U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23671 / October 4, 2016
Securities and Exchange Commission v. Richard Weed et al., No. 1:14-cv-14099 (D. Mass. Nov. 6, 2014)
SEC Obtains Final Judgments Against Two in Scheme to Manipulate Stock of Massachusetts-based Sports Ticket Broker
On October 4, 2016, the Honorable Nathaniel M. Gorton of the United States District Court for the District of Massachusetts entered final judgments by consent against Coleman Flaherty III and Thomas Brazil for their roles in defrauding investors in CitySide Tickets Inc., a Massachusetts-based ticket brokering business.
The final judgments impose permanent injunctions against future violations of certain antifraud and registration provisions of the federal securities laws and permanently bar Flaherty and Brazil from participating in penny stock offerings. The judgments also order disgorgement of more than $1.5 million against Brazil and more than $1.3 million against Flaherty, which amounts will be deemed satisfied by the forfeiture order in the parallel federal criminal cases against them.
In its complaint, filed on November 6, 2014, the SEC alleged that Richard Weed, a California attorney against whom the SEC's case remains pending, helped structure CitySide into a publicly traded company through reverse mergers, created backdated promissory notes and authored false legal opinion letters that enabled Flaherty and Brazil to obtain millions of purportedly unrestricted shares of stock in the company. Investors were then blitzed with a false and misleading promotional campaign touting CitySide Tickets as a budding national leader on the verge of acquiring smaller ticket firms across the country and positioning itself as an attractive takeover target for California-based Ticketmaster Entertainment LLC, a large company in the business of selling and reselling tickets to entertainment events. The complaint further alleges that as the company's stock price increased on the false hype, Flaherty and Brazil sold their shares to unsuspecting investors for illicit proceeds of approximately $3 million. Shortly thereafter, the market for CitySide Tickets stock collapsed and the company eventually went out of business.
The final judgments enjoin Flaherty and Brazil from violating Sections 5(a), 5(c), and 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder. In addition, the final judgments order that Brazil's and Flaherty's obligation to pay disgorgement of $1,519,213 and $1,350,734, respectively, be deemed satisfied by the orders of forfeiture entered in the parallel criminal proceedings against them.
In parallel criminal proceedings, Flaherty was sentenced on June 8, 2016 to one year of probation, to be served in home confinement, ordered to pay a fine of $10,000 and ordered to forfeit $1,350,734. Brazil was sentenced on June 2, 2016 to one day in prison, three years of supervised release, ordered to pay restitution of $231,140, and ordered to forfeit $1,519,213. Brazil and Flaherty each had pleaded guilty to one count of conspiracy, one count of securities fraud, and one count of wire fraud in December 2014, and both cooperated with the criminal authorities and subsequently testified in a related criminal trial of Weed prosecuted by the Massachusetts U.S. Attorney. On May 16, 2016, a jury returned a guilty verdict against Weed for conspiracy to commit securities fraud and wire fraud, securities fraud, and seven counts of wire fraud. On August 22, 2016, Weed was sentenced to 4 years in prison and three years of supervised release and ordered to pay a fine of $100,000 and to forfeit $90,000.
The SEC's pending action against Weed seeks disgorgement of ill-gotten gains plus pre-judgment interest and penalties as well as a penny stock bar and a permanent injunction against further violations of the securities laws. The SEC also seeks to bar Weed from serving as an officer or director of any public company. On September 13, 2016, the SEC ordered that Weed be forthwith suspended from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission's Rules of Practice, based on his criminal conviction.
For further information, see Litigation Release Nos. 23129 (Nov. 7, 2014) [Civil Complaint]; 23154 (Dec. 9, 2014) [Weed indictment]; 23541 (May 16, 2016) [Weed conviction]; and 23624 (August 23, 2016) [Flaherty, Brazil, and Weed sentencings].