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CA District Court Issues Summary Judgment to SEC, Imposes Sanctions Against Indigenous Global and Its CEO
SEC v. Indigenous Global Development Corporation, et al.
Civil Action No. C-06-5600-JCS, U.S. District Court for the Northern District of California, 06/30/2008
Companies Mentioned: Indigenous Global Development Corp.
Holding
The U.S. District Court for the Northern District of California of California issued a summary judgment against Indigenous Global Development Corporation (“IDGC”) and its former Chairman and CEO on claims that they misled investors about the company's expected revenues and its sources of financing. Specifically, the order found IGDC and Deni G. Leonard liable for fraud in connection with the purchase and sale of IGDC securities. According to the district court, undisputed evidence established that Leonard and IGDC made a series of statements, in press releases and SEC filings, about various natural gas purchases and financing deals. Because they were made in press releases and filings with the Securities and Exchange Commission (“SEC”), they satisfied the requirement that the statements must be made in connection with the purchase and sale of securities. On the basis of these findings, the district court enjoined Leonard from violations of securities laws; required him to pay disgorgement of $249,793.68 (representing the proceeds from his sales of IGDC stock to the public during the course of his fraud) plus prejudgment interest of $37,586.84; imposed a monetary penalty of $249,793.68; prohibited Leonard from serving as an officer or director of any public company; and also prohibited Leonard from involvement in the offering of any penny stock.
Detailed Summary
This action involves alleged violations of securities laws by defendant Indigenous Global Development Corporation (“IGDC”), a Native American majority owned public corporation, and its CEO, defendant Deni G. Leonard. In its complaint, the SEC alleged that IGDC and Leonard raised more than $2 million from investors through a series of materially false and misleading statements about IGDC’s purported natural gas business. IGDC, based in San Francisco, California, promoted itself as the first public company in the United States majority-owned by Native Americans and continually hyped its progress on strategic initiatives which it claimed would provide a better future for Native American communities. IGDC in fact was teetering on the brink of extinction. It never earned any revenue, had no significant assets, and was dependent on funding from investors. It is now essentially defunct, according to the SEC’s complaint.
The SEC further alleged that to continue attracting investors, IGDC and Leonard made a series of false statements in press releases and SEC filings about IGDC’s ability to purchase gas from indigenous peoples in Canada at a discount and then resell that gas into the United States for a significant profit. These statements were designed to keep investors falsely believing that IGDC was poised to reap millions from its natural gas program.
For example, IGDC in 2004 falsely promoted a Canadian company’s agreement to attempt to buy natural gas on its behalf by describing the agreement as a contract that allowed IGDC to purchase and sell 90 billion cubic feet of natural gas from Canada into the United States in the next fiscal year. The Canadian company, however, had no gas to sell to IGDC. In 2005, IGDC embellished the terms of preliminary agreements with two Canadian indigenous groups to explore the purchase and sale of their natural gas by falsely claiming the groups already had agreed to sell it natural gas worth $9 to $15 million. IGDC also misrepresented its ability to pay for the natural gas. In 2005, for example, IGDC exaggerated an investment group’s preliminary interest in purchasing products from IGDC by falsely telling the public it had obtained a $100 million investment for its energy programs.
The complaint charged that IGDC and Leonard violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. It also charges that Leonard violated Rule 13a-14 under the Exchange Act. The SEC sought disgorgement of ill-gotten gains, civil money penalties, and injunctive relief against both defendants, and seeks to bar Leonard from participating in an offering of penny stock and from serving as an officer or director of a public company.
The SEC requested for a summary judgment against Leonard and IGDC. In the alternative, it sought entry of summary judgment as to Leonard and default judgment as to IGDC. Leonard filed an opposition in which he asserted numerous defenses, including the following: 1) IGDC staff were inexperienced and though there may have been “timing mistakes,” there was no intent to mislead the public; 2) SEC attorneys acted improperly, including making racial statements against Leonard, using disgruntled IGDC employees as witnesses and making slanderous statements about Leonard to the San Francisco Chronicle; 3) the SEC has a history of violating the rights of American Indian Tribes; and 4) IGDC staff members who had access to Leonard’s personal stamp approved stock transfers and sales without Leonard’s approval.
In issuing summary judgment to the SEC, the district court found that undisputed evidence established that Leonard and IGDC made a series of statements, in press releases and SEC filings, about various natural gas purchases and financing deals. Because they were made in press releases and SEC filings, they satisfied the requirement that the statements must be made in connection with the purchase and sale of securities. Order, p. 17, citing SEC v. Rana Research, Inc., 8 F.3d 1358, 1362 (9th Cir. 1993). The statements were also false and misleading, the district court wrote.
The order stated that Leonard committed fraud in connection with the purchase and sale of securities, in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; issued false certifications as to the accuracy of IGDC filings with the Commission, in violation of Exchange Act Rule 13a-14; and aided and abetted IGDC in making filings with the Commission that were materially inaccurate, in violation of Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13.
According to the district court’s order, IGDC claimed, among other things, to be involved in the purchase and sale of natural gas, with the goal of providing “financial self-sufficiency for Native Americans … and indigenous people worldwide.” The district court found, that from May 2003 through September 2005, in a series of press releases and in filings with the Commission, IGDC and Leonard falsely told investors that IGDC had contracts to purchase and sell millions of dollars in natural gas and also had access to millions of dollars in financing. In fact, the Court found, IGDC was a start-up company that had no revenues and no significant contracts or sources of financing.
On the basis of these findings, the district court enjoined Leonard from violations of securities laws; required him to pay disgorgement of $249,793.68 (representing the proceeds from his sales of IGDC stock to the public during the course of his fraud) plus prejudgment interest of $37,586.84; imposed a monetary penalty of $249,793.68; prohibited Leonard from serving as an officer or director of any public company; and also prohibited Leonard from involvement in the offering of any penny stock.
View a PDF of the judicial opinion.Service
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