5 December – LAWFUEL – The Law News Network – A Virginia man who was the chief financial officer of L90, Inc., an Internet advertising firm now known as MaxWorldwide, Inc., was sentenced today to 18 months in federal prison for conspiring to commit securities fraud.
Thomas A. Sebastian, 39, of Vienna, Virginia, was sentenced this morning by United States District Judge Percy Anderson. In addition to the 18-month prison term, Judge Anderson ordered Sebastian to also serve nine months of home confinement.
Sebastian pleaded guilty in March 2004 to the conspiracy charge, admitting that from July 1999 through March 2002 he participated in a scheme to generate fraudulent revenues for L90 through advertising barter transactions with other Internet companies in order to meet securities analysts’ revenue estimates.
L90, through its subsidiary webMillion.com, engaged in a series of advertising barter transactions with other Internet companies, swapped checks with those companies for the purported “value” of the bartered advertising, and fraudulently recorded those amounts as revenue without disclosing that they resulted from barter transactions. Frequently, L90 inserted a sham third-party into the check swap in order to hide the true nature of the barter transaction from its auditors and the investing public.
Sebastian concealed the use of the third-party from L90’s auditor and made false representations to the auditor about L90’s financial statements. Sebastian also signed L90’s Form 10-K and Forms 10-Q that were filed with the Securities and Exchange Commission and contained false and misleading financial information. Additionally, Sebastian made false and misleading statements concerning L90’s revenue numbers on quarterly conference calls with analysts and investors.
Through the fraudulent barter transactions, L90 overstated its revenues in the third quarter of 2000 through the third quarter of 2001 by at least $4.3 million, or 7.9 percent overall, and by as much as 29 percent in one quarter. As a result, L90 was able to meet analysts’ revenue estimates in all but one of these quarters.
At the time of the offenses, L90 was based in Santa Monica and Marina del Rey, Calif., and its stock was traded on the Nasdaq National Market System.
As part of an earlier settlement of a civil lawsuit filed by the SEC, Sebastian paid more than $400,000 in disgorgement and penalties, and submitted to an order barring him from serving as an officer or director of a public company.
The government’s case was investigated by the Federal Bureau of Investigation.
The sentencing of L90’s chief executive officer, John Bohan, who pleaded guilty to securities fraud, is scheduled for December 12 before Judge Anderson.
CONTACT: Assistant United States Attorney Douglas A. Axel