Corporate & Securities Law

SEC Charges Attorneys And Others In Connection With Issuing Bogus Rule 144 Opinion Letters As Part Of A Legal Opinion Mill

By James Eccleston

The Securities and Exchange Commission has charged attorneys for fraudulent legal opinions used by promoters in Pump-and-Dump scheme:

The SEC alleges that attorneys Albert Rasch, Jr. and Kathleen Novinger together with Sandra Masino and her company 144 Opinions, Inc. drafted and executed at least 24 legal opinion letters that fraudulently induced the removal of restrictive legends on unregistered shares of Mobile Ready Entertainment Corp.  As a result, certificates representing more than 22 million shares of Mobile Ready were sold to the public in violation of Rule 144, which governs the conversion of restricted stock that otherwise cannot be sold to the public.  The SEC previously charged Mobile Ready and two of its officers in connection with the fraudulent pump-and-dump scheme that was made possible, in part, by the bogus opinion letters.

"The market relies on lawyers to act as gatekeepers who exercise their function in good faith," said Katherine Addleman, Regional Director of the SEC's Atlanta Regional Office.  "As alleged in our complaint, these defendants disregarded the investing public by operating a legal opinion mill of fraudulent letters that misrepresented critical facts and cited to non-existent documents."

The SEC's complaint, filed in the U.S. District Court for the Northern District of Georgia, alleges that after the fraudulent letters were prepared and issued, Masino and 144 Opinions made further false statements to a transfer agent to induce the removal of the restrictive legends on the respective shares of Mobile Ready.  The fraudulent legal opinion letters contained false and misleading statements about the origin of the securities at issue, the existence of adequate public information concerning Mobile Ready, the existence of agreements between Mobile Ready and the relevant shareholders, and the applicability of Rule 144 promulgated under the Securities Act of 1933 to the restricted shares identified in each of the Mobile Ready Legal Opinions.

Source:  SEC Press Release 2009-103

Full post as published by FinancialCounsel on May 11, 2009 (boomark / email).