On August 6, the U.S. Attorney’s Office for the Northern District of Georgia announced that Richard J. Randolph, III, formerly the CEO of Randolph Acquisitions, Inc., had been sentenced to six years, six months in prison after pleading guilty to securities fraud. Randolph was also ordered to pay $1,602,200 in restitution to the victims of his fraud. Randolph was the CEO, Chairman of the Board of Directors, and majority shareholder of Randolph Acquisitions, Inc., a company headquartered in Atlanta. In 2017, Randolph had begun to merge Gallagher Management Group, a company Randolph controlled, into Randolph Acquisitions. In the process of merging the companies, Randolph provided the auditor for Gallagher Management false information concerning the company’s assets.
Randolph inflated the value of various assets by up to 900%, falsely claimed ownership of other properties, and falsified bank statements, drastically altering the valuation of the company. Randolph included numerous other misrepresentations in the audited financials of Gallagher Management including the total amount of assets under management, the types of investment products offered, and the type of clients the company served. Ultimately, a consultant valued Gallagher Management at $31.3 to $33.8 million. Randolph filed the audited financials with the SEC and directed investors to those filings. Randolph also allegedly made other false representations directly to investors concerning the operations and business prospects of Randolph Acquisitions. Over a dozen investors ultimately invested over $1.6 million in Randolph Acquisitions. Following an investigation by the U.S. Secret Service, the Securities and Exchange Commission, and the U.S. Attorney’s Office for the Northern District of Georgia, Randolph pled guilty to numerous charges of securities fraud. Randolph is also the subject of a civil complaint by the SEC, which ultimately resulted in a consent judgment.
Corporate executives must be wary of the public statements they make concerning their companies. While the conduct of Mr. Randolph may seem especially egregious, much more benign comments may subject companies and their executives to liability for securities fraud. Executives walk a fine line between promoting their company publicly and providing unrealistic expectations to investors. Many comments made by executives can be considered non-fraudulent puffery by the government; however, executives who make statements promoting their companies run the risk that they will cross the line to potentially fraudulent conduct. While most of these comments will not rise to the level of criminal conduct, the SEC has a much lower standard of proof in bringing claims of securities fraud against executives and their companies. For that reason, it is imperative that executives consult their attorney before making public comments concerning their companies.
The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with SEC investigations and related securities litigation. If you need assistance with such a matter, please contact us today.