The SEC alleges that the company and CEO Michael Metter and another senior executive, Steven Moskowitz produced and distributed dozens of press releases that

- referred to fictional customers- grossly exaggerated sales figures.

In addition, it is alleged, fraudulent returns and other documents were filed with the SEC.

Spongetech sells sponges pre-loaded with soap in a twist on the Brillo-pad idea. But it became clear to regulators that the company's public profile didn't wash.

On 5 October 2009, the SEC suspended trading in the company's stock having decided that the information coming out from the company did not make sense. The SEC says "After flooding the market with the false information to fraudulently inflate the stock price, Metter, Moskowitz, and Spongetech dumped approximately 2,500 million shares by illegally selling them to the public through affiliated entities in unregistered transactions. They spent portions of their illicit profits in highly visible sponsorship deals with professional sports teams to further create the aura that Spongetech was a well-known and prosperous business."

"Spongetech used a menu of manipulative strategies to perpetuate this scheme, including fake sales orders and public statements as well as obstruction of the SEC's investigation," said Robert Khuzami, Director of the SEC's Division of Enforcement. "We will utilize all available means, including referral to criminal authorities, to prosecute those who attempt to thwart our investigations."

Two of Spongetech's former attorneys — Jack Halperin and Joel Pensley — and stock promoter George Speranza are also charged in the SEC's complaint, which was filed in U.S. District Court for the Eastern District of New York. RM Enterprises International Inc., an affiliate through which Spongetech dumped shares, is also charged.

According to the SEC's complaint, after several years of relatively little business with a single customer comprising the bulk of Spongetech's limited sales, Metter and Moskowitz began to paint a more promising and misleading picture of Spongetech's business. Beginning in approximately April 2007, Spongetech issued dozens of phony press releases touting increasingly larger, yet fictitious, sales orders and revenue.

The press releases fraudulently exaggerated the demand for pre-soaped sponges by referencing millions of dollars in sales orders, business and revenue from five primary customers that purportedly accounted for 99 percent of Spongetech's business. Yet none of those customers actually existed.

The SEC's complaint alleges that Metter, Moskowitz, Spongetech, and RM Enterprises used false and baseless attorney opinion letters by Pensley and Halperin to distribute shares of Spongetech to the public. Metter, Moskowitz, and Spongetech also used false and misleading attorney opinion letters — forged in Pensley's name and in the name of a fictitious lawyer, David Bomart — which were transmitted to Spongetech's transfer agents. The SEC further alleges that Speranza created websites and rented unoccupied office space for the fictional customers in an attempt to give them the appearance of substance if enquiries were made.