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UNITED STATES DISTRICT COURT
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Securities and Exchange Commission, Plaintiff, v. Vector Medical Technologies, Inc., Defendants. |
: : : : : : : : : : : : : : : |
Case No. |
Plaintiff Securities and Exchange Commission ("SEC" or "Commission") alleges that:
1. The Commission brings this action to permanently restrain and enjoin Defendants Vector Medical Technologies, Inc. ("Vector" or the "Company"), Michael H. Salit ("Salit"), James P. Farnell ("J. Farnell"), Michael J. Farnell ("M. Farnell"), David A. Zimmerman ("Zimmerman") and Stanley B. Wasser ("Wasser") (collectively "Defendants") from violating the federal securities laws through their unregistered, fraudulent offerings and sales of securities issued by Vector. From early 1999 through at least April 2000, Defendants raised almost $16 million from approximately 450 investors nationwide by selling Vector's stock through a South Florida, in-house boiler room. Defendants used false offering documents, misleading sales scripts and employed high-pressure sales tactics to induce investors to purchase Vector's stock. Defendants made materially false and misleading representations and omissions regarding Vector's rights to use patented breakthrough transdermal patch technology, its $700 million valuation, that an underwriter had firmly committed to complete an imminent Initial Public Offering ("IPO"), success in Food and Drug Administration ("FDA") testing and that it would not use investors' proceeds to pay sales commissions. Contrary to Defendants' representations and omissions, Vector did not own the rights to use the patented technology, its valuation was baseless, it did not have a firm commitment with its underwriter to take it public and its FDA testing was never successful. Additionally, Salit caused Vector to pay over two million dollars in undisclosed commissions to Defendants J. Farnell, M. Farnell, Zimmerman and Wasser (collectively "Salesmen Defendants") from investors' proceeds. Unless permanently enjoined, Defendants will continue to violate the federal securities laws in the future.
2. Defendant Vector is a developmental stage, biomedical company purportedly focused on the commercial development and marketing of a non-invasive transdermal delivery system for a wide variety of high-density molecular weight drugs, including the delivery of insulin through patches. The Company was incorporated in Florida on March 20, 1998 as Global Medical Technologies, Inc., and in January 1999 it changed its name to Vector. Subsequently, Vector became a Delaware corporation on August 24, 2000 and remains a Delaware corporation in good standing. Vector currently maintains its principal office at 7761 La Mirada Drive, Boca Raton, Florida and a mailing address at P.O. Box 880935, Boca Raton, Florida. Vector has never been registered with the Commission in any capacity.
3. Defendant Salit, age 55, resides in Boca Raton, Florida. Salit is Vector's chairman and chief executive officer ("CEO"). During 1999, Salit was permanently enjoined from violating certain provisions of the federal securities laws.
4. Defendant J. Farnell, age 55, resides in Boca Raton, Florida. J. Farnell served as senior vice-president at Vector from April 1999 through August 2000 and in this capacity he controlled Vector's bank account, oversaw Vector's boiler room, directly solicited investors and received commissions. At various periods from 1988 through 1996, J. Farnell was employed as a registered representative associated with several different registered broker-dealers; however, during Vector's securities offering, J. Farnell was not registered with the Commission or the National Association of Securities Dealers ("NASD") in any capacity.
5. Defendant M. Farnell, age 45, resides in Boca Raton, Florida. From January 1999 through at least April 1999, M. Farnell served as Vector's senior vice-president and in this capacity he controlled Vector's bank account, started Vector's boiler room, hired the unregistered sales agents and received commissions through July 2000. At various periods from 1983 through 1988, M. Farnell was employed as a registered representative associated with several different registered broker-dealers; however, during Vector's securities offering, M. Farnell was not registered with the Commission or the NASD in any capacity.
6. Defendant Zimmerman, age 54, resides in Boca Raton, Florida. Zimmerman served as Vector's sales manager and held the title vice-president of corporate development during Vector's securities offering. Zimmerman has never been registered with the Commission or the NASD in any capacity.
7. Defendant Wasser, age 55, resides in Plantation, Florida. Wasser was Vector's top producing sales agent and held the title vice-president of corporate development. At various periods from 1983 through 1993, Wasser was employed as a registered representative associated with several different registered broker-dealers; however, during Vector's securities offerings Wasser was not registered with the Commission or the NASD in any capacity.
8. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b), 77t(d) and 77v(a), and Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d), 78u(e) and 78aa. These provisions authorize the Commission to seek injunctive relief from the federal district courts and the imposition of civil money penalties for violations of the federal securities laws.
9. Venue is appropriate in the Southern District of Florida. Certain of the acts and transactions constituting violations of the Securities Act and the Exchange Act have occurred within the Southern District of Florida. The principal offices of Defendants are located in the Southern District of Florida, and the individual Defendants all reside in the Southern District of Florida. Defendants have engaged in the acts, transactions, and practices complained of herein within the Southern District of Florida.
10. Defendants, directly and indirectly, have made use of the means and instrumentalities of interstate commerce, the means and instruments of transportation and communication in interstate commerce, and the mails, in connection with the acts, practices, and courses of business complained of herein.
11. Vector's first offering ran from approximately March 1999 through January 2000. During the first offering, Defendants offered and sold Vector's securities via a private placement offering memorandum, dated March 5, 1999 ("PPM-1"), which offered 100 units at $50,000 per unit. Each unit contained 20,000 shares of Vector common stock and 500 Vector common stock purchase warrants. The securities offered and sold via PPM-1 were oversubscribed and Defendants raised over $7.5 million through this offering.
12. Vector's second offering ran from approximately December 1999 through April 2000. During the second offering, Defendants also offered and sold Vector's securities via a private placement offering memorandum dated December 14, 1999 ("PPM-2"), which offered 100 units at $50,000 per unit. Each unit contained 10,000 shares of Vector common stock and 500 Vector common stock purchase warrants. The securities offered and sold via PPM-2 were oversubscribed and Defendants raised over $8 million through this second offering.
13. From early 1999 through at least April 2000, Defendants offered and sold unregistered securities issued by Vector through an in-house, boiler room operation by cold calling medical doctors throughout the nation. During the course of Vector's general solicitation, Defendants raised just under $16 million from approximately 450 investors nationwide. The scheme began no later than January 1999 when Vector's CEO, Salit, contracted the Farnell Financial Group Ltd., Inc. ("Farnell Financial"), an entity controlled by brothers, M. Farnell and J. Farnell, to raise capital for Vector.
14. Shortly thereafter, Salit on behalf of Vector began sending letters to physicians, under the pretext of inviting them to join Vector's medical advisory board to evaluate the company's products. In return, the doctors would allegedly receive 100 shares per year of free stock in Vector for the next two years plus an all expenses paid trip to a South Florida resort hotel each year to attend Vector's annual board meeting. In fact, as Defendants knew, or were reckless in not knowing, the solicitation of "advisory board" members was merely a ruse for "Fronters" (unlicensed sales agents under the control of Salesmen Defendants) to create a list of physicians that "Closers" (Salesmen Defendants and other sales agents under their control) could later contact for a "hard sell." If the Closers completed the deal to sell physician investors Vector's stock, then Defendants Wasser and Zimmerman, the "Loaders", would later push doctors to load up and purchase even more of Vector's stock.
15. Defendants sent Vector's offering materials, which included PPM-1 and PPM-2, to prospective investors who expressed an interest in the "advisory board." The offering materials contained material misrepresentations and omissions concerning, among other things, the company's assets, technology, valuation, use of investor proceeds, FDA testing status and Vector's impending IPO. Additionally, from Vector's in-house boiler room, the Salesmen Defendants and other sales agents they controlled, would orally reiterate and expand upon these misrepresentations when pitching investors. Salit and Vector knew, or were reckless in not knowing, that the Salesmen Defendants were making these false and recklessly exaggerated statements to investors because, among other reasons, Salesmen Defendants were acting as agents of the Company, Salit's actual knowledge of Vector's FDA testing status and his close proximity to the in-house boiler room.
16. Each of the following misrepresentations and omissions concern statements of existing material fact and have been made with the knowledge or at the direction of one or more of the Defendants.
17. As Defendants knew, or were reckless in not knowing, the PPMs misrepresented or materially omitted the amount of sales commissions that Vector paid to the Salesmen Defendants and other members of the sales force. For instance, PPM-1 stated that the units were being "offered and sold by the Company through its management" and that "such individuals will not receive any compensation therefor." PPM-1 also stated that the only commissions that Vector could pay were from stock sales through a registered broker-dealer. No registered broker-dealer was involved in any of Vector's stock sales. PPM-2 similarly omitted to tell investors that Vector would use their proceeds to pay sales commissions. Defendants therefore knew, or were reckless in not knowing, that Vector should not have paid any sales commissions to the Salesmen Defendants and other unlicensed sales agents. Nonetheless, the Salesmen Defendants received over two million dollars in sales commission as Vector paid out sales commissions of up to 25% of the approximately $16 million it raised.
18. Each Defendant knew, or were reckless in not knowing, that Vector was paying undisclosed sales commissions in contravention of the representations made to investors. Defendants Wasser and Zimmerman knew about Vector paying undisclosed commissions as Wasser received approximately $380,000 in undisclosed sales commissions and Zimmerman received approximately $310,000 in undisclosed sales commissions. Defendants J. Farnell and M. Farnell also knew about Vector paying undisclosed commissions as they directed payments of commissions to their sales force, they received direct commissions and had separate compensation arrangements with Vector (which were signed by Salit) that included sales commissions disguised as consulting fees paid directly to entities they controlled. From these arrangements, J. Farnell received approximately $850,000 in undisclosed sales commissions and M. Farnell received approximately $660,000 in undisclosed sales commissions. Additionally, Defendant Salit knew about Vector paying undisclosed sales commissions because, among other reasons, he signed a January 1999 "Letter of Engagement" obligating Vector to pay Farnell Financial an 18% commission on all stock sales.
19. Defendants knew, or were reckless in not knowing, that Vector's unregistered sales agents were given sham titles as "Vice Presidents of Corporate Development." Defendants did so in a futile attempt to create the false impression that Vector's stock sales were being offered and sold through Vector's management even though the sales agents' sole function was to offer and sell Vector's stock.
20. Disbursement of undisclosed sales commissions also resulted in a material misuse of the offering proceeds as represented in PPM-1 and PPM-2. Neither of the PPMs listed the payment of sales commissions as a proper use of offering proceeds. In fact, the PPMs stated that the offering proceeds would be used for product development, clinical trials, working capital, medical technology acquisition, marketing and professional fees. The PPMs failed to disclose that Vector was using a material portion of the offering proceeds to pay selling commissions. Defendants knew, or were reckless in not knowing, that the use of proceeds sections in the PPM's were materially false and misleading because Vector paid sales commissions of up to 25% of the amount raised.
21. Defendants Salit and Vector falsely represented that the Company had secured the exclusive worldwide rights to develop and market a transdermal delivery system for high-density molecular weight drugs, including insulin. For instance, PPM-2 falsely stated that Vector had "a pending patent and trade secrets for its transdermal technology in the United States." Defendants Salit and Vector knew or were reckless in not knowing, that the Company did not hold the proprietary rights to the patent for the transdermal technology as represented to investors because, among other reasons, the U.S. Patent office records indicate that Vector did not hold title to the patent and it had already been assigned to another company.
22. Defendants Salit and Vector misrepresented the FDA testing status of Vector's transdermal technology for the delivery of insulin. For example, PPM-1 falsely stated that "[t]he insulin patch has completed pre-clinical and Phase I of clinical testing in humans successfully." Additionally, PPM-2 falsely stated that Vector was currently sponsoring Phase II clinical trials using its transdermal delivery system for insulin and misrepresented the Company's progress by stating that Vector expected to receive FDA approval for its insulin patch within two years. Defendants Salit and Vector knew, or were reckless in not knowing, that these representations were false because, among other reasons, Vector never successfully completed Phase I, Vector never began Phase II testing and Vector was years and multiple successful clinical trials away from possible FDA approval.
23. Defendants J. Farnell, Wasser and Zimmerman pitched investors about Vector's patch as a "breakthrough transdermal technology" that would make insulin injections for the treatment of diabetes obsolete while generating billions of dollars in revenue for the Company. They also routinely misrepresented the imminent marketability of Vector's transdermal patch. For instance, investors were pitched from sales scripts stating: "[w]e're about to introduce the only transdermal delivery technology in existence capable of handling high-density compounds such as insulin" and "[o]ur patch can successfully deliver … 90% of all prescriptive and non-prescriptive drugs." Additionally, Defendants J. Farnell, Wasser and Zimmerman pitched to investors by reading from sales scripts that contained false representations concerning Vector's revolutionary transdermal technology. These Defendants knew, or were reckless in not knowing, that these statements were materially misleading because, among other reasons, Vector's transdermal technology had never been proven effective on humans.
24. Defendants routinely misrepresented to investors, through PPM-1 and oral misrepresentations, that Vector had a "firm contracted commitment" with a well-known underwriter to conduct an IPO, in December 1999, at $10 or more per share. Salesmen Defendants and other sales agents, reading from sales scripts, also touted the pending IPO story to investors they solicited. As Defendants knew, or were reckless in not knowing, the IPO story was materially false and misleading because Vector never had a firm contracted commitment for an IPO. Vector merely had a non-binding, letter of intent, which contained numerous contingencies to underwrite an IPO by December 1, 1999, from a small broker-dealer. In fact, the IPO never materialized and the broker-dealer went out of business.
25. Even after the December 1999 IPO date lapsed, Defendants J. Farnell, Wasser and Zimmerman made even more egregious misrepresentations by continuing to make false and misleading statements regarding the pending IPO by simply changing the date to the following December.
26. Defendants created a false sense of urgency, by misleading investors that they had to invest quickly or risk missing out on the opportunity to earn millions. However, Defendants knew, or were reckless in not knowing, that there was no reasonable basis for this statement because Vector never had a "firm contracted commitment" from an underwriter to conduct an IPO.
27. Defendants J. Farnell, Wasser and Zimmerman disseminated a materially misleading business valuation summary in connection with the solicitation of prospective investors in the Vector offering. J. Farnell retained a business valuation firm to appraise Vector's current and future fair market value based on numerous assumptions. The purported purpose for the 300-plus-page valuation report was to determine fair market value to serve as a basis for future sale or merger negotiations. However, Defendants J. Farnell, Wasser and Zimmerman used this valuation report for their own nefarious purposes by stripping the report down to just three pages summarizing the valuations (without including the pages of assumptions behind these numbers) and giving it to prospective investors.
28. The three-page valuation summary dated December 17, 1999 was sent to investors by mail and facsimile. It was materially misleading because it did not disclose the underlying assumptions contained in the full 300-plus-page valuation report, only that "management's projections" were "conservative."
29. The summary also stated that, as of October 31, 1999, Vector had a fair market value of approximately $700 million; that, as of December 31, 2002, Vector would have an estimated investment value of $1.5 billion; and that, as of December 31, 2004, Vector would have an estimated investment value of $5.5 billion.
30. Defendants J. Farnell, Wasser and Zimmerman used the misleading valuation summary to lure prospective investors into purchasing stock in the Vector offerings, without disclosing the underlying assumptions upon which the full valuation report was based. For example, under the heading "Assumptions" (not provided to investors) the report stated: "Vector is a nascent company. As such it has no history of sales or profit performance. Our report and its conclusions will be based solely on the hypothetical projections of Vector's management…" Accordingly, by not giving the full report, investors were therefore materially misled as to the valuation summary's basis and reliability.
31. Moreover, given that Vector had no revenues, its transdermal technology was plagued by a clouded title and was far from receiving FDA approval, Vector's valuation was purely speculative and inherently misleading.
32. Salit incorporated Vector in 1998 and has always been its chairman and CEO, which made him responsible for the contents of Vector's offering materials, including PPM-1 and PPM-2. Salit acted as Vector's agent and was instrumental in the scheme as he authorized the distribution of Vector's offering materials to prospective investors, including the PPMs and the Medical Advisory Board invitations that operated as a rouse to snare unwitting physicians into purchasing Vector's securities.
33. Salit was intimately involved in Vector's fundraising efforts, which he launched by contracting with Farnell Financial to raise capital for Vector and signed contracts causing M. Farnell and J. Farnell to receive sales commissions. Nonetheless, Salit failed to disclose that, contrary to the representations in the PPMs regarding the use of offering proceeds and non-payment of sales commissions, Vector paid selling commissions of approximately 25% of the amount raised.
34. Salit was fully aware that the Farnells were operating a boiler room from Vector's offices in Boca Raton, Florida. Indeed, he knew, or was reckless in not knowing, about the in house boiler room as at least two-thirds of the staff occupying Vector's offices were sales agents engaged in the fraudulent offerings and sales of Vector securities. Salit also knew, or was reckless in not knowing, about the misrepresentations and omissions made by the Salesmen Defendants to investors because of the close proximity of the Salesmen Defendants to Salit and the Salesmen Defendants' boisterous activities.
35. Based on the knowledge he gained as CEO of Vector, Salit was fully aware that Vector had not successfully completed Phase I of clinical testing and had not even begun Phase II. Therefore, Salit knew, or was reckless in not knowing, that Vector's offering documents included false and misleading information concerning the FDA testing status.
36. Based on the knowledge he gained as CEO of Vector and as the person most responsible for acquiring the rights to the transdermal technology on behalf of Vector, Salit knew, or was reckless in not knowing, that Vector did not own the rights to the transdermal technology.
37. M. Farnell was hired by Salit on January 4, 1999 to raise capital for Vector pursuant to a letter of engagement providing for a success fee of 18% of the gross proceeds raised. Shortly thereafter, M. Farnell brought in a group of securities telemarketers to Vector's offices and began operating a boiler room selling Vector stock pursuant to PPM-1. M. Farnell was fully aware that the sales agents he hired to staff the boiler room were given titles of "Vice Presidents of Corporate Development", were not registered as broker-dealers and were not associated with any registered broker-dealer. Therefore, M. Farnell knew, or was reckless in not knowing, that based on the representations and omissions in the PPMs, that Vector should not have paid any sales commissions. M. Farnell knew that commissions were being paid because, among other reasons, he received substantial commissions, directed the payment of commissions to other sales agents and controlled Vector's bank account. Despite this knowledge, M. Farnell failed to disclose that, contrary to the representations in the PPMs regarding use of proceeds and non-payment of sales commissions, Vector paid selling commissions of approximately 25% of the amount raised.
38. M. Farnell also wrote the initial sales scripts for PPM-1, which contained material misrepresentations concerning, among other things, Vector's transdermal technology and the impending IPO of Vector's securities at $10 per share. M. Farnell supervised the creation of Vector's medical advisory board that operated as a fraudulent mechanism for the solicitation of the physician investors. M. Farnell was fully aware that when Vector's sales agents contacted the prospective physician investors, they were not told that the true reason was to solicit them to purchase Vector's stock.
39. J. Farnell replaced M. Farnell as Vector's senior vice president and supervisor of the sales department. J. Farnell had extensive investor contact via telephone and facsimile and made numerous misrepresentations and omissions of material fact in connection with the offerings and sales of Vector securities.
40. J. Farnell retained a business valuation firm to provide a valuation report for Vector knowing that he planned to use the valuation summary, which by itself was materially misleading, to sell Vector securities. J. Farnell routinely distributed, and instructed other sales agents to distribute, the false and misleading valuation summary to prospective investors.
41. J. Farnell misrepresented to prospective investors that Vector would be going public at $10 per share, even after December 1999 when the letter of intent had lapsed. J. Farnell falsely represented that Vector's technology far exceeded that of its competitors, when in fact, this comparison was baseless and patently false because Vector's transdermal delivery system had never been proven effective on humans.
42. While soliciting investors to purchase securities in Vector's offerings, J. Farnell failed to disclose that, contrary to the representations in the PPMs regarding use of proceeds and non-payment of sales commissions, Vector paid selling commissions of approximately 25% of the amount raised. M. Farnell knew that commissions were being paid because, among other reasons, he received substantial commissions, directed the payment of commissions to other sales agents and controlled Vector's checkbook.
43. Zimmerman was the sales manager during the Vector offerings. Zimmerman supervised other sales agents and, during July 1999 wrote a memorandum, that J. Farnell and Wasser were copied on, detailing commission splits between Fronters, Closers and Loaders. Zimmerman created sales promotions and contests between the sales agents with bonuses and prizes for the winners. Zimmerman knew that commissions were being paid because, among other reasons, he received substantial commissions and directed contests by which other sales agents received commissions. Despite this knowledge, Zimmerman failed to disclose that, contrary to the representations in the PPMs regarding use of proceeds and non-payment of sales commissions, Vector paid selling commissions of approximately 25% of the amount raised.
44. Zimmerman was also directly involved in sales and had extensive communications by telephone and facsimile with investors. Zimmerman routinely made false and misleading statements of material fact to investors concerning Vector's technology, valuation and imminent IPO.
45. Zimmerman misrepresented to prospective investors that Vector had already begun selling and distributing the insulin patch in China and Eastern Europe where FDA approval was not required. Zimmerman also misrepresented Vector's FDA testing status by telling investors that the clinical trials were just about complete and that Vector was quite successful with the insulin patch, which, in fact, these statements were not true.
46. Zimmerman faxed letters to prospective investors and attached the misleading three-page valuation summary. Zimmerman wrote that the appraisal was "AWESOME!" and that "[t]his appraisal will waltz us into a major Wall Street firm." These statements, together with the valuation summary, were materially false and misleading.
47. Wasser was the leading producer at the Vector securities boiler room. Wasser had extensive telephone and facsimile contact with the physician investors. Wasser, on behalf of Vector, advertised Vector's stock in the Investor's Business Daily newspaper. The advertisement touted pre-IPO positions in a revolutionary medical breakthrough, "The Insulin Patch."
48. In his sales solicitations, Wasser routinely made false and misleading representations of material fact concerning Vector's technology, valuation and proposed IPO. Wasser routinely told prospective investors that Vector had already begun distributing and selling the patch in China and Eastern Europe, when he knew this was not true. Wasser misrepresented to prospective investors the status of Vector's clinical trials by falsely stating that the Company had successfully completed all FDA testing.
49. On or around December 27, 1999, Wasser authored a letter to an investor, that J. Farnell was copied on, falsely stating that a portion of Vector's pre-IPO stock (offered at $5 per share) had been reserved for Vector's existing advisory board members. The letter also falsely stated that Vector anticipated "becoming public during the second quarter and generating strong revenues during 2000. As a result of recent international developments, our investment bankers, anticipates [sic] a potential public offering price between $18-25." Wasser sent the letter to the prospective investor to induce them to purchase Vector's stock while knowing that it was materially false and misleading and had no basis in fact.
50. Wasser knew that commissions were being paid because, among other reasons, he received substantial commissions and knew of contests by which other sales agents received commissions. Despite this knowledge, Wasser failed to disclose that, contrary to the representations in the PPMs regarding use of proceeds and non-payment of sales commissions, Vector paid selling commissions of approximately 25% of the amount raised.
(Against all Defendants)
51. The Commission repeats and realleges paragraphs 1 through 50 of this Complaint.
52. No registration statement was filed or in effect with the Commission pursuant to the Securities Act and no exemption from registration exists with respect to the securities and transactions described herein.
53. From approximately March 1999 through April 2000, Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser, directly and indirectly, have: (a) made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell securities as described herein, through the use or medium of a prospectus or otherwise; (b) carried securities or caused such securities, as described herein, to be carried through the mails or in interstate commerce, by any means or instruments of transportation, for the purpose of sale or delivery after sale; and/or (c) made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise, as described herein, without a registration statement having been filed or being in effect with the Commission as to such securities.
54. By reason of the foregoing, Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser have violated and unless enjoined will continue to violate Sections 5 (a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).
(Against all Defendants)
55. The Commission repeats and realleges paragraphs 1 through 50 of this Complaint.
56. Since approximately March 1999 through April 2000, Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce or by use of the mails, in the offer or sale of securities, as described herein, have knowingly or recklessly employed devices, schemes or artifices to defraud.
57. By reason of the foregoing, Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser have violated and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(1).
(Against all Defendants)
58. The Commission repeats and realleges paragraphs 1 through 50 of its Complaint.
59. From approximately March 1999 through April 2000, Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser, directly or indirectly, by use of the means or instrumentalities of interstate commerce or of the mails, in connection with the purchase or sale of securities have knowingly or recklessly: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (c) engaged in acts, practices and courses of business which have operated, are now operating and will operate as a fraud upon the purchasers of such securities.
60. By reason of the foregoing, Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser have violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240. 10b-5, thereunder.
(Against all Defendants)
61. The Commission repeats and realleges paragraphs 1 through 50 of its Complaint.
62. From approximately March 1999 through April 2000, Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, in the offer or sale of securities, as described herein, have: (a) obtained money or property by means of untrue statements of material facts and omissions to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (b) engaged in transactions, practices and courses of business which are now operating and will operate as a fraud or deceit upon purchasers and prospective purchasers of such securities.
63. By reason of the foregoing, Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser have violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and 77(q)(a)(3).
(Against Salesmen Defendants M. Farnell, J. Farnell, Zimmerman and Wasser)
64. The Commission repeats and realleges paragraphs 1 through 50 of its Complaint.
65. From approximately March 1999 through April 2000, Salesmen Defendants M. Farnell, J. Farnell, Zimmerman and Wasser, directly and indirectly, by use of the mails or any means or instrumentality of interstate commerce, while acting as a broker or dealer engaged in the business of effecting transactions in securities for the accounts of others, effected transactions in securities, or induced or attempted to induce the purchase or sale of securities, without registering as a broker-dealer in accordance with Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b).
66. By reason of the foregoing, Salesmen Defendants M. Farnell, J. Farnell, Zimmerman and Wasser, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1).
(Against Defendants Vector and Salit)
67. The Commission repeats and realleges paragraphs 1 through 50 of its Complaint.
68. From approximately March 1999 through April 2000, Defendants Vector and Salit, through the conduct described herein, have knowingly, willfully or recklessly aided and abetted M. Farnell, J. Farnell, Zimmerman and Wasser in, directly and indirectly, by use of the mails or any means or instrumentality of interstate commerce, while acting as brokers or dealers engaged in the business of effecting transactions in securities for the accounts of others, have been effecting transactions in securities, or induced or attempted to induce the purchase or sale of securities, without registering as broker-dealers in accordance with Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b).
69. By reason of the foregoing, Defendants Vector and Salit have aided and abetted, and unless enjoined, will continue to aid and abet violations by M. Farnell, J. Farnell, Zimmerman and Wasser of Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1).
WHEREFORE, the Commission respectfully requests that the Court:
Declare, determine and find that Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser committed the violations of the federal securities laws alleged herein.
Issue a Permanent Injunction, restraining and enjoining:
Issue an Order requiring Defendants Vector, Salit, M. Farnell, J. Farnell, Zimmerman and Wasser to disgorge all ill-gotten profits or proceeds that they have received as a result of the acts or courses of conduct complained of herein, with prejudgment interest.
Issue an Order directing Defendants Salit, M. Farnell, J. Farnell, Zimmerman and Wasser, to pay civil money penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78(d)(3).
Issue an Order barring Defendant Salit from serving as an officer or director of any public company pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. §78(d)(2).
Issue Orders barring Defendants Salit, M. Farnell, J. Farnell, Zimmerman and Wasser from participation in any offering of a penny stock, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock.
Grant such other and further relief as may be necessary and appropriate.
Further, the Commission respectfully requests that the Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may hereby be entered, or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.
Dated: September ___, 2003
Respectfully submitted,
By: _______________________
Christopher Martin
Regional Trial Counsel
SD Florida Bar No. A5500747
Direct Dial: (305) 982-6386
Terence M. Tennant
Senior Counsel
Florida Bar No. 739881
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
801 Brickell Avenue, Suite 1800
Miami, Florida 33131
Telephone: (305) 982-6300
Facsimile: (305) 536-4154
http://www.sec.gov/litigation/complaints/comp18348.htm
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