(HedgeCo.Net)The SEC has charged Ability Inc., an Israel-based intelligence communications company, its wholly-owned subsidiary, and two of its top executives with defrauding shareholders of a Florida-based special purpose acquisition company (SPAC), a company formed to raise capital for a merger or acquisition within a set timeframe.
The SEC’s complaint, filed June 18 in federal district court in Manhattan, alleges that Ability, CEO Anatoly Hurgin, and chief technology officer Alexander Vladimir Aurovsky defrauded SPAC shareholders who voted in favor of a merger between Ability and the SPAC, Cambridge Capital Acquisition Corp., in December 2015. According to the complaint, if Cambridge had not consummated a merger by December 2015, it would have been required, without an extension of the SPAC term, to return all of the capital to its shareholders. To convince shareholders to vote in favor of the merger proposal, the defendants allegedly lied to SPAC shareholders about Ability’s business prospects, including Ability’s purported ownership of a new “game-changing” cellular interception product, ULIN, Ability’s so-called backlog of orders from its largest customer, a police agency in Latin America, Ability’s lack of actual purchase orders backing its backlog, and Ability’s pipeline of possible future orders from customers. As alleged in the complaint, Ability and the two executives profited from the merger with Ability receiving approximately $19 million and Hurgin and Aurovsky each receiving approximately $9 million plus $6 million each in put options, while Cambridge shareholders lost $60 million.
“We allege that Cambridge shareholders were duped into merging the SPAC with Ability, resulting in large losses to investors,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. “As alleged in our complaint, the defendants lied to shareholders to make sure the ill-fated merger was approved so they could line their pockets with tens of millions of dollars from the merger.”
The SEC’s complaint charges the defendants with violations of the antifraud and proxy statement provisions of the federal securities laws, and seeks permanent injunctions, disgorgement with prejudgment interest, and penalties. The complaint also seeks an officer-and-director bar against Hurgin.