SEC v. Lewis E. Graham II and FLOWorks, Inc., defendants, and Linworth LLC

SEC Complaint against Lewis E. Graham II and FLOWorks, Inc., defendants, and Linworth LLC

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This complaint alleges that in June 2005, SSI sold its primary asset, a commercial office building in Palo Alto, California. Although SSI’s operating agreement provided that the company would terminate upon the sale of substantially all of its assets, Graham and FLOWorks, without the approval of the SSI members, caused SSI to purchase an interest in another property.

Graham’s communications to the SSI investors after the purchase of the other property misstated and omitted important information about the nature and tax-free status of the transaction, the value of the property, liabilities to be assumed by SSI, and Graham’s personal interest in the property’s proposed tenant.

The Commission contends that these misstatements and omissions were made in connection with an offer by the purported seller of the Eugene property to purchase the membership interest of any investor that did not wish to participate in the new property venture.

The Commission asserts that the actions of Graham and FLOWorks have resulted in substantial harm to SSI investors, including millions of dollars in unreported taxable gains, as well as undisclosed liabilities secured by liens on the Eugene property amounting to several million dollars. The Commission contends that Graham misled the SSI investors in order to continue to take substantial fees from SSI and to further his personal financial interests in the new venture.

The Commission’s complaint alleges that Graham and FLOWorks violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

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Reference Info:Pleadings | Federal, 9th Circuit, Nevada | United States


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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