SEC Obtains Partial Summary Judgment Against Joshua Sason and Magna Group in IIIegal Microcap Securities Offerings
On May 4, 2023, the U.S. District Court for the Southern District of New York granted the Commission summary judgment on its non-fraud claims against three individuals and their related businesses.
According to the SEC’s complaint, from approximately December 2012 to June 2013, microcap stock financier Magna Group (“Magna”), which was founded and owned by Joshua Sason, engaged in a scheme to acquire fake convertible promissory notes supposedly issued by penny stock issuer Lustros Inc. and then to convert those notes into shares of Lustros common stock. Magna then allegedly sold the shares to unsuspecting investors without a registration statement or any applicable exemption to the registration requirements and the sales effectively destroyed the value of Lustros shares held by the public. The complaint alleges that Marc Manuel, Magna’s former head of research and due diligence, negotiated and executed the transactions.
In addition to the Lustros transactions, the complaint alleges that in November 2013, Magna Equities II, which was also owned by Sason, purchased a note from Pallas Holdings. The note had been issued by NewLead Holdings (“NewLead”), but was not in fact a bona fide debt as necessary to trigger an applicable exemption to the securities registration requirements. Magna Equities II subsequently agreed with NewLead to settle the note with stock that was received and sold by Magna Equities II’s designee, MG Partners (“MGP” and collectively with Magna and Magna Equities II, the “Magna Entities”), without a registration statement or any applicable exemption. Kautilya Sharma and Perian Salviola participated in the relevant NewLead transactions on behalf of Pallas Holdings. Additionally, the complaint alleges that Pallas Holdings, Sharma, and Salviola sold more than $20 million in NewLead stock that they acquired as payment for certain mining assets without a registration statement or any applicable exemption.
The Commission moved for summary judgment on its non-fraud claims against all defendants, while the Magna Entities, Sason, and Manuel moved for summary judgment on all of the Commission’s claims against them. The Court denied these defendants’ motion in its entirety and found that Manuel and the Magna Entities violated Section 5 of the Securities Act of 1933 (the “Securities Act”) through their sale of unregistered Lustros and NewLead securities. The Court also found that Pallas Holdings, Sharma, and Salviola violated Section 5 of the Securities Act through their sales, as well as MGP’s sales, of NewLead stock. The Court denied the Commission’s motion as to its claim that Sason violated Section 5 of the Securities Act through the Magna Entities’ sales of Lustros and NewLead stock, leaving that claim along with the Commission’s fraud claim against Manuel and the Magna Group for resolution at trial. The Court previously dismissed fraud claims relating to the NewLead transactions as well as fraud claims against Sason.
To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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