The Securities and Exchange Commission today announced a second round of charges against individuals behind a boiler room scheme that hyped a company whose new technology was purportedly Super Bowl-bound.
The SEC previously charged the operators of the scheme based in the South Florida and Los Angeles areas. Seniors and other investors were pressured into purchasing stock in Thought Development Inc. (TDI), an unaffiliated Miami Beach-based company that stated its signature invention is a laser-line system that generates a green line on a football field for a first-down marker visible not only on television but also to players, officials, and fans in the stadium.
The SEC today is additionally charging four executives who helped make the scheme possible and three companies they operate – DDBO Consulting, DBBG Consulting, and CalPacific Equity Group. Approximately $1.7 million was raised through these companies from more than 110 investors who were told that an initial public offering (IPO) in TDI was imminent and that their money would be used to develop the groundbreaking technology. Instead, the SEC alleges that the IPO was not forthcoming as promised, and at least 50 percent of the offering proceeds were merely retained by these companies or paid to sales agents through undisclosed commissions and fees. Certain executives, their sales agents and their companies lured investors by misrepresenting that TDI’s technology was about to be used by the National Football League (NFL). One investor even made an additional $75,000 investment on top of an initial $2,500 investment after being told that NFL Commissioner Roger Goodell purchased TDI’s technology for use in the 2013 Super Bowl. In fact, there was no such arrangement.
“These sales agents misled investors to believe that TDI was on the brink of having its technology used in football stadiums across the country,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “In reality, TDI had not reached any agreements with the NFL or any team to feature its technology during any games, and certainly not at the Super Bowl.”
The SEC’s complaints charge brothers Dean R. Baker of Coral Springs, Fla., and Daniel R. Baker of Valley Village, Calif., along with Bret A. Grove of Delray Beach, Fla., and Demosthenes Dritsas of Newhall, Calif.
In parallel actions, the U.S. Attorney’s Office for the Central District of California announced criminal charges against Daniel Baker and Dritsas, and the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Dean Baker and Grove as well as Peter Kirschner and Stuart Rubens. The latter two were charged by the SEC in its initial complaint filed last year. Dean Baker was previously barred from association with any FINRA member firm in 2006.
According to the SEC’s complaint filed in federal court in Miami against Dean Baker, Grove, DDBO Consulting, and DBBG Consulting, they entered into an agreement with Kirschner to solicit investors and sell TDI stock. Baker is president of DDBO Consulting and DBBG Consulting, and Grove is vice president of DBBG. They recruited, hired, and supervised sales agents who were paid transaction-based compensation in connection with the offer and sale of TDI stock. Grove misled investors about the use of proceeds by not disclosing fees of more than 50 percent, while Baker and sales agents falsely promised investors guaranteed returns from a purportedly pending IPO. The sales agents further claimed that TDI’s laser-line technology would be used by the NFL, and Baker himself falsely told an investor in January 2012 that TDI’s technology would be used during the NFL’s upcoming preseason.
According to the SEC’s complaint filed in federal court in Los Angeles against Daniel Baker, Dritsas, and their firm CalPacific Equity Group, they similarly entered into agreements with Kirschner to act as sales agents to offer and sell TDI stock. Daniel Baker told an investor that the proceeds would go “directly to the business” and no more than “ten cents on every dollar of investor money” would be used as a commission or other fee. Dritsas told the same investor that he would not charge any commission for a trade – “not even a dime” – when in fact CalPacific received 50 percent of the investor’s proceeds as commissions or other fees.
“The Bakers and others falsely claimed that an IPO was just around the corner for TDI, and they further enticed investors by saying there were extracting just minimal fees or commissions while more than half the money actually wound up in sales agents’ wallets,” said Glenn S. Gordon, associate director of the SEC’s Miami Regional Office. “We will continue to bring actions against those who target seniors and other groups vulnerable to investment fraud.”
The SEC’s complaints allege violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 as well as Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5.
The defendants have all agreed to settle the SEC’s charges, while Daniel Baker and Dritsas have also entered into plea agreements in criminal cases relating to matters alleged in the complaint in this action.
The SEC’s investigation has been conducted by Kevin B. Hart, Fernando Torres and Mark Dee in the Miami office, and supervised by Jason R. Berkowitz. The investigation followed an SEC examination conducted by Anson Kwong, Michael Nakis and George Franceschini under the supervision of Nicholas A. Monaco and the oversight of John C. Mattimore. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Florida, the U.S. Attorney’s Office for the Central District of California and the Federal Bureau of Investigation.