SEC Prevails on Summary Judgment In Manipulation Case
The SEC prevailed on summary judgment in a manipulation case centered on the shares of a firm which operated under the name Marley Coffee — a name which linked back through Rohan Marley to his famous father, Bob Marley who is not involved here. The case was based on a pump-and-dump manipulation scheme, apparently executed in part to finance the company. SEC v. Jammin’ Java Corp., Civil Action No. 2:15-cv-08921 (C.D. Cal. Ruling May 31, 2017).
The action named as defendants the company, Shane Whittle, Wayne Weaver, Michael Sun, Rene Berlinger Stephen Wheatley, Kevin Miller, Mohammed Al-Barwani, Alexander Hunter and Thomas Hunter. The company was formed through a reverse merger with Global Electronic Recovery Corp., supposedly a waste management company. The shares were quoted in the OTC BB. Mr. Whittle served as CEO, Treasurer, Secretary and director of the company. Each of the other named defendants is a foreign national.
Beginning in 2010 Mr. Whittle, who arranged the reverse merger and held a controlling block of stock, exploited his position by coordinating an illegal offering and fraudulent promotion of the stock. Key was a financing arrangement publicized by the firm in 2010 under which Jammin Java supposedly obtained $2.5 million in financing from a company called Straight Path. In fact Straight Path did not exist. Prior to the deal announcement the share price for Jammin Java was $0.17 per share. Following the announcement it climbed to $0.50 per share. Before the claimed financing, there was virtually no share trading. After the deal announcement trading volume increased from transactions by entities affiliated with Mr. Weaver.
From late February to early April 2011 about 45 million shares were sold into the public markets by Mr. Weaver and the other defendants. These transactions yielded about $77.6 million in profits. Portions of those proceeds were used to make the payments that were suppose too come from Straight Path but which actually came from Blue Leaf Capital Ltd., and Chilli Capital Ltd. The former was controlled by Mr. Weaver; the latter by co-defendant Kevin Miller. The share price eventually collapsed from a high of $5.42 on May 12, 2011 to a low of $0.27 on December 30, 2011. The complaint alleged violations of Securities Act Sections 5(a) and 5(c) and Exchange Act Sections 10(b), 13(d), 16(a) and 17(b). The case is pending.
In moving for summary judgment against Mr. Weaver, the SEC had the initial burden of producing admissible evidence showing that there was no genuine dispute of material fact and that it was entitled to judgment as a matter of law. Since Mr. Weaver invoked his Fifth Amendment right not to testify, an adverse inference can be drawn against him. In this context while the SEC retained the burden of producing admissible evidence, it must be construed in the light most favorable to the agency.
The SEC has sustained its burden. The key evidence in this case was submitted by the Commission in the form of documents summarized in an affidavit by one of its investigators. For the affidavit to be admissible the underlying documents supporting it must be admissible. This requirement was met, the Court concluded.
Turing to the substantive charges, the Court concluded that the Commission met its burnden with respect to each of its three claims. First, with respect to its claim that Mr. Weaver sold unregistered securities in violation of Securities Act Section 5, there was no evidence that the shares were ever registered with the Commission. The evidence also established that Mr. Weaver, through his entities, sold the shares in the open market. Accordingly, the SEC established that he violated Securities Act Section 5.
Second, the Commission established that Mr. Weaver violated Exchange Act Section 13d. Under that Section the beneficial owner of more than 5% of a company’s stock is required to file a Schedule 13D disclosure statement. The undisputed evidence establishes that Mr. Weaver, through his companies, owned more than 5% of Jammin Java’s stock between March 8, 2011 and April 27, 2011. Yet no filing was made. Thus the Court found that Mr. Weaver violated Section 13d.
Finally, the Court concluded that Mr. Weaver violated Exchange Act Section 10(b) based on his participation in the Straight Path financing arrangement. The scheme was clearly deceptive. When “Jammin Java announced that it had secured an investment of $2.5 million from a company called Straight Path, it neglected to mention that (1) Straight Path did not exist and had no money or bank account and (2) the financing would come from other companies, after those companies dumped Jammin Java stock on the public market. These facts would have been material to a reasonable investor” the Court found. Since the other elements of a claim were not contested, the Court found in favor of the SEC on this claim and granted summary judgment.