Risk & Compliance

Oh, the Inanity!

SEC closes the books on the case of a doubtful dirigible.
Tim Reason and Stephen TaubAugust 8, 2007

Call it a “blimp” on the regulatory radar screen.

The Securities and Exchange Commission Monday announced final judgments against a penny-stock company and four of its officers for falsely claiming that the company, Platforms Wireless International Corp., provided airplane- and blimp-mounted wireless communications systems.

According to the SEC’s complaint, “Platforms never possessed any such blimp-based wireless communications platform. In fact, at that time Platforms never possessed any hardware, planes or blimps.”

But, says the SEC, that didn’t stop the company and its officers from issuing press releases touting the existence of family of five “ARC System Airborne Zer0Gravity AeroStructures consist[ing] of state-of-the-art Aerostat Airships and a combination of Aerostat Airships and High-altitude, Fixed Wing Support aircraft . . . .”

The SEC added that the company “has never had any revenues, income or customers, and has never created a product that is commercially viable, or that even exists.”

In March 2001, according to the SEC, Platforms issued a press release touting a demonstration bearing the caption: “Floating Three Miles Above Ground, Platforms Wireless International’s New Airborne Relay Communications Systems Proves to Bring Affordable and Flexible Wireless Voice & Data to Rural Markets.” The press release continued, “Floating like a massive World War II barrage balloon with an underbelly bulge large enough to hold nearly 1500-pounds worth of antennas and sophisticated communications hardware, the new [ARC System] is poised to be the future communications infrastructure platform for cellular and wireless data.”

Although the press release created the impression that the demonstration involved a tethered helium blimp floating miles above the ground in Brazil, says the SEC, it in fact featured a crane hoisting antennas about 20 feet above the ground in San Diego.

In addition to the company itself, the SEC charged former CEO and chairman of the board William C. Martin, former president Robert D. Perry, and former COO Francois M. Draper with violating anti-fraud provisions of the federal securities laws. A final judgment was entered against Platforms, Martin, and Draper for violations of the registration requirements of the federal securities laws.

CFO Charles B. Nelson consented to the entry of the final judgment against him without admitting or denying the allegations of the Complaint. The final judgment against Nelson permanently enjoins him from certain future violations.

Between 2000 and 2001, when the false press releases were issued, the SEC charged, the four individuals profited from payments they received from the company, from illegal stock sales into the secondary market, and from stock sales made directly to investors.

The final judgment holds Platforms jointly and severally liable with Draper and Martin for $402,920 in disgorgement plus prejudgment interest of $121,303 and jointly and severally liable with Martin for $1,353,941 in disgorgement, plus prejudgment interest of $428,049, for a total of more than $2.3 million.

The final judgment also imposes a penalty of $125,000 on Platforms for these violations. The final judgment against Martin also permanently enjoins him from violating certain securities rules.

The final judgment also holds Draper individually liable for $701,236 in disgorgement plus prejudgment interest of $296,968, for total disgorgement and prejudgment interest of $3,304,417.

In addition, the final judgment imposes a penalty of $90,000 for violation two different securities rules, and imposes eight-year officer and director and penny stock bars against him.

The final judgment also holds Draper jointly and severally with Perry for $91,714 of the amount described above, plus prejudgment interest of $26,923. The total disgorgement and prejudgment interest assessed against Draper is $521,199.

The final judgment also imposes on Draper a penalty of $20,000 for one Securities Act violation and $80,000 for other violations. It also imposes seven-year officer and director and penny stock bars against him. He was not enjoined from future violations of the Securities Act.

Also, the final judgment against Perry orders disgorgement of $13,943 plus prejudgment interest of $6,335, representing his individual liability and jointly and severally with Draper, for the amounts already described, for total disgorgement and prejudgment interest of $138,915. The final judgment against Perry also imposes a penalty of $40,000 and a four-year officer and director and penny stock bar. Perry was not enjoined.