On August 28, 2012, the Securities and Exchange Commission filed a civil action in the United States District Court for the Southern District of New York charging Wwebnet, Inc. (Wwebnet) and its chief executive officer, Robert L. Kelly (Kelly), with making material misrepresentations and omissions to investors in Wwebnet.
The SEC’s complaint alleges that, between 2005 and 2008, Wwebnet, a video software company, and Kelly made false and misleading statements and omissions to investors, including: (1) failing to disclose and misrepresentations concerning the existence of a related-party transaction, which enabled Kelly to funnel at least $2.1 million of investor funds to himself, including approximately $2 million which was sent to his personal options trading account in the Cayman Islands; (2) misrepresentations that Wwebnet had been generating revenue pursuant to contracts with entertainment companies when Wwebnet had never generated any such revenue; and (3) misrepresentations concerning Kelly’s effective compensation by failing to disclose that Wwebnet paid approximately $180,000 ($9,000 per month) in rent on Kelly’s personal luxury apartment in Manhattan.
The Complaint alleges that through these actions Wwebnet and Kelly violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and that Kelly aided and abetted Wwebnet’s violations of the Exchange Act and is liable as a control person under Section 20(a) of the Exchange Act for Wwebnet’s violations. The SEC’s complaint seeks a final judgment permanently enjoining Wwebnet and Kelly from future violations of the federal securities laws, ordering them to pay civil penalties and disgorgement of ill-gotten gains plus prejudgment interest, and imposing a penny stock bar and an officer and director bar against Kelly.
