Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, May 6, 2008

Court Enjoins Stun Gun Manufacturer from Securities Fraud

The United States District Court for the Northern District of Georgia entered a Final Judgment against Stinger Systems, Inc. (“Stinger”), enjoining it from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Stinger consented to the entry of the final judgment without admitting or denying any of the allegations of the Commission’s Complaint.  The SEC alleged that from October 2004 through March 2005, Stinger and its president, Robert F. Gruder, made a series of fraudulent material misrepresentations and omissions regarding Stinger’s “flagship” stun gun product. According to the Complaint, the misrepresentations consisted of press releases and direct mailings to thousands of law enforcement officers and agencies, suggesting that Stinger was manufacturing, selling and shipping its stun gun. In fact, the product was still in the development phase. The Complaint further alleged that the misrepresentations consisted of statements on the Stinger’s website and/or in industry publications that indicated Stinger’s stock was trading on NASDAQ, when in fact it was not. The Complaint also alleged that Stinger and Gruder misrepresented that the Bureau of Alcohol, Tobacco and Firearms (“ATF”) certified Stinger’s stun gun, even though the ATF offered no such certification. According to the Complaint, these misrepresentations caused a spike in the trading volume and price for Stinger’s shares once it began publicly trading in November 2004.

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