"Rudy” Film Inspiration, 12 Others Held Liable for Pump-and-Dump Corporate Vehicle

The Securities and Exchange Commission has charged Daniel Ruettiger and 12 other participants in a scheme to deceive investors into buying stock in his sports drink company. Ruettiger is widely known for having inspired the 1993 motion picture “Rudy.”

According to the SEC’s complaint filed in federal court in Las Vegas, Ruettiger founded Rudy Nutrition to compete with Gatorade in the sports drink market. Rudy Nutrition produced and sold modest amounts of a sports drink called “Rudy” with the tagline “Dream Big! Never Quit!” However, the company primarily served as a vehicle for a pump-and-dump scheme that occurred in 2008 and generated more than $11 million in illicit profits.

The SEC alleges that investors were provided false and misleading statements about the company in press releases, SEC filings, and promotional materials. For example, a promotional mailer to potential investors falsely claimed that in “a major southwest test, Rudy outsold Gatorade 2 to 1!” A promotional e-mail falsely boasted that in “several blind taste tests, Rudy outperformed Gatorade and Powerade by 2:1.”

Meanwhile, the scheme’s promoters engaged in manipulative trading to artificially inflate the price of Rudy Nutrition stock while selling unregistered shares to investors. The SEC suspended trading and later revoked registration of the stock in late 2008. Rudy Nutrition is no longer in business.

“Investors were lured into the scheme by Mr. Ruettiger’s well-known, feel-good story but found themselves in a situation that did not have a happy ending,” said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement. “The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special.”

According to the SEC’s complaint, Ruettiger was the principal founder and namesake of a company called Rudy Beverage Inc. that he and a college friend ran out of South Bend, Ind. until October 2007, when Rocky Brandonisio became the company’s president and day-to-day business manager. He moved the company’s operations to Las Vegas, where he and Ruettiger live. Ruettiger remained CEO. During this time, the company struggled financially with few customers, few assets, and no profits.

The SEC alleges that Ruettiger and Brandonisio brought in an experienced penny stock promoter named Stephen DeCesare to orchestrate a public distribution of company stock in late 2007. Ruettiger knew DeCesare from previous business dealings, and they were neighbors in Las Vegas. Ruettiger and Brandonisio gave DeCesare sufficient control to turn Rudy Beverage into a publicly traded company. DeCesare became the primary organizer of the resulting pump-and-dump scheme.

According to the SEC’s complaint, DeCesare identified a shell corporation quoted on the Pink Sheets for use in what’s known as a reverse merger, which occurs when a private company acquires a public company (typically a shell company) in order to become publicly-traded. DeCesare tasked a business consultant named Kevin Quinn with executing the merger and working with the company’s transfer agent to issue purportedly unrestricted stock.

On Feb. 11, 2008, they acquired the shell company in a reverse merger and changed its name to “Rudy Nutrition.” Ruettiger authorized his signature to be placed electronically on an SEC filing four days later, and Rudy Nutrition began to be quoted on the Pink Sheets on Feb. 21, 2008, under the ticker symbol RUNU. DeCesare and Quinn, who is a disbarred California lawyer, arranged for three billion RUNU shares to be issued to nominee entities, which sold almost one billion shares to unsuspecting investors in the public market during the scheme.

The SEC alleges that DeCesare then organized the efforts to pump RUNU stock by partnering with other penny stock promoters to inflate the price and volume artificially through fraudulent touting and manipulative trading. The scheme’s participants made a series of false or misleading statements about RUNU to the public in mailers sent to millions of U.S. investors, messages posted in Internet chat rooms dedicated to penny stocks, and videos placed on the Internet for public viewing. False and misleading statements about the company also were made in press releases and filings with the SEC.

These disingenuous promotional efforts had the predictable effect of attracting buyers to RUNU stock. In less than a month, RUNU went from trading 720 shares to more than 3 million shares, and within two weeks the price of RUNU stock climbed from 25 cents to $1.05 per share. After March 12, 2008, RUNU stock began a roller coaster ride as the scheme’s participants sold millions of RUNU shares to the market amid their simultaneous efforts to pump the stock.

According to the SEC’s complaint, the scheme eventually ended when the SEC issued a trading suspension against RUNU on Sept. 12, 2008 for delinquent periodic filings. Only days before the trading suspension, arrangements were being made to issue another two billion shares that scheme participants planned to dump on the market at the end of September 2008. But they were unable to do so because of the SEC’s trading suspension. The SEC revoked the registration of Rudy Nutrition securities on Nov. 14, 2008.

Ruettiger and 10 of the scheme’s other participants have agreed to settle the SEC’s charges without admitting or denying the allegations. The settlements, which are subject to court approval, impose penny stock bars and officer-and-director bars as appropriate. Ruettiger agreed to pay $382,866 in settling the charges, and other participants consented to final judgments also ordering disgorgement, prejudgment interest, and financial penalties.

In addition to Ruettiger, Brandonisio, DeCesare, and Quinn, the SEC’s complaint charges the following participants in the scheme:

- Pawel P. Dynkowski is a stock promoter who manipulated the price of Rudy Nutrition stock using wash sales, matched orders, and other trading coordinated with the issuance of false company press releases.

- Kevin S. Kaplan was the CFO of Rudy Nutrition. He authorized the issuance of company shares to nominee accounts used by others to sell the unregistered stock.

- Gregg R. Mulholland is a stock promoter who made false statements about the company in mailers sent to two million households. He controlled nominee accounts that sold shares in the scheme.

- Mehmet Mustafoglu was a consultant to Rudy Nutrition who sold unregistered shares of Rudy Nutrition.

- Joseph A. Padilla is a stock promoter and former registered representative at broker-dealer Scottsdale Capital Advisors. He sold unregistered shares of Rudy Nutrition.

- Angelo R. Panetta is a stock promoter who as part of the scheme made false statements about the company on an Internet radio show and in an Internet chat room.

- Andrea Ritchie was a registered representative at broker-dealer Scottsdale Capital Advisors. She sold Rudy Nutrition shares for others without conducting a reasonable inquiry into the registration status of the shares.

- Chad P. Smanjak is a stock promoter who directed Dynkowski’s manipulative trading and controlled a series of Panamanian companies that sold shares during the scheme.

- Gary Yocom was a registered representative at broker-dealer Thomas Anthony & Associates, which is no longer in business. He sold Rudy Nutrition shares for others without conducting a reasonable inquiry into the registration status of the shares.

Charges against Dynkowski and Smanjak are not settled, and litigation against them continues.

Without admitting or denying the allegations in the complaint, nine of the defendants – Ruettiger, Brandonisio, DeCesare, Kaplan, Mustafoglu, Padilla, Panetta, Quinn, and Yocom—have agreed to final judgments, which are subject to Court approval:

- Ruettiger has consented to a final judgment that orders disgorgement of $185,750, prejudgment interest of $11,366, and a civil penalty of $185,750, bars him from participating in the future offering of any penny stock, bars him from acting as an officer or director of a public company, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5;

- Brandonisio has consented to a final judgment that orders a civil penalty of $50,000, bars him from participating in the future offering of any penny stock, bars him from acting as an officer or director of a public company, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

- DeCesare has consented to a final judgment that orders disgorgement of $1,341,366 and prejudgment interest of $108,744, bars him participating in the future offering of any penny stock, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

- Kaplan has consented to a final judgment that orders a civil penalty of $25,000, bars him from participating in the future offering of any penny stock, bars him from acting as an officer or director of a public company for a period of five years, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

- Mustafoglu has consented to a final judgment that orders disgorgement of $363,603, prejudgment interest of $31,765, and a civil penalty of $40,000, bars him from participating in the future offering of any penny stock, and permanently enjoins him from violating Sections 5(a) and 5(c) of the Securities Act.

- Padilla has consented to a final judgment that orders disgorgement of $197,427, prejudgment interest of $18,128, and a civil penalty of $100,000, bars him from participating in the offering of any penny stock for a period of three years, and permanently enjoins him from violating Sections 5(a) and 5(c) of the Securities Act. Additionally, in related administrative proceedings, Padilla has consented to a Commission Order barring him from association with any broker or dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of three years.

- Panetta has consented to a final judgment that orders disgorgement of $175,000 and prejudgment interest of $21,692, bars him participating in the future offering of any penny stock, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

- Quinn has consented to a final judgment that orders disgorgement of $197,286 and prejudgment interest of $17,755, and permanently enjoins him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5.

- Yocom has consented to a final judgment that orders disgorgement of $166,250 and prejudgment interest of $20,608, bars him from participating in the offering of any penny stock for a period of three years, and permanently enjoins him from violating Sections 5(a) and 5(c) of the Securities Act. Additionally, in related administrative proceedings, Yocom has consented to a Commission Order barring him from association with any broker or dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of three years.

In addition, two defendants – Mulholland and Ritchie – have agreed to bifurcated judgments which are subject to Court approval:

- Mulholland has consented to a judgment that bars him from participating in the future offering of any penny stock, permanently enjoins him from violating Sections 5(a), 5(c), 17(a), and 17(b) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5, and provides that upon subsequent motion the Court will determine issues relating to monetary relief.

- Ritchie has consented to a judgment that bars her from participating in the offering of any penny stock for a period of three years, permanently enjoins her from violating Sections 5(a) and 5(c) of the Securities Act, and provides that upon subsequent motion the Court will determine issues relating to monetary relief. In related administrative proceedings, Ritchie has also consented to a Commission Order barring her from association with any broker or dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of three years.

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