The U.S. Securities and Exchange Commission has charged three men with running a scam that allegedly duped investors into putting their money into a stock whose value they inflated by creating the illusion it could be purchased by Ticketmaster. They also face criminal charges lodged by the U.S. Attorney's Office.
The SEC on Thursday accused California attorney Richard Weed, who is a partner in a Newport Beach, Calif., law practice, with laying the groundwork for the scheme, which involved a Boston ticket-selling company called CitySide Tickets.
In the scam, Massachusetts residents Thomas Brazil and Coleman Flaherty allegedly sold off millions of shares in the company after working with Weed to make it appear as though CitySide was about to go national through a series of acquisitions and would then be ripe to be gobbled up by Ticketmaster, the SEC said.
Brazil and Flaherty received about $3 million for their shares, the SEC said, while Weed was "well-compensated" for the part he played. Not long after the pair dumped their holdings in the company, CitySide went under, the SEC said.
"CitySide was billed as the hottest ticket in town, and investors were encouraged to get in the game when the playing field was actually tilted against them," Paul Levenson, director of the SEC's Boston Regional Office, said in a statement. "Weed exploited his position of legal authority to enable Brazil and Flaherty to get the stock needed to pull off the scheme, and he served as an officer and director of CitySide to help them secretly control the company."
The SEC cited a note the three men concocted to convince investors CitySide was about to buy five other companies. The truth is the ticket seller had serious financial issues and was in no position to make acquisitions.
The trio were charged by the SEC with multiple violations of federal securities laws. Criminal charges include securities fraud, wire fraud, and conspiracy.