A Nevada energy and manufacturing corporation has reached a settlement with the Securities and Exchange Commission to pay a $1 million penalty over an alleged market manipulation scheme.
According to an SEC news release, charges were filed against Meta Materials Inc. and its former CEOs, John Brda and George Palikaras. The company agreed to settle the SEC’s charges in an administrative proceeding, while the litigation against Brda and Palikaras will proceed in federal district court.
Meta Materials was charged with violating the antifraud, reporting, internal accounting controls, and books and records provisions of federal securities laws, while Brda and Palikaras violated antifraud and proxy disclosure provisions with Brda allegedly aiding and abetting the company’s aforementioned violations.
The SEC alleges that Meta Materials, headquartered in Dartmouth, Nova Scotia, carried out a concerted market manipulation scheme that raised $137.5 million from investors in an at-the-market (ATM) offering in June 2021 immediately prior to the merger of Brda’s Torchlight Energy Resources Inc. and Palikaras’ Metamaterial Inc. that formed Meta Materials.
In a complaint filed in federal court in New York, the SEC alleges that Brda and Palikaras planned and conducted the scheme that included, among other things, issuing a preferred stock dividend immediately before the merger.
Brda and Palikaras were accused of telling certain investors and consultants that the dividend would force short sellers to exit their positions and trigger a “short squeeze” that would artificially raise the price of the company’s common stock. Furthermore, the defendants allegedly misrepresented the company’s efforts to sell its oil and gas assets and distribute proceeds to preferred stockholders, giving investors a false impression of the value of the dividend.
“While investors held or bought the company’s common stock to receive the dividend, the company was cashing in by selling $137.5 million in an ATM offering at prices that the company, Brda, and Palikaras knew were temporarily inflated by their manipulative scheme,” the SEC said.
After the first day of trading, Brda is reported to have told Palikaras, “We have two days to take advantage of the squeeze…”
“The conduct we allege was a sophisticated, yet brazen plan by a public company and its former CEOs to purposely mislead investors in the company’s stock,” said Eric Werner, Director of the SEC’s Fort Worth Regional Office. “This conduct is particularly alarming because it involves public company CEOs who were more concerned with ‘burning the shorts’ than creating long-term value for shareholders.”
The complaint seeks permanent injunctions, officer-and-director bars, and civil penalties from both defendants along with disgorgement with pre-judgment interest from Brda.
The SEC also instituted a separate administrative proceeding against Meta Materials, entering a settled order finding that Meta Materials violated the antifraud, reporting, internal accounting controls, and books and records provisions of the federal securities laws. Meta Materials did not admit or deny the findings but was ordered to cease and desist from violations of the relevant provisions of the federal securities laws and to pay the $1 million penalty.
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