SEC v. Lee Cole, Linden Boyne, Kevin Donovan, and Timothy Quintanilla (S.D.N.Y).  On November 8, 2012, the SEC announced it charged Lee Cole, Linden Boyne, Kevin Donovan, and Timothy Quintanilla with fraud.  Cole was the CEO of Electronic Game Card, Inc. (“EMGI”) and Boyne was the company’s CFO.  EMGI was a public company purporting to sell credit-card sized electronic games. According to the SEC, Cole and Boyne caused EGMI to claim it had a bank account worth more than $10 million, held millions of dollars in investments, and had millions of dollars in revenue.  In reality, there was no bank account, the company’s investments were in entities affiliated with Cole and Boyne, and the claimed revenue was based on fake contracts.  The SEC alleges that to further the fraud, Cole and Boyne provided falsified documents to the company’s outside auditor, Timothy Quintanilla.  The SEC also charged Quintanilla for performing reckless audit work that lead to the issuance of clean audit reports for the company.  Lastly, the SEC charged Kevin Donovan who replaced Cole as CEO.  The SEC alleges that Donovan ignored warning signs about the truth of the company’s public representations.

The SEC charged Cole and Boyne with violating Sections 5(a), 5(c), and 17(a) of the Securities Act; Sections 10(b), 13(b)(5), 13(d), and 16(a) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 13d-1, 13d-2, 16a-2, and 16a-3; and Section 304 of the Sarbanes-Oxley Act of 2002.  The SEC also alleges that Cole and Boyne are liable as control persons and for aiding and abetting violations of federal securities laws.  The SEC charges that Donovan violated Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5.  The SEC charged Quintanilla with violating Section 17(a) of the Securities Act and Sections 10(b), 10A(a)(1), and 10A(b)(1) of the Exchange Act and Rule 10b-5.  Quintanilla also is charged with aiding and abetting violations of the federal securities laws.  The SEC seeks injunctive relief, civil monetary penalties and disgorgement.