SpongeBob say it isn’t so! Michael Metter and Steven Moskowitz indicited for Securities Fraud!

May 6, 2010

I hated to break the news to my boys.  It’s sad when you have to tell them that their daddy, the business ethics and fraud prevention speaker, has bad news.  They so loved SpongeBob SquarePants.  And then I broke it to them…Michael Metter, the Chief Executive Officer and President of Spongetech Delivery Systems, Inc. (Spongetech), and Steven Moskowitz, Spongetech’s Chief Operating Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer, and Secretary, was charged in a criminal complaint with conspiracy to commit securities fraud and obstruction of justice.

Yes…it’s true – the folks that made SpongeBob bath products reportedly falsified sales figures of their soap-filled sponges thereby making the company’s financial condition just a little “slicker” shall we say.

According to the complaint, between approximately January 2007 and May 2010, the defendants Michael Metter and Steven Moskowitz, and others, executed a scheme to defraud Spongetech’s existing and potential investors by publicly reporting — in its filings with the United States Securities and Exchange Commission (SEC) and in numerous press releases — false and grossly overstated sales figures.

Specifically, Metter and Moskowitz publicly reported that Spongetech had secured purchase orders from and/or had made sales to five customers that, in reality, did not exist. The complaint charges that the amounts of these orders and sales were material. For example, for the nine months ended February 28, 2009, Spongetech reported that sales to these five customers constituted approximately 99% of Spongetech’s revenue.

Seems their sales figures were just about as fake as the under sea world that they represented.

The complaint states that beginning in or about early September 2009, the SEC’s Enforcement Division issued subpoenas to various entities and individuals, including Metter and Moskowitz, as part of its investigation of Spongetech. Since then, Metter and Moskowitz allegedly obstructed the SEC’s investigation by fraudulently attempting to fabricate the existence of the five purported customers by (1) seeking to create Internet websites and virtual offices for the customers, (2) furnishing phony purchase orders purportedly issued by the customers, and (3) producing documents they falsely claimed were proof of payments by the non-existent customers.

“The defendants in this case — Spongetech’s highest corporate officers — are charged with executing a bold scheme to portray Spongetech as a company that was performing at a level far above reality,” stated United States Attorney Lynch. “As detailed in the complaint, the audacity of their scheme was matched only by their obstructive efforts during the course of the SEC’s investigation. This Office will use all available resources to protect investors from fraud.”

If convicted of conspiracy, each defendant faces up to five years’ imprisonment.

And, according to a New York Daily News report, earlier this year, the Mets filed a lawsuit against SpongeTech seeking $2.3 million for advertising at Citi Field. The suit claimed SpongeTech bounced $400,000 in checks made out to the team.

Amazing to me, but like the reports that I’ve filed on scams and fraud with BizRadio – seems that Metter is also the owner of WGCH.  What is it with these radio guys.  First Dan Frishberg and now Mr. Metter.  Guess you can’t always believe what you hear.

SpongeTech fell as much as 98 percent to less than 1 cent on the news. The shares, which once traded as much as 35 cents, declined 18 percent this year before the announcement this week.

As I have said to my two sons – Every choice has a consequence.  Looks like Michael Metter and Steven Moskowitz will be facing some prison time if convicted.