U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23328 / August 25, 2015
Securities and Exchange Commission v. Timothy E. Cook, et al., Civil Action No. 1:13-cv-01312-SEB-MJD, USDC, S.D. Ind.
SEC Obtains Summary Judgment Against Indianapolis Resident in Securities Fraud Involving Biomedical Company
The Securities and Exchange Commission announced that on August 24, 2015, the Honorable Sarah Evans Barker of the United States District Court for the Southern District of Indiana granted the SEC's motion for summary judgment against Defendant Timothy E. Cook, a resident of Indianapolis, Indiana. The Court found that Cook violated the antifraud provisions of the federal securities laws by making false and misleading statements about Xytos, Inc. ("Xytos"), a company he controlled. The Court also found that Cook made unregistered sales of Xytos shares.
In August 2013, the SEC filed this action against Cook, Xytos, and Asia Equities, Inc. ("Asia Equities"), which was another entity that Cook controlled. The SEC alleged that Cook committed securities fraud in connection with materially misleading statements during 2010-2013 regarding cancer treatments that Xytos, a purported biomedical company, supposedly was providing to patients.
The SEC's complaint alleged, among other things, that Cook created the impression on Xytos' public website that Xytos medical staff, overseen by a chief medical officer, treated cancer patients at the "Xytos Center for Advanced Medicine" in Indianapolis. The complaint also alleged that Cook published financial statements on a popular investor website and listed revenues for Xytos in those financial statements. The complaint alleged that in fact, during 2010-2013, Xytos had no medical staff, no treatment facilities, no patients, and no revenues. The complaint also alleged Xytos' shares traded publicly on the over-the-counter market. The complaint alleged that while making false and misleading representations about Xytos, Cook sold Xytos shares in unregistered open market transactions, and those Xytos stock sales provided Cook's primary source of income.
After completion of discovery, the SEC moved for summary judgment against Cook. In granting the SEC's motion for summary judgment, the Court found that Cook committed securities fraud through the Xytos website, press releases issued by Xytos, and a Xytos prospectus. The Court found that Cook made misrepresentations that included, among other things, that Xytos was a biomedical company that successfully treated patients suffering from cancer and other illnesses and that Xytos had obtained regulatory approval for its technology. The Court also found that Cook sold Xytos stock while making misrepresentations about the company and that Cook impermissibly sold Xytos stock on the open market without first filing a registration statement with the SEC for those stock sales. The Court found that Cook violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Exchange Act Rule 10b-5, and Securities Act Sections 5(a) and 5(c).
The Court imposed remedies on Cook that included permanent injunctions against future violations of the federal securities laws, a permanent bar against Cook serving as an officer or director of a public company or participating in an offering of a penny stock, and disgorgement plus prejudgment interest in the total amount of $642,828. The Court will determine the appropriate amount of a civil penalty against Cook at a later date.
The Court also granted the SEC's motion for entry of default judgments against Xytos and Asia Equities and permanently enjoined these entities from future violations of the federal securities laws.
For further information, see Litigation Release No. 22783 (August 19, 2013).