09/30/2009

News / Spring Lake Resident Ordered to Pay $5.1 Million in Penalties and Restitution for Fraudulently Pushing Penny Stock

In Digital Gas Case, Judge Permanently Bars Brian Smith from securities industry

A Superior Court judge has ordered Brian Smith of Spring Lake to pay $5,193,280 in penalties and restitution for violating the New Jersey Uniform Securities Law by fraudulently operating a publicly-traded penny stock shell company, Digital Gas Inc., fraudulently issuing stock and issuing false press releases to boost the value of that stock.

Superior Court Judge Thomas W. Cavanagh, entering a final decision in a suit brought by the Attorney General and the New Jersey Bureau of Securities, permanently barred Smith from the securities industry, and ordered Smith and Digital Gas to pay $4,693,280 in restitution. The judge also ordered Smith and Digital Gas to each pay $500,000 in civil penalties, and ordered Lynn Smith, Smith’s wife and defendant, to disgorge $809,237 in funds she received from her husband’s scheme.

Judge Cavanagh filed his decision on Monday following a 10-day civil trial which concluded in June in his Monmouth County courtroom. He found that for seven years, from 1999 to 2007, Smith sold unregistered Digital Gas securities to at least 200 investors but was not a registered agent. The judge also found that Smith issued press releases that manipulated the price and demand for Digital Gas and concluded that Brian and Lynn Smith used investor funds for their personal benefit, including home improvement and mortgage expenses related to their Spring Lake home.

The Bureau of Securities had obtained a temporary order in October 2006 freezing the assets of Digital Gas and the Smiths. While Digital Gas is currently in a Chapter 7 Bankruptcy in Michigan, the Smiths’ assets, including their home in Spring Lake, are subject to collection efforts by the Bureau of Securities.

“This case is another example of why investors need to carefully research company backgrounds before investing their hard earned money,” Attorney General Anne Milgram said. “It is also why we urge consumers to check with our Bureau of Securities to determine whether securities are properly registered.”

Digital Gas was a Michigan-based corporation that publicly traded on the Over-The-Counter market as DIGG.PK. The Bureau of Securities charged that Digital Gas was a shell corporation with no known business operations, although its Website claimed it was a business incubator for new technologies in the energy and natural resource fields. The judge found it had no bank accounts in its name, and that Smith used fraudulent corporate resolutions to cause a transfer agent to issue shares of the stock.

http://www.nj.gov/oag/newsreleases09/pr20090930a.html

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