SEC v. JOHN DOE, No. LR-23914, Middle District of Florida (Aug. 22, 2017) — Press Release
raw: Brian Pappas, et al.
Brian Pappas, et al., No. 3:17-cv-00954-TJC (Aug. 22, 2017)
The SEC charged Creative Learning Corp., its former CEO Brian Pappas, and former officers Daniel O'Donnell and Michelle Cote with fraud for misleading disclosures, manipulative trading to inflate stock price, and undisclosed personal loans and fees totaling nearly $600,000 to Pappas's relatives.
The SEC announced fraud charges against Creative Learning Corp. and its former CEO Brian Pappas, along with former officers Daniel O'Donnell and Michelle Cote. According to the complaint, Pappas made false statements regarding nearly $600,000 in fees and commissions paid to his brother and son-in-law, misrepresented his personal financial history including a 2003 bankruptcy and 2004 discharge, and engaged in manipulative trading to inflate the company's stock price for a NASDAQ listing. The complaint further alleges that Pappas, O'Donnell, and Cote caused the company to extend prohibited personal loans to entities owned by Pappas and Cote, and that Pappas tipped off a major investor about anticipated earnings before public disclosure. Creative Learning, O'Donnell, and Cote agreed to final judgments imposing permanent injunctions, ten-year officer and director bars, and approximately $71,000 in disgorgement, interest, and penalties.
The SEC filed fraud charges in August 2017 against Creative Learning Corp. and its former CEO Brian Pappas, as well as former officers Daniel O'Donnell and Michelle Cote, alleging a scheme of misleading disclosures and manipulative trading. Pappas is accused of making false statements in SEC filings, including 10-Ks, about his evaluation of internal controls and omitting his own 2003 bankruptcy and 2004 discharge, as well as his previous franchising business's 1997 bankruptcy. The complaint alleges that Pappas and others received nearly $600,000 in fees and commissions paid to his brother and son-in-law without disclosure, engaged in manipulative trading to inflate the stock price for a NASDAQ listing, and caused the company to extend prohibited personal loans to companies owned by Pappas and Cote. Pappas also reportedly tipped off a large outside investor about anticipated earnings before public release. While Creative Learning, O'Donnell, and Cote settled by agreeing to permanent injunctions, ten-year officer and director bars, and approximately $71,000 in disgorgement, interest, and penalties, the SEC continues to litigate its case against Pappas for violations of multiple federal securities laws.
Exhibits & Attached Documents (1)
Extracted insights
- $600K $600,000 $100K–$1M
- $71K $71,000 $10K–$100K
- company additional charges against two former officers and directors of the company
- person John Doe
- agency Securities and Exchange Commission
- SEC charges Florida-based franchisor of children's educational programs and its former CEO Brian Pappas with fraud
- SEC announced additional charges against two of the company's former officers and directors
- SEC charges Brian Pappas and a Florida-based franchisor of children's educational programs with fraud
- SEC announced additional charges against two former officers and directors of the company
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 23914 / August 22, 2017 Securities and Exchange Commission v. Brian Pappas, et al., No. 3:17-cv-00954-TJC-JRK (M.D. Fl. filed Aug. 21, 2017) SEC Charges Florida-Based Franchising Company and its Former CEO With Fraud The Securities and Exchange Commission today announced fraud charges against a Florida-based franchisor of children's educational programs and its former CEO. The SEC announced additional charges against two of the company's former officers and directors. According to the SEC's complaint, for almost four years, Brian Pappas, the former CEO of Creative Learning Corp., made numerous false statements concerning payments to Pappas's family members, his business experience and personal financial history, and his evaluation of the company's disclosure and financial reporting controls. The complaint alleges that: Under Pappas's watch, Creative Learning failed to disclose nearly $600,000 in fees and commissions paid to his brother and son-in-law. Pappas signed 10-Ks and 10-K/As which stated that he had evaluated the effectiveness of Creative Learning's internal and disclosure controls when he did not do so. The account of Pappas's experience in the franchising business, which he wrote for inclusion in Creative Learning's annual reports, failed to mention that he had filed for bankruptcy in 2003 and received a general discharge in 2004, or that his previous franchising business had filed for bankruptcy in 1997. Pappas, Daniel O'Donnell, Creative Learning's former COO, and Michelle Cote, Creative Learning's founder, engaged in manipulative trading to inflate Creative Learning's stock price in an attempt to improve its chances of becoming a NASDAQ-listed company. Pappas, O'Donnell and Cote caused Creative Learning to extend prohibited personal loans to companies owned by Pappas and Cote. Pappas repeatedly told one of Creative Learnings' largest outside investors about the company's anticipated earnings before they were publicly reported. The SEC's complaint further charges Pappas with failing to timely report information about holdings and transactions in securities of publicly-traded companies that he beneficially owned, and failing to file proxy materials as part of an effort to regain control of Creative Learning following his ouster. The complaint also alleges that O'Donnell and Cote signed annual reports they knew, or should have known, contained false representations concerning the fees and commissions paid to Pappas's relatives and Pappas's previous personal bankruptcy. The SEC's complaint, filed on August 21, 2017 in the U.S. District Court for the Middle District of Florida, charges Creative Learning and Pappas with violating, or aiding and abetting violations of, Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2), 13(k) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13a-15 thereunder, and Regulation FD. Additionally, Pappas is charged with violating, or aiding and abetting violations of, Sections 9(a)(2), 13(d), 14(a), and 16(a) of the Exchange Act and Rules13a-14, 13b2-1, 13d-1, 14a-6(b), 16a-2, and 16a-3 thereunder. The complaint also alleges that O'Donnell and Cote violated Sections 17(a)(2) and (3) of the Securities Act and Section 9(a)(2) of the Exchange Act, and aided and abetted violations of Section 13(k) of the Exchange Act. Without admitting or denying the SEC's allegations, Creative Learning, O'Donnell, and Cote agreed to the entry of final judgments that permanently enjoin them from violating the charged sections of the federal securities laws, impose ten-year officer-and-director and penny stock bars on O'Donnell and Cote, and require O'Donnell and Cote to pay approximately $71,000 in disgorgement, interest, and penalties. The SEC is litigating against Pappas. The SEC's investigation was conducted by Matt Reilly with assistance from Bert Braganza, and was supervised by Antonia Chion, Melissa Hodgman, Kevin Guerrero, and Peter Rosario. The SEC's litigation against Pappas will be handled by H. Michael Semler and Mr. Reilly, and will be supervised by Cheryl L. Crumpton. SEC Complaint
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 23914 / August 22, 2017 Securities and Exchange Commission v. Brian Pappas, et al., No. 3:17-cv-00954-TJC-JRK (M.D. Fl. filed Aug. 21, 2017) SEC Charges Florida-Based Franchising Company and its Former CEO With Fraud The Securities and Exchange Commission today announced fraud charges against a Florida-based franchisor of children's educational programs and its former CEO. The SEC announced additional charges against two of the company's former officers and directors. According to the SEC's complaint, for almost four years, Brian Pappas, the former CEO of Creative Learning Corp., made numerous false statements concerning payments to Pappas's family members, his business experience and personal financial history, and his evaluation of the company's disclosure and financial reporting controls. The complaint alleges that: Under Pappas's watch, Creative Learning failed to disclose nearly $600,000 in fees and commissions paid to his brother and son-in-law. Pappas signed 10-Ks and 10-K/As which stated that he had evaluated the effectiveness of Creative Learning's internal and disclosure controls when he did not do so. The account of Pappas's experience in the franchising business, which he wrote for inclusion in Creative Learning's annual reports, failed to mention that he had filed for bankruptcy in 2003 and received a general discharge in 2004, or that his previous franchising business had filed for bankruptcy in 1997. Pappas, Daniel O'Donnell, Creative Learning's former COO, and Michelle Cote, Creative Learning's founder, engaged in manipulative trading to inflate Creative Learning's stock price in an attempt to improve its chances of becoming a NASDAQ-listed company. Pappas, O'Donnell and Cote caused Creative Learning to extend prohibited personal loans to companies owned by Pappas and Cote. Pappas repeatedly told one of Creative Learnings' largest outside investors about the company's anticipated earnings before they were publicly reported. The SEC's complaint further charges Pappas with failing to timely report information about holdings and transactions in securities of publicly-traded companies that he beneficially owned, and failing to file proxy materials as part of an effort to regain control of Creative Learning following his ouster. The complaint also alleges that O'Donnell and Cote signed annual reports they knew, or should have known, contained false representations concerning the fees and commissions paid to Pappas's relatives and Pappas's previous personal bankruptcy. The SEC's complaint, filed on August 21, 2017 in the U.S. District Court for the Middle District of Florida, charges Creative Learning and Pappas with violating, or aiding and abetting violations of, Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2), 13(k) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13a-15 thereunder, and Regulation FD. Additionally, Pappas is charged with violating, or aiding and abetting violations of, Sections 9(a)(2), 13(d), 14(a), and 16(a) of the Exchange Act and Rules13a-14, 13b2-1, 13d-1, 14a-6(b), 16a-2, and 16a-3 thereunder. The complaint also alleges that O'Donnell and Cote violated Sections 17(a)(2) and (3) of the Securities Act and Section 9(a)(2) of the Exchange Act, and aided and abetted violations of Section 13(k) of the Exchange Act. Without admitting or denying the SEC's allegations, Creative Learning, O'Donnell, and Cote agreed to the entry of final judgments that permanently enjoin them from violating the charged sections of the federal securities laws, impose ten-year officer-and-director and penny stock bars on O'Donnell and Cote, and require O'Donnell and Cote to pay approximately $71,000 in disgorgement, interest, and penalties. The SEC is litigating against Pappas. The SEC's investigation was conducted by Matt Reilly with assistance from Bert Braganza, and was supervised by Antonia Chion, Melissa Hodgman, Kevin Guerrero, and Peter Rosario. The SEC's litigation against Pappas will be handled by H. Michael Semler and Mr. Reilly, and will be supervised by Cheryl L. Crumpton. SEC Complaint