Feds dub Notre Dame folk hero Rudy Ruettiger a stock scammer

Rudy made a settlement with the SEC about fraud charges. And I mean the Securities and Exchange Commission, not the Southeast Conference.


December 17, 2011
SEC Tackles 'Rudy' in Fraud Case
By Andrew Ackerman

WASHINGTON — The inspirational 1993 movie "Rudy" celebrates Daniel Ruettiger as a plucky underdog who overcomes long odds and his diminutive stature to earn a walk-on role on Notre Dame's legendary college-football team.

But in a settlement announced on Friday, the Securities and Exchange Commission casts Mr. Ruettiger in a far less heroic light—as a key participant in a so-called pump-and-dump stock scheme that generated more than $11 million in allegedly illicit profits for a now-defunct beverage company, Rudy Nutrition.

"Investors were lured into the scheme by Mr. Ruettiger's well-known, feel-good story but found themselves in a situation that did not have a happy ending," said Scott Friestad, associate director of the SEC's division of enforcement.

The company made and sold a sports drink called "Rudy" with the tagline "Dream Big! Never Quit!" But the SEC charged that Mr. Ruettiger and 12 others made false and misleading statements about their company in news releases, SEC filings and promotional materials during 2008 in a scheme to lure investors, inflate the stock price and then sell their shares at a profit.

For instance, a letter to potential investors falsely claimed that in "a major southwest test, Rudy outsold Gatorade 2 to 1!" the SEC said in its complaint.

"The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special," Mr. Friestad said.

The pitch worked. In less than a month, the stock went from trading 720 shares a day to more than three million shares, and within two weeks its price climbed from 25 cents to $1.05 a share.

Mr. Ruettiger, who lives in Las Vegas, agreed to pay $382,866 to settle the SEC's charges without admitting or denying them—giving up his profits of $185,750 and paying a fine of $185,750 and interest. Ten other individuals also agreed to pay penalties to settle the SEC charges.

Neither Mr. Ruettiger nor his attorney could be reached for comment.

Mr. Ruettiger and a college friend founded the original company, called Rudy Beverage Inc., in South Bend, Ind. In Oct. 2007, the company moved to Las Vegas, where it struggled financially with a small number of customers, few assets and no profits, the complaint said.

In late 2007, Mr. Ruettiger and the company's president hired an experienced penny-stock promoter to orchestrate a public distribution of company stock. With the help of a disbarred California attorney, they orchestrated a so-called reverse merger with a dormant public company and turned Rudy Beverage into the publicly traded Rudy Nutrition by Feb. 2008, the complaint said.

In addition to false and misleading promotions, the SEC said the scheme's participants manipulated the trading of the company's stock using brokerage accounts in the name of offshore entities to make investor interest appear stronger than it actually was. The SEC says the group used the accounts of a series of Panamanian entities to manipulate the stock.

The agency is still pursuing litigation against stock promoters Pawel Dynkowski of Poland and Chad Smanjak of South Africa, who allegedly made about $4.2 million off the scheme that they deposited into Panamanian accounts the SEC couldn't trace. The two promoters couldn't immediately be reached for comment and the SEC said there are no known attorneys for them. Agency officials believe they aren't in the U.S.

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