Former Notre Dame walk-on ‘Rudy’ settles lawsuit with SEC

Daniel "Rudy" Ruettiger.

Daniel "Rudy" Ruettiger.

The businessman known as “Rudy,” the underdog of movie and Notre Dame football fame, has agreed to pay $382,866 to federal regulators to settle claims that he and others engineered a stock fraud scheme involving one of his Las Vegas companies.

The settlement was disclosed Friday when the U.S. Securities and Exchange Commission filed suit in federal court in Las Vegas against Daniel E. Ruettiger (Rudy) and 12 other individuals associated with Ruettiger’s Las Vegas company Rudy Nutrition.

The SEC claims in the suit that Ruettiger and the other defendants grossed more than $11 million in 2008 from a “fraudulent scheme” in which stock of Rudy Nutrition was “pumped and dumped.”

At the same time, the SEC filed consent decrees with Ruettiger and several of the other defendants in which they agreed to settle the lawsuit.

Ruettiger, in his settlement, without admitting or denying the allegations, agreed to pay the $382,866, which consists of disgorgement of his profits of $185,750 from the alleged stock fraud scheme, a civil fine of another $185,750 and interest.

The consent decree also permanently bars Ruettiger from serving as an officer or director of public companies required to file reports with the SEC and bars him from participating in any penny-stock offerings.

Pumping and dumping is a practice in which penny stock promoters falsely tout the financial prospects of a company to drive up its stock price, at which point they then “dump” their own shares by selling them, causing the stock price to collapse and investors to be harmed.

“The misconduct at the heart of this case is a classic pump-and-dump scheme involving a penny stock called Rudy Nutrition,” the SEC lawsuit says. “Daniel ‘Rudy’ Ruettiger — the walk-on football player at Notre Dame who was the subject of the 1993 movie ‘Rudy’ — founded Rudy Nutrition to compete with Gatorade in the sports drink market.

“Although Rudy Nutrition produced, marketed and sold a sports drink in modest quantities, it primarily served as a vehicle for a pump-and-dump scheme,” the lawsuit alleges.

A message for comment was placed with Ruettiger, who also has a motivational speaking business based in Henderson.

Rudy Nutrition is no longer in business.

Lawsuit records show the SEC isn’t the only federal agency Ruettiger has been dealing with — the SEC gave him a $30,000 credit toward his settlement for funds he has already paid to the IRS “in the context of an Internal Revenue Service investigation.”

“Investors were lured into the scheme by Mr. Ruettiger’s well-known, feel-good story but found themselves in a situation that did not have a happy ending,” Scott Friestad, associate director of the SEC’s Division of Enforcement, said in a statement. “The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special.”

The SEC said Rudy Nutrition produced and sold modest amounts of a sports drink called “Rudy” with the tagline, “Dream Big! Never Quit!”

This marketing plan appeared to be an attempt to cash in on Ruettiger’s football heroics made famous in the movie.

Despite being 5-foot-6 and 165 pounds, the determined Ruettiger walked on to the storied Notre Dame team and then endured punishment during practices from larger players.

He played in only one game and sacked the Georgia Tech quarterback on Nov. 8, 1975.

He was famously allowed to play in the closing seconds of that game, with Notre Dame safely ahead and his teammates shouting, “Rudy! Rudy!”

The SEC alleged in Friday’s lawsuit that investors were provided false and misleading statements about Rudy Nutrition in press releases, SEC filings and promotional materials.

For example, a promotional mailer to potential investors falsely claimed that in “a major Southwest test, Rudy outsold Gatorade 2 to 1!”

“Meanwhile, the scheme’s promoters engaged in manipulative trading to artificially inflate the price of Rudy Nutrition stock while selling unregistered shares to investors,” the SEC said in a statement Friday.

The SEC suspended trading and later revoked registration of the stock in late 2008.

According to the SEC’s complaint, Ruettiger was the principal founder and namesake of Rudy Beverage Inc., which he and a college friend ran out of South Bend, Ind. — home of Notre Dame — until October 2007.

That’s when Rocky Brandonisio, a defendant in the lawsuit, became the company’s president and day-to-day business manager. He moved the company’s operations to Las Vegas, where he and Ruettiger lived and where Ruettiger remained CEO.

“During this time, the company struggled financially with few customers, few assets and no profits,” the SEC said in its statement.

The SEC alleged that Ruettiger and Brandonisio brought in an experienced penny-stock promoter, Stephen DeCesare of Las Vegas, to organize a public distribution of company stock in late 2007.

“DeCesare became the primary organizer of the resulting pump-and-dump scheme,” the SEC alleged.

DeCesare also hired a business consultant and disbarred California lawyer, Kevin Quinn, to join in the scheme, the SEC alleged. Quinn is also a defendant in the lawsuit.

The SEC’s complaint alleges the following participated in the scheme:

• Pawel P. Dynkowski, a stock promoter.

• Kevin S. Kaplan, the chief financial officer of Rudy Nutrition.

• Gregg R. Mulholland, a stock promoter.

• Mehmet Mustafoglu, a consultant to Rudy Nutrition.

• Joseph A. Padilla, a stock promoter and former registered representative at broker-dealer Scottsdale Capital Advisors.

• Angelo R. Panetta, a stock promoter.

• Andrea Ritchie, a registered representative at broker-dealer Scottsdale Capital Advisors.

• Chad P. Smanjak, a stock promoter.

• Gary Yocom, a registered representative at broker-dealer Thomas Anthony & Associates.

All the defendants except Dynkowski and Smanjak have settled with the SEC, and litigation against those two continues, the SEC said.

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