Source: https://www.sec.gov/litigation/complaints/comp18368.htm
Timestamp: 2019-04-25 08:17:48+00:00

Document:
1. The SEC brings this enforcement action against Warren J. Soloski ("Soloski" or "Defendant") for insider trading. Specifically, Defendant purchased and sold shares of a publicly traded company, Pay Pop, Inc. ("Pay Pop"), based upon material nonpublic information he obtained while acting as Pay Pop's attorney.
2. This action seeks full disgorgement of the Defendant's illegal profits, together with prejudgment interest, and civil monetary penalties pursuant to Section 21A of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78u-1].
3. This Court has jurisdiction over this action pursuant to Section 27 of the Exchange Act [15 U.S.C. § 78aa] and 22(a) of the Securities Act of 1933 (the "Securities Act") [15 U.S.C. § 77v(a)].
4. Defendant has, directly or indirectly, made use of the means or instrumentalities of interstate commerce, the mails, or the facilities of a national securities exchange, in connection with the acts, practices and courses of conduct complained of herein.
5. Defendant is a 62 year-old attorney, licensed to practice within the state of California. Defendant's primary practice concerns the United States securities laws.
6. Pay Pop was a Nevada corporation with its principal place of business in British Columbia, Canada. Pay Pop purportedly owned Delecom Communications, a reseller of telecommunications services in British Columbia. Pay Pop's stock was publicly traded on the NASD Over the Counter Bulletin Board between at least July 1998 and March 2000. In March 1999, Pay Pop had announced a 40-1 reverse stock split, leaving Pay Pop with approximately 1.4 million shares issued and outstanding.
7. Between February 1999 and September 1999, Defendant represented Pay Pop. During this time, Soloski advised Pay Pop on corporate and securities law issues and represented Pay Pop in negotiations to secure potential financing.
8. By virtue of Defendant's representation of Pay Pop, he was a temporary insider of Pay Pop, owing Pay Pop and its shareholders duties of trust and confidence.
9. On or about May 28, 1999, Soloski received a proposed term sheet from American Fronteer Capital, for a potential $8 million equity financing of Pay Pop. This information was material, as Pay Pop purportedly had only $13 million in assets at the time.
10. On the same day Defendant received the draft term sheet, May 28, 1999, Defendant deposited a check for $1,878.55 in his brokerage account and purchased 10,000 shares of Pay Pop, at $0.18 per share. The transaction settled two days later. Neither Soloski nor Pay Pop disclosed to the public that financing negotiations with American Fronteer were pending or the transaction was soon to close before Soloski purchased Pay Pop stock. Thus, Defendant purchased Pay Pop stock based on material nonpublic information.
11. Several days after receiving the draft term sheet, Soloski flew to New York to meet with American Fronteer to finalize the financing.
12. At the meeting, American Fronteer informed Soloski that Pay Pop had 7.8 million shares issued and outstanding, rather than the 3.7 million shares that Pay Pop represented were outstanding in earlier negotiations. As a result, the financing deal did not close.
13. Despite the fact that the deal had not closed, Pay Pop issued a June 28, 1999 press release falsely stating that it had closed the financing with American Fronteer for $8 million.
14. On June 8, 1999, Defendant confirmed through Pay Pop's transfer agent, CIBC Mellon Trust Co. ("CIBC Mellon"), that CIBC Mellon had issued, without Defendant's prior knowledge, over 4 million additional shares of Pay Pop stock at the direction of Pay Pop. Upon learning of this issuance of stock, Defendant advised CIBC Mellon that the stock had been issued in violation of Section 5 of the Securities Act and directed CIBC Mellon to stop issuing any other stock without a legal opinion letter.
15. Defendant continued to attempt to arrange an alternative form of financing for Pay Pop from American Fronteer. While discussions with American Fronteer were again progressing, Defendant learned from CIBC Mellon that an additional 11 million shares of Pay Pop had been illegally issued without restrictive legends. Pay Pop now had approximately 19 million shares issued and outstanding.
16. As a result, on July 19, 1999, Defendant flew to Vancouver and met with managers of CIBC Mellon, in CIBC Mellon's offices. Defendant demanded to see a shareholder list and learned that the amount of Pay Pop stock issued and outstanding had grown from 3.7 million to approximately 19 million shares in a six-week period. Defendant advised CIBC Mellon that its actions in permitting the issuance of Pay Pop stock violated U.S. securities laws. Defendant knew that the undisclosed illegal issuance of Pay Pop stock would preclude any future financing of Pay Pop and was, thus, material.
17. The next day, Defendant put in a trade order to sell his Pay Pop stock, which was executed on July 26, 1999. Defendant sold his Pay Pop stock while in possession of the following material nonpublic information that he obtained through his representation of Pay Pop: (i) Pay Pop had 19 million shares issued and outstanding, approximately 15 million of which Soloski knew to be illegally issued; and (ii) Pay Pop failed to close the financing with American Fronteer but nevertheless had issued a false press release on June 28, 1999 stating that it had such financing. Soloski sold his 10,000 Pay Pop shares for $956.41, thereby avoiding losses of $922.14.
18. Paragraphs 1 through 17 are hereby realleged and incorporated by reference.
19. Soloski violated Section 10(b) of the Exchange Act [15 U.S.C. §78(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5] when he purchased and sold Pay Pop stock.
20. In doing so, Soloski used the means or instrumentalities of interstate commerce, the mails or the facilities of a national securities exchange in undertaking the conduct described above.
21. Soloski owed Pay Pop and its shareholders a duty of trust and confidence due to his status as counsel to the company. As a result, Soloski had a duty not to trade while in possession of material nonpublic information he obtained concerning Pay Pop.
22. Soloski breached this duty of trust and confidence when he purchased and sold shares of Pay Pop stock based upon material nonpublic information concerning Pay Pop.
23. Soloski knew, or was reckless in not knowing, when he purchased and sold Pay Pop stock that: (i) the information he was basing his trading decision upon was material and nonpublic; (ii) he owed Pay Pop and its shareholders a duty of trust and confidence; and (iii) he breached that duty of trust and confidence by trading upon material nonpublic information he obtained by reason of his relationship to Pay Pop.
24. By reason of the foregoing, Defendant directly or indirectly violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
25. Paragraphs 1 through 24 are hereby realleged and incorporated by reference.
26. Soloski violated Section 17(a) of the Securities Act [15 U.S.C. §77q(a)] when he sold Pay Pop stock.
27. In doing so, Soloski used the means or instrumentalities of interstate commerce, the mails or a facility of a national securities exchange in undertaking the conduct described above.
28. Soloski owed Pay Pop and its shareholders a duty of trust and confidence due to his status as counsel to the company. As a result, Soloski had a duty not to trade while in possession of material nonpublic information he obtained concerning Pay Pop.
29. Soloski breached this duty of trust and confidence when he sold shares of Pay Pop stock based upon material nonpublic information concerning Pay Pop.
30. Soloski knew, or was reckless in not knowing, when he sold Pay Pop stock that: (i) the information he was basing his trading decision upon was material and nonpublic; (ii) he owed Pay Pop and its shareholders a duty of trust and confidence; and (iii) he breached that duty of trust and confidence by trading upon material nonpublic information he obtained by reason of his relationship to Pay Pop. Thus, Soloski acted with scienter when he executed the trades of Pay Pop stock.
31. By reason of the foregoing, Defendant directly or indirectly violated Section 17(a) of the Securities Act.
all orders and decrees that may be entered or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court.

References: § 78
 § 78
 § 77
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 §240
 §77