Securities Law Prof Blog

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

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Thursday, August 28, 2008

ALJ Orders Cease and Desist of Illegal Stock Option Programs

An administrative law judge ordered James Y. Lee to cease and desist from violations of the registration provisions of the securities laws and to disgorge $2,866,375 of ill-gotten gains. From 2002 to 2005, Lee advised and guided several microcap issuers in raising millions of dollars by selling their common stock to the public in violation of the registration requirements.  Lee introduced at least fourteen clients (the Issuers) to so-called employee stock option programs, under which the Issuers sold billions of shares of common stock in unregistered offerings. Under the programs, the Issuers improperly registered the shares underlying the stock options on Form S-8 registration statements and then received the bulk of the sales proceeds as payment for the options’ exercise price. Lee introduced the programs to the Issuers, helped implement the programs, and provided advice on how to administer the programs, even though he knew, or should have known, that his conduct was contributing to the Issuers’ registration violations.

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