SEC Files Charges Against GMCC and Richard Brace
There is a lot of detail and some surprises in the complaint. Really credit goes here to he SEC for acting pretty quickly. The
On February 22, 2008, the Securities and Exchange Commission filed an action against GMC Holding Corporation (GMC) and its chief executive officer, Richard Brace, for defrauding investors by issuing false press releases touting the company's development of a motor technology device capable of generating unlimited energy and negotiations to sell this technology for hundreds of millions of dollars. The Commission's complaint further alleges that these false press releases enabled GMC and Brace to raise more than $2 million from investors through illegal unregistered offerings of the company's stock.
According to the Commission's complaint, GMC and Brace issued press releases in 2005 falsely claiming independent tests, issued by a professional engineer, on the motor device showed it was able to produce more energy than it consumed. The complaint also alleges that GMC and Brace issued false press releases in February and March 2006 stating that it was negotiating with unnamed S&P 500 corporations to acquire the company's technology for $300 - 500 million. These press releases, drafted by Brace, were utterly false. In reality, according to the complaint, the press releases claiming that the motor device produced more energy than it consumed failed to include the professional engineer's limitations, namely that the efficiency lasted only a few moments and that they were unable to duplicate the results in subsequent tests. Additionally, GMC and Brace never contacted, much less negotiated with, an S&P corporation, or any other company, regarding the sale of the company's technology. According to the complaint, GMC's false press releases artificially pumped up the company's share price and trading volume and helped GMC raise more than $2 million from investors through illegal unregistered stock offerings, which provided GMC's only source of revenue.
The Commission's complaint charges that the defendants violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (Exchange Act) by conducting an unregistered offering of securities and making material misrepresentations and omissions to investors. The Commission's complaint seeks a final judgment permanently enjoining defendants from further securities laws violations, ordering defendants to disgorge their ill-gotten gains, and assessing civil penalties. The complaint further seeks an order barring Brace from serving as an officer or director of a public company and from participating in any offering of a penny stock.
On March 8, 2006 the Commission temporarily suspended trading in GMC's securities (Release No. 53442) and instituted administrative proceedings against GMC for failure to make its required periodic filings (Release No. 53448). On April 5, 2006, the Commission issued a settled order deregistering GMC's securities, finding the company had failed to file the required reports of a publicly traded company (Release No. 53601). The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.
More details are in the complaint (PDF). The complaint claims that the summary of Gene Augistin's report published by GMCC was written by Richard Brace rather than Augustin. The complaint also claims that GMCC wasn't communicating with anyone about a potential sale of their technology at the time that GMCC was announcing the imminent sale, hundreds of millions of dollars, and a cash dividend.
A good article in the Orlando Sentinal by staff writer Richard Burnett gets some comments from Brace. Says the Sentinal:
In an interview Monday, Brace denied any wrongdoing in the case, blaming the problems on former consultants who had allegedly embezzled money from the company.It's going to be hard to blame any embezzlement by consultants for the quotes the Brace is supposed to have fabticated or the press releases about an imminent nine figure deal when there were no discussions with anyone! The Sentinal article ends in a long rambling quote from Brace that is really worth a read.