Securities and Exchange Commission v. ConTXT, Inc, Thomas J. Robbins, Daniel J. Merriman, Mark W. Wiseman, and Clark J. Madsen, No. 2:21-cv-00013 (U.S. District Court, District of Utah) filed January 7, 2021.
The Securities and Exchange Commission today announced settled charges against a Utah corporation, its principals, and two securities fraud recidivists for allegedly orchestrating two inter-related frauds resulting in approximately $11 million in investor losses.
According to the SEC’s complaint, Thomas J. Robbins and Daniel J. Merriman met while incarcerated for separate and unrelated securities fraud convictions. The complaint alleges that after they were released, Robbins and Merriman created a high-yield trading program, and that, beginning in 2016, Robbins and Merriman solicited investor funds through a series of representations, including: that the Church of Jesus Christ of Latter-day Saints was a client; that they had consistently generated large returns for prior investors; and that investors could expect to earn profits of at least 20% per month. The complaint alleges that none of these representations was true. The complaint further alleges that Robbins and Merriman misappropriated investor funds to pay purported profits to earlier investors and to pay personal expenses. According to the complaint, losses for the trading program totaled over $10 million.
In 2017, the complaint alleges, Robbins and Merriman, together with Clark J. Madsen and Mark W. Wiseman, devised a new scheme to fraudulently sell millions of shares of stock in ConTXT, Inc., a company founded by Madsen, in unregistered transactions. As alleged, because Robbins and Merriman were convicted felons, their involvement in ConTXT was actively concealed, and ConTXT’s Private Placement Memorandum (PPM) and other documentation provided to investors falsely attributed the duties performed by Robbins and Merriman to a nominee. The PPM allegedly also contained false and misleading information about ConTXT’s financial condition and profitability. The complaint alleges that Robbins, Merriman, and Wiseman lied about the use of investor funds, misrepresented ConTXT’s financial condition, and misappropriated investor funds for their personal benefit. Robbins and Merriman also allegedly acted as unregistered brokers in the distribution of ConTXT stock and received commissions for their efforts. The defendants allegedly sold at least $942,800 of ConTXT stock in unregistered transactions and distributed millions of additional shares to satisfy prior debt obligations.
The SEC’s complaint filed in U.S. District Court for the District of Utah, charges all defendants with violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and with violating the securities registration provisions of Section 5(a) and (c) of the Securities Act. The complaint additionally charges Robbins and Merriman with violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act. Without admitting or denying the allegations in the complaint, each of the defendants consented to a final judgment permanently enjoining him from violating the charged provisions and ordering him to pay disgorgement with prejudgment interest and/or a civil penalty in the following amounts:
- Robbins: disgorgement of $828,567 plus prejudgment interest of $142,714;
- Merriman: disgorgement of $744,191 plus prejudgment interest of $121,869, and a civil penalty of $192,768;
- Madsen: disgorgement of $29,000 plus prejudgment interest of $3,531, and a civil penalty of $96,384;
- Wiseman: disgorgement of $68,500 plus prejudgment interest of $8,341, and a civil penalty of $96,384; and
- ConTXT: disgorgement of $269,187 plus prejudgment interest of $32,779, and a civil penalty of $269,187.
Robbins and Merriman also agreed to a conduct-based injunction. The judgment remains subject to court approval.
In a parallel criminal action related to the trading program, Robbins pled guilty to securities fraud and money laundering and was sentenced to five years in prison and ordered to pay $10,170,700.69 in restitution.
The SEC’s investigation was conducted by Jennifer Moore and Paul Feindt and was supervised by Amy Oliver, Assistant Director, and Daniel Wadley, Regional Director of the Salt Lake Regional Office.