SEC v. Williams Et Al Doc 45 Filed 19 Jul 13

7/27/2019 SEC v. Williams Et Al Doc 45 Filed 19 Jul 13

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UNITED STATES DISTRICT COURTDISTRICT OF CONNECTICUT

)SECURITIES AND EXCHANGE COMMISSION, )

)Plaintiff, )v. ) No. 3:12-cv-01068-RNC

)JERRY S. WILLIAMS, MONKS DEN, LLC, and )FIRST IN AWARENESS, LLC, )

)Defendants. )

)

MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS MOTION FOR DEFAULTJUDGMENT AGAINST MONKS DEN, LLC AND FIRST IN AWARENESS, LLC

Case 3:12-cv-01068-RNC Document 45 Filed 07/19/13 Page 1 of 28


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TABLE OF CONTENTS

INTRODUCTION 1

STATEMENT OF FACTS 2

I. Williams, FIA and the creation of Monks Den 2

II. The scalping scheme 4

A. The Cascadia Play 4

B. Float Lock Downs and Monkinars 5

C. The Cascadia Float Lock Down 8

D. The Green Oasis Float Lock Down 10

E. Monks Den: From sole proprietorship to limited liability company 12

ARGUMENT 12

I. FIA and Monks Den are liable for Williams federal securities law violations 12

II. Through Williams, FIA and Monks Den violated the federal securitieslaws anti-fraud provisions 13

A. The defaulting defendants made statements as required by Section 10(b)of the Exchange Act and Rule 10b-5 thereunder 14

B. The defaulting defendants obtained money through means of directMisstatements to potential investors in the offer and sale of securitiesin violation of Section 17(a)(2) of the Securities Act 14

C. The defaulting defendants false statements and omissions were material 15

D. The defaulting defendants employed schemes that violated Section17(a)(1) & (3) and Section 10(b) and Rule 10b-5(a) & (c) thereunder 17

E. The defaulting defendants acted with scienter 18

III. FIA and Monks Den violated Section 17(b) of the Securities Act 19

IV. Final Judgment should enter against the defaulting defendants fora permanent injunction, disgorgement, and a civil penalty 19

A. A permanent injunction is appropriate in these circumstances 19

B. The defaulting defendants should be ordered to disgorge

their unjust gains 21

C. The defaulting defendants should be ordered to pay a civil penalty 22

CONCLUSION 24



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INTRODUCTION

This case involves a fraudulent scalping scheme perpetrated by Jerry Williams through

his wholly-owned businesses, FIA and Monks Den. Scalping is a type of fraud in which the

owner of shares of a security recommends that security for investment and then immediately

sells it at a profit upon the rise in market price which follows the recommendation. Williams,

through FIA, entered into agreements with two companies, Cascadia Investments, Inc.

(Cascadia or CDIV) and Green Oasis Environmental, Inc. (Green Oasis or GRNO), to

promote their companys stock. The companies paid for these services in shares of free or

steeply discounted stock. In turn, Williams promoted the purchase of these stocks to the

Monks Den, an internet-based trading community and association, which Williams created

and ran as a sole proprietorship and later, in August 2010, formed as a limited liability company.

Williams told his Monks Den followers to buy and hold Cascadia and Green Oasis stocks while

he did the opposite: selling his free and heavily discounted shares into the rising market prices

that followed his recommendations. Through the unlawful and deceptive scalping scheme,

Williams, as agent of both Monks Den and FIA, reaped unlawful profits in the amount of

$2.357 million.

Defendants Monks Den and FIA have failed to file an answer or other response to the

Complaint. The Court entered default against them on June 26, 2013. [Docket Entry No. 36]

Neither Monks Den, nor FIA are an infant, an incompetent person, or in the military service of

the United States. See Harper Decl., 2. The Commission now seeks entry of a default judgment

that would: (a) permanently enjoin Monks Den and FIA from future securities law violations;

(b) require them to pay disgorgement and pre-judgment interest, jointly and severally, in the total

amount of $2,545,974; and (c) require them to pay an appropriate civil penalty.



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STATEMENT OF FACTS

Because default has been entered against Monks Den and FIA, the Commissions

allegations are deemed admitted. Cablevision of Southern Conn. Ltd. Pship v. Smith, 141 F.

Supp.2d 277, 282 (D. Conn. 2001) (quoting Transatlantic Marine Claims Agency, Inc. v. Ace

Shipping Corp., 109 F.3d 105, 108 (2d Cir. 1997)). In considering the present motion for default

judgment, the Court is required to accept all of [the Commissions] allegations as true and draw

all reasonable inferences in its favor. SeeFinkle v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009)

(citingAu Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981)). Accordingly, for the

purpose of this motion, the Court should accept the following allegations and reasonable

inferences as true.

I. Williams, FIA and the creation of Monks Den.

In June 2007, Williams was an active day trader and participant on Internet Forum, a

commercial message board provider (Internet Forum). Complaint, 20. The Internet Forum

provided on-line message boards for individuals to post and share information about particular

stocks or stock trading strategies. The message boards were controlled by Moderators, who

were Internet Forum subscribers. In June 2007, Williams became the moderator of an Internet

Forum message board called Monks Den and adopted the subscriber alias and persona

Monk. Id.

Williams created the content of the Monks Den message board, selected discussion

topics that restricted message board discussions to his stock recommendations and strategies, and

chose the boards assistant moderators. Complaint, 21. Williams used the Monks Den

message board to market himself as an enormously successful trader who, through years of

experience, had learned certain trading techniques that would enable other people to also become



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successful stock traders. Id., 25. As Monks Den became more popular, Williams hired

Monks Den employees to work as assistant administrators on the Monks Den message board.

Id.36. He also expanded from the message board to build a business of teaching stock trading.

Id., 30-34. Williams held training seminars, called Monkinars, in which he instructed potential

investors on how to follow his trading strategies. Id. Williams charged fees for attending these

Monkinars. Id. He also hired Monks Den employees to assist in the teaching of the Monkinars.

Id., 36. Williams operated the Monks Den message board community and stock trading

education business under the name Monks Den, the same name of his message board. Id. In

August 2010, Williams filed papers incorporating Monks Den as a limited liability company.

Id. For the purpose of this motion, the Commission will use the term Monks Den followers or

Monks Den following to mean the investors and potential investors who received the Monks

Den trading strategies, whether from the Monks Den message board or from the Monkinar

presentations.

In addition to running the Monks Den activities, in 2008 Williams was an active stock

promoter. Complaint, 22-23. In November 2008, Williams formed FIA and began using it to

conduct his stock promotion business. Id., 22. Williams was the owner and sole shareholder of

FIA. Id., 15. He controlled all aspects of the company, including signing contracts on its

behalf, and hiring and directing employees and sub-contractors. Id. 22.

As a paid stock promoter, Williams was required by the Internet Forums Terms of

Service to meet certain conditions of disclosure. Complaint, 23. Williams was required to

register as an Investor Relations Professional (IRP) and pay a monthly fee to activate and

maintain this IRP subscription. Id. The IRP subscription activated an icon, visible to other

Internet Forum subscribers, indicating that Williams was a paid promoter. Id. Williams initially



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signed up for an IRP subscription in October 2008, but he let it lapse and the IRP subscription

expired in January 2009. It was never renewed. Id.

II. The scalping scheme.

After Williams IRP subscription expired in January 2009, he embarked on a scheme to

scalp trading profits by selling stocks that he simultaneously promoted on his Monks Den

internet message board. Complaint, 23, 39. From March 2009 through 2010, Williams, acting

through FIA, contracted with two companies, Cascadia Investments, Inc. (Cascadia) and Green

Oasis Environmental, Inc. (Green Oasis) to promote their stock in exchange for millions of

free or heavily discounted shares. Id., 39, 58, 71. After receiving the shares, Williams, acting

through FIA and Monks Den, created demand for the stocks by promoting them on the Monks

Den message board. Id., 39-45, 57, 70. In addition, as Williams became more popular, he

started a stock trading seminar business, called Monkinars, which he also used (1) to promote the

same stocks, and (2) to recruit new Monks Den followers. Id., 32-34. As Williams followers

pursued his recommendations to buy Cascadia and Green Oasis stock, he fraudulently scalped

profits by selling his free or heavily discounted shares into their rising market prices. Id., 39.

A. The Cascadia Play.

In March 2009, the Chief Executive Officer of Cascadia hired Williams to promote the

company in exchange for 14 million shares of Cascadia stock. Williams received his

promotional shares on March 18, 2009, a day on which the stock had no trading activity.

Complaint, 41.

On the next day, March 19, 2009, Williams started recommending Cascadia to his

Monks Den following as one of his Plays and began touting the stock. Id., 42. After calling



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Cascadia as a Play to the Monks Den following on March 19, 2009, the stocks trading volume

spiked to over 7.7 million shares, and its share price closed at $.0036. Id.

As Cascadias volume and share price started rising following Williams call of the Play,

Williams immediately began selling the shares Cascadia had given him as payment for the

promotion. Complaint, 44. On March 23, 2009, Williams sold 1.1. million Cascadia shares.

On March 25, 2009, he sold another 950,000. On March 27, 2009 he sold another 200,000. Id.

Williams continued to recommend Cascadia as a Play to his Monks Den following

through May 2009. Id. During this time, Williams publicized the company and encouraged

others to do the same. Complaint, 43-45. He paid another stock promoter 1.5 million Cascadia

shares to assist him in promoting the company. Id., 43.

During these same months, Williams continued to sell the Cascadia shares he had been

given to promote the company. In March 2009, Williams sold approximately 2.3 million shares

of Cascadia. Complaint, 45. In April 2009, he sold approximately 3.2 million shares. Id. And

in May 2009, he sold approximately 1.1 million shares. Id. From this scalping activity,

Williams generated profits of over $16,000. Id.

Williams, FIA and Monks Den did not disclose, at any time, (i) that Williams had been

hired, and had been compensated with 14 million shares of company stock, to promote Cascadia;

or (ii) that Williams was selling his Cascadia shares while recommending the purchase of

Cascadia to his followers. Id., 46.

B. Float Lock Downs and Monkinars.

By May 2009, Williams began a new promotional gimmick called a Float Lock Down.

See Complaint, 26, 47, 57-59. Williams told his Monks Den followers that if they

collectively bought up and held all of the outstanding shares, or float, of specific companies



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selected by Williams, they could trigger a short squeeze forcing market makers that held

naked short positions in these stocks to buy the investors shares at enormous profits. Id., 26,

47-48.

According to Williams, the Float Lock Down concept worked as follows. First, Williams

needed to identify a company stock with the right share structure, short interest position, and

other factors that would make it susceptible to a short squeeze. Complaint, 27. Williams

claimed that he had the experience to be able to identify the right company stock for a Float Lock

Down. Id. Second, once Williams identified the target stock, his followers would need to

collectively purchase, hold, and continue to accumulate the companys outstanding shares, or

float. Id., 28. Williams told investors that even after purchasing most or all of the outstanding

shares, they should continue to try and buy more shares. Id. Williams instructed that market

makers would see the demand and engage in naked shorting--meaning selling shares without

possessing or arranging to borrow the shares sold--to take advantage of the demand. Id.

According to Williams, the short squeeze would occur when the market makers short position

became so large that Commission or internal firm rules would require them to buy shares in the

market cover their short positions. Id.

Williams emphasized that successful employment of the Float Lock Down required

investors to work together as a team: that is, they had to buy, hold and continue to accumulate

the stock until the short squeeze occurred, even when the price of the stock rose and they could

potentially profit by selling prior to the purported short squeeze. Complaint, 29. He

discouraged individuals from taking short term profits on the sale of Float Lock Down stocks,

saying that such sales undermined the timing of the short squeeze by delaying the locking of the

float and by allowing market makers to cover their short positions. Id.



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Leading up to the end of 2009, the Float Lock Down gimmick became the focus of

Williams trading recommendations and the main topic of discussion on the Monks Den

message board. Complaint, 30. By then, Williams modified the Monks Den message board

iBox (the portion of the message board that introduced the board to users) to make the

following introduction: Welcome to Monks Den. . . . We profit by buying and holding selected

company stocks and locking down the float of chosen companies. Id.

In addition to the Float Lock Down concept, in December 2009, Williams began teaching

classes, called Monkinars, on his stock trading techniques. Complaint, 31. At first,

Williams Monkinars consisted of a few individuals who followed the Monks Den message

board. Id., 32. Williams proved to be an engaging personality, however, and the classes grew

in popularity. Id. Williams soon began charging attendees between $1,000 and $1,500 for these

seminars. Id. From December 2009 through October 2010, Williams, FIA and Monks Den held

approximately 18 Monkinars in cities across the United States, including Los Angeles,

Richmond, Phoenix, Atlanta, Indianapolis, Chicago, Portland, Pittsburgh, Groton and Boston.

Id., 33-34, 36. By October 2010, Williams Boston Monkinar drew 90 attendees, each of

whom paid $1,500 to attend. Id., 34. Williams marketed his Float Lock Down strategy during

many of the Monkinars, often discussing it with attendees. Id.

During the period that Williams marketed the Float Lock Downs and Monkinars, his

popularity grew considerably. Complaint, 35. Between June and December 2009, the number

of Internet Forum subscribers posting messages on the Monks Den message board on a monthly

basis was between 105 and 235 subscribers, and they posted between 2,600 and 11,000 messages

per month. Complaint, 35. Between January and April 2010, the number of Internet



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subscribers posting messages on Monks Den jumped from 268 to 738 subscribers, and they

posted between 16,000 and 38,000 messages per month. Id.

C. The Cascadia Float Lock Down.

During May 2009, Cascadia again hired Williams, through FIA, to promote the company

and, on May 27, 2009, paid him an additional 10 million free-trading shares for this service.

Complaint, 58-59. At the time, Williams still had over 7.3 million of the 14 million Cascadia

shares that he received in March 2009, giving him a total holding of over 17.3 million Cascadia

shares on May 27, 2009. Id.

After receiving the additional shares from Cascadia in May 2009, Williams selected

Cascadia as a Float Lock Down target for the Monks Den and began publicizing it in an effort to

create demand and an increase in the stocks price. Complaint, 59. Williams promoted the

Cascadia Float Lock Down to his Monks Den following in emails, message board posts, and

Monkinar presentations from May 2009 through 2010, encouraging them to buy and accumulate

stock in pursuit of the promised short squeeze. Id., 39, 57. All of these representations were

materially false and misleading because Williams was in fact consistently selling his holdings of

Cascadia, in contravention of the Float Lock Down strategy, and profiting from the deception of

his followers. Id., 68. For example:

On or about August 12, 2009, Williams sent an Email Alert to his Monks Denfollowers recommending that they buy Cascadia, stating that only 8 millionshares remain and that brokers are 12 million shares short, with any buyingpressure [moving] them right out of the way. This statement was materiallyfalse and misleading because Williams omitted to state the material facts thathe had by then made net sales of over 9.5 million Cascadia shares and hadbeen selling his Cascadia stock in direct contravention of the purported FloatLock Down strategy. See Complaint, 64.f.

On November 24, 2009, Williams sent his Monks Den followers an EmailAlert on Cascadia that (i) reiterated that it was his favorite play, (ii) givingstatistics that they had locked up 44.5 million shares of the 49.8 million sharefloat, and (iii) stating that [if] you have ever been in a short squeeze then you



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will understand why [it is] important to accumulate all you can during timeslike this. These statements were false and misleading because Williamsomitted to state the material facts that he had, by then, made net sales of over14 million shares of CDIV and had been selling his Cascadia stock holdings indirect contravention of what he was advising his followers to do. Id., 64.i-j.

On March 10, 2010, Williams sent an Email Alert stating that our three floatlock down plays remain in full effect, [Cascadia], EIGH and GRNO and toldhis followers that if you have the ability to add to them do so as you can.These statements were false and misleading because Williams omitted to statethe material facts that he had, by then, made net sales of over 20 million sharesof Cascadia stock and had been selling his Cascadia stock holdings incontravention of the purported Float Lock Down strategy. Id., 64.n.

To further lure Monks Den followers in pursuit of the Cascadia Float Lock Down,

Williams made representations in emails, message board posts, and Monkinar presentations that

he was pursuing the Float Lock Down strategy by (1) accumulating more Cascadia stock, and (2)

never selling any of this Cascadia holdings. Complaint, 62-63. These statements were also

false statements of material fact because Williams was secretly selling his Cascadia stock during

the entire period. Id., 63. For example:

On June 15, 2009, in an email exchange with a Monks Den member aboutCascadias stock price, Williams stated that we have a long way to go yet, and

that he had added more [Cascadia] stock today. This statement was materiallyfalse and misleading because Williams omitted to state that he had made net salesof over 2.1 million shares during June 2009 and made net sales of over 6.7 millionshares in the preceding three months of March, April and May 2009. SeeComplaint, 64.b.

On August 19, 2009, Williams sent an Email Alert to his Monks Den followersstating, I am not selling [Cascadia] and our core group is not selling either . . .we have worked very hard to get the float locked. These statements were falseand misleading because Williams omitted to state the material facts that (i) bythen he had made net sales of over 9.5 million Cascadia shares, and (ii) he hadbeen selling his Cascadia stock holding in contravention of the purported Float

Lock Down strategy. Id., 64.g.

On February 7, 2010, a Den member asked Williams if he had sold Cascadiastock during its price rise from $.07 to $.13, which occurred betweenapproximately, January 6 and February 5, 2010. Williams replied that he had notbecause it would be counterproductive to sell when we are trying to lock up thefloat and the idea is to get all the shares when the market makers are trying toshort it. These statements were false and misleading because Williams omitted



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to state the material facts that he had in fact made net sales of over 635,000Cascadia shares during its price rise from January 5 through February 5, 2010,and had made net sales of over 15 million shares since March 2009. Id., 64.m.

During the time Williams promoted the Float Lock Down strategy for Cascadia stock,

Williams failed to disclose to his followers that he was selling large quantities of Cascadia stock.

Complaint, 68-69. Instead, he affirmatively misled them to believe that he was participating in

the Float Lock Down by buying and accumulating shares. Id., 64b, 68. During the overall

period of the Cascadia Play and subsequent Float Lock Down, from March 2009 through

August 2010, Williams sold over 24 million shares of Cascadia stock. Id., 69.

D. The Green Oasis Float Lock Down.

In late February 2010, Green Oasis Environmental, Inc. (Green Oasis) hired Williams

to promote the company by, among other things, selecting the companys stock as a Float Lock

Down target. See Complaint, 71. Green Oasis paid in the form discounted company stock

shares. Green Oasis sold Williams 1.4 million shares for $.01 per share,1 at a time when the

stock was trading at $.082 per share. Id., 71-72. On Friday, February 26, 2010, the day after

Williams received the first 600,0003 of his Green Oasis shares, he sent an Email Alert to the

Monks Den following that he had selected the company for a Float Lock Down. Id. Williams

thereafter posted the selection of Green Oasis as a Float Lock Down on the Monks Den message

board, and maintained it as a Float Lock Down stock throughout 2010. Id.

1 Paragraph 71of the Complaint alleges that Green Oasis paid Williams by selling him discounted shares priced at$0.1, or ten cents a share. As explained in the Declaration of Sophia Hussain, this price allegation has a

typographical error. Williams admitted during his investigation testimony that he paid $0.01, or one penny, pershare. See Hussain Decl., 9.

2 Paragraph 71 of the Complaint alleges that Green Oasis was trading at $0.8, or eighty cents, per share at the timeWilliams was paid with discounted company shares. As explained in the Declaration of Sophia Hussain, this priceallegation has a typographical error. Williams admitted during his investigation testimony that Cascadia was tradingat approximately $0.08, or eight cents, per share. See Hussain Decl., 9 n.1.

3 Paragraph 71 of the Complaint alleges that, on February 26, 2010, Williams received 650,000 Green Oasis shares.As explained in the Declaration of Sophia Hussain, this amount of alleged shares has a typographical error.Williams actually received 600,000 shares on that date. See Hussain Decl., 9 n.1.



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Immediately after selecting Green Oasis as a Float Lock Down for the Monks Den

group, Williams began selling his personal holding of the stock. Complaint, 72. By the close

of trading on Friday, February 26, 2010, the share price of Green Oasis more than doubled, rising

to $0.19 from its previous day close of $0.08. Id. That same day, Williams sold 450,000 Green

Oasis shares, realizing profits of $61,250. Id. Williams sold 150,000 of his remaining

promotional Green Oasis shares on the next business day, Monday, March 1, 2010, realizing

profits of over $37,815. Id., 73.

On March 10, 2010, Williams received the remaining 800,000 Green Oasis shares owed

from the company as part of his promotion agreement. Complaint, 74. The same day Williams

sent an Email Alert to the Monks Den following that the float lock down plays remain in full

effect, CDIV, EIGH and GRNO[Green Oasis] and encouraging potential investors to add to

them [as they] can. Id., 74. This statement was false and misleading because Williams

omitted to state the material fact that (i) by then, he had already sold 600,000 Green Oasis shares

for profits of nearly $100,000, and (ii) he had been selling his Green Oasis stock at the same time

he was telling Monks Den followers to buy in pursuit of the Float Lock Down. Id.

From March 16, 2010 through June 2, 2010, Williams continued to sell his Green Oasis

shares as he simultaneously maintained the company as a Float Lock Down for the Monks Den

following. Complaint, 75-77. By the beginning of June, Williams had sold 1.38 million of his

1.4 million promotional Green Oasis shares, profiting in the amount of nearly $375,000. Id.,

77. From the beginning of the Green Oasis Float Lock Down on February 26, 2010 through

June 2, 2010, Williams never purchased a single share of Green Oasis on the open market. Id.

He also never disclosed (i) his promotional compensation from the company or (ii) the fact that

he was selling his promotional shares as he was telling others to buy. Id.



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E. Monks Den: From sole proprietorship to limited liability company.

Until August 2010, Williams operated his Monks Den message board activities and

Monkinar trading seminars as an unincorporated sole proprietorship. Complaint, 36. Williams

hired people as Monks Den employees. Id. These people assisted in the administration of the

Monks Den message board, helped with organizing and teaching Monkinars, and drafted

newsletters and message board posts to publicize Williams recommendations and trading

strategies. Id.

Williams also used FIA to operate his Monks Den activities and to support his fraudulent

trading activities. Complaint, 33. He deposited fees from Monkinar attendees into an FIA bank

account. Id. He also used an FIA bank account to pay Monks Den employees. Id. Williams

also transferred his scalping profits from his brokerage accounts to an FIA bank account. Id.

In August 2010, Williams incorporated the Monks Den business as a limited liability

company. Complaint, 36. Consistent with the prior unincorporated sole proprietorship,

Williams installed himself as the owner and sole shareholder of Monks Den, LLC. Complaint,

15, 17, 36.

ARGUMENT

I. FIA and Monks Den are liable for Williams federal securities law violations.

Under the common law of agency, FIA and Monks Den are liable for securities law

violations committed by their agents. SeeCompudyne v. Shane, 453 F. Supp.2d 807, 824

(S.D.N.Y. 2006); SEC v. Tome, 638 F. Supp. 596, 623 (S.D.N.Y. 1986). In this case, FIA and

Monks Den had one primary agent, their sole owner: Williams. When Williams accepted

contracts with Cascadia and Green Oasis to promote their companies in exchange for payment in

no-cost or heavily discounted shares, he did so as the agent of FIA, his stock promotion business.

When Williams broadcast his Plays and Float Lock Downs, moderated the Monks Den message



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board, and taught his Monkinars, he did so as the agent of Monks Den, his stock trading and

teaching business. Since FIA and Monks Den act only through their physical agent, Williams,

they are liable for his actions and are therefore equally liable for his violations of the federal

securities laws. SeeTome, 638 F. Supp. at 623 (noting that since a corporation can act only

through its agents, a corporation is liable, as a principal, for the actions of its responsible officers

and authorized agents.); see alsoSEC v. Management Dynamics, Inc., 515 F.2d 801, 811-13

(2d Cir. 1975) (upholding imposition of injunction against brokerage firm for securities fraud

violations committed by its agent, a vice president in charge of trading).

II. Through Williams, FIA and Monks Den violated the federal securities laws anti-fraud provisions.

Section 17(a) of the Securities Act prohibits, in the offer or sale of securities: (1) devices,

schemes or artifices to defraud, (2) obtaining money or property by means of materially false or

misleading statements, and (3) transactions, practices or courses of business that operate as a

fraud or deceit. 15 U.S.C. 77q(a). Section 10(b) of the Exchange Act and Rule 10b-5 hereunder

prohibit any person, in connection with the purchase or sale of any security, from, directly or

indirectly: (1) employing any device, scheme or artifice to defraud; (2) making any untrue

statement of material fact or omission to state a material fact necessary in order to make the

statements made, in light of the circumstances under which they were made, not misleading; or

(3) engaging in any transaction, practice or course of business that operates or would operate as a

fraud or deceit upon any person.Basic Inc. v. Levinson, 485 U.S. 224, 235 n.13 (1988); 15

U.S.C. 78j(b); 17 C.F.R. 240.10b-5.4 Here, the defaulting defendants, through Williams,

4 Violations of Section 17(a)(1), Section 10(b) and Rule 10b-5 require a showing of scienter; violations of Sections17(a)(2) and 17(a)(3) do not.Aaron v. SEC, 446 U.S. 680, 685-86 n.5, 695-97 (1980); SEC v. Fife, 311 F.3d 1, 9 (1stCir. 2002). The distinction is not relevant here because, as will be discussed below, the defaulting defendants,through Williams, acted with a high degree of scienter.



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committed securities fraud by making and using false and misleading material statements of fact,

and by employing a broader scheme to defraud.

A. The defaulting defendants made statements as required by Section 10(b) of the

Exchange Act and Rule 10b-5 thereunder.

Section 10(b) and Rule 10b-5(b) thereunder prohibit the making of any untrue statement

of material fact or the omission of any material fact necessary in order to make the statements

made, in the light of the circumstances in which they were made, not misleading. 15 U.S.C.

78j(b); 17 C.F.R. 240.10b-5. The Supreme Court of the United States has held that for Section

10(b) liability, the maker of a statement is the entity with authority over the content of the

statement and whether and how to communicate it.Janus Capital Group v. First Derivative

Traders, 131 S. Ct. 2296, 2303 (2011). Here, the defaulting defendants made

misrepresentations through their agent, Williams. Using email, message board communications,

and Monkinar presentations, Williams directly told his followers to buy, hold, and accumulate

more Cascadia and Green Oasis stock in pursuit of the Flock Lock Down and short squeeze. To

spur this activity, Williams further told them that he was following his own advice by buying,

and not selling, these stocks.

B. The defaulting defendants obtained money through means of direct misstatements

to potential investors in the offer and sale of securities in violation of Section

17(a)(2) of the Securities Act.

Williams sold his Cascadia and Green Oasis stock at the same time that he made the

misrepresentations to spur his Monks Den followers to buy. Williams made these

misrepresentations for the purpose of generating demand, and resultant price increases, in order

to reap as much profit as possible from his sales. The whole purpose of the scalping scheme was

to enrich Williams and his businesses, the defaulting defendants, through the sale of his

promotional shares. Williams sale of Cascadia and Green Oasis stocks during the course of his



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Play and Float Lock Down schemes generated profits in the amount of $2,357,208. See

Declaration of Sofia Hussain (Hussain Decl.), 12.

C. The defaulting defendants false statements and omissions were material.

A fact is material if a reasonable investor would view its disclosure as significantly

altering the total mix of information in evaluating the merits of the investment.Basic, 485 U.S. at

231-32. A fact is material if it may affect the desire of investors to buy, sell, or hold the

companys securities. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968), cert.

denied, 394 U.S. 976 (1969).

Here, Williams told potential investors that they should purchase Cascadia and Green

Oasis stocks in pursuit of his Play or Float Lock Down recommendations. Williams omitted

telling these investors (1) that Cascadia and Green Oasis had paid him to promote their stocks,

and (2) that Williams was scalping his own profits through the sale of shares these companies

had given him, or sold him at a steep discount, to promote their companies. These were material

omissions.

A reasonable investor would have wanted to know that Williams was a paid promoter.

Williams told investors that he selected Float Lock Down stocks based on his analysis of the

companys share structure, short position and other factors relevant to its susceptibility to a short

squeeze, creating the impression that he was offering disinterested, technical advice. Reasonable

investors would have wanted to know that Williams was misleading them by omitting the fact

that his recommendation was not disinterested, and that he had been paid to promote theses

stocks. SeeSEC v. Corporate Relations Group, Inc., Civ. A. No. 6:99-cv-1222, 2003 WL

25570113, *7 (M.D. Fla. Mar. 28, 2003) (finding as material that reasonable investor would have



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wanted to know that defendant was paid for promoting stock); SEC v. Huttoe, Civ. A. No. 96-

2543(GK), 1998 U.S. Dist. LEXIS 23211, *17-26 (D.D.C. Sept. 14, 1998) (same).

Similarly, these reasonable investors would also have wanted to know that Williams

Play and Float Lock Down recommendations were not disinterested because Williams was

profiting by selling the very stocks that he was touting to them. It is well established that the

practice of scalping recommending the purchase of a stock and immediately selling the stock

without adequately disclosing the intent to sell and profit constitutes fraud and deceit. SeeSEC

v. Corporate Relations Group, Inc., Civ. A. No. 6:99-cv-1222, 2003 WL 25570113, *8-10 (M.D.

Fla. Mar. 28, 2003) (holding failure to disclose scalping sales was fraud); SEC v. Huttoe, Civ. A.

No. 96-2543(GK), 1998 U.S. Dist. LEXIS 23211, *17-33 (D.D.C. Sept. 14, 1998) (holding

failure to disclose paid promotion and scalping sales of promoted stock constituted fraud); see

alsoSEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 181 (explaining scalping fraud

in context of Investment Adviser Act). The fraud lies not in the practice of selling alone, but in

Williams failure to disclose to his audience of potential investors that he was selling in direct

contravention of his constant recommendation to buy, hold and accumulate more. The practice

reflects on the objectiveness of the investment advice and is therefore material. Huttoe, 1998

U.S. Dist. LEXIS 23211, at 29 (citing Capital Gains Research Bureau, 375 U.S. at 198)).

Moreover, to encourage Monks Den members to follow his investment advice, Williams

also told them he was buying Cascadia and Green Oasis stocks, and not selling them. These

statements were simply false statements of material fact. Through these false statements,

Williams was telling investors that he not only recommended the purchase of these stocks, but

that he was betting his own money on the same strategy. A reasonable investor would have



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wanted to know that Williams was lying when he said he was betting his own resources on the

same investment scheme.

D. The defaulting defendants employed schemes that violated Section 17(a)(1) & (3)

and Section 10(b) and Rule 10b-5(a) & (c) thereunder.

The Commissions claims under Section 17(a)(1) & (3) and Section 10(b) and Rule 10b-

5(a) & (c) are claims for scheme liability. See SEC v. Familant, 910 F. Supp.2d 83, 94

(D.D.C. 2012). Both anti-fraud provisions prohibit the use of schemes to defraud or any course

of business which operates as a fraud. 15 U.S.C. 77q(a)(1) & (3); 15 U.S.C. 78j(b); 17

C.F.R. 240.10b-5(a) & (c); seeSEC v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir.

1999) (explaining that essentially the same elements are required for fraud liability under

Securities Act and Exchange Act). A scheme is a plan or program of something to be done;

an enterprise; a project; as, a business scheme, or a crafty unethical project. Id., at94 (quoting

Aaron v. SEC, 446 U.S. 680, 696, n.13 (1980)).

Here, FIA and Monks Den, acting through Williams, perpetrated their fraud through a

business scheme with multiple components. Williams had to build his investor following on the

Monks Den message board and through his Monkinar classes. He then had to enter agreements

with Cascadia and Green Oasis to promote their stocks in order to obtain the free or heavily

discounted shares of stock. Williams then had to use his Monks Den message board and

Monkinar presentations to broadcast his fraudulent misstatements in order to drive up investor

demand for these stocks. Then Williams had to sell his promotional shares into the market. The

multiple steps required for execution of this fraudthe establishment of the investor following,

contracting for promotion services to obtain free or discounted shares, publication of the false

and misleading communications to buy, and selling of the shares to reap the profitswere all

separate and necessary components of this business scheme to defraud.



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E. The defaulting defendants acted with scienter.

Scienter is a mental state embracing intent to deceive or defraud. See Ernst & Ernst v.

Hochfelder, 425 U.S. 185, 193 n.12 (1976). Scienter includes recklessness, which may be

established through a showing of reckless disregard for the truth, that is, conduct which is highly

unreasonable and which represents an extreme departure from the standards of ordinary care.

SEC v. Obus, 693 F.3d 276, 286 (2d Cir. 2012) (SEC v. McNulty, 137 F.3d 732, 741 (2d Cir.

1998)). A corporations officers state of mind is imputed to the corporation. SeeSEC v.

Treadway, 430 F. Supp. 2d 293, 337-38 (S.D.N.Y. 2006).

Here, Williams actions bespeak knowledge or, at the very least, a reckless disregard for

the deceptiveness of his conduct. He told his Monks Den followers to execute the Float Lock

Down strategy in Cascadia and Green Oasis stock. In pursuit of that goal, Williams told his

followers to buy, and keep on buying, these stocks for several months. Williams fueled this

strategy by telling his followers that he was buying, and not selling, Cascadia and Green Oasis

stock. During the entire time Williams made these statements, he was doing the opposite of what

he preached: He was selling millions of shares of Cascadia and Green Oasis, and profiting off the

purchasing demand created by his misrepresentations. As Williams was the same person who

made the statements and then sold the stock, there can be no doubt he knew what he said was the

opposite of what he was really doing. At the least, Williams duplicitous behavior shows a

reckless disregard for the fact that that his conduct deceived the potential investors he was telling

to buy, hold and accumulate Cascadia and Green Oasis stock.

III. FIA and Monks Den violated Section 17(b) of the Securities Act.

Section 17(b) of the Securities Act makes it unlawful for any person to publicize a

security for sale, for a consideration received or to be received, directly or indirectly, from an

issuer. 15 U.S.C. 77q(b); seeSEC v. Liberty Capital Group, Inc., 75 F. Supp.2d 1160 (W.D.



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Wash. 1999) (Section 17(b) imposes liability on one who publicizes securities for an

undisclosed compensation, whether received directly or indirectly.). Through Williams, the

defaulting defendants violated Section 17(b) by promoting Cascadia and Green Oasis without

disclosing large amounts of stock compensation Williams received for making those promotions.

IV. Final Judgment should enter against the defaulting defendants for a permanent

injunction, disgorgement, and a civil penalty.

A. A permanent injunction is appropriate in these circumstances.

Section 20(b) of the Securities Act and Section 21(d)(1) of the Exchange Act provide that

the Commission may seek a permanent injunction against further violations of the federal

securities laws. See 15 U.S.C. 77t(b); 78u(d)(2). A court will issue a permanent injunction if

the defendants conduct indicates that there is a reasonable likelihood of further violations. See

SEC v. Sargent, 329 F.3d 34, 39 (1st Cir. 2003); SEC v. Cavanagh, 155 F.3d 129, 135 (2d Cir.

1998). Certainly, the commission of past illegal conduct is highly suggestive of the likelihood

of future violations and, moreover, the cessation of illegal activity does not ipso facto justify

the denial of an injunction. SEC v. Management Dynamics, Inc., 515 F.2d 801, 807 (2d Cir.

1975). In assessing likelihood of repetition, courts also look to such factors as the character of

the violation, the degree of scienter involved, and the degree to which a defendants occupation

or activities may present future opportunities to violate the law. E.g., Cavanagh, 155 F.3d at

135; SEC v. Commonwealth Chem. Secs., Inc., 574 F.2d 90, 100-01 (2d Cir. 1978); SEC v.

Musella, 578 F. Supp. 425, 444 (S.D.N.Y. 1984).

Here, the need for a permanent injunction is particularly compelling given the

deliberateness with which Williams deceived his followers and the repeated nature of his

misconduct. First, Williams scheme to defraud exhibits a high degree of scienter and

deceptiveness. Williams had no compunction about misleading his followers. He charged them



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fees for his Monkinars, trained them to follow his Float Lock Down recommendations, and then

abused their trust by selling the same stocks he was telling them to buy. Indeed, Williams fueled

the misleading Float Lock Down scheme by making the repeated false statements of material fact

that he was buying, and not selling, the Float Lock Down stocks. These statements were not

merely misleading. They were outright lies to goad his followers into believing that Williams

was putting his money at risk just like they were. Williams repeated use of this falsehood shows

a deliberate, rather than reckless, intent to defraud.

Moreover, Williamss deceptive conduct was repetitive, not isolated. He did the scalping

scheme at least three times. Williams agreed to promote Cascadias stock twice in 2009, in

March and in May, each time generating profits by selling his promotional shares as he told his

followers to buy. Then, in February 2010, Williams did the same scheme again with Green

Oasis. Williams serial repetition of the scheme to defraud demonstrates a remorseless

indifference to the deception he inflicted on his victims.

Given the high degree of scienter displayed by Williams, and the fact that he repeated the

scheme to defraud at least three times, there is a substantial risk he could once again use the

defaulting defendant companies to commit similar violations in the future. A permanent

injunction is necessary to provide additional investor protection to ensure that they are never

used again in a scheme to defraud investors through similar conduct and misrepresentations.

B. The defaulting defendants should be ordered to disgorge their unjust gains.

Disgorgement is an equitable remedy designed to deprive a wrongdoer of his unjust

enrichment and to deter others from violating the securities laws. SEC v. First City Financial

Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989); SEC v. Williams, 884 F. Supp. 28, 30 (D. Mass.

1995) (disgorgement is intended to deprive defendants of their ill-gotten gains). It has long



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been recognized that the deterrent effect of SEC enforcement actions would be greatly

undermined if securities law violators were not required to disgorge illicit profits. SEC v.

Manor Nursing, 458 F.2d 1082, 1104 (2d Cir. 1972). The amount of disgorgement need only

be a reasonable approximation of profits causally connected to the violation. SEC v. Happ, 392

F.3d 12, 31 (1st Cir. 2004) (internal quotations omitted).

Here, the basis for an order of disgorgement is apparent. The defaulting defendants

agent, Williams, recommended the purchase of Cascadia shares to Monks Den from March

2009 through 2010. See Complaint, 57. During this same time period, he sold Cascadia stock

for total a total profit of $1,961,014. See Hussain Decl., 10. Repeating the same scheme, the

defaulting defendants agent recommended the purchase of Green Oasis shares to Monks Den

from February through July 2010. See Complaint, 70. During this time period, he sold Green

Oasis stock for a total profit of $396,194. See Hussain Decl., 11. Therefore, the defaulting

defendants, as principals, were unjustly enriched through their agents fraudulent misconduct in

the total amount of $2,357,208. Id., 12.

Prejudgment interest, like disgorgement, prevents defendants from being unjustly

enriched through the time-value of the money he fraudulently obtained. See, e.g., SEC v. Levine,

517 F. Supp. 2d 121, 141 (D.D.C. 2007) (To preclude defendants from enjoying an interest-free

loan on their illicitly-obtained gains, the court requires them to pay interest on the amounts they

disgorge.). A reasonable and conservative approach to begin the calculation of prejudgment

interest is to start at end of the defaulting defendants scheme to defraud. The Complaint alleges

that the defaulting defendants perpetrated the scheme to defraud through the end of 2010. See

Complaint, 1. Accordingly, the most conservative approach would be to start the prejudgment

interest calculation from January 1, 2011.



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The rate established by the Internal Revenue Service for tax underpayment is an

appropriate rate for prejudgment interest because it reasonably approximates the unjust benefit of

the use of the money. See SEC v. First Jersey Sec.,Inc., 101 F.3d 1450, 1474 (2d Cir. 1996).

Applying that method, the pre-judgment interest on the defaulting defendants disgorgement

obligation of $2,357,208, calculated from January 1, 2011 through today, would be $188,766, for

a total disgorgement obligation of $2,545,974. See Hussain Decl. 12.

C. The defaulting defendants should be ordered to pay a civil penalty.

Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act authorize a

court to impose a civil penalty for certain violations of the federal securities laws. See 15 U.S.C.

77t(d)(2)(C); 15 U.S.C. 78u(d)(3)(i). By enacting these penalty provisions, Congress sought

to achieve the dual goals of punishment of the individual violator and deterrence of future

violations. SEC v. Moran, 944 F. Supp. 286, 294 (S.D.N.Y. 1996); see also Happ, 392 F.3d at

32 (discussing deterrent goals of comparable penalties for insider trading). Courts have looked

to the following factors (among others) to determine the reasonableness of a penalty: 1) the

seriousness of the violations; 2) the defendants scienter; 3) the repeated nature of the violations;

4) the losses or risk of losses caused by the conduct; and 5) any cooperation provided to

enforcement authorities. SEC v. Converge Global, Inc., 2006 WL 907567 at *6 (S.D. Fla. March

10, 2006); SEC v. Cavanagh, 2004 WL 1594818 at * 31 (S.D.N.Y. July 16, 2004); SEC v.

Church Extension of the Church of God, Inc., 429 F. Supp. 2d 1045, 1050-51 (S.D. Ind. 2005).

For violations that involve fraud, deceit or manipulation and that directly or indirectly

result in, or create the risk of, substantial losses to others, the statutes authorize a third-tier

penalty in an amount up to the greater of $725,000 per violation or the defendants gross

pecuniary gain as a result of the violation. 15 U.S.C. 77t(d)(2)(C); 15 U.S.C. 78u(d)(3); see



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also 17 C.F.R. 201.1004 (inflationary adjustment increasing the statutory penalty for persons

other than natural persons to $725,000).5 The exact amount of the penalty is for the courts

discretion.

As set forth above, the conduct at issue in this case involves an especially egregious

scheme to defraud. In addition, Williams scalping scheme created a huge risk of loss for his

Monks Den followers. Williams Float Lock Down scheme called for his followers to buy, hold

and accumulate these stocks. This buying activity created demand and price increases for

Cascadia and Green Oasis, allowing Williams to sell his shares for profit. Any followers who

were deceived and bought during the course of the scheme to fraud would have purchased at

artificially inflated prices, created by their own demand, which would collapse once they realized

that there was no demand beyond their own group. Investors who bought at the height of the

inflated price and, as advised by Williams, held in anticipation of the promised short squeeze,

would suffer significant losses when the scheme deflated.

For example, at the time Cascadia hired Williams to promote its securities, the stock had

no trading activity. See Complaint, 41. On the first day Williams started promoting its shares,

March 19, 2009, the price rose to close at $0.0036 per share. Id., 42. As Williams continued to

promote Cascadia as a Play and later a Float Lock Down, encouraging his followers to buy and

accumulate Cascadia, the stocks price rose to a high of $0.72 per share in March 2010. Id., 67.

Then, in April 2010, after eleven months of Float Lock Down promotion, the Monks Den

followers started raising concerns that the promised short squeeze would never occur, and

Cascadias stock began a gradual price decline that continued through the end of 2010. Id., 67.

5 With respect to the penalty limits that are not based on a defendants pecuniary gain, the statutes authorize up to a$150,000 penalty for natural persons and up to a $725,000 penalty for any other person, such as businessentities. 15 U.S.C. 77t(d)(2)(C); 15 U.S.C. 78u(d)(3); seealso 17 C.F.R. 201.1004 (inflationary adjustmentincreasing the statutory penalty for natural person to $150,000, and for any other person to $725,000).



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During this decline, Williams continued to encourage his followers to buy and hold Cascadia

stock. Id., 65-66. By the end of 2010, the price of Cascadia stock dropped to $0.02 per share.

Id., 67. Any investor who followed Williams recommendation at the March 2009 high of

$0.72 per share and waited for the short squeeze that never happened would have, by the end of

2010, suffered a 97% loss of her investmentessentially a total loss.

As set forth above, the defaulting defendants, through Williams, ran the scalping scheme

at least three times from March 2009 through then end of 2010. They, through Williams, acted

with deliberate intent to defraud the Monks Den investor group for their own enrichment.

Given the egregiousness of the violations, their repetition, the deliberateness with which the

deception was executed, and the substantial risk of loss to which investors were exposed, a third-

tier penalty an amount up to the defaulting defendants gross pecuniary gain of $2,357,208 per

violation-- would be the most appropriate penalty for the defaulting defendants misconduct.

CONCLUSION

For the reasons set forth above, the Court should enter a default judgment that: (a)

permanently enjoins First in Awareness, LLC and Monks Den, LLC from future securities law

violations, (b) requires them to pay disgorgement and prejudgment interest in the total amount of

$2,545,974, and (c) requires them to pay an appropriate civil penalty.

Respectfully submitted,

SECURITIES AND EXCHANGE COMISSION,

By its attorney,

/s/ R.M. Harper IIRichard M. Harper II (PHV #05528)U.S. Securities and Exchange Commission33 Arch Street, 23rd FloorBoston, Massachusetts 02110(617) 573-8979 (Harper)



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(617) 573-4590 (Facsimile)July 19, 2013 [email protected]

mailto:[email protected]:[email protected]:[email protected]


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CERTIFICATE OF SERVICE

I hereby certify that on July 19, 2013 I served the foregoing document on followingunrepresented parties by overnight and electronic mail:

Jerry S. Williams3123 North 82ndWayMesa, Arizona 85207

/s R.M. Harper IIRichard M. Harper II


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SEC v. Williams Et Al Doc 45 Filed 19 Jul 13

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