SEC Brings An Offering Fraud Action Against A Claimed App Maker

by Dorsey & Whitney LLP
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The SEC brought an action against a reputed “app” manufacturer who sold shares in two different entities beginning first in Colorado and later from Georgia. From each location, and for each entity, the sales pitch was essentially the same. Indeed, investors were told that the second company was just the renamed first. In each instance the result was the same – friends and other investors lost; the defendants profited. SEC v. Gamer, Civil Action No. 1:14-cv-02650 (N.D. Ga. Filed August 15, 2014).

Defendant Heidi Ann Gamer was home from classes at Dartmouth College with her domestic partner in Colorado when she registered defendant Gamer Economic Systems, LLC or GES in that state. The idea was to market interactive software and technology, including applications for smartphones. A prospectus for GES was developed which identified the new technologies. It explained that initial capital would be raised from investors to be used for operations.

Coworker’s family members were the initial investors. They were told that that Ms. Gamer had connections to build apps for political campaigns and expected to sell licensing rights for upwards of $10 million. Cash flowed in for the operation, prompting a wider marketing campaign. Now investors were told about a product called “StoryMap.” This app supposedly permitted television viewers to look up the episodic history of a show and purchase items seen on the set.

Investors from Colorado, New Hampshire and Virginia wired funds to the GES bank account. Over a period of about one year, beginning in August 2011, 17 investors furnished GES and Ms. Gamer with over $400,000. Some received investor agreements which promised quarterly financial statements and 5% of any GES royalties once the firm began to show a profit.

In July 2012 Ms. Gamer and her partner relocated to Atlanta. The location was closer to several software developers. A new entity was formed, defendant Gamer Media Partners or GMP. Investors were not told that GMP was a new entity. Rather, they were told that GES had changed its name.

Again investors were solicited using StoryMap. Some investors were told that there was a $1 million contract to use the technology in the Indian film industry. Others were told that a partnership had been formed that would make available $2 million for the exclusive licensing of StoryMap. In some sales pitches potential investors were told of a $100,000 contract with Dartmouth College and a deal with the Atlanta Falcons. Between August 2012 and May 2013 Ms. Gamer sold interest to 27 investors, raising over $370,000 for interests in GMP.

The contracts did not exist. The funds were not used to develop the business as represented. Rather, much of the money was diverted to personal use. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 23071 (August 19, 2014).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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