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Univ. of Toledo College of Law

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Friday, September 28, 2007

SEC Obtains Summary Judgment Against E-Brain Solutions

The SEC announced today that the federal district court for the Northern District of Georgia granted the Commission's renewed motion for summary judgment and entered a final judgment against Peter Warren and Exo-Brain, Inc. ("Exo-Brain"), formerly known as E-Brain Solutions, LLC ("E-Brain LLC") on September 27, 2007. Warren and Exo-Brain were each ordered to pay disgorgement of $6,400,000, pre-judgment interest in the amount of $1,981,734.50 and civil penalties of $75,000. The defendants were ordered to pay these amounts within 30 days from the entry of the judgment. The Court made specific findings of fact and conclusions of law regarding Warren's conduct in the fraudulent offer and sale of unregistered Exo-Brain securities.

The court's order found that in 2000 and 2001, the defendants raised up to $12.4 million from investors in a series of fraudulent, unregistered offerings of securities. The court concluded that the defendants made misrepresentations and omissions of material facts to investors in connection with the offer and sale of securities including, among other things, misrepresenting the capabilities and developmental status of the technology, misrepresenting the company's financial condition, and that the defendants disregarded warnings of legal counsel recommending against further efforts to raise funds from investors. Additionally, the court found that in their May 2000 financial statement, the defendants failed to disclose to investors that E-Brain LLC lost money at a considerably faster pace than depicted in the limited financial statements provided to investors, and that the statement only reflected the results of operation for the first month of the company's existence. The court also found that E-Brain LLC, in order to fund its operation, had to seek investor funds six times in calendar year 2000. The court concluded that in the defendants' first offer to investors dated December 10, 1999, Warren falsely claimed that a prototype had been developed which could, among other things, send e-mails and faxes and browse the Internet, when, in fact, no prototype with these abilities had been developed.

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