UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION
Case No. 6:23-cv-00006
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
RELIABLE ONE RESOURCES, INC., QUANTUM FILTRATION, INC.,
CLYDE CAMERON CRAVEY, KENNETH WIEDRICH,
Defendants.
BRIEF DESCRIPTION OF THE CASE
On January 6, 2023, the Securities and Exchange Commission (“SEC”) filed an emergency action in the United States District Court for the Eastern District of Texas against Reliable One Resources, Inc.; Quantum Filtration, Inc.; Clyde Cameron Cravey (“Cravey”); and Kenneth Wiedrich (“Wiedrich”) (collectively, “Defendants”).
The SEC alleged that Cravey and Wiedrich, through Reliable One and Quantum Filtration, engaged in fraudulent, unregistered offerings that procured approximately $34 million in funding from investors. In its Complaint, the SEC specifically alleged that Defendants: (i) misled investors about Cravey’s involvement and control over Reliable One; (ii) made misrepresentations about Reliable One’s initial public offering (“IPO”) status; (iii) made false claims regarding FDA approval of Quantum Filtration’s N-95 certified facemask; (iv) made misrepresentations about Reliable One’s compensation for salespersons, officers, and directors; (v) misled investors about business development, prospects, and sales; and (vi) misused investor funds for personal gain.
On February 8, 2023, the Court entered partial judgments against Defendants Cravey and Wiedrich and imposed permanent injunctive relief. [this repeats the sentence in paragraph 2. The permanent injunctions prevent Cravey and Wiedrich from participating in any offering of penny stock, serving as an officer and/or director of a public company, and participating in any sale of any securities for non-personal accounts.
The Court has only one issue left to adjudicate: the monetary remedies to be imposed against Defendants for the benefit of defrauded investors.
BRIEF DESCRIPTION OF RECEIVERSHIP
Commonly in civil enforcement actions, the SEC seeks the return of funds to investors. To effect this goal, the Court takes possession over the assets of the individual and/or entity through a receivership. The purpose of a receivership is to gather assets related to the alleged fraud for the benefit of the victims of the fraud. The Court appoints a receiver to take exclusive custody, control, and possession of the securities, funds, property, and any other assets wherever found. Generally, the receiver has broad power to acquire, organize, and distribute the property of the receivership, under the Court’s receivership order. The Court retains jurisdiction over the receivership during its pendency and has wide discretion to determine the appropriate equitable relief.
In this case, the Court entered an order on February 8, 2023 (“Receivership Order”), appointing Ferdose al-Taie as Receiver for Defendants Reliable One and Quantum Filtration (“Receivership Defendants”). The Court directed the Receiver to: (i) manage the business affairs, funds, assets, and any other property of the Receivership Defendants; (ii) marshal the assets of the Receivership Defendants; (iii) investigate the manner in which the affairs of the Defendants were conducted and institute such legal proceedings for the benefit of the Receivership Defendants and their investors and creditors as the Receiver deems necessary; and, (iv) take whatever actions are necessary for the protection of the investors. Receiver intends to fulfill her duties and responsibilities in an expedient and efficient manner.
Receiver’s goal – and mandate – is to gather all assets of the receivership estate so that those assets may be conserved and ultimately reduced to cash so that distributions may be made to the creditors and investors of the Receivership Defendants.
The Receiver’s legal counsel is Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, and her legal team is led by Daniel J. Ferretti.
BRIEF PROCEDURAL AND
FACTUAL HISTORY OF THE CASE
On January 6, 2023, the SEC initiated this civil enforcement action and filed its Complaint detailing that Defendants solicited funds from investors for various fraudulent business ventures, including water filtration and mask-making. Following a telephonic conference, the Court entered a Temporary Restraining Order (“TRO”) and an Order of Ancillary Remedies on January 9, 2023. Through those orders, the Court restrained the Defendants from participating in the issuance, purchase, offer, or sale of any securities, froze Defendants’ assets, set out directives for financial institutions and individuals that possessed Defendants’ assets, provided for expedited discovery, and set forth a temporary receivership.
Pursuant to the Court’s Orders, the SEC pursued expedited discovery, and noticed video depositions of Cravey and Wiedrich for the following week, served its First Set of Interrogatories, and noticed the video depositions of two other fact witnesses. Before those depositions took place, the parties engaged in settlement discussions. Those discussions were successful, and the terms of the partial settlements were set out in the SEC’s Unopposed Motions for Consent Judgments as to Defendants Cravey and Wiedrich filed on February 1, 2023. These partial settlements set forth a partial consent judgment as to liability and ordered the permanent injunctive relief sought by the SEC in its Complaint.
The same day, the SEC filed its Unopposed Motion For an Order Imposing Asset Freeze and Appointing Receiver. Essentially, the SEC sought to maintain the relief set forth through the TRO and ancillary orders.
Two days later, the SEC filed its Unopposed Motion for Preliminary Injunction as to Defendants Reliable One and Quantum Filtration.
On February 8, 2023, the Court entered three separate orders, which are described above, granting each of the motions respectively. Through these orders, the Court maintained the status quo set by the TRO and Order for Ancillary Remedies. The temporary restraining order was converted into: (a) a permanent injunction against Cravey and Wiedrich, and (b) a preliminary injunction against Reliable One and Quantum Filtration. The temporary receivership was converted into a receivership for Receivership Defendants Reliable One and Quantum Filtration. The receivership will proceed until the Court orders otherwise. The Court also established liability for Cravey and Wiedrich, meaning that the allegations set forth in the Complaint are accepted as true.
On the same day as her appointment under the Receivership Order, Receiver filed an Initial Status Report summarizing her work to date and detailing a proposed plan for administering the receivership going forward. Pursuant to the Receivership Order, Receiver has undertaken “to determine the nature, location, and value of all property interests of the Receivership Defendants…of whatever kind, which the receivership defendants own, possess, have a beneficial interest in, or control directly or indirectly” as well as “to take custody, control, and possession of all [such] property[.]” After taking possession of the Receivership Defendants’ property, Receiver performed an investigation in which she: (a) determined what initial assets were available to the receivership; (b) identified liabilities owed by the Defendants; (c) discovered multiple additional entities used to solicit investor funds for ostensible business ventures; and (d) interviewed current and former employees, consultants, contractors, and counsel to Reliable One and Quantum Filtration.
As detailed in her Status Reports to the Court, the Receiver has focused on interviewing investors and analyzing the information and documents obtained to determine the best path forward to liquidate assets and process claims for the benefit of all investors and creditors. She has also undertaken the following: (a) managing real/tangible property until liquidation; (b) creating an auction process to sell the real property and tangible personal property of the Receivership Defendants; (c) obtaining and reviewing further information on the Receivership Defendants’ real property; (d) continuing to analyze documents recovered from the business premises of the Receivership Defendants; and, (d) continuing efforts to obtain access to the Receivership Defendants’ QuickBooks accounting records.
Pursuant to the Receivership Order, Receiver will continue to file regular Status Reports after the end of each calendar quarter.