RegulationDecember 13, 2019

SEC Freezes Solar Panel Maker’s Assets Over Alleged Fraud

Executives allegedly used funds for yacht, sports cars, cosmetic surgery.

Reported by Michael Katz

The Securities and Exchange Commission (SEC) has obtained a temporary restraining order and asset freeze against a California solar panel company and three of its executives who allegedly defrauded more than 100 investors. The complaint said the three used the ill-gotten funds to pay for a yacht, several sports cars, and cosmetic surgery.

The SEC’s complaint was against Nanotech Engineering, Inc. CFO Michael Sweaney, whom the regulator refers to as a “convicted securities fraudster,” his nephew CEO David Sweaney, and COO Jeffery Gange. It said that all have been engaged in an ongoing fraudulent offering of Nanotech Engineering securities.

During the past two years, the SEC said the three solicited more than $9.4 million in investments from more than 100 people “through deceptive acts,” including misrepresenting and omitting material facts in filings with the SEC, and in private placement memoranda.

“The SEC acted quickly to stop what we allege is an egregious fraud,” said Antonia Chion, associate director of the SEC’s Division of Enforcement, in a release. “The emergency relief we obtained on behalf of investors prevents the dissipation of the defendants’ assets.”

Starting in September 2017, Nanotech began selling shares of its stock through a private placement memorandum, according to the complaint. But the securities were not registered with the SEC. The shares were priced at $2.80 per share, and the company planned to sell 24 million shares for proceeds of $67.2 million.

This allegedly represented 25% of the equity of Nanotech. The stated minimum investment amount was $28,000, although Nanotech sometimes accepted investments of smaller amounts, said the regulator.

According to the complaint, Michael Sweaney pleaded guilty in 1998 to one count of felony securities fraud in Nevada and was ordered to pay restitution to 10 investors. He was also given a 12-to-32-month suspended prison sentence, and two years of probation. The SEC said he tried to hide his identity from Nanotech investors by “masquerading under the pseudonym Michael Hatton.”

The SEC said Nanotech employees were pressured to cold-call potential investors from Alaska to Florida, many of whom purchased Nanotech shares. The complaint alleged that Nanotech employed numerous sales agents who were unlicensed stockbrokers being paid on a commission basis in a “boiler-room” environment.

“These sales agents cold-called potential investors across the country,” said the complaint. “Investors were convinced to invest by dubious claims of a patent-pending invention that would change the world: the allegedly revolutionary ‘Nanopanel’ solar panel.”

In its private placement memorandum, Nanotech boasted that it “has invented what we believe to be the last generation Solar Panel, thin, lightweight, stronger than steel, yet flexible and three to four times more efficient … also, our panels will allow the use of solar in parts of the world that would otherwise not use solar due to a lack of sunny weather.”

The SEC’s complaint, filed in federal court in Washington, D.C., charges Nanotech Engineering and the three executives with violating the antifraud provisions of the federal securities laws. It seeks emergency relief as well as permanent injunctions, return of allegedly ill-gotten gains with prejudgment interest, and civil penalties.