On September 26th, 2016, the Securities and Exchange Commission (“SEC”) filed a Complaint for Injunctive and Other Relief against Craig V. Sizer (“Sizer”) and Miguel Mesa (“Mesa”) (collectively referred to as the “Defendants”), for violating federal securities laws (the “complaint”). The Defendants specifically violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (“the Exchange Act”), Rule 10b-5 thereunder, and Section 15(a) of the Exchange Act. The Complaint alleges that the Defendants broke these antifraud and broker-dealer registration laws by deceiving over 600 investors of approximately $20 million and misappropriating the vast majority of these funds for personal use.
According to the Complaint, beginning in 2009 and continuing through August 2015, Sizer, former co-founder and former Chief Executive Officer of Sanomedics Inc. (“Sanomedics”) and former President and Board Director of Fun Cool Free Inc. (“Fun Free Cool”) (collectively referred to as the “Companies”), orchestrated the fraudulent sale of shares in both Companies. This fraud involved equipping sales agents with materially misleading statements in relation to how investor capital would be spent. According to the Complaint, Sizer hired Mesa to market these companies to investors. Mesa oversaw boiler-room operations for sales agents, and provided them with scripts used to cold call prospective investors and fraudulently convince them to purchase shares in Sanomedics and Fun Cool Free.
The Complaint alleges, Sizer and Mesa used these tactics on many elderly, and financially illiterate investors. They hired and directed Seven (7) or more sales agents, who purchased lists of contact numbers for individuals they believed possessed resources to invest, such as those who recently inherited sums of money. Mesa told these sales agents that they did not need to be registered in order to sell stock. These agents sold restricted stock to investors, ranging in prices from $0.05-$2.50 per share, while promising them outlandish profits and making untrue statements that they were buying the stock at a discount to the market. Investors were also told that no fee or commission would be charged, while in actuality, Mesa paid 15-20% of the funds he misappropriated to the sales agents in the form of commissions. Sizer was not, and never has been, registered as a broker despite courting investors personally. Additionally, in 2004 and 2006 Mesa was charged in separate civil injunctive actions by the Commodities Futures Trading Commission (“CFTC”) for fraudulent activity in relation to trading futures and contracts. He was permanently barred from the commodities industry. Both currently and during the relevant time period, Mesa was not registered as a broker or associated with a broker-dealer.
Sanomedics is a Delaware based corporation, although its operations are based in Miami, Florida. It allegedly develops and sells “non-contact infrared thermometers,” however it purportedly conducts sales of its Non-Contact Caregiver thermometer through a separate company, Thermomedics Inc. (“Thermomedics”). Sanomedics itself became publicly traded through a reverse merger with a public shell company, and fits the criteria of a “penny stock” given that its public valuation never exceeded $1.00 and did not have any tangible assets exceeding $5,000,000. Sanomedics states on the Over The Counter (“OTC”) exchange that its operations are conducted through a separate company Thermomedics. According to the SEC, Sanomedics went public through the purchase of a shell company that had already achieved public status—a reverse merger. The SEC complaint questions what exactly Sandomedics does besides collect investors’ money, given that all its operations are conducted through subsidiary Thermomedics and its public status was achieved through taking on the mantle of another company.
Fun Cool Free is a purported distributor of software applications (“apps”), and was incorporated in Delaware in November 2014. Sizer was President and Director of Fun Cool Free until August 2015. Fun Cool Free is not listed as publicly traded, and investors were sold preferred shares with the prospect of a future public offering.
Sizer and Mesa misappropriated approximately 90% of investor funds that were raised for personal use, or to pay sales agents commissions, while telling investors said funds would be invested directly in the Companies. In addition, Mesa actively concealed from investors the auxiliary nature of his boiler-room operations, instructing sales agents to represent themselves as Sanomedics and Fun Cool Free employees, rather than external sales agents hired exclusively to pitch stock. Defendant Mesa was not registered with the SEC as a broker during this time period, and Defendant Sizer hired him despite being aware of this fact.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of investment and securities fraud. If you are a victim of fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.