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Jasper "Jay" Knabb, 42, is accused of a stock-dumping scheme involving his former company, Pegasus Wireless Corp., based in Fremont, Calif.
The case is a civil suit and may be followed by criminal charges from the Department of Justice, SEC officials said on Wednesday. The SEC does not have the authority to file criminal charges.
Knabb was the chief executive officer of Pegasus. The former chief financial officer, Stephen Durland of West Palm Beach, Fla., is also accused of funneling $2 million from the scheme into his own pockets, according to the lawsuit filed Tuesday in U.S. District Court in San Francisco.
Knabb and Durland used the money to pay for lifestyles that included lavish homes, an airplane, Ferraris, other sports cars, boats and diving equipment, according to the lawsuit.
Knabb's wife, Tammy Knabb, bought a $1.5 million house in Sand Lake in February 2008. The house was purchased under the name Sky Mountain Family Trust, registered in South Carolina. The lawsuit says that Jay Knabb, and maybe Tammy, have lived in Anchorage since then.
Tammy Knabb is also a defendant in the lawsuit. The SEC says she was an active participant in the pump-and-dump scheme.
Efforts to reach the Knabbs were unsuccessful.
The SEC accuses Knabb and Durland of faking documents to get SEC permission to issue more shares in their company, which was listed on the OTC Bulletin Board then on Nasdaq for six months in 2006.
The men said they needed to raise money to pay off debt that proved to be phony, the SEC says.
Unrestricted shares were funneled through family and friends, including Knabb's mistress, and sold for millions of dollars that eventually made it back to Knabb and Durland, according to SEC lawyer Robert Leach.
The company, which had stock that previously sold for pennies, soared to $18.69 a share in May 2006 after acquiring several other technology companies. That gave the company a market capitalization of $1.4 billion. Knabb even did a company promotion with singer Eric Clapton, according to a media report at the time.
In January 2007, the company moved its headquarters to the Bahamas. It declared bankruptcy in January 2008.
It is unclear why the Knabbs bought a house in Alaska and to what extent they actually made their home here.
Hundreds of investors who lost money are listed in the bankruptcy paperwork. Many are listed as living in South Carolina, Florida and France.
The lawsuit seeks to recover the lost money, pay civil penalties, and bar Knabb and Durland from serving as officers or directors of any public company.
"Knabb and Durland were secretly printing shares to enrich themselves," Leach said. "This was a long-running scheme."
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