SEC Suit Seeks to Block ex-Cybersecurity CEO From Serving Again on Any Public Company

Intrusion, a publicly traded cybersecurity company, and its then-CEO Jack Blount, began in May 2020 promoting a new cybersecurity product, Intrusion Shield, using “materially false and misleading statements” about Blount’s background and experience, Intrusion’s success in marketing Shield to participants in its beta testing program and certain Intrusion contracts with prospective customers, alleged the SEC in a securities fraud complaint Tuesday (docket 4:24-cv-00375) in U.S. District Court for Eastern Texas in Marshall. Intrusion’s board fired Blount as CEO in July 2021, and he resigned from the board a month later, said the complaint. After Shield’s commercial launch in January 2021, Intrusion offered it as an SaaS product at $20 a month per user, with no annual contract requirement, it said. During the promotional efforts behind Shield, Intrusion made numerous false and misleading statements, which Blount “authored and/or approved,” it said. A May 2020 news release announcing Blount’s appointment as CEO claimed he had been on the boards of five public companies, it said. It also said that Blount had served as chief information officer at the Department of Agriculture, it said: “Neither statement was true. Blount approved both false press releases.” Intrusion told the public that 13 companies participated in the fall 2020 beta test for Shield, said the complaint. But only six of the 13 beta testers ultimately purchased Shield, it said. Intrusion and Blount made statements over the course of several months that “misrepresented” the beta testing program, it said. For example, a “written roadshow presentation” that Blount created in October 2020 claimed that Shield had won early adopter “validation” from at least one Fortune 100 company, but “none of the beta testers was a Fortune 100 company,” it said. Intrusion and Blount also misrepresented the company’s success “in converting beta test participants into paying Shield customers,” it said. A January 2021 news release claimed that all the companies participating in the beta program had made the decision to move forward with Shield in production, it said. The disclosure sent Intrusion shares soaring 18% the next trading day, but the disclosure was false, alleged the complaint. During Intrusion’s February 2021 earnings call, Blount stated that 90% of Intrusion’s beta customers “became paying subscribers on the Shield,” it said. The day after the earnings call, Intrusion’s stock price closed at $24.38, up almost 30% from the prior day’s close, and its trading volume increased approximately 629% from the day before, it said. But all the claims regarding Shield’s beta testing success were false and misleading, alleged the complaint. In early 2021, Blount touted interest in Shield from large corporations, “referencing Fortune 100 and 500 companies that were evaluating or testing Shield,” it said. Then in March 2021, he wrote a news release announcing that Customer A had signed an agreement to protect its network using Shield, it said. But the actual terms of that agreement provided for a renewal of an existing contract with Customer A for other Intrusion services, not Shield, said the complaint. The news release referenced Customer A’s 46,000 employees worldwide but didn’t include any information regarding the specific terms of the contract, it said. The complaint names Blount as the sole defendant. It seeks civil penalties against him, plus injunctive relief, preventing him from serving as an officer or director of a public company for an indeterminate amount of time.