Lawsuit Accuses NASDAQ-listed AudioEye CEO and its Executive Chairman of Stock Manipulation
Whistleblower employee David Kovacs was terminated and then defamed for refusing to participate in the scheme
Since Kovacs' termination, AudioEye is trading 400% higher than at any time in the last two years
NEW YORK, June 26, 2024 /PRNewswire/ -- The law firm of Walden Macht & Haran LLP filed a lawsuit with the Supreme Court of the State of New York today on behalf of former AudioEye executive David Kovacs against AudioEye, the company's, Chief Executive Officer David Moradi and Executive Chairman, Dr. Carr Bettis, amongst others. Kovacs was wrongfully terminated after refusing to participate in a stock manipulation scheme developed by Moradi and supported by Bettis.
The lawsuit alleges that the stock manipulation scheme was initiated after Kovacs' termination. AudioEye is trading approximately 400% higher than at any time in the last two years on substantially higher trading volume – substantially outpacing the performance of the S&P 500 and many industry peers. This irregularly high share price and volume are based on extremely limited publicly available information, suggesting a nefarious scheme is in play.
Kovacs began working with AudioEye – a provider of website accessibility compliance services to businesses – in January 2014 as an independent contractor. He became a Strategic Advisor in October 2016 and Vice President of Business Development in April 2019. He held the position until January 17, 2024, when he was terminated for refusing to participate in Moradi's stock manipulation scheme.
Kovacs also co-founded the video game maker First Contact with Moradi, who served as Executive Chairman. In a late August 2023 phone call, Moradi instructed Kovacs to download a virtual private network (VPN) to enable him to write and leave fake reviews for First Contact's latest game, Firewall Ultra. At this time, First Contact was engaged with Bank of America and in the process of being sold. During the same phone call, Moradi directly instructed Kovacs to use a VPN to conduct, according to the lawsuit:
"market manipulation and insider trading activities for AudioEye, including by receiving non-public material information about AudioEye from Moradi, and providing it to wealthy acquaintances before such information was released to the public. Moradi explained that inducing these individuals to purchase AudioEye's stock would attract additional investors and pump up the price of AudioEye's shares before the information at issue was released to the general public…after the information was released to the general public, the price of AudioEye shares would further increase to levels they would not have reached without the initial pumping up of the price to an inflated price bases through the insider trading."
The lawsuit goes on to state that under Moradi's scheme, once the share price was elevated, "Moradi and his co-conspirators could sell their shares of AudioEye's stock at higher prices than they otherwise could have sold them for.".
In a subsequent call, Kovacs made clear he did not want to do anything illegal, upsetting Moradi, who said, "Buddy, if you're not going to help with this, maybe you won't get your equity in First Contact, and maybe I won't feel like supporting your health benefits or your role at AudioEye anymore."
Per the lawsuit, once it became clear to Moradi that Kovacs would not participate in the scheme, during an August 28, 2024, phone call, Moradi said, "I am the law, I have the best lawyers in the world, I will never be in trouble, Buddy. I'm worth $200 million, and you're a f*cking employee at AudioEye working for me." In the same phone call, Moradi said: "First, do these reviews [for First Contact], then I need you to help me get AudioEye's stock up." Kovacs once again stated he would not participate in the AudioEye scheme, enraging Moradi again, who – according to the lawsuit – said:
"I will not support your healthcare and your salary, you mother**cker, earn your keep. You do what I say and when I say it. Respect your elders, mother**cker. You will do the reviews and you will do what I tell you to do with AudioEye's stock. Do what I tell you and set it [the VPN] up now."
Throughout Moradi's pressure campaign, Kovacs regularly spoke with AudioEye Chairman Bettis. In a late August 2023 phone call, Kovacs told Bettis that Moradi had asked him to do "things that were unethical and that" made Kovacs uncomfortable. Bettis responded that Kovacs "must do what Moradi had asked of him." Throughout these interactions, Bettis regularly reminded Kovacs to follow Moradi's "instructions, and if Kovacs didn't, Moradi was going to ruin Kovacs' life."
On November 13, 2023, Kovacs emailed Brittani Morelli, Vice President of Human Resources at AudioEye, requesting a confidential meeting and asking Bettis to be present. After receiving the request, Morelli informed Moradi and the meeting never took place. On January 17, 2024, AudioEye terminated Kovacs' employment, stating his services were no longer needed, and in a subsequent email, general counsel James Spolar informed Kovacs that the termination was "for cause." According to AudioEye, the "cause" was Kovacs not being truthful about his work and educational history, despite having worked with the company for nearly a decade and having long-standing relationships with Moradi and Bettis. According to the lawsuit, both accusations are demonstrably false, and claiming otherwise is a clear case of defamation.
Per the complaint filed by Milton Williams and Deanna Paul of Walden Macht & Haran, Mr. Kovacs informed the Securities and Exchange Commission (SEC) of the stock manipulation scheme.
Milton Williams said, "David Kovacs was terminated and defamed because he refused to participate in David Moradi's illegal market manipulation scheme."
Share Price and Trading Volume Timeline
- August 28, 2023, AudioEye closed at $4.71, with 10,900 shares traded. Its market cap was approximately $55,500,000
- November 13, 2023, AudioEye closed at $4.11, with 14,100 shares traded.
- January 17, 2024 – the day Kovacs was terminated – AudioEye closed at $5.24 on 28,600 shares traded.
- As of May 29, 2024, AudioEye closed at $25.59 with 536,200 shares traded and an estimated market cap of $300,000,000
Biographies
David Moradi is the CEO and largest shareholder of AudioEye and the founder of Sero Capital. He previously helped fund now-convicted criminal Martin Shkreli's purchase of KaloBios (NASDAQ: KBIO) and served on its Board of Directors. He has worked at both Pequot Capital and Soros Fund Management.
David Kovacs is an investment banker, private equity executive, venture capitalist, and entrepreneur known for his futurist approach. He leverages experience in both mature and emerging markets to restructure institutions and develop new markets.
Kovacs began his career in 2003 as a Business Analyst at Citigroup Global Markets and held positions at Blackstone Capital Markets as an associate consultant, at the Hinduja Group as Managing Director of Private Equity Investments and Strategic Relationships, and at Fitch Learning as Head of Investment Banking and Private Equity, Americas.
Kovacs was the Founder and CEO of Emmersive Entertainment, the Managing Director at Audioeye, and the Head of Public Policy at Humanigen. He also served on the technology transition committee for New York City Mayor Eric Adams and lectures at top investment banks, private equity firms, sovereign wealth funds, and government agencies.
Kovacs earned a Bachelor of Science in Economics and Finance from the College of Staten Island, City University of New York, and attended Columbia University from 2003 to 2004.
Contact:
Frank De Maria
[email protected]
+1 347 647 0284
Elie Jacobs
[email protected]
+1 646 330 2585
SOURCE Walden Macht & Haran LLP
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