Frank Robert Smith sold shares of private stock (private equity) in a company called Skytech International, LLC (incorporated in the State of Nevada), to people in multiple U.S. States. I can confirm that at least one of the investors in Michigan – we’ll call him “Ed†– is most definitely a non-accredited investor.
I need to back up here for a second and say that the rules and regulations that govern these kinds of transactions are anything but obvious to the average person. It can get complicated – which is the very reason why we have laws requiring that most investors (in high risk, private placements) be qualified to make such investment decisions. Those laws are there to protect unwary consumers and would-be, non-accredited investors. In the world of securities, there is no caveat emptor. “Buyer beware†does not apply here. If you want to sell stock to people, privately, then the rule is seller beware! That’s right. You have to make sure that the people who you are selling stock to are qualified to make such financial decisions!
Ed is basically a blue collar, middle-class retiree who worked hard, was frugal, and succeeded in saving some money over the course of his entire working life. But he’s not rich, by any means, and he’s not at all savvy in the complicated world of “venture capital†and private equity. Ed will tell you himself that he didn’t even know the definition of “qualified investor†when Bob sold him the shares. He didn’t even know the word existed! He didn’t know his rights as an investor. More importantly, Bob Smith never even bothered to verify Ed’s financial status and/or his qualifications to make such financial decisions! That was a red flag, to be sure. But here’s the real kicker: Ed even told Bob Smith that Ed would like to make up for his retirement account losses (Ed took some serious losses to his 401k account leading up to and following the financial crisis in 2008, before purchasing the stock in June 2008)! Why is that important? It’s important because, by making that statement about losses to his retirement savings, Ed was essentially telling Bob Smith directly that he was, in fact, an unqualified investor! So why would Bob Smith accept money from Ed in that situation? Ignorance is certainly not a defense. If you want to start selling private stock, you had better know what you are doing....no exceptions, no excuses.
A qualified investor does not make risky investment decisions for the purposes of making up for his/her retirement account losses. A qualified investor who invests in private offerings should have a high risk tolerance and truly understand the risks involved. Ed had absolutely no idea what this was all about, and I can tell you that his true risk tolerance was not high enough to make . He only learned about Skytech after speaking with a family acquaintance- we’ll call him Romeo – who knew Bob Smith personally, and who told Ed that he had invested in Skytech. Romeo told Ed that he was really excited about his investment, and Ed became curious. He thought that Skytech really might be that once-in-a-lifetime, “get in at the ground level†type of investment opportunity that could multiply his initial investment, many times over. He didn’t want to miss out. Because Ed trusted Romeo, and because Romeo seemed to be so optimistic about Skytech, Ed asked Romeo for Bob’s phone number. After two brief phone calls, Ed sent Bob a check for $55,000 in exchange for 110,000 shaes (50,000,000 shares common stock authorized) in Skytech International.
The premise for this was that Bob had some kind of incredible – even revolutionary – intellectual property (for electronics device(s) hardware and software) waiting in the wings. Some big company would surely want to pay millions for this “thing.†I’m still not entirely sure what it even is, or does, or if a working prototype even exists. There's a patent application, but I believe it's pending at this point.
All I know is that the device is supposed to be this really cool-sounding, techy device, complete with "lasers," utilizing "quantum teleportation" (yes, you read that correctly). Go to the website and see what I mean. It's all very Star Trek-esque. There's lots of flowery talk, but the shareholders haven't seen a single product demonstration. Remember, this has been dragging on for years. This thing was supposed to be ready a long time ago. For a description, see www.skytech-interactive.com. If you can make sense of it, please explain it to me! It’s interesting that, from the time Ed bought the stock in 2008, he’s received optimistic updates from Romeo. The insinuation consistently seems to be that, progress (or a return on investment) is going to come “just around the corner.†I also know that the term “IPO (Initial Public Offering)†was used rather loosely. A lot of people immediately think big dollar signs when they hear the term “IPOâ€â€¦.You’re not really supposed to make “Pre-IPO†claims, so that was another red flag. Based on everything else, I'm not convinced that slipping the term "IPO" in there was unintentional.
There are also requirements for investor income and net worth when you’re selling private stock to
individuals. Ed did not qualify for these and, like I said above, and Bob Smith never even made a weak attempt at requesting this information, as he should have – and as he is required to by federal law. According to the , selling stock in the company Skytech International, LLC to Ed was invalid from the very beginning. I pointed this out to Bob and requested that he refund Ed's investment, in full, with interest. Of course, Bob never responded to that.
Other interesting notes: Skytech International, LLC was not a registered business entity in California or Michigan at the time Robert Smith sold Ed the stock. Additionally, I can’t find any evidence of any securities or exemption filings by Skytech International, LLC or Robert Smith, whatsoever. You can search the SEC’s filings database, online: http://www.sec.gov/edgar/searchedgar/webusers.htm The State of California’s Department of Corporations online database also returns no securities-related results http://www.corp.ca.gov/caleasi/caleasi.asp I became involved in this situation because I knew that Ed didn't have a clue as to what was going on with his investment money. So, I politely asked Bob some questions, repeatedly, that he never responded to. I knew he couldn't have just "missed" all of my emails and phone calls. Surely, he had seen at least a couple of them, I thought. I was already suspicious, but at that point, I became very suspicious. In my experience, when someone evades simple, basic questions such as the following, they usually have something to hide. "How many shareholders are there?"
"How many shares are outstanding?"
"Which filing exemptions, if any, are you relying upon?"
"Can you give me a patent application number?" Silence. Ed then gave me Power of Attorney over the Skytech situation, so that Bob Smith would be legally bound to answer my questions. In Securities law, it's called disclosure. It's a fiduciary duty to investors. You have to answer questions like the ones above. You don't have a choice. Even after I had Power of Attorney, Bob Smith never answered a single question, never answered or returned a single phone call, and never even responded to a single email. I asked many questions, repeatedly, in many emails. There's absolutely no excuse. I've witnessed a distinct pattern of behavior with Bob Smith. He doesn't like to be questioned. He actually had the balls to describe me (to his attorney) as being someone with "entitlement issues"? Are you kidding me, Bob? You cower and retreat when asked to respond to even the simplest "yes or no" questions - that you have a legal and ethical duty to answer - and then you have your attorney (because you won't speak to me or email me, because you know that I know) throw stones at me? When he feels threatened, Bob goes on the attack. He blames others. He's trivial. He attacks your character rather than respond with any facts or substance. He has his attorney write threatening letters. He sues people. He tries to intimidate and silence people with force. It's bully behavior. He has blamed the investors for a lack of progress. In fact, he's tied up in a lawsuit right now! I believe that the man he sued was actually one of his best friends!
Over time, I learned about the existence of other shareholders, many of them residents of the State of California. Many of them know Bob personally. I wasn't very surprised to learn that many, if not most of them, are not happy about the situation, at all. Some of them feel betrayed, some are resigned to the idea that their money is gone. There's bewilderment, disappointment, dejection, and perhaps, some feelings of helplessness. I have a very strong suspicion that there are other shareholders who are also far from being accredited investors. But.....people who don't know their rights, don't know how things are "supposed" to work. People won't complain if they don't even know enough to know that there's something wrong going on, right?
There's also a psychological component involved with the selection of investors. If you know someone personally, if you're friends with someone, you give them more trust. You may be satisfied with answers that would leave you unsatisfied, had they beecoming from a stranger. You are less likely to complain and to stand up for yourself.
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