Everyone wants to be in on the ground floor of a hot new technology. “If only I had purchased Apple stock or Google when they were first offered” has been muttered around office water coolers and local athletic clubs millions of times. We think that by being in at the ground floor of something big we can make millions. We can, if the company is legitimate and the technology or product truly revolutionary. The 100+ investors from across the United States that invested in Great American Technologies (GAT) were not so lucky. The Securities and Exchange Commission calls the investment a scam.
GAT was the brainchild of Vincent Setteducate (a/k/a Vincent Sette). According to a complaint filed in a Manhattan federal court, Sette defrauded over 100 investors. In his offering materials, he claimed that GAT had developed proprietary software called “Mail Call” that allowed users to hear readouts of emails and web pages over the telephone. Pretty impressive and apparently he did have a working prototype.
In addition to the SEC complaint, Sette was also indicted on criminal charges of securities fraud, mail fraud and criminal contempt. According to the Justice Department, Setteducate misled by investors by saying:
- That MailCall could serve up to 10,000 users and would be expanded, through additional investment, to serve up to 500,000 users, when in fact MailCall only had the capacity to serve a few dozen users at a time.
- That the Company’s revenue would exceed $13 million by 2007, when in fact the Company had minimal business operations and no business history or prospects on which to base such a projection.
- That GAT had entered into contracts with a variety of companies and associations to provide MailCall to their employees and members, when in fact no such contracts existed.
- That GAT was overwhelmed with customer orders, and therefore additional funding had to be raised and spent on training a significant sales force.
- That GAT had over 500 beta testers evaluating the services of MailCall for large corporations and government entities, when in fact such beta testers did not exist.
- That an experienced technology executive was serving as GAT’s Chief Financial Officer, when in fact this executive was not employed by the Company.
- That SETTEDUCATE had employment experience with a technology company where he in fact had never worked.
The fraud comes from some of the claims he made to potential investors. False claims made to investors in a new company are called offering frauds. They are one of many types of securities fraud.
The SEC says Sette told investors that the company would earn $4.3 million in revenues during its first year based on 100,000 customers. The government says the product it could handle maybe 24to 48 users at most.
Sette also claimed that the company had signed contracts with the Colorado Bar Association, National Federation of the Blind, Value Inn Hotels and many others. All false says Uncle Sam.
Where did the investor’s money go? Did it go to develop the Mail Call program? The SEC says that much of the money went into Sette’s pocket ($700,000 according to the Justice Department). They claim he took far more than he agreed to take in offering documents. They also claimed he failed to disclose that he had been previously convicted of wire fraud* and had already been enjoined from violating securities fraud laws.
*In 1997, Sette pled guilty to criminal wire fraud in connection with a fraudulent prime bank securities scheme. He was sentenced to five years probation in 1998.
The SEC case ended with a judgment against GAT in November of this year. It is unknown whether investors will ever be made whole. GAT continues to maintain its innocence and says it has a viable product.
While we can applaud the SEC for pursuing fraud, fraudsters who have already been convicted of criminal fraud should not be given a second chance. The SEC’s recourse is civil. And the forfeiture and fines ordered as a result of their action are certainly welcome. Those fines, unfortunately, are not a strong enough incentive to change the behavior of hard core fraudsters.
[NOTE: The criminal charges against Sette were dismissed.
After we first posted this story, we received numerous comments both for and against Sette and the MailCall product. We make no representations as to Sette’s innocence other than to say that charges were dropped and we no reason to question prosecutors or our judicial system.]
What are the lessons here? Investors in a public offering or private placement should always perform their own due diligence. We believe that private placement offerings are especially risky because they are usually not as well vetted.
Everyone wants to be in on the ground floor of an investment. Simply because someone has invented some sort of new technology doesn’t mean they have a viable business plan to get that product to market.
Do a Google and LinkedIn search on the key people. Randomly verify some of the key contracts and claims in the offering document. And make sure all your questions are answered.
Mahany Law is a national, boutique law firm concentrating in a wide array of fraud and professional malpractice issues. We help individuals and businesses who are victims of fraud including securities and offering frauds. Visit our fraud recovery page for more information.
Ready to see if you have a case? Contact attorney Brian Mahany online, by email at or by phone at (202) 800-9791. Cases handled nationwide.