U.S. Securities & Exchange Commission Obtains Judgment Against MPHJ Technology’s Rust, Disbarred

The United States Securities and Exchange Commission (SEC) reported last month that it had obtained a judgement against attorney Jay Mac Rust – owner of “patent troll” MPHJ Technology Investments. The State Bar of Texas has also disbarred Rust.

The case is Securities and Exchange Commission v. Jay Mac Rust and Christopher K. Brenner. According to the SEC, Rust defrauded escrow clients in a securities fraud scheme. The case involved Rust and a co-defendant in a scheme to defraud buyers in connection with the offer and sale of securities.

Over the last several years, Rust and MPHJ Technology have been a thorn in the side of many document-imaging companies, including HP Inc., Lexmark International, Ricoh, and Xerox. Over the last several years, MPHJ Technology Investments and law firms representing it sent out thousands of demand letters, primarily to small companies, stating that if they don’t pay a patent-licensing fee of $1,000 per worker for using their MFPs’ scan-to-email function, they would be sued for patent infringement. Document-imaging companies have litigated the matter, arguing, for instance, that the alleged patents were actually in prior use, and thus couldn’t have been patented by MPHJ Technology in the first place.

Rust’s license to practice law was also suspended for three years by the State Bar of Texas as of August 15, 2017.

The amended default judgment, entered by Judge Edgardo Ramos of the U.S. District Court for the Southern District of New York, permanently prevents Rust from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and orders Rust to pay disgorgement and pre-judgment interest of $191,783.01 and a civil money penalty of $160,706.79.

On May 13, 2016, the SEC had charged Rust and his co-defendant, Christopher K. Brenner, with fraud for making undisclosed risky investments and in some instances “outright stealing money they obtained in escrow accounts from small business owners seeking commercial loans.”

On June 9, 2017, the SEC obtained a partial judgment against Brenner that permanently enjoined him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 , and ordered him to pay disgorgement, pre-judgment interest, and a civil money penalty in amounts to be determined at a later date. Brenner consented to the issuance of a June 21, 2017 Commission Order suspending him from appearing and practicing before the SEC as an attorney. Brenner neither admitted nor denied the allegations in the complaint or the findings in the order. On October 6, 2017, the SEC filed a motion with the court seeking disgorgement and a civil money penalty against Brenner, which remains pending.

The examination that uncovered the misconduct was conducted by broker-dealer examiners in the SEC’s New York office. The ensuing investigation was conducted by Daphna A. Waxman, Tuongvy T. Le, and Valerie A. Szczepanik. The litigation is being led by Richard G. Primoff, and the case is being supervised by Lara S. Mehraban.

More Resources

• February 2017: Appeals Court Rules Against MPHJ Technology, Affirms MPHJ Scan Patents Un-Patentable
• September 2016: Federal Court Shoots Down All But One of 15 MPHJ Technology Scan Patents Challenged by HP
• May 2016: U.S. SEC Charges ‘Scan Patent Troll’ MPHJ Technology Investments with Seeking to ‘Cheat Small Business Owners’
• August 2015: Big Win for Lexmark, Ricoh, Xerox, as Patent Board Finds Eight of MPHJ’s Scan Patents Unpatentable
• June 2015: Lexmark, Ricoh, Xerox ‘Blast’ MPHJ’s Claimed Scan Patents Before U.S. Patent & Trademark Office