Penny stock company linked to Scott Brown accused of fraud
The tiny Florida company that briefly dogged Scott Brown’s run for US Senate in New Hampshire two years ago has been accused of investment fraud.
The Securities and Exchange Commission announced Friday it has charged Global Digital Solutions Inc. and two of its former executives with issuing false and misleading press releases from October 2013 to March 2014. Brown served on the company’s advisory board during the same period of time.
As the Globe reported in 2014, the company touted itself as a leader in firearms and security technology. But in reality, the company had no customers, no revenue, no history of making any firearms, and only a virtual office in West Palm Beach, Fla. The company was founded as a beauty supply firm in New Jersey — selling hair spray, shampoos, and other beauty products — before becoming a wireless data firm and then rebranding itself as a gun technology firm.
In a civil complaint filed this week, the SEC alleged that several of the company’s claims were false, including plans to buy one of the country’s largest arms makers for $1 billion, projections that it would garner $60 million to $75 million in revenue in 2014, and a claim that one of its acquisition targets had signed an international deal worth at least $95 million to make grenade launchers.
The SEC said the grenade launcher deal didn’t exist, there was no basis for its revenue projections, and there was no credible way for the company to buy the large arms maker, Remington Outdoor Co., for more than $1 billion when it had no revenue, scant assets, and only $272,000 in cash at the time.
Brown is not charged with any wrongdoing. But Brown’s decision to join the company company became an issue in the 2014 campaign, raising questions about his judgment.
In exchange for joining the company’s advisory board in September 2013, Brown received restricted stock initially valued at $1.3 million. The company in turn used Brown’s name to help tout the company’s potential and sell stock to small investors.
After the Globe and other media questioned the Republican candidate about his involvement with the company, Brown announced in June 2014 that he would resign and return his stock in order to focus on his Senate race. Democratic incumbent Senator Jeanne Shaheen eventually triumphed in the race by a narrow margin, and Brown has since moved on to other ventures. He is now a regular contributor to Fox News and has been a prominent supporter of Republican presidential nominee Donald Trump.
Brown, who is in Omaha this week for a triathlon, said in an e-mail that he was only briefly involved in the company, in an advisory role.
“I am not named in the complaint and I do not expect to be named, due to the fact that I was only involved in an advisory capacity for such a short period of time before I resigned,” Brown told the Globe. “In addition, I was not involved in any of the day to day, press releases, or inner workings of the business.”
Brown also noted that he “did not receive any compensation whatsoever” for his work, because he gave up the restricted stock before it vested.
At least one other former politician also was affiliated with the Florida firm. Former Florida lieutenant governor Jennifer Carroll, who resigned her elected position in March 2013 after being questioned about her ties to a nonprofit under investigation, became a senior adviser to the company a month later and later took an executive role in the firm. Carroll resigned from the company in March 2015 and was not named in the complaint.
In addition to the company, two former executives were named in the SEC complaint: former chief executive Richard J. Sullivan and former chief financial officer David A. Loppert. The SEC is seeking civil penalties against the defendants and injunctions barring the executives from participating in future penny stock offerings. Penny stocks are typically defined as stocks trading for less than $5 a share, usually over-the-counter or on tiny stock exchanges.
“Officers of publicly traded companies have a duty to ensure that every public announcement and corporate filing is steeped in reality,” Eric I. Bustillo, director of the SEC’s Miami regional office, said in a prepared statement. “We allege that Sullivan and Loppert were behind a conscious effort to consistently exaggerate the progress and future prospects of Global Digital Solutions.”
Attorneys for the company and the two executives were not immediately available for comment.
When the Globe first wrote about Global Digital Solutions in June 2014, shares were trading at 46 cents. Today, the stock is worth a fraction of a penny a share.