BULLETIN: The SEC has charged Daniel “Rudy” Ruettiger and 12 others — including a disbarred attorney — in an alleged penny-stock swindle that gathered $11 million.
The civil case is filed in U.S. District Court in Nevada.
Ruettiger, 63, of Las Vegas, was the inspiration behind the movie “Rudy,” which depicted his drive to make the Notre Dame football team as a walk-on despite being undersized.
A motivational speaker who became famous after the movie, Ruettiger founded a company known as Rudy Nutrition, positioning its sports drink against Gatorade, the SEC said. The stock traded under the symbol RUNU, and stock promoter Stephen DeCesare of Las Vegas “put the RUNU scheme together,” the agency charged.
“Investors were lured into the scheme by Mr. Ruettiger’s well-known, feel-good story but found themselves in a situation that did not have a happy ending,” said Scott W. Friestad, associate director of the SEC’s Division of Enforcement. “The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special.”
The SEC identified the disbarred attorney as Kevin J. Quinn of Santa Monica, Calif.
As part of the scheme, the SEC said, potential investors received a promotional mailer that “falsely claimed that in ‘a major southwest test, Rudy outsold Gatorade 2 to 1!”
A promotional e-mail, the SEC said, “falsely boasted that in ‘several blind taste tests, Rudy outperformed Gatorade and Powerade by 2:1.’”
At the same time, “the scheme’s promoters engaged in manipulative trading to artificially inflate the price of Rudy Nutrition stock while selling unregistered shares to investors,” the SEC said.
Ruettiger has agreed to pay $382,866 to settle the charges without admitting or denying the allegations, the SEC said. Ten other defendants also entered settlement agreements without admitting or denying wrongdoing, and all of the agreements must meet with court approval.
In bringing the complaint, the SEC described a “classic pump-and-dump” swindle that featured a reverse merger, fraudulent touting, bogus press releases, videos, ceaseless hype and Internet postings.
As the FBI and IRS executed search warrants at the Florida office of attorney Scott Rothstein this morning amid allegations he ran a covert Ponzi scheme that could have drained as much as $500 million from investors, prosecutors up north were concentrating on arresting lawyers in a separate case involving insider trading on Wall Street.
U.S. Attorney Preet Bharara of the Southern District of New York announced the arrests of attorneys Arthur J. Cutillo of the prestigious law firm Ropes & Gray LLP of New York, and Jason Goldfarb, a New York attorney.
Cutillo and Goldfarb were among 14 people charged in a case with ties to the alleged Raj Rajaratnam insider-trading scandal at the Galleon Group. Rajaratnam’s arrest last month rocked Wall Street.
Today’s news demonstrated again that law-enforcement and regulatory agencies in all corners of the United States are seeking to put an end to a wave of financial crime that could undermine the public’s confidence in the markets and imperil economic recovery in the age of the corporate bailout.
“When Wall Street professionals or others exploit inside information for an illegal tip-and-trade binge, they undermine the level playing field that is fundamental to our capital markets,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “These defendants thought the rules that apply to all investors did not apply to them, but the one rule they cannot avoid is the rule of law. Now they face the prospect of financial penalties, industry bars, and even jail time for their indiscretions.”
‘A Bag Of Cash’
Attorneys will not be permitted to ignore the law and hide behind their legal shingles, added Scott W. Friestad, associate director of the SEC’s Enforcement Division, using stark language.
“Today’s action highlights the apparent ease with which far too many lawyers, hedge funds and Wall Street traders are willing to break the law to obtain a bag of cash, a trading advantage or other perceived benefit,” Friestad said. “It is fundamentally unfair for these individuals to profit at the expense of honest investors and compromise the integrity of our markets.”
Although the emerging Rothstein Ponzi allegations in Florida are not connected to the Galleon Group insider-trading investigation in New York, California and elsewhere, dramatic developments last night and this morning in Fort Lauderdale were a stark reminder that financial crimes that were once unthinkable suddenly have become commonplace in the aftermath of the arrests of Bernard Madoff, Tom Petters, Allen Stanford, Arthur Nadel, Nicholas Cosmo and others implicated in Ponzi schemes for mind-boggling sums.
Agents in Fort Lauderdale hauled away dozens of boxes of evidence, seized computers and thumb drives, copied computer hard drives, took control over an unspecified amount of cash, sifted through financial and other records — and also seized the key to a Ferrari.
Though Rothstein has not been charged, the case has become a spectacle in Florida. The state has been rocked by one financial scandal after another involving allegations of mortgage fraud, hedge-fund fraud, affinity fraud targeting vulnerable residents, HYIP fraud, autosurf Ponzi scheme fraud and Ponzi schemes in general.
In New York, far north of Florida’s warm climate, Bharara and the FBI released some of the details surrounding today’s arrests of lawyers and Wall Street insiders. For its part, the SEC made a separate flow chart to demonstrate how part of the fraud worked.
SEC Flow Chart: Source: SEC
Attorney Cutillo “had access to confidential information about at least four major proposed corporate transactions in which his firm’s clients participated,” the SEC said. “Through his friend and fellow attorney Jason Goldfarb, Cutillo tipped this inside information to Zvi Goffer,” a proprietary trader at Schottenfeld Group of New York.
“Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm’s proprietary accounts,” the SEC said.
Cell Phone Intrigue Part Of Allegations
In allegations that read like a cross between an Ian Fleming and Robert Ludlum novel, the SEC outlined some of the case.
“Goffer was known as ‘the Octopussy’ within the insider trading ring due to his reputation for having his arms in so many sources of inside information,” the agency said. “Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. For example, prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled ‘you’ and ‘me.’
“After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half,” the SEC charged.
BULLETIN: The SEC has charged Daniel “Rudy” Ruettiger and 12 others — including a disbarred attorney — in an alleged penny-stock swindle that gathered $11 million.