AspenBio Pharma Vice Chairman Faces $5 Million Fraud Trial

Jun 10, 2010, 09:00 ET from Kashani Law Office

LOS ANGELES, June 10 /PRNewswire/ -- From Kashani Law Office: the fraud case of five investors in Security with Advanced Technology Inc. (SWAT), now known as Pepperball, against SWAT and its former chairman, Gregory Pusey, goes to trial in a Los Angeles courtroom on June 28.  The investors contend they were induced to purchase some $5 million of SWAT stock by misrepresentations by SWAT and Pusey.  The case was filed in September 2008.

Pusey is currently Vice Chairman of AspenBio Pharma.  AspenBio and SWAT shared certain officers and directors, including Pusey's longtime associate Jeffrey McGonegal, who is CFO of SWAT and AspenBio.  The Los Angeles lawsuit does not involve AspenBio Pharma or its Appy Score product.

Defendants deny the claims.  Pusey managed to get dismissed from the lawsuit in February 2009 on procedural grounds, but in February 2010, the court found that Pusey had made a false statement under oath in a declaration filed in support of his dismissal.  The court revoked the dismissal and returned Pusey to the case.

In its IPO prospectus issued July 2005, SWAT claimed to have a proprietary video surveillance system, Shiftwatch, including Shiftwatch LE for law enforcement.  Questioned under oath, McGonegal admitted SWAT had actually stopped selling Shiftwatch LE months before the IPO.  The IPO also claimed SWAT had placed Shiftwatch LE with two small police departments.  The prospectus did not disclose that both police departments had requested a refund prior to the IPO.  A police sergeant testified Shiftwatch did not satisfy "any" of the requirements SWAT represented.

McGonegal also admitted SWAT included rebates on DVD players purchased from Costco and items sold on eBay as "Net Sales" in its IPO financials.  

Later, SWAT claimed to have a proprietary non-lethal self-defense device, the IM-5 launcher.  In late 2007, McGonegal authorized a company called Crosscheck to send out a mass emailed report that claimed the IM-5 launcher "has 6 times the range and 5 times the stopping power of conventional aerosol pepper spray devices" and "disables a human or an animal out of control from a range of 40 feet."  SWAT paid Crosscheck $250,000 to send out the report two weeks before closing a $3.7 million fundraising.  At approximately the same time, an internal SWAT email admitted "all bullshit and smoke and mirrors aside... the IM-5 was basically ineffective and useless."  


Saied Kashani, Esq.

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SOURCE Kashani Law Office