On
July 12, 2007,
the Commission filed a complaint (
Securities and Exchange Commission
v.
Tasty Fries, Inc., Edward, C. Kelly and Louis M, Kelly, Civil Action Number
07-CV-2857 (E.D. Pa.))
against us, our former President and Chief
Executive Officer, Edward C. Kelly, Louis M. Kelly, Esq. alleging that they,
we,
and Mr.. Edward Kelly issued our stock without proper authorization; issued
and
filed with the Commission false and misleading financial statements; made false
and misleading statements in press releases and Commission filings; and,
together with Louis M. Kelly (Mr. Kelly’s son) engaged in the unregistered sale
of our securities. The Commission claimed that we, assisted by Mr. Edward Kelly
committed reporting, record keeping and internal control
violations.
The
Commission's
complaint alleges that between 2001 and 2005, Mr. Edward Kelly, on 4 occasions,
improperly attempted to increase the number of authorized shares of our stock.
As a result, since 2001, we issued over 78 million more shares of common stock
than our articles of incorporation authorized and incorrectly accounted for
its
issuances of common stock in our financial statements. As a result of
this over-issuance, since January 2002, all of our financial statements filed
with our annual and periodic reports were materially misstated. The
complaint also stated that between 2002 and 2004, we and Edward Kelly also
made
materially false and misleading statements in press releases and in Commission
filings relating to the development and production status of a French fry
vending machine that we were developing. Based on these press
releases and Commission filings, Edward Kelly improperly profited by $32,925
by
improper trading in our stock. On January 9, 2008, we filed a
Certificate of Correction pursuant to Nevada law which amended our Articles
of
Incorporation to increase our authorized shares to 300 million shares, $0.01
par
value and on January 18, 2008, we filed the Restated Articles and Restated
Certificate after obtaining shareholder approval pursuant to Nevada Revised
Statutes Section 78.320(2) and on January 18, 2008, we filed Restated Articles
and Restated Certificate.
The
Commission's
complaint also alleged that we, Edward Kelly and Louis Kelly engaged in improper
unregistered offers and sales of our common stock by compensating advisors
and
consultants with our common stock for sales that we did not effectively register
with the Commission. This stock was paid to consultants and advisors
who either did not provide bona fide services or provided promotional and
investor relations services to us. In 3 such instances, Louis Kelly,
an attorney licensed in Pennsylvania, authored the legal opinions filed with
ineffective registration statements. The complaint further alleges that we
and
Edward Kelly also engaged in improper unregistered sales of our common stock
by
engaging in so-called "gypsy swaps" in which they arranged for shareholders
to
sell purportedly our non-restricted stock to others, in exchange for which
we
ultimately received all or some of the stock purchase price, and the selling
shareholders received from the us newly issued restricted shares, which
sometimes included extra bonus shares provided as an inducement for the
shareholders to sell their purportedly non-restricted stock.
The
Commission's
complaint further alleges that we, aided and abetted by Edward Kelly, failed
to
make filings with the Commission of required annual, quarterly and current
reports; to make and keep books, records, and accounts that accurately and
fairly reflect our transactions and dispositions of our assets; and to devise
and maintain an adequate system of internal accounting controls.
Without
admitting or
denying the allegations in the complaint, we consented to the entry of a final
judgment, subject to the court's approval, in which we are permanently enjoined
from
further
violations
of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, as amended
(the
“Securities Act”) and Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the
Exchange Act and Rules 10b-5, 12b-20, 15d-1, 15d-11, and 15d-13
thereunder. Without admitting or denying the allegations in the
complaint, Edward Kelly consented to the entry of a final judgment, subject
to
the court's approval, in which he is: (i) permanently enjoined from further
violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Section
10(b) of the Exchange Act and Rules 10b-5 and 15d-14 thereunder, and from aiding
and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of
the
Exchange Act and Rules 12b-20, 15d-1, 15d-11, and 15d-13 thereunder; (ii) barred
from acting as an officer or director of a public company; (iii) ordered to
pay
disgorgement of his trading profits, plus prejudgment interest, totaling
$39,245; and (iv) ordered to tender 3,115,165 shares of Tasty Fries stock for
cancellation. Without admitting or denying the allegations of the complaint,
Louis Kelly consented to the entry of a final judgment, subject to the court's
approval, in which he: (i) is permanently enjoined from further violations
of
Sections 5(a) and 5(c) of the Securities Act; and (ii) ordered to pay a civil
penalty of $19,500.