A New York attorney has been charged with making false and misleading statements in corporate filings to conceal the true ownership of a public company he co-founded.
The U.S. Securities and Exchange Commission said David Lubin, who was both a director and corporate counsel of Entertainment Art, participated in a scheme that resulted in the illegal sale of more than 14 million shares in the company to the public, realizing illicit proceeds of $34 million.
While the shares were actually owned by a shell investor through an entity called Medford Financial Group, the SEC said in an administrative order, Lubin falsely represented in regulatory filings that Medford had only acquired restricted stock.
As part of a settlement of the SEC’s charges, Lubin will be barred from acting as an officer or director of a public company. He is also facing separate criminal charges filed by prosecutors in Miami that alllege he conspired to fraudulently register shell companies with the SEC, issues shares in the companies that shell investors secretly controlled, and sell the shares to the investing public at a profit.
So far, seven defendants, including the buyer of Entertainment Art, have been charged in the alleged scheme.
“Lubin drafted and signed misleading public filings and masked the true ownership and restricted nature of a significant portion of the company’s stock,” Antonia Chion, associate director in the SEC’s Enforcement Division, said in a news release. “Lubin’s deception led to many of these same shares being illegally resold to the general public by others a few years later.”
According to the SEC, Entertainment Art, which was founded in 2007 by Lubin and two of his friends, purportedly imported and sold leather zip bags. As of July 2008, the company had 1.2 million restricted shares controlled by the three founders and 610,000 Form S-1 shares that had been sold to investors in a private placement.
After the founders decided in December 2008 to sell Entertainment Art, Lubin allegedly drafted a false share purchase agreement that stated the shell investor, through Medford, would acquire only the control block shares, rather than all of the shares.