Securities Law Prof Blog

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

Tuesday, September 29, 2009

SEC Charges Virtual Reality Company with Fraudulent Offerings

The SEC filed a civil injunctive action against a virtual reality technology company, its principals, and three former sales agents for conducting a fraudulent offering scheme that garnered investors primarily through telemarketer sales out of a boiler room in the company's Delray Beach, Fla., offices.  The SEC alleges that 3001 AD, LLC and these individuals raised approximately $20 million from about 500 investors nationwide through a maze of unregistered offerings that hyped the company's supposedly promising virtual reality products, including a helmet system tracking players' head movements to provide a 360-degree view in a video game. Investors were told in the offering materials that the sales commissions paid on their investments were dramatically less than they actually were. An imminent Initial Public Offering (IPO) was repeatedly hyped to investors while no steps were actually being taken toward going public. Prestigious business relationships between 3001 AD and Microsoft, Apple, and former Disney CEO Michael Eisner were touted to investors even though such relationships never existed.

The SEC's complaint, filed in U.S. District Court for the Southern District of Florida, charged 3001 AD, LLC; its principals Jimmy L. Barker, Robert J. Ladrach and Marc S. Rifkin; and three former sales agents Ronald B. Bowsky, Jack W. Maddock and Michael J. Weidgans with making several material misrepresentations and omissions to investors in the offer and sale of units of 3001 AD and a myriad of general partnerships.

The SEC's enforcement action charges 3001 AD and the defendants with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, thereunder, and charges Barker, Rifkin, Bowsky, Maddock and Weidgans with violating Section 15(a) of the Exchange Act. The SEC is seeking permanent injunctions, disgorgement and financial penalties against all defendants and the imposition of officer and director bars against Barker, Ladrach, and Rifkin

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