiny and profit from their illicit activities by manipulating the stock market.

The Defendants' conduct violated several statutes, rules, and regulations enforced by the Securities and Exchange Commission (SEC). Specifically, they contravened:

Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"): These sections pertain to registration, disclosure, and antifraud provisions regarding the sale of securities. Section 5 requires registration of securities offerings with the SEC unless an exemption applies. Section 17(a) prohibits fraudulent activities in the offer or sale of securities.
Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5: Section 10(b) prohibits fraudulent activities in connection with the purchase or sale of securities, while Rule 10b-5 prohibits fraud and misrepresentation in the sale or purchase of securities in interstate commerce.

The Defendants' actions, as outlined in the allegations, such as misappropriating investor funds, concealing ownership and control, making false statements in public filings, and manipulating stock prices, are indicative of violations of these securities laws and regulations.

Based on these violations, the Securities and Exchange Commission (SEC) seeks the following relief:

(i) Permanent Injunctions

The SEC seeks to prohibit Christopher R. Esposito, Anthony Jay Pignatello, James Gondolfe, Lionshare Ventures LLC, and Cannabiz Mobile, Inc. from engaging in future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well as Section 17(a) of the Securities Act. This injunction aims to prevent them from committing similar securities violations in the future.

(ii) Permanent Injunctions Against Section 5 Violations

The SEC also seeks permanent injunctions against all defendants from engaging in future violations of Section 5 of the Securities Act. This section relates to the requirement of registering securities offerings with the SEC.

(iii) Disgorgement And Pre-Judgment Interest

The SEC requests an order requiring all defendants to disgorge any ill-gotten gains obtained through their fraudulent activities and to pay pre-judgment interest on these gains.

(iv) Civil Monetary Penalties

The SEC seeks an order requiring all defendants to pay appropriate civil monetary penalties for their violations of securities laws and regulations.

(v) Officer And Director Bars

The SEC seeks to bar Christopher R. Esposito, Anthony Jay Pignatello, and James Gondolfe from serving as officers or directors of public companies. This request is pursuant to Section 20(e) of the Securities Act and Section 21(d) of the Exchange Act.

(vi) Penny Stock Offering Bars

(vi): Finally, the SEC requests an order barring Christopher R. Esposito, Anthony Jay Pignatello, James Gondolfe, Lionshare Ventures LLC, and Renee Galizio from participating in any offering of penny stock. This request is pursuant to Section 20(g) of the Securities Act and/or Section 21(d) of the Exchange Act.

Defendants

Defendants involved in the case include:

1. Christopher R. Esposito: A 49-year-old resident of Topsfield, Massachusetts, serving as the Managing Director of Lionshare.

2. Anthony Jay Pignatello: A 46-year-old resident of Manhattan Beach, California, who worked as a consultant to Cannabiz and formerly served as its Secretary.

3. James Gondolfe: A 48-year-old resident of Cambridge, Massachusetts, acting as the Chairman and President of Cannabiz.

4. Renee Galizio: A 44-year-old resident of Loxahatchee, Florida.

5. Lionshare Ventures LLC: A privately-held corporation headquartered in Danvers, Massachusetts, presenting itself as a "business incubator for microcap companies." Lionshare's securities have not been registered with the SEC, and it has not conducted any registered securities offerings.

6. Cannabiz Mobile, Inc.: A corporation purportedly based in Cambridge, Massachusetts, but operated out of shared office space with Lionshare. Cannabiz claimed involvement in mineral exploration in Brazil and later in servicing businesses in the medical marijuana industry.

It previously operated under different names, including ReBuilder Medical Technologies, Inc. and Lion Gold Brazil, Inc. Cannabiz's stock is not registered with the SEC, and it has not conducted any registered securities offerings. Since at least March 2007, Cannabiz (and its predecessors) has been quoted on Over-the-Counter (OTC) securities markets.

The Fraudulent Scheme

A. Esposito Uses Lionshare Investor Proceeds for Unauthorized Personal Purposes

The fraudulent scheme orchestrated by Esposito and Lionshare involved the misuse of investor funds for unauthorized personal purposes, contrary to representations made to investors. Here's a breakdown of the key elements:

1. Unregistered Offering

Between June 2011 and June 2012, Esposito and Lionshare raised over $556,452 from investors through an offering of Lionshare "Class 'B' Membership Interest Shares." They did not file a registration statement with the SEC for this offering.

2. False Exemption Claim

On October 16, 2012, more than a year after the offering began, Esposito and Lionshare filed a form with the SEC claiming that the offering qualified for an exemption under Rule 506 of Securities Act Regulation D. However, they failed to meet the requirements of Rule 506, including conducting a general solicitation and providing audited financial statements to investors who didn't meet the accredited investor definition.

3. Misuse of Funds

Investors were informed that offering proceeds would be used to acquire Lion Gold, an OTC public company, for mineral interests and mining operations. However, Esposito diverted over $290,500 of investor funds for unauthorized personal and business expenses unrelated to the acquisition. This included transferring funds to personal bank accounts and spending on personal expenses such as clothing, groceries, and entertainment.

4. Formation of Lion Mineracao

Between August 2011 and November 2012, Esposito used approximately $153,000 of investor funds to establish Lion Mineracao Ltda., a private Brazilian corporation for mining purposes. Despite using investors' money, Esposito owned 99.99% of Lion Mineracao, with investors having no ownership stake.

These actions demonstrate a deliberate misuse of investor funds for personal gain, misrepresentation of the use of proceeds, and a failure to comply with securities laws and regulations regarding registration and exemptions.

B. Esposito Uses Investor Funds to Secretly Acquire and Hide Control of Cannabiz

In late May 2012, Esposito and Lionshare devised a plan to acquire and conceal control of the publicly-traded company Cannabiz, formerly known as ReBuilder. They utilized approximately $75,000 of investor funds from Lionshare to purchase five convertible promissory notes (ReBuilder Notes) totaling $711,238, which covered all of ReBuilder's outstanding debts.

These ReBuilder Notes effectively granted Esposito control over ReBuilder, as they could be converted into a substantial number of ReBuilder common stock shares, far exceeding the company's outstanding shares at the time. Esposito assigned one ReBuilder Note to Lionshare and the remaining four to his brother-in-law (referred to as the "Family ReBuilder Notes"). However, Esposito retained control over the Family ReBuilder Notes, which could be converted into approximately 628 million ReBuilder shares.

To further conceal his control of Cannabiz and evade SEC regulations, Esposito took steps to install R.A. as the President, CEO, CFO, Chairman, and sole member of the Board of Directors of ReBuilder. Esposito then instructed R.A. to hire Pignatello as a consultant to ReBuilder in May 2012, and later as Secretary in June 2012. Pignatello's responsibilities included assisting with regulatory filings and providing necessary documents, such as "opinion letters," to facilitate public sales of Cannabiz securities.

Despite holding no official position within ReBuilder, Esposito secretly maintained control over the company and financially supported its operations. These actions were aimed at concealing his ownership and control of Cannabiz while manipulating its operations to serve his fraudulent scheme.

C. Esposito Uses Investor Funds to Secretly Acquire and Hide Control of Cannabiz

Esposito engaged in deceptive practices to cause stock certificates to be issued without restrictive legends, enabling the sale of ReBuilder (later known as Lion Gold) shares into the public market. Here's how he carried out this fraudulent scheme:

1. Affiliate Status Concealment

Esposito and Lionshare, as controllers of ReBuilder, were affiliates of the company under Rule 144 of the Securities Act. However, they concealed this status to profit from transactions prohibited by securities laws.

2. Misleading Transfer Agent

Esposito provided false documents to ReBuilder's transfer agent, misleading them into believing that Lionshare was not an affiliate of ReBuilder. These documents included a Seller's Representation Letter, a legal opinion letter, and a corporate board resolution, all falsely asserting that Lionshare was not an affiliate.

3. Issuance of Stock Certificates

Based on Esposito's misrepresentations, the transfer agent issued 47 stock certificates without restrictive legends to Lionshare investors on July 27, 2012, representing 18,236,000 shares of ReBuilder common stock. Esposito personally received over 3,675,000 of these shares.

4. Additional Transfers

In October 2012, Esposito directed the transfer agent to issue additional certificates without restrictive legends to transfer 3.3 million of his personal shares to investor relations consultants. These transfers were made as payment for promotional emails about Lion Gold.

5. Illegal Stock Sales

Consultants received stock certificates without restrictive legends and sold 2,396,000 shares into the public market, generating profits. Esposito also sold 94,500 shares, yielding personal profits of over $1,950. These sales violated Rule 144, which imposes a one-year holding period for shares held by affiliates.

6. Knowledge of Violations

Esposito and Lionshare were aware, or recklessly disregarded, that these stock sales violated securities laws and regulations.

Esposito's actions involved deliberate deception and manipulation to evade securities regulations and profit from the unauthorized sale of ReBuilder shares.

D. Esposito and Lion Gold Make Material Misstatements and Omissions in Public Documents

Esposito continued his deceptive practices by causing Lion Gold to submit false and misleading information statements to OTC Markets for public disclosure. Here's how he carried out this part of the fraudulent scheme:

1. Knowledge of Violations

False Representation of Lion Mineracao Ownership: On November 16, 2012, Esposito caused Lion Gold to submit an information statement to OTC Markets falsely representing that Lion Mineracao was a wholly owned operating subsidiary of Lion Gold. This statement was misleading because Esposito owned 99.99% of Lion Mineracao, meaning Lion Gold had no actual ownership stake in Lion Mineracao.

2. Failure to Disclose Debt Control and Dilution

The information statement also omitted crucial information, such as the amount of Lion Gold convertible debt controlled by Esposito and Lionshare through the ReBuilder Notes, and the potential dilution of shareholder equity resulting from the conversion of this debt into common stock. This omission left investors unaware of Esposito's control over Lion Gold and the potential impact on shareholder ownership if the debt were converted into equity.

3. Submission of Amended Misleading Disclosure

On January 8, 2013, Esposito caused Lion Gold to provide an amended disclosure statement to OTC Markets, which contained the same misrepresentations as the initial submission made on November 16, 2012.

These actions demonstrate Esposito's intent to manipulate public perception and conceal his control over Lion Gold, while withholding crucial information from investors regarding debt control and potential dilution of shareholder equity. By submitting false and misleading disclosure statements, Esposito continued to deceive investors and perpetuate his fraudulent scheme.

E. Esposito Installs Gondolfe and Causes Lion Gold to Make False Statements in Regulatory Filings

Esposito and Pignatello engaged in further deceptive actions to maintain control over Lion Gold (later known as Cannabiz) and manipulate public disclosures. Here's a summary of these actions:

1. Forcing Out R.A. and Installing Gondolfe

In April 2014, Esposito replaced R.A. with Gondolfe as the President, CEO, Chairman, and sole member of the Board of Directors of Lion Gold. Gondolfe, under Esposito and Pignatello's direction, subsequently hired Pignatello as a consultant to Lion Gold. Gondolfe followed their directives, including signing a corporate amendment falsely representing that he had been Treasurer of Lion Gold in 2011 and 2012, when he was actually hired in April 2014.

2. Submission of False Corporate Amendment

Pignatello prepared a false corporate amendment and directed Gondolfe to sign and submit it to the Nevada Secretary of State, falsely stating Gondolfe's employment by Lion Gold in 2011 and 2012.

3. Preparation of False Annual Reports

Pignatello prepared and submitted two false annual reports for Lion Gold to OTC Markets, falsely identifying Gondolfe as the Chief Financial Officer as of December 31, 2013. These reports contained misinformation about Lion Mineracao, failed to disclose Esposito's control of Lion Gold, and falsely identified Gondolfe's role.

4. Misleading Press Release

On June 24, 2014, Lion Gold issued a press release announcing its name change to Cannabiz and its shift in business purpose to a mobile media and marketing company servicing businesses in the medical marijuana industry.

These actions demonstrate Esposito and Pignatello's ongoing efforts to manipulate corporate structures, falsify documents, and mislead investors and regulatory authorities to maintain control over Lion Gold (Cannabiz) and further their fraudulent scheme.

F. Esposito, Pignatello, and Gondolfe Backdate Convertible Notes in Order to Generate More Cannabiz Stock

Esposito, Pignatello, and Gondolfe engaged in a scheme to backdate convertible notes and issue additional shares of Cannabiz stock to Lionshare in order to conceal Esposito's ownership and control of the company and evade securities regulations. Here's a breakdown of their actions:

1. Backdating Convertible Notes

In 2014, Esposito and Pignatello instructed Gondolfe to sign three convertible promissory notes, backdated to 2012, issued by Cannabiz to Lionshare (referred to as LGBI Notes). These backdated notes were intended to increase Esposito's control over Cannabiz while concealing from investors and financial intermediaries that the securities were subject to the one-year holding period for affiliates of an issuer.

2. Submission of False Documents

Esposito, Lionshare, Gondolfe, and Cannabiz provided documents to Cannabiz's transfer agent, inducing them to convert the backdated LGBI Notes into more than 8.1 million shares of Cannabiz common stock without restrictive legends. These documents included falsified Cannabiz Board of Directors resolutions and attorney legal opinion letters falsely stating that the one-year holding period had expired and Lionshare was not an affiliate of Cannabiz.

3. Transfer of Shares

Between August and September 2014, Cannabiz's transfer agent issued 8.1 million shares of Cannabiz stock certificates without restrictive legends to Lionshare. Esposito requested transfers of shares to himself, Pignatello, and Renee Galizio, as well as to other Lionshare investors. Esposito and Pignatello did not pay for their shares, while Galizio paid $5,000 for hers.

4. Submission of Fraudulent Documents to Brokerage Firm

Esposito, Galizio, and Pignatello deposited their Cannabiz shares at a brokerage firm between September 2014. They provided fraudulent documents to the brokerage firm similar to those previously provided to the transfer agent, misrepresenting Esposito and Lionshare's non-affiliate status.

Esposito and Pignatello were aware, or recklessly disregarded, that their actions were deceitful and violated securities regulations. They sought to conceal their control of Cannabiz to facilitate their intended stock sales, knowing that public identification of their control would hinder their plans.

G. Esposito Initiates a Stock Promotion to Increase the Price and Trading Volume of Cannabiz Stock

Esposito orchestrated a promotional campaign aimed at boosting the stock price and trading volume of Cannabiz. Here are the key details:

1. Promotional Efforts

Esposito arranged for a stock promotion company to send out at least 13 email blasts to potential investors promoting Cannabiz stock on October 28 and 29, 2014.

2. Content of Promotional Emails

The promotional emails touted Cannabiz stock, emphasizing its potential for explosive growth. They highlighted significant increases in the stock's valuation, claiming that since March of that year, more than 2500% had been added to lower valuations.

3. Impact of Promotion

As a result of the promotional campaign, Cannabiz's stock price and trading volume experienced significant increases. Prior to the campaign, the trading volume averaged less than 10,000 shares per day. However, following the email blasts, the stock price surged approximately 80%, from $0.05 on October 28, 2014, to a high of $0.09 on October 29, 2014. Additionally, the trading volume soared to approximately 2 million shares traded per day by the end of October.

Esposito's actions aimed to artificially inflate the stock price and trading volume of Cannabiz through misleading promotional efforts, thereby potentially deceiving investors and creating a false impression of the company's performance and prospects.

H. Esposito, Pignatello, and Galizio Sell Unregistered Securities in Violation of SEC Statutes and Rules

During the same period as the stock promotion campaign, Esposito, Pignatello, and Galizio engaged in unauthorized sales of Cannabiz shares into the market, despite legal prohibitions due to Esposito and Lionshare's affiliate status. Here's what transpired:

1. Sales of Cannabiz Shares

Between October 28 and 31, 2014, Galizio sold her 1 million shares of Cannabiz stock for $73,009, while Pignatello sold 713,224 of his shares for $37,264.

Before the promotional campaign, Esposito had sold 113,142 shares for $7,652. During the promotion period, on October 29, 2014, Esposito attempted to sell over 204,000 shares at approximately $0.12 per share. However, his brokerage firm suspended selling in his account due to suspicions of his connection to the Cannabiz promotional campaign.

2. False Representation

On October 29, 2014, Esposito falsely informed the brokerage firm via email that he had not implemented any market awareness campaigns for Cannabiz. Consequently, the brokerage firm lifted the suspension on trading in Esposito's account on November 4, 2014.

Esposito then sold 197,825 shares for $8,185 on November 4 and 6, 2014. Subsequently, he sold 1,006,589 shares for $6,522.

Esposito, Pignatello, and Galizio's actions involved selling Cannabiz shares into the market despite their knowledge of legal restrictions due to their affiliate status with the company. They attempted to profit from the inflated stock prices resulting from the promotional campaign, thereby violating securities regulations.

I. Esposito and Lionshare Sell Convertible Notes for Profit

During the same period as the stock promotion, Esposito and Lionshare engaged in the sale of convertible notes for profit. Here's a summary of their actions:

1. Sale of ReBuilder Notes

Around the time of the stock promotion, Esposito sold a portion of the ReBuilder Notes, which included some of the Family ReBuilder Notes that Esposito secretly controlled, to Buyer A and Buyer B.

2. Transactions

Between October 22, 2014, and March 23, 2015, Buyer A paid Lionshare a total of $202,148 for a portion of the ReBuilder Notes.

On or about November 4, 2014, Buyer B paid Lionshare $101,585 for a portion of the ReBuilder Notes.

3. Consequences

Buyer A and Buyer B, relying on Esposito's misrepresentations regarding his and Lionshare's non-affiliate status, were able to convert the debt and sell hundreds of millions of Cannabiz shares into the market between October 2014 and May 2015.

These actions allowed Esposito and Lionshare to profit from the sale of convertible notes, enabling subsequent sales of Cannabiz shares into the market, despite the legal restrictions imposed by the Securities Act and Rule 144.

Final Judgment Against Defendant Anthony Jay Pignatello

Judgment I.

The court has issued a permanent injunction against Defendant Anthony Jay Pignatello, restraining him from directly or indirectly violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. This injunction prohibits Pignatello from engaging in fraudulent activities related to the purchase or sale of securities, including employing schemes to defraud, making false statements or omitting material facts, and engaging in any acts or practices that would deceive others.

Additionally, this injunction extends to individuals or entities who receive notice of the Final Judgment, including Pignatello's officers, agents, employees, attorneys, and others who may be acting in concert with him.

Judgment II.

The court has further issued a permanent injunction against Defendant, restraining them from violating Section 17(a) of the Securities Act of 1933 in the offer or sale of any security. This injunction prohibits the use of any means of transportation or communication in interstate commerce or the use of the mails to engage in fraudulent activities related to securities, including employing schemes to defraud, making untrue statements or omitting material facts, and engaging in transactions, practices, or courses of business that would deceive purchasers.

Similar to the previous injunction, this order also extends to individuals or entities who receive notice of the Final Judgment, including the Defendant's officers, agents, employees, attorneys, and others who may be acting in concert with them.

Judgment III.

The court has also issued a permanent injunction against the Defendant, restraining them from violating Section 5 of the Securities Act. This injunction prohibits the Defendant, directly or indirectly, from engaging in the following activities in the absence of any applicable exemption:

(a) Using any means of transportation or communication in interstate commerce or the mails to sell a security through the use of any prospectus or otherwise, unless a registration statement is in effect for that security.

(b) Carrying or causing to be carried through the mails or in interstate commerce any security for the purpose of sale or for delivery after sale, unless a registration statement is in effect for that security.

(c) Using any means of transportation or communication in interstate commerce or the mails to offer to sell or offer to buy a security through the use of any prospectus or otherwise, unless a registration statement has been filed with the SEC for that security, or while the registration statement is subject to certain regulatory actions.

This injunction also extends to individuals or entities who receive notice of the Final Judgment, including the Defendant's officers, agents, employees, attorneys, and others who may be acting in concert with them.

Judgment IV.

The Defendant is further prohibited from acting as an officer or director of any issuer that has a class of securities registered under Section 12 of the Exchange Act or that is required to file reports under Section 15(d) of the Exchange Act. This prohibition is in accordance with Section 21(d)(2) of the Exchange Act and Section 20(e) of the Securities Act.

Judgment V.

Defendant is permanently barred from participating in any offering of penny stock. This includes engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing the purchase or sale of any penny stock. A penny stock is defined as any equity security with a price of less than five dollars, except as provided in Rule 3a51-1 under the Exchange Act.

Judgment VI.

Defendant is ordered to pay disgorgement of $37,264.00 and prejudgment interest of $6,073.52. This obligation is considered fully satisfied by the forfeiture Defendant is liable for in United States v. Anthony Jay Pignatello (D. Mass.).

Judgment VII.

It is further ordered that, for the purposes of exceptions to discharge outlined in Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the allegations presented in the complaint are acknowledged as true and admitted by Defendant. Additionally, any debt owed by Defendant under this Final Judgment or any other judgment, order, consent order, decree, or settlement agreement related to this proceeding, including disgorgement, prejudgment interest, civil penalties, or other amounts, constitutes a debt arising from the violation of federal securities laws or regulations under such laws, as specified in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19).

Judgment VIII.

It is additionally ordered that this Court will maintain jurisdiction over this matter for the purpose of ensuring compliance with the provisions outlined in this Final Judgment.

Judgment IX.

The Clerk is hereby directed to promptly enter this Final Judgment without any further delay, in accordance with Rule 54(b) of the Federal Rules of Civil Procedure.

Key Takeaways For Investors

Investors can draw several key takeaways from this case:

1. Due Diligence

Always conduct thorough due diligence before investing in any security. Scrutinize the background of the company, its management team, and the regulatory filings.

2. SEC Compliance

Ensure that the company complies with SEC regulations, including registration requirements and disclosures. Be wary of offerings that claim exemptions without proper documentation.

3. Financial Transparency

Look for transparency in financial statements and disclosures. Any discrepancies or inconsistencies should raise red flags.

4. Avoid Promotional Campaigns

Be cautious of stocks promoted through aggressive marketing campaigns, especially those promising unrealistic returns. Such promotions might be used to artificially inflate stock prices.

5. Affiliate Transactions

Pay attention to any transactions involving affiliates of the company. Transactions that benefit insiders disproportionately or involve undisclosed related parties should be thoroughly investigated.

5. Legal Compliance

Verify that the company and its officers are compliant with securities laws and regulations. Any violations, especially those related to securities fraud, should be taken seriously.

6. Ongoing Monitoring

Continuously monitor your investments for any signs of irregularities or misconduct. Prompt action can help mitigate potential losses and protect your interests.

By remaining vigilant and informed, investors can reduce their exposure to fraudulent schemes and make more informed investment decisions.

Gayatri GuptaApril 26, 2024

Nasdaq Compliance

The Nasdaq Stock Market features three tiers of listed companies, namely: (1) The Nasdaq Global Select Market, (2) The Nasdaq Global Market, and (3) The Nasdaq Capital Market. These tiers are characterized by progressively stringent listing requirements, with the Nasdaq Global Select Market setting the highest standards for initial listings and the Nasdaq Capital Market serving as the entry-level tier, particularly suitable for most small-cap issuers.

To list securities on Nasdaq, a company must fulfill minimum listing requirements, encompassing defined criteria related to financial performance, liquidity, and corporate governance. Nasdaq retains extensive discretion in the listing process and reserves the right to reject an application, even if the technical prerequisites are satisfied, if it deems such denial essential to safeguard the interests of investors and the public.

After securing a listing on Nasdaq, a company is obligated to adhere to ongoing listing standards. To initiate the listing process, a company seeking inclusion on Nasdaq must diligently complete and submit a comprehensive listing application to Nasdaq. This application should include specific documents and information as outlined by Nasdaq's requirements.

Typically, the application process spans a duration of four to six weeks. Once the application is submitted, a Nasdaq analyst is designated as the primary liaison with the company. Within two to three weeks of submission, the company can expect to receive an initial comment letter. The comment and review process persists until a decision is reached on the approval or denial of the application. Similar to filing with the SEC, a meticulously prepared Nasdaq application tends to attract fewer comments and facilitates a more streamlined process. Generally, the company's securities counsel assumes a leading role, serving as the primary contact for preparing the application and engaging in communication with Nasdaq.

Similarly to the SEC review process, Nasdaq conducts a thorough examination of publicly accessible information pertaining to a company. This encompasses, but is not limited to, SEC filings, the company's website, management communications and speeches, as well as press releases. The iterative nature of the review process typically doesn't necessitate a formal protocol, and communication is commonly facilitated through email correspondence and phone calls.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria:

Specific Initial Requirements:
- Quantitative Standards: Meeting defined thresholds for both quantitative and qualitative factors.
- Qualitative Standards: Fulfilling certain qualitative benchmarks.
Continuing Requirements:
- Quantitative Criteria: Adhering to ongoing quantitative benchmarks.
- Qualitative Criteria: Maintaining specified qualitative standards.

The initial quantitative thresholds are typically set at a higher level than those required for continued listing. This distinction aims to ensure that companies achieve a sufficient level of maturity before being listed. Additionally, Nasdaq imposes rigorous corporate governance standards that listed companies must adhere to throughout their tenure on the exchange.

Before formally submitting a comprehensive listing application, a company has the option to pursue a preliminary listing eligibility review. In this stage, the Listing Qualifications Staff conducts a thorough examination of the company's public filings to assess its compliance with numerical listing requirements. Additionally, the team evaluates the company's adherence to corporate governance requirements outlined in the Marketplace Rules ("Rules"). This preliminary review provides valuable insights into the company's eligibility for listing on Nasdaq before committing to the full application process.

Upon completion of the preliminary review, the Listing Qualifications Staff will make an assessment regarding whether the company meets the numerical listing criteria. Additionally, any corporate governance or regulatory concerns raised during this phase will be considered to determine their impact on the listing approval. It's important to note that while the preliminary review provides insights, final approval necessitates the submission of a formal listing application. This application undergoes a thorough examination by the NASDAQ Listing Qualifications Staff. Furthermore, the final approval process involves satisfactory compliance with specific qualitative reviews. This includes an examination of the regulatory history of the company's officers, directors, and significant shareholders. Meeting these criteria is integral to obtaining the final approval for listing on Nasdaq.

Financial And Liquidity Requirements

    Requirements

    Equity Standard
    Market Value of Listed Standard
    Net Income Standard

    Listing Rules

    5505(a)
and
5505(b)(1)
    5505(a)
and
5505(b)(2)
    5505(a)
and
5505(b)(3)
    
    Stockholders Equity

    	$5 million
    	$4 million
    	$4 million
    
    The market value of publicly held shares

    $15 million
    $15 million
    $
      5 million
    
    Operating History

    	Two years
    N/A
    N/A
    
    The market value of listed securities

    N/A
    $50 million
    N/A
    
    Net income from continuing operations (in the latest fiscal
a year or in two of the last three
fiscal years)

    N/A
    N/A
    $750,000
    
    Publicly held shares

    	1 million
    	1 million
    	1 million
    
    Bid Price

    	$4
    	$4
    	$4)
    
    Closing Price

    	$3
    	$2
    	$43
    
    Corporate Governance

    Yes
    Yes
    Yes
    
    Total Shareholders

    300
    300
    300

Requirements	Equity Standard	Market Value of Listed Standard	Net Income Standard
Listing Rules	5505(a) and 5505(b)(1)	5505(a) and 5505(b)(2)	5505(a) and 5505(b)(3)
Stockholders Equity	$5 million	$4 million	$4 million
The market value of publicly held shares	$15 million	$15 million	$ 5 million
Operating History	Two years	N/A	N/A
The market value of listed securities	N/A	$50 million	N/A
Net income from continuing operations (in the latest fiscal a year or in two of the last three fiscal years)	N/A	N/A	$750,000
Publicly held shares	1 million	1 million	1 million
Bid Price	$4	$4	$4)
Closing Price	$3	$2	$43
Corporate Governance	Yes	Yes	Yes
Total Shareholders	300	300	300

Corporate Governance Requirements

Across all three tiers of the Nasdaq Stock Market, corporate governance requirements remain largely consistent. The categories encompassing corporate governance standards include:

Distribution of Annual or Interim Reports
Independent Directors
Audit Committee
Compensation Committee
Nomination of Directors
Code of Conduct
Annual Meetings
Solicitation of Proxies
Quorum
Conflict of Interest
Shareholder Approval
Voting Rights

These governance elements play a crucial role in ensuring transparency, accountability, and ethical conduct within listed companies, irrespective of the specific tier within the Nasdaq Stock Market.

Companies seeking listing on Nasdaq must adhere to specific corporate governance standards, including the following:

Compensation Committee with Independent Directors:
- The company is required to establish a compensation committee comprised of independent directors.
- The committee must consist of at least two members.
- Rule 5605(d)(2)(A) introduces an additional independence test for compensation committee members.
Responsibility for Executive Compensation:
- The compensation committee is tasked with determining or recommending to the entire board the compensation of the chief executive officer (CEO) and all other executive officers.

These standards are designed to ensure a level of independence and scrutiny in the decision-making processes related to executive compensation within the company.

The Application And Documents

The Nasdaq application package encompasses several key components:

Symbol Reservation Form:
- Used to request the reservation of a specific trading symbol for the company.
Listing Application:
- Requires supplemental documents and details about the company's financials, operations, and other pertinent information.
Listing Agreement:
- A formal agreement outlining the terms and conditions of the listing on Nasdaq.
Corporate Governance Certification:
- A certification affirming the company's commitment to meeting Nasdaq's corporate governance standards.
Initial Application Fee:
- Payable via check or wire transfer, this fee is a prerequisite for initiating the listing process.
Logo Submission Form:
- Used for submitting the company's logo for use in Nasdaq's materials.

These application forms are completed through the Nasdaq website listing center, utilizing the online platform to facilitate the submission of supplemental and supporting documents. It is advisable to thoroughly review all required paperwork in advance, ensuring that the necessary information is readily available before initiating the application process.

Symbol Reservation Form

The symbol reservation form is a concise, one-page electronic form where applicants input information for Nasdaq's consideration. Nasdaq symbols, limited to 1-5 characters, adhere to guidelines established by the Intermarket Symbols Reservation Authority (ISRA). The ISRA system is designed to organize symbols efficiently, prevent duplication, and reduce programming and operational complexities. The ISRA operates within the framework of the NMS Symbology Plan, a plan utilized by Nasdaq.

Key details about the symbol reservation process:

Symbol Choices:
- The form allows applicants to propose three symbol choices in order of preference.
- While Nasdaq generally honors the first choice if available, it retains the authority to assign, rescind, or reassign a trading symbol at its discretion.
ISRA and Nasdaq Authority:
- The ISRA and Nasdaq have overarching authority in managing the assignment of symbols.
Additional Information:
- The form captures essential details about the issuer and the planned public offering.
- Information may include the name of the attorney, lead underwriter (if applicable), CEO and CFO names, yearly revenues, company website, and the sector in which the company operates.

Completion of this symbol reservation form initiates the process of securing a trading symbol on Nasdaq, and it's essential to provide accurate and comprehensive information to facilitate this stage of the listing application.

The Application

The Nasdaq listing application process is comprehensive and varies based on the circumstances surrounding the listing sought. There are twelve distinct listing applications catering to different situations, including changes of control, switches from other exchanges or markets, spin-offs, and initial public offerings (IPOs). Each application, spanning approximately seven pages, collects detailed information about the company, covering areas such as address, contact and billing details, securities attorney and auditor information, transfer agent particulars, and the company's officers and directors. Specific information on the company's securities, including type, par value, and cusip number, is also required.

Furthermore, the application mandates disclosure of legal proceedings involving the company, its officers or directors, or significant shareholders over the past ten years. This encompasses inquiries, investigations, lawsuits, litigation, arbitrations, and other legal and administrative proceedings. Documents supporting the backup and final disposition of these matters must be provided.

Regarding private offerings within the prior six months, including bridge financings, shelf registrations, and Regulation S offerings, the company is required to disclose such activities. Additionally, the application delves into the company's background, posing questions to ensure compliance with seasoning rules.

While Nasdaq retains the right to request relevant supporting documents, specific documents are mandatory based on the application type. For an uplisting from an existing U.S. market, the application must include letters from three market makers confirming their commitment to making a market in the subject securities. Other required documents include a listing agreement, a logo submission form, a corporate governance certification form, regulatory correspondence over the past 12 months, and shareholder confirmation documents. Nasdaq often seeks confirmation from the company's transfer agent regarding the eligibility of the security for the direct registration program (DRS).

During the review of an up listing application, Nasdaq may request additional information, such as a Broadridge share range analysis and NOBO list, a certified shareholder list, details about mitigating any going concerns or opinions, income statement and/or balance sheet projections for the next 12 months, and confirmation of Sarbanes Oxley Section 302 and 906 certifications by the company, among other inquiries related to compliance and financial matters.

The Listing Agreement

The Listing Agreement is a concise document, spanning two pages, serving as a formal affirmation of the company's commitment to adhere to all rules and regulations set forth by the Nasdaq Stock Market. It includes provisions for indemnifying and holding Nasdaq harmless from liability. Notable points in the agreement include:

Compliance Assurance:
- The company explicitly agrees to comply with all rules and regulations stipulated by the Nasdaq Stock Market.
Indemnification Clause:
- The company indemnifies Nasdaq, meaning it undertakes to compensate or reimburse Nasdaq for any losses or damages incurred. This includes harm resulting from third-party trademark infringement claims related to the company's symbol and logo, as well as Nasdaq's use of the same.
Disclaimer of Warranty and Liability:
- The agreement contains a disclaimer of warranty and liability against Nasdaq for trading issues, with the exception of those resulting from gross negligence or willful misconduct.

This agreement establishes a clear framework for the relationship between the listed company and Nasdaq, emphasizing the company's commitment to regulatory compliance while providing indemnification for certain specified matters and delineating the scope of Nasdaq's liability.

Corporate Governance Certification Form

The corporate governance certification form certifies compliance with the governance requirements related to an audit committee, director nomination process, compensation committee, board composition, executive sessions, quorum, and codes of conduct. Where an exemption applies, the form requires specification of the exemption terms. The document specifies the different rules and exceptions in a check-the-box format.

Logo Submission Form

The logo submission form contains the guidelines for the logo and affirms Nasdaq’s rights to use the same. Nasdaq uses company logos in its marketing materials, on the MarketSite Video Wall and Tower, and websites.

Fees

Entry fees are based upon the aggregate number of shares to be listed at the time of initial listing, regardless of class, with a maximum cap of $75,000. Fees are assessed on the entry date in The Nasdaq Capital Market, except for $5,000, representing a non-refundable application fee. This fee must be submitted with the company’s application.

Nasdaq does not charge application or entry fees for any securities transferred from a national securities exchange.

Benefits Of Trading On An Exchange

There are many benefits to trading on an exchange instead of the OTC Markets. The most significant benefits to a business are the ability to attract analyst coverage and institutional investors and the corresponding increase in liquidity that comes with both. Stocks that trade on Nasdaq tend to have a lower bid/offer spread — again encouraging trading volume and liquidity. Exchange-traded securities are exempt from the penny stock definition, allowing more market maker and broker-dealer participation. As further explained below, a broker-dealer cannot recommend a penny stock transaction to its retail clients. Therefore, no analysts, financial advisors, or institutional investors make recommendations for purchases of penny stocks.

As an aside, this is one of the reasons that OTC Markets created the OTCQX market tier, which does not list penny stocks. It is also why the small-cap industry is pushing for a supported valid venture exchange (for further reading.

In today’s world, depositing stock and/or trade-in non-exchange traded securities is increasingly difficult. Despite the congressional efforts and SEC rulemaking in support of small-cap capital formation (for example, the JOBS Act, including the emerging growth company regulations, new Regulation A+ and Title III Crowdfunding and the new FAST Act), through enforcement and investigative proceedings, both the SEC and FINRA continue to apply pressure on broker-dealers, clearing firms and transfer agents to reduce the secondary trading and free flow of penny stocks. For more information on difficulties in depositing stocks.

Further On Penny Stocks

NASDAQ and NYSE MKT traded securities are exempted from the definition of a “penny stock” due to the initial and ongoing listing standards. Penny stock rules focus on broker-dealers’ activity in effectuating trades in penny stocks. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the “Penny Stock Act”) prohibits broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The rules promulgated thereunder, particularly Exchange Act rules 15g-1 through 15g-100 (the “penny stock rules”).

Section 15(h) of the Exchange Act provides that no broker or dealer may effectuate a customer’s purchase or sale of any penny stock unless such broker or dealer.

Approves the customer for the specific penny stock transaction and receives a written agreement to the transaction from the customer.
Furnishes the customer a risk disclosure document describing the risks of investing in penny stocks.
Discloses to the customer the current market quotation, if any, for the penny stock, including the bid and ask prices and the number of shares that apply to such bid and ask prices.
Discloses to the customer the amount of compensation the firm and its broker will receive for the trade.

In addition, after executing the sale, a broker-dealer must send its customer monthly account statements showing the market value of each penny stock held in the customer’s account.

Moreover, brokers and dealers subject to the penny stock rules are subject to additional disclosure requirements outlined in Rules 15g-2 through 15g-9. For my information on penny stocks and the rules affecting broker-dealer activity.

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