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SEC gets asset freeze, restraining order on Maui company

Judge approves restrictions on Moddha, purveyor of software, tech

The Securities and Exchange Commission last week obtained an emergency asset freeze and a temporary restraining order from the U.S. District Court in Honolulu against Kahului-based Moddha Interactive Inc. and its principals for falsely promoting software and devices, such as a computer tablet that operates with the wave of a hand like Tony Stark in “Iron Man.”

Hana residents and married couple Marianne Veronika Sandor, 48, and Edward Michael Porrazzo, 61, were the officers and signatories for their technology company, Moddha Interactive, whose address is 415 Dairy Road, Suite E-518, Kahului.

The civil complaint, filed July 9 and unsealed Friday, also named Spar Street, 55, of Haiku as a co-defendant for allegedly illegally acting as an unregistered broker in selling Moddha’s shares to investors for commissions, the SEC said Monday in a news release.

The SEC alleged two claims of fraud in connection with purchase of sales of securites and two claims of fraud in the offer or sale of securities against Sandor, Porrazzo and Moddha, and one claim against Street for being an unregistered broker-dealer.

The complaint says that Moddha has raised $2.6 million from 51 investors since 2012 through private placement offerings of unregistered securities. Moddha, formed in 2002 and incorporated in Hawaii, is not registered with the SEC and is not listed on exhanges.

The SEC alleges that Sandor and Porrazzo made untrue claims about the company’s technology, misappropriated hundreds of thousands of dollars in investor funds to support their lifestyle, and falsely claimed that the company had connections with Global Technologies Firm, a $13 billion company, to lure investors.

The court granted the SEC’s request for an asset freeze and a temporary restraining order against the defendants from further violations of federal securities laws, as well as other emergency relief. The SEC’s complaint also seeks preliminary and permanent injunctions, conduct-based injunctions and forfeiture of ill-gotten gains with interest and penalties.

Because this is a civil action, there would be no jail time should the SEC win its claims.

Efforts to contact Sandor, Porrazzo or Street were unsuccessful Monday.

Moddha dubbed itself as a “worldwide Positive Media and Technology Corporation” in offering materials to potential investors, the SEC filing says. The company’s private placement memorandum said Moddha owned “an exclusive, proprietary portfolio of patents” based on the “Quantum Transducer,” a revolutionary device that could reduce the cost of cellphones, networks and harmful radiation and increase battery life and data transfer rates and capacity.

The company also claimed to have an interface to distibute 3D interactive content through a proprietary touchscreen called “WaveScreen.” The screen would allow a person to manipulate and interact with a device “with the wave of your hand, as if you were Tony Stark in ‘Iron Man.’ “

“But QT and the WaveScreen aren’t science fiction; they are science-fact.” the memorandum said.

The technology was incorporated in the “Q-Tablet” and “Q-Connect Smart Phone” devices, the company said.

“This was all a sham,” the SEC said in its complaint.

Moddha had five patents related to transducers and speakers — two expired in 2004 for lack of payment of fees and the other three expired in May 2014, having reached their term expiration, the SEC said. This made them all worthless.

A sample of a Q-Tablet, which generated a 3D image that wowed investors during presentations, was in fact manufactured by an unrelated third-party company. Sandor admitted that fact in 2017 but said Moddha owned 51 percent of that third-party company. When pressed for documentation, she changed her story and said the tablet was manufactured by a San Francisco Bay Area company she refused to identify, the complaint said.

In addition, other images of products supposedly being developed by Moddha, including “wearable technology” and “bone induction headphones,” were altered photos of other companies’ products, the SEC said.

In 2015, Sandor and Porrazzo offered another inducement to investors, the “founder’s share program.” Under the program, the investor would receive double the number of shares with the option to redeem half to recoup the investment, the complaint said.

Sandor and Porrazzo also claimed that they were on the cusp of receiving a $150 million cash infusion from an investor, the complaint said. When another investor questioned the couple about him, they claimed that the investor was sick and delayed by a shooting at a foreign embassy and that his flight had been grounded by the eruption of a volcano in Iceland.

The $150 million investment never materialized, the complaint said.

Sandor and Porrazzo had other alleged schemes to entice investors, the complaint said. In October, they told investors they would be able to buy back the founder’s shares with revenues from a commercial relationship with Global Telecommunications Firm.

This was a false claim, the SEC said. Moddha was never a “registered supplier” of Global Telecommunications and was not authorized to use the company’s name or trademarks in soliciation materials, which it did.

When no payments arrived, Sandor said in a January email to investors that the delay was caused by a “horrible high fever bronchial flu” involving all of its executive team, the complaint said.

A couple who invested $500,000 in the founder’s shares has yet to receive payments from Moddha, the complaint said. Moddha apparently never had the money because its daily ledger balance on its bank account did not exceed $200,000 between January 2017 and April, the complaint said.

Some of the investor funds made their way into personal accounts of Sandor and Porrazzo and helped finance a seven-day trip to a luxury hotel in Santa Monica, Calif. They spent a total of $15,884 of investor funds on the trip around Thanksgiving on $2,400-a-night rooms and a $425 bottle of wine.

Of the $827,025 of investor funds raised from January 2017 to April, the majority of the money was diverted to Sandor and Porrazzo for personal use or to Street as commissions, the complaint said.

In a breakdown of the amount, $221,373 went to the couple’s personal accounts and $104,835 in commissions to Street. Other funds were used for travel, auto expenses, retail purchases, restaurants and ATM withdrawals.

Street began working with the couple in January 2014 and received 15 percent commissions on clients he brought to Moddha, the complaint said. The SEC complaint says that from January 2014 to November, Street received $200,000 in commissions from seven investors in Hawaii, California, Colorado and Dubai.

The SEC’s investigation was conducted by Jasmine Starr and Carol Shau and supervised by Victoria Levin of the SEC’s Los Angeles Regional Office. The litigation will be led by Gary Leung and supervised by Amy Longo.

* Lee Imada can be reached at leeimada@mauinews.com.

* This story published Tuesday, July 17, 2018, has been corrected.

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