MEMORANDUM OPINION AND ORDER
This cause is before the Court on the plaintiff Securities and Exchange Commission (“the Commission”)’s motion for summary judgment (docket entry 61). Having carefully considered the motion and the defendants’ response, the parties’ memoranda and the applicable law, and being fully advised in the premises, the Court finds as follows:
In this case, the Commission claims that defendant John H. Rivera (“Rivera”) used false press releases and other false public statements to “pump up” interest in U.S. Sustainable Energy Corp. (“USSE”) stock in order to “dump” insider shares (that Rivera, relief defendant Alice M. Price (“Price”) and others held) into a public market fraudulently influenced by Rivera’s false statements.
The Complaint further alleges that after obtaining a corporate shell with freely trading shares in October of 2006, Rivera, through USSE, falsely claimed that USSE could employ “the Rivera Process” to produce commercial products, revenue and value for the Company. According to the Commission, these and other misstatements by Rivera created investor demand for USSE shares. Rivera, Price and others purportedly sold millions of USSE shares to thousands of investors lured by Rivera’s false claims about the company.
The central fraud alleged involves claims by Rivera that USSE could produce viable commercial biofuel and fertilizer products. The Commission contends that false press releases dramatically increased the price and volume of trading in USSE’s shares. The “Rivera Process” is a type of pyrolysis, the thermochemical decomposition of organic material at elevated temperatures in the absence of oxygen. Experts agree that experiments with pyrolysis hold promise of developing useful and cost effective technologies to extract energy from abundant forms of organic waste like woodchips, palm oil waste or other organic waste, regardless of whether accomplished by the “Rivera Process” or otherwise.[1] The Commission asserts that its case is not about whether a pyrolytic process like Rivera’s might someday be successful, but about whether Rivera’s claims that USSE had perfected the “Rivera Process” in any commercially meaningful way were false. The Commission contends that there is no genuine issue of material fact disputing the falsity of Rivera’s alleged misrepresentations.
[1] See Report of plaintiff’s expert, Dr. Thomas Adams, Item 21 attached to Statement of Undisputed Material Facts in Support of Plaintiff’s Motion for Summary Judgment.
Defendant USSE began as a Mississippi corporation formed by Rivera in February 2006. Subsequently, it merged itself into a Nevada corporation with freely trading public shares and changed that corporation’s name to USSE in November 2006. USSE was initially headquartered in Natchez, Mississippi, and later moved its headquarters to Baytown, Texas. USSE’s stock was not registered with the Commission. Rivera’s press releases and other statements to investors, USSE’s website and postings on various penny stock blogs were the only public information available about the company.
Defendant Rivera is the founder of USSE. Rivera was the principal shareholder of USSE and controlled its activities. He also served as USSE’s chairman and CEO.
Relief Defendant Price resides with Rivera and is his caregiver. Price sold more than 35 million combined shares of USSE (15,837,740 shares) and Sustainable Power Corporation (“SSTP”)[2] (19,669,000 shares) and allegedly used the more than $2 million proceeds to fund her lifestyle with Rivera and the activities of USSE. Rivera and Price were married in August of 2010.
[2]Rivera was also the principal shareholder of SSTP. According to the Commission, Rivera used SSTP for misconduct similar to that alleged in this case.
The crux of the Commission’s case is set forth in its brief in support of its motion for summary judgment (the bracketed references are to the plaintiff’s Statement of Undisputed Material Facts in Support of Plaintiff’s Motion for Summary Judgment):
At the heart of this case is Rivera’s fraudulent claim that USSE, using the Rivera Process [¶¶ 21-33], had a fully operational plant that produced commercial biofuels and fertilizer that could be sold to generate revenue for the company. Rivera made false claims about various aspects of the Rivera Process: (a) that USSE had a fully operational plant; [¶¶ 44-46, 52-63] (b) that the process could produce 5 gallons of biofuel from one bushel of soybeans; [¶¶ 47-51 ] (c) that USSE could produce 6,000 gallons of fuel per day; [¶¶ 52-63, 103, 107] and (d) that USSE could produce quality fuel for 50 cents per gallon. [Facts, ¶¶’s 99-104]
Rivera also made misrepresentations about USSE on a variety of other topics: (a) that USSE had engaged a prominent investment banker when it had not; [¶¶ 64-67] (b) that USSE had appointed a prominent industry figure as a new director when the new director had not heard about USSE until after the publication of the press release [¶¶ 68-71], and had later appointed a new CEO who lasted for two weeks because he had no authority; [¶¶ 73-4] (c) that USSE had purchased property for its manufacturing facility in Natchez, Mississippi when the property was purchased by another entity; [¶¶ 75-77] (d) that it made the first sale of its fertilizer although no fertilizer was shipped for more than two years; [¶¶ 111-115] and (e) that it had developed ASTM certified biodiesel when in fact no USSE fuel was included in the biodiesel Rivera touted in the July 17, 2007 press release. [Facts, ¶¶’s 116-126]
Brief in Support of Motion for Summary Judgment, pp. 4-5.
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