Litigation Releases (John S. Clayton; First Equity Holdings Corp.; Standard Registrar and Transfer Co., Inc.; Daniel W. Jackson; Donald H. Perry; Clark M. Mower; Timothy J.[...]

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 26193 / Dec. 11, 2024

Securities and Exchange Commission v. John S. Clayton et al.,

No. 2:24-cv-00918 (D. Utah, filed Dec. 11, 2024)

SEC Charges Five Individuals and Three Entities in Multi-Year Microcap Fraud Scheme

The SEC's complaint alleges that Clayton, operating through his entity First Equity, orchestrated a fraudulent scheme to amass a controlling share of at least four microcap companies. The complaint alleges that Clayton hid his control by dividing his holdings among nominee entities. Clayton allegedly worked with his lawyer Jackson, bookkeeper Perry, and, on several occasions, with the CEO of one of the microcap companies, Mower, to prepare false documents for brokerage firms as well as Standard Registrar, the transfer agent Clayton owned, so that Standard Registrar would remove the trading restrictions on the shares and Clayton could sell them. The complaint further alleges that Clayton engaged Rieu and Rieu's investor relations firm, Chesapeake Group, to promote each company's stock and engage in trading designed to artificially affect the price of the stocks and allow Clayton to sell his shares more profitably to the public. According to the complaint, Rieu and Chesapeake also engaged in similar trading to artificially affect the stock of other clients, separate and apart from Clayton, and Rieu further engaged in insider trading in the stock of one of their clients.

The SEC's complaint charges Clayton, First Equity, Standard Registrar, Rieu, and Chesapeake with violating the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder and further charges Clayton and First Equity with violating the antifraud provisions of Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder. Clayton, Jackson, and Standard Registrar are also charged with violating the registration provisions of Sections 5(a) and (c) of the Securities Act. Jackson, Perry, Mower, Rieu, and Chesapeake are also charged with violating Section 15(b) of the Securities Act by aiding and abetting Clayton and First Equity in violating Sections 17(a)(1) and (3) of the Securities Act, and with violating Section 20(e) of the Exchange Act by aiding and abetting Clayton and First Equity in violating Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. Clayton is also charged with violating the reporting provisions of Exchange Act Sections 13(d) and 16(a) and Rules 13d-1 and 16a-3 thereunder. Finally, Rieu and Chesapeake are charged with violating the anti-touting provisions of Section 17(b) of the Securities Act. Nine entities are named as relief defendants: Bryan Development, LLC, Capital Communications, Inc., Compass Equity Partners, Inc., Empire Fund Managers, Inc., Greenwich Street Commercial Mortgage, LLC, Investrio, Inc., Klaja Partners, LLC, Liberty Partners, LLC, and Maestro Investments, Inc. The SEC seeks permanent injunctions, penny stock bars, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against all defendants, officer-and-director bars against all individual defendants, and conduct-based injunctions against Clayton, First Equity, Perry, Rieu, and Chesapeake Group.

The SEC's case is being handled by Russell Mawn, Alexandra Lavin, Jeffrey Olshan, Michael Moore, Mark Albers, and Celia Moore in the Boston Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.