SEC says John Clayton, owner of Standard Registrar and Transfer Co, secretly acquired and dumped millions of shares of microcap stocks.

On December 11, 2024, the Securities and Exchange Commission (the “SEC“) filed a complaint in the United States District Court for the District of Utah charging five individuals and three entities for their roles in a fraudulent scheme to secretly acquire and dump into public securities markets millions of shares of microcap stocks.  

Utah residents John S. Clayton, Daniel W. Jackson, Donald H. Perry, and Clark M. Mower, and Maryland resident Timothy J. Rieu, along with entities Standard Registrar and Transfer Co., Inc., Chesapeake Group, Inc., and First Equity Holdings Corp. were named as defendants who allegedly engaged in the scheme. Nine other entities are named as relief defendants for their alleged receipt of illicit proceeds of the fraudulent scheme.

According to the SEC Complaint, from at least 2014 to 2024, Clayton engaged in a securities fraud scheme to secretly amass and then illegally sell stock of small, publicly traded companies (the “Public Issuers”), including:

• Flexpoint Sensor Systems, Inc. (“Flexpoint”), which is quoted on OTC Link ATS under the symbol “FLXT.”
• ForeverGreen Worldwide Corp. (“ForeverGreen”), which was quoted on OTC Link ATS under the symbol “FVRG” and is now revoked.
• KwikClick, Inc. (“KwikClick”), which is quoted on OTC Link ATS under the symbol “KWIK.”
• LZG International Inc. (“LZG International”), which was quoted on OTC Link ATS under the symbol “LZGI.”

Clayton carried out his fraud, in part, through his companies, First Equity and Standard Registrar. Clayton was aided and abetted in his scheme by Jackson, Perry, Mower, Rieu, and Chesapeake.

According to the SEC, Clayton often obtained stock from loans that he made, or purported to make, to the Public Issuers through business entities that he secretly controlled, each of them a Relief Defendant (hereafter, the “Clayton Nominees”). The loans were convertible into stock at low prices, which Clayton, through the Clayton Nominees, then illegally sold to the public at higher prices during stock promotional campaigns.

Clayton hid his stock ownership because he was an “affiliate” of the Public Issuers, and, therefore, faced a legal limit on how much stock he could sell at any one time in unregistered transactions. By concealing stock among the Clayton Nominees, Clayton avoided the legal limitations on sales by affiliates and avoided reporting his stock ownership as required by federal law while dumping significant amounts of stock into public securities markets.

While concealing his stock ownership, Clayton retained Rieu, and Rieu’s investor relations firm, Chesapeake, to promote the stock to investors and to increase the price and trading volume of the stock. Clayton then illegally sold his shares in the public securities markets at inflated prices, leaving behind harmed investors after the price and trading volume fell.

According to the SEC, Clayton engaged in numerous deceptions to conceal his involvement and further his scheme, including:

• paying third parties to act as nominal heads of the Clayton Nominees;
• impersonating the heads of the Clayton Nominees when communicating with at least one brokerage firm;
• using blank checkbooks, pre-signed by the head of each Clayton Nominee, to move money; and
• after learning of the SEC’s investigation that led to this action, using a pre-paid cell phone—commonly known as a “burner phone”—to communicate with Rieu and directing Rieu to procure a burner phone.

The stock Clayton received through the Clayton Nominees was issued as “restricted” stock through transactions that were not registered with the Commission.  To have the restricted legend removed, Clayton retained Jackson.  Jackson is an attorney who shared an office with Clayton, worked with Clayton on microcap securities matters for decades, and served on Standard Registrar’s board of directors since 2017.

Jackson issued at least fourteen attorney opinion letters falsely representing that the Clayton Nominees were not affiliates of the companies with stock that Clayton planned to sell as part of the scheme. The letters also stated that the Rule 144 conditions were met and that the transfer agent (Standard Registrar) could remove the restrictive legends, providing a fraudulent paper trail necessary for Clayton to sell the stock.

Perry, who worked for decades as Clayton’s bookkeeper, managed multiple bank and brokerage accounts for numerous Clayton Nominees. He prepared and delivered materially false information to brokerage firms to facilitate the illegal sale of stock, including one, Empire, purportedly run by Perry’s wife. Perry worked with Clayton to forge his wife’s signature on documentation relating to a brokerage account. At other times, Perry arranged for his wife to sign Empire-related documents.

Finally, as part of the scheme, Clayton used Standard Registrar, which is a stock transfer agent that he has owned since 2017, to remove the restrictive legends from stocks, which allowed the stock to be sold publicly. 

FRAUDULENT SALES OF FLEXPOINT STOCK

One example of the scheme involved Flexpoint Stock. Clayton has been intimately involved with financing Flexpoint since at least 2005, during which time Mower has been its CEO.

Clayton controlled Flexpoint and, therefore, was an affiliate for the purposes of his stock sales. Clayton controlled Flexpoint in numerous ways, including owning more than ten percent of Flexpoint stock, acting on Flexpoint’s behalf to arrange for the promotion of its stock, directing Flexpoint’s management (including Mower), accessing Flexpoint’s finances, drafting Commission filings, and often providing the sole source of funding for Flexpoint. Further, Mower received a biweekly paycheck through First Equity’s payroll company from at least 2021 through at least August 2024.

Mower’s company relied on financing from the Clayton Nominees to survive, yet Mower did not meet with the nominal officers. Instead, for over a decade, Mower dealt exclusively with Clayton and Clayton’s administrative staff concerning each nominee. Mower repeatedly sought financing from the Clayton Nominees through Clayton, received that financing through Perry and Clayton’s staff, converted Clayton Nominee loans to Flexpoint stock at Clayton’s direction, and otherwise acted at Clayton’s direction for Flexpoint.

At various times since 2019, Clayton has beneficially owned greater than five percent of Flexpoint stock through the Clayton Nominees (including Capital Communications, Compass, Empire, Liberty, and Maestro) and First Equity, including owning more than ten percent of Flexpoint stock after transactions on or about January 21, 2021, March 23, 2021, and March 14, 2022. Clayton failed to file with the SEC required reports of his beneficial ownership or disposition of stock.

From at least 2014 to 2024, Clayton, aided and abetted by Perry, Jackson, Mower, Rieu, and Chesapeake, and using Standard Registrar, repeatedly undertook a scheme to fraudulently sell Flexpoint stock to the public in an artificially inflated securities market. Transfer and brokerage records show that Clayton repeated this scheme in numerous cycles with the Clayton Nominees, selling at least 45 million shares of Flexpoint. An example includes the fraudulent sales of Flexpoint stock issued in July 2019 as detailed below:

• First, Clayton directed Flexpoint’s CEO, Mower, to sign and return two $150,000 promissory notes on July 3, 2019, but backdated to January 20, 2016. Backdating loans was important to Clayton’s scheme because the Rule 144 safe harbor includes a holding period requirement for shares acquired from an issuer in an unregistered transaction before they can be resold.
• Second, although the two backdated promissory notes had just been executed by Mower on July 3, 2019, the Clayton Nominees fraudulently utilized documentation that purportedly assigned the notes in years prior: one $150,000 note to Empire on April 15, 2016 and another to Compass on January 10, 2017. Splitting the notes between two Clayton Nominees was also important to Clayton’s scheme, to avoid any one nominee holding an amount of stock requiring public disclosure through a Commission filing.
• Third, after splitting the convertible note across the two nominee entities, Clayton converted the debt to stock. The same day that Mower signed the backdated notes, July 3, 2019, Flexpoint issued 3.65 million shares of stock to Empire and then on July 16, 2019, Flexpoint issued 3.2 million shares to Compass. In reality, Clayton owned these shares, had the power to direct their disposition, and benefitted from their sale. The total 6.85 million shares of Flexpoint stock would have been approximately six percent of outstanding shares, requiring reporting to the Commission on Schedule 13D.
• Fourth, Clayton sought and received attorney opinion letters from Jackson— containing false representations—in order to remove restrictive legends and deposit the stock at a brokerage firm. Jackson issued such attorney opinion letters for both Empire and Compass, dated July 5, 2019 and November 22, 2019, respectively. Among other things, Jackson’s letters falsely stated that the letter was requested by the nominee entity, that the documents had been provided by the nominee entity, and that the nominee entity had never been an affiliate of Flexpoint. Those representations were false, because, as Jackson knew or was reckless in not knowing, Clayton had requested the letters, Clayton provided any purported supporting documents, Clayton was the beneficial owner of Empire’s and Compass’s stock holdings, and Clayton was an affiliate of Flexpoint.
• Fifth, on July 5, 2019, purportedly in reliance on Jackson’s letter, Standard Registrar removed restrictive legends for 3.65 million shares of Flexpoint stock for Empire. On July 18, 2019—apparently, without receiving the yet-to-be-written November 22, 2019 attorney opinion letter—Standard Registrar removed restrictive legends on the 3.2 million shares of Flexpoint stock for Compass.
• Sixth, Mower signed board resolutions and letters, drafted by Clayton or his staff, that issued the shares and attested that each of Capital Communications, Empire, and Compass “are not currently, nor have they ever been an . . . affiliate of Flexpoint.” Mower then returned the letters to Clayton or his staff.
• Seventh, now holding unrestricted stock, Clayton needed to deposit it at a brokerage firm to sell it to the public. To do so, Perry assisted Clayton in submitting (a) the false Jackson letters, (b) the false Mower letters, and (c) false brokerage deposit forms for Empire and Compass. For these deposit forms, the brokerage firm required that entities depositing stock make representations about that stock signed under penalty of perjury (hereby Perry’s wife as a nominal officer of Empire, and separately the nominal officer of Compass). The Empire forms were signed by Perry’s wife, either at Perry’s direction or by Clayton or by Perry affixing a copy of her signature. The Compass forms were signed by the nominal officer of Compass at the direction of Clayton or his staff. The forms falsely represented to the brokerage firm, among other things, that Empire and Compass were not:

a. “Affiliates” of Flexpoint, which was false because Clayton controlled each entity and was an affiliate of Flexpoint;

b. Engaged in “promotional efforts regarding the Issuer,” which was false because Clayton—at times through Empire and Compass—was paying Rieu and Chesapeake for stock promotion;

c. Engaged in a “plan to violate or evade the registration provisions of the Securities Act or any other federal or state law or regulation,” which was false, because, among other things, Clayton structured these transactions to evade registration requirements;

d. “Coordinated with possible sales by other stockholders,” which was false because Clayton was coordinating sales activity with the other Clayton Nominees; and

e. Beneficial owners of more than the number of shares deposited (here 3.2 million and 3.65 million), which was false because Clayton beneficially held additional Flexpoint stock through the Clayton Nominees.

• Eighth, Clayton coordinated with Mower, Rieu, and Chesapeake to issue positive news to artificially inflate the price and trading volume of Flexpoint stock prior to sales by the Clayton Nominees. For example, in late July 2019, Mower sent Clayton and Rieu a press release announcing Flexpoint’s filing of a new patent; then, on August 13, 2019, Mower sent Rieu and Clayton a draft press release announcing that Flexpoint’s revenue had increased by 1,019 percent; and, on October 3, 2019, Rieu discussed with Mower and Clayton press releases for a “big announcement that will really move the stock.” During this same period, Rieu, through his and Chesapeake’s brokerage accounts, actively traded Flexpoint stock to create an artificial appearance of interest by investors. Rieu did so despite Chesapeake policies prohibiting trading in the stock of companies to which it provided investor relations services.
• Finally, Clayton, aided by Perry, needed to sell Flexpoint stock to an artificially inflated market. From August 2019 to December 2019, Empire sold over 3.65 million shares of Flexpoint stock to the public, and from May 2020 to September 2020, Compass sold 3.2 million shares of Flexpoint stock to the public, both of them exceeding the Rule 144 volume limitation of one percent of Flexpoint stock in a three-month period. Clayton’s sales through Empire and Compass were illegal because Clayton, as both an affiliate of Flexpoint and beneficial owner of Empire’s and Compass’s shares, could not legally sell Flexpoint stock to the public in an unregistered transaction.

Clayton, aided and abetted by Perry, Jackson, Mower, Rieu, and Chesapeake, and using Standard Registrar, repeated the Flexpoint scheme in 2021, converting purported loans made by Capital Communications to Flexpoint into over 15 million shares of Flexpoint stock held by the Clayton Nominees, which was sold during two promotional periods from April 2021 to September 2021 and April 2022 to February 2023.

The SEC’s complaint did not yet include a calculation of the amount of money Clayton and the other defendants made through the alleged activities.

The SEC’s complaint charges Clayton, First Equity, Standard Registrar, Rieu, and Chesapeake with violating the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. It further charges Clayton and First Equity with violating the antifraud provisions of Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder. Clayton, Jackson, and Standard Registrar are also charged with violating the registration provisions of Sections 5(a) and (c) of the Securities Act. Jackson, Perry, Mower, Rieu, and Chesapeake are also charged with violating Section 15(b) of the Securities Act by aiding and abetting Clayton and First Equity in violating Sections 17(a)(1) and (3) of the Securities Act, and with violating Section 20(e) of the Exchange Act by aiding and abetting Clayton and First Equity in violating Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. Clayton is also charged with violating the reporting provisions of Exchange Act Sections 13(d) and 16(a) and Rules 13d-1 and 16a-3 thereunder. Finally, Rieu and Chesapeake are charged with violating the anti-touting provisions of Section 17(b) of the Securities Act. Nine entities are named as relief defendants: Bryan Development, LLC, Capital Communications, Inc., Compass Equity Partners, Inc., Empire Fund Managers, Inc., Greenwich Street Commercial Mortgage, LLC, Investrio, Inc., Klaja Partners, LLC, Liberty Partners, LLC, and Maestro Investments, Inc.

The SEC seeks permanent injunctions, penny stock bars, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against all defendants. It also seeks officer-and-director bars against all individual defendants and conduct-based injunctions against Clayton, First Equity, Perry, Rieu, and Chesapeake Group.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Park 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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