Securities Law Prof Blog

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

Thursday, May 28, 2009

SEC Charges Pegasus Wireless Officers with Pump & Dump Scheme

The SEC filed securities fraud charges against Pegasus Wireless Corporation, former CEO Jasper Knabb, and CFO Stephen Durland alleging they defrauded investors by illegally selling millions of Pegasus shares they secretly controlled and lying about the transactions in company filings.  According to the SEC's complaint, Knabb and Durland created Pegasus from a dormant shell company and then touted several acquisitions in a series of press releases, causing Pegasus' stock price to soar and briefly giving it a market capitalization of over $1.4 billion. Unbeknown to investors, however, Knabb and Durland secretly controlled millions of Pegasus shares through nominees. The nominees unloaded the shares and funneled the proceeds to Knabb, Knabb's wife, and Durland. Knabb and Durland together reaped more than $30 million through their scheme. Pegasus, meanwhile, saw its share price steadily decline to under a penny and filed bankruptcy.

As alleged in the complaint, Knabb and Durland reported none of these nominee transactions in reports with the SEC and instead falsely told investors they owned only minimal amounts of stock. The SEC further alleges that Knabb and Durland falsely claimed in numerous SEC filings that much of the stock was issued to satisfy a business debt, when in reality this "debt" was entirely fabricated through phony documentation.

The SEC's complaint, filed in federal court in San Francisco, alleges Pegasus, Knabb, and Durland violated, or aided and abetted violations of, both the Securities and Securities Exchange Act.

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