Industrial gas and water products manufacturer Taronis Fuels agreed to pay $5.1 million to settle fraud charges levied by the Securities and Exchange Commission (SEC) on Wednesday.
Taronis Fuels, its former parent company Taronis Technologies (now known as BBHC), and Taronis Tech Chief Executive Scott Mahoney issued materially false and misleading press releases trumpeting fake or misleading deals with customers, according to the SEC’s complaint, filed in U.S. District Court for the Middle District of Florida. Made-up deals were announced with the city of San Diego, the Turkish government, a franchise of Popeye’s Louisiana Kitchen, and Smithfield Foods, the SEC stated.
In one example, Mahoney fabricated a deal with the city of San Diego in a press release touting the company’s “first city wide contract,” which was subsequently used as an exhibit in a 2019 public filing, the SEC alleged. When the city of San Diego later contacted the company for the press release to be taken down, Mahoney resent the filing “‘to correct its prior disclosure’” because Taronis Tech did “‘not have any formal binding contracts, agreements, or long-term purchase commitments with the city of San Diego,’” the SEC continued.
The modified filing still stated Taronis Tech “‘had approval and a written authorization … to move forward with the procurement of gas,’” despite the city of San Diego maintaining it had no business with the company, the SEC said.
Mahoney and Taronis Fuels’ former Chief Financial Officer and General Counsel Tyler Wilson also allegedly created fake and backdated orders resulting in the company reporting improper revenue in the second and third quarters of 2020. Taronis Fuels raised approximately $30 million from investors in private placements while representing in SEC filings its financial statements were prepared in accordance with generally accepted accounting principles (GAAP), according to an agency litigation release.
In April 2021, Taronis Fuels disclosed its previously issued financial statements for the 2019 fiscal year and each of the interim quarterly periods in FY2020 should not be relied upon, the SEC noted.
The agency charged Taronis Tech, Taronis Fuels, Mahoney, and Wilson with violating provisions of the Securities Exchange Act of 1934. Mahoney and Wilson were also charged with Sarbanes-Oxley (SOX) violations.
Without admitting or denying wrongdoing, Taronis Fuels consented to be permanently enjoined from violating the charged provisions of federal securities laws and pay disgorgement of approximately $4.9 million and prejudgment interest of approximately $232,000.
Without admitting or denying wrongdoing, Mahoney consented to a split settlement and will pay a $150,000 civil penalty, be subjected to a five-year bar from acting as an officer or director of a public company, and was barred from offering penny stocks. The court will determine whether disgorgement and prejudgment interest should be ordered against Mahoney and whether he should reimburse Taronis Fuels due to SOX violations, the SEC said.
The agency is seeking permanent injunctions and civil penalties against Taronis Tech and Wilson, with the latter also facing action similar to what is sought against Mahoney.
Taronis Fuels did not respond to a request for comment. The company was spun off from Taronis Tech in December 2019, though the businesses continued to share work space.
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