SEC Alleges Diversified Firm's Offering Sheet Had 'Multiple' False Statements
Guess & Co. CEO Jerry Guess and the corporation he founded falsely represented in a stock offering to investors that the North Carolina company was a diversified energy, healthcare, technology and real estate corporation that had earned millions of dollars in revenue from its business operations in 2019 to 2021, said a securities fraud complaint (docket 8:24-cv-00172) Thursday in U.S. District Court for Nebraska.
Guess made “multiple false and misleading statements of material facts” to at least 57 prospective investors in at least 12 states and one foreign country to solicit them to buy stock in the company, said the complaint. They also misleadingly projected the company would earn “billions” of dollars in revenue in 2021 and 2022, when the company “had no operations, customers, or business revenue other than the sales of 19 computers to electronics re-sale shops for $14,654,” it alleged.
No investors to date have bought Guess & Co. stock, but “permanent injunctions, an officer and director bar against Guess, and civil penalties are necessary to protect the public” and prevent the defendants from future violations of federal securities laws, the complaint said.
In 2006, Guess was convicted of misdemeanor check fraud in Indiana and was sued in U.S. District Court for Western North Carolina in 2008 for allegedly defrauding a real estate developer out of $375,000 in connection with an “advanced fee loan scheme” he operated, the complaint said. After he failed to appear for a contempt hearing, the court issued an arrest order, and Guess fled to Canada in May 2008, it said.
Guess was deported to the U.S. in 2011 and he pleaded guilty to charges of wire fraud and filing false tax returns in connection with the advanced loan scheme, said the complaint. In 2012, Guess was sentenced to a 51-month prison term and ordered to pay restitution of $2,371,401, it said. After two extensions of his prison term for failure to abide by terms of his release, he was released from prison in 2017, it said.
Guess served as CEO of Guess & Co. during the first seven months of the company’s offering, said the complaint. In December 2021, he appointed “Individual No. 1” to the CEO post, then resumed the role of CEO in July 2022, it said. During the offering and as recently as March, Guess lived in Falls City, Nebraska, it said. Guess & Co., incorporated in North Carolina, has moved its principal place of business several times since February 2021 -- “often upon threat of eviction for non-payment of rent” -- said the complaint, naming the company’s principal places of business since then as Osage Beach, Missouri; Overland Park, Kansas; Topeka, Kansas; La Vista, Nebraska; Kansas City, Missouri; Raleigh, North Carolina; and Olathe, Kansas.
Guess & Co. positions itself as a diversified energy, healthcare, technology, and real estate company “committed to revitalizing rural America,” said the complaint. It has incorporated over 100 subsidiaries, but none of the subsidiaries has conducted any operations, alleged the complaint.
From 2019 to April 2022, when Guess stopped soliciting investors, the company didn’t operate the purported businesses described in offering documents, said the complaint. Guess & Co.’s only customers during the period were four electronics shops to whom the company sold 19 computers for $14,654, it said. Guess & Co. internal records listed $9.8 million of products and services to six customers from 2019-2021 labeled as “monthly advisory fees,” “annual engagement fees,” and “Unified Cloud Solutions,” it said.
None of the listed transactions occurred, said the complaint. Five of the purported customers are entities owned and controlled by Guess, and the other is owned and controlled by Individual No. 1, alleged the complaint. The defendants were only able to produce to the SEC a sales contract for one of the purported transactions, it said.
Guess & Co. employees and board members “saw no evidence that Guess & Co. had any employees or contractors who could provide cloud solutions products or services or that these purported customers had any operations,” alleged the complaint. The company received no payments from the half dozen purported customers during the relevant time period, it said.
Defendants’ reported figures for annual revenue from various business operations for 2019-2021 range from $120,978 to “between $5 million and $25 million,” said the complaint. All the annual revenue figures given were “false,” it said. “Guess & Co. had no real sales between 2019 and 2021 other than the sale of two computers for $450 in November 2021,” it said.
Annual projections in Guess & Co. business plans had $4 billion for 2021 and 2022 and net income of $575 million for each year. The company didn’t have “the types or numbers of facilities or employees necessary to manufacture, distribute, or provide its purported products or services, let alone for millions or billions of dollars in revenue and net income,” said the complaint.
The SEC charged the defendants with two counts of Securities Act fraud and seeks a permanent injunction restraining and enjoining them and their agents from directly or indirectly engaging in transactions or acts that violate the Securities Act. It requests an order for a permanent “conduct-based injunction” enjoining Guess, his officers and agents from “participating in the issuance, purchase, offer, or sale of any security,” said the complaint. The order wouldn’t prevent Guess from buying or selling securities for his own personal account, it said.