SEC Charges Andrew DeFrancesco, Marlio Mauricio Diaz Cardona, Carlos Felipe Rezk, Nikola Faukovic, and Catherine DeFrancesco for their roles in a fraudulent scheme to mislead investors about Cool Holdings, Inc
On January 6, 2023, the Securities and Exchange Commission (“SEC”) announced charges against five individuals for their roles in a fraudulent scheme to mislead investors about Cool Holdings, Inc., a publicly-traded company (“Cool”).
The SEC alleges that, from at least March 2018 through June 2019 (the “Relevant Period”), Andrew DeFrancesco, the chairman of Cools’ board, devised and implemented the scheme with Marlio Mauricio Diaz Cardona, Cools’ chief executive officer; Carlos Felipe Rezk, Cools’ chief marketing officer; and Nikola Faukovic, one of DeFrancesco’s employees. According to the complaint, DeFrancesco, Diaz, and Rezk made false statements and omitted material information in Cools’ filings with the Commission, including about a critical business relationship, in order to mask Cools’ perilous financial condition and future prospects.
According to the complaint, throughout the Relevant Period, Cool, the operator of a small chain of retail electronic stores, made materially false and misleading statements and omissions in its SEC filings, including about its critical business relationship with the consumer electronics giant Apple Inc. (“Apple”). Diaz signed each of Cool’s false and misleading quarterly reports; Diaz and Rezk both signed Cool’s false and misleading annual report; and Diaz, DeFrancesco, and Rezk all signed Cool’s false and misleading registration statement and amendments (collectively, the “Registration Statement”). The Registration Statement, which never went effective, sought to offer and sell up to $25,000,000 worth of securities.
DeFrancesco, with the assistance of Diaz and Rezk, as well as his executive assistant Faukovic, also orchestrated a “pump and dump” of Cool stock, which included the publication of a series of fraudulent articles, secretly funded by DeFrancesco, in mid-September 2018. Despite Cool’s serious financial problems, underperforming stores, and precarious relationship with Apple, the promotional articles baselessly stated, among other things, that Cool’s stores were more profitable per square foot than retailers such as Tiffany & Co. and Michael Kors, and that Cool planned to expand the number of its Apple-product-focused stores from nine locations in March 2018 to 200 locations by 2020. Cool’s share price and trading volume jumped significantly during and following the publication of the false and misleading articles.
In addition, according to the complaint, with Faukovic’s assistance, DeFrancesco secretly sold hundreds of thousands of Cool Holdings shares, which he held in the name of nominee entities, and ultimately sold over 1.6 million shares for proceeds of more than $8 million. Further, as alleged in the complaint, DeFrancesco, aided by Faukovic and his ex-wife Catherine DeFrancesco, also concealed his ownership of Cool Holdings shares, including by filing false beneficial ownership reports with the SEC.
The SEC’s complaint charges Andrew DeFrancesco with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, the registration provisions of Sections 5(a) and (c) of the Securities Act, and the beneficial ownership disclosure provisions of Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1(a) and 16a-3 thereunder.
The complaint also charges Diaz and Rezk with violating certain of the antifraud provisions, and, in the alternative, aiding and abetting certain of DeFrancesco’s violations; charges Faukovic with aiding and abetting certain of DeFrancesco’s violations; and Catherine DeFrancesco with violating beneficial ownership disclosure provisions of Section 13(d) of the Exchange Act and Rule 13d-1(a) thereunder.
The complaint seeks injunctive relief and civil penalties against all defendants, disgorgement and prejudgment interest thereon from Andrew DeFrancesco, Diaz, Rezk, and Faukovic, and officer-and-director bars against Andrew DeFrancesco, Diaz, and Rezk.
To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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