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SEC Sues Former CEO and President of Jag Media Holdings, Inc. for Making Unregistered Sales and Transfers of Securities
On September 29, 2005, the Commission filed a civil injunctive action in the United States District Court for the District of Columbia against Gary L. Valinoti, the former CEO, president and chairman of the board of directors of Jag Media Holdings, Inc. ("Jag Media"), for making unregistered sales and transfers of securities of the company in violation of Section 5 of the Securities Act of 1933 ("Securities Act").
The Commission's complaint alleges that a privately-held company, of which Valinoti was an officer, reverse merged with a publicly-traded shell company in March 1999 to become JagNotes.com (subsequently renamed Jag Media). The complaint further alleges that an officer of the publicly-traded shell company arranged for 250,000 shares of the shell company to be sold to Valinoti in connection with the merger. According to the complaint, the sale of 250,000 shares to Valinoti was not registered with the Commission, as required under Section 5 of the Securities Act.
The Commission's complaint further alleges that Valinoti improperly realized $1.83 million by selling 130,000 of his 250,000 shares on the Nasdaq over-the-counter bulletin board ("OTCBB") between March and April 1999. The complaint also alleges that, between April and June 1999, Valinoti: (i) transferred 112,000 of his 250,000 shares as consideration for an ownership interest in another company; and (ii) transferred an additional 6000 shares to a public relations firm as compensation for services rendered to JagNotes.com. The sales and transfers for value, the complaint alleges, were not registered with the Commission, as required under Section 5 of the Securities Act. According to the complaint, within one year of having received the 118,000 shares from Valinoti, the transferees subsequently sold them on the OTCBB for approximately $1.1 million.
Without admitting or denying the allegations of the complaint, Valinoti agreed to settle the Commission's charges by consenting to the entry of a final judgment that would permanently enjoin him from violating Section 5 of the Securities Act and hold him liable to disgorge approximately $2.9 million in illicit gains and to pay $1.39 million in pre-judgment interest thereon. In partial discharge of approximately $571,700 of Valinoti's $2.9 million disgorgement obligation, the final judgment would also order Valinoti to: (i) pay $50,000 in cash; (ii) direct the cancellation of his existing holdings of Jag Media securities, valued at approximately $421,700 for settlement purposes; and (iii) relinquish his existing options to purchase shares of the company, which were granted to him by Jag Media and are valued at approximately $100,000 for settlement purposes.
WITH THIS
5-Oct-2004
Other Events
Item 8.01. Other Events.
On June 20, 2002, JAG Media Holdings, Inc. and its then President and Chief Executive Officer, Gary Valinoti, filed a complaint in the 165th District Court of Harris County, Texas against over 150 brokerage firms, alleging, among other things, a conspiracy among the defendants to short sell JAG Media stock. The original lawsuit was subsequently amended on June 24, 2002 and was removed to the United States District Court for the Southern District of Texas. The plaintiffs subsequently filed a motion in the United States District Court for the Southern District of Texas to have the action remanded back to the state court where it was originally commenced. That motion was denied and the action remained in the federal district court. On October 1, 2003, the Court denied various motions to dismiss made on behalf of the defendants. However, in its ruling, the Court indicated that all motions to dismiss could have been granted in light of the defective pleadings made by plaintiffs and allowed plaintiffs 20 days to file an amended complaint to comply with certain pleading requirements of the Court. Plaintiffs filed their third amended complaint within the required period.
After plaintiffs filed their third amended complaint, 78 out of a total of approximately 150 defendants again filed a motion to dismiss the lawsuit. On September 6, 2004, the Court entered an order granting the moving defendants' motion to dismiss the lawsuit, again citing various deficiencies in the pleadings. The Court did not grant the plaintiffs leave to replead.
The Company has met with its attorneys, and is currently evaluating with its attorneys its options for recommencing an action against certain defendants and possibly other parties in light of the court's order.
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