Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

SEC Charges 'Rudy' In Pump and Dump Scheme

The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, DC.
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While everyone has been talking about the lawsuits filed by the Securities and Exchange Commission’s case against former Fannie Mae and Freddie Mac executives, a different lawsuit filed today has been largely overlooked.

“It’s the most important case of the day,” a senior official at the Securities and Exchange Commission said, half-joking.

He was talking about the case against Daniel Ruettiger and 12 other participants in a scheme to deceive investors into buying stock in his sports drink company.

Ruettiger is perhaps better known as “Rudy” — the walk-on, undersized Notre Dame football player who inspired the 1993 film.

The SEC says Ruettiger founded Rudy Nutrition to compete with Gatorade in the sports drink market. Rudy Nutrition produced and sold “modest amounts” of a sports drink called “Rudy” with the tagline “Dream Big! Never Quit!”

But the real purpose of the company was as a vehicle for a pump-and-dump scheme that took in $11 million in illicit profits, according to the SEC.

Here’s how it worked, according to the SEC complaint: Rudy and a business partner brought in an experienced penny stock pump-and-dumper. Rudy Nutrition did a reverse merger with a shell company, getting it on the penny-stock exchange known as the Pink Sheets.

They then partnered with other penny-stock promoters to pump up the stock, the SEC alleges. They sent mailers to millions of investors, left promotional comments on chat boards and made videos promoting the company. The SEC says Rudy’s team also made misleading statements in filings with the commission. The result was soaring stock prices, which allowed Rudy and others to sell at an inflated value.

The stock promptly crashed back down.

“Ruettiger and 10 of the scheme’s other participants have agreed to settle the SEC’s charges without admitting or denying the allegations. Ruettiger agreed to pay $382,866 in settling the charges, and other participants consented to final judgments also ordering disgorgement, prejudgment interest, and financial penalties,” the SEC said in a statement.

Not quite the postscript fans of the film “Rudy” were hoping for.

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