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Counsel of Record:
Local Counsel:
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission") alleges: SUMMARY OF THE ACTION 1. Defendants U.S. Funding Corporation, U.S. Funding Company ("U.S. Funding" or the "Company") and Angelica Gwinnett ("Gwinnett") have defrauded investors by selling securities guaranteed to pay a 20% to 25% annual rate of return, when, as a result of large undisclosed commissions and Gwinnett's misappropriation of investor funds, the investments were structured to produce guaranteed losses to the investors. The principal place of business of U.S. Funding Corporation and U.S. Funding Company is 1 University Plaza, Suite 404, Hackensack, New Jersey 07601. Gwinnett resides at 662 Rutgers Place, Paramus, New Jersey 07652. Defendant Capital Concept Marketing, Inc. maintains its principal place of business at 4700 N.W. 2nd Avenue, Suite 303, Boca Raton, Florida 33431. Defendant Charles Fremer resides at 4940 N.W. 108th Terrace, Coral Springs, Florida 33431. 2. U.S. Funding, an accounts receivable factoring business, retained Capital Concept Marketing, Inc. ("CCM"), a telemarketing firm, to solicit investors (primarily through e-mail "spam"). Between October 2001 and April 2002, U.S. Funding raised at least $2 million from approximately 63 investors. Defendants represented that investors' funds were being used to acquire accounts receivable from commercial businesses, and promised that investors would receive 20% to 25% in annual returns plus the return of their principal at the end of the one or two year term, respectively. 3. Unbeknownst to investors, U.S. Funding contracted to pay commissions of 35% to CCM. In addition, Gwinnett misappropriated for her own use at least $300,000 of investor funds, including for a weekend at a Las Vegas casino. As a result, it is financially impossible for investors to earn the promised returns. Instead, investors will lose a substantial portion of their investment. 4. In order to lure investors, U.S. Funding provided potential investors with unaudited financial statements for the nine months ended September 30, 2001, showing substantial assets and revenue for the period. In fact, the Company did not even begin its factoring business until December 2001. AUTHORITY TO BRING THIS ACTION 5. The Commission brings this action pursuant to Sections 20(b) and 20(d) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77t(b) and 77t(d)] and Sections 21(d) and 21(e) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d) and 78u(e)]. JURISDICTION AND VENUE 6. This Court has jurisdiction over this action pursuant to Sections 20(d)(1) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d)(1) and 77v(a)] and Sections 21(d)(3), 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d)(3), 78u(e) and 78aa]. Defendants, directly or indirectly, have made use of the means and instrumentalities of interstate commerce or of the mails in connection with the acts, transactions, practices and courses of business alleged in this Complaint. 7. Venue in this District is proper pursuant to Section 22(a) of the Securities Act [15 U.S.C. §77v(a)] and Section 27 of the Exchange Act [15 U.S.C. §78aa], because certain of the conduct alleged in this Complaint occurred within the District of New Jersey. THE DEFENDANTS 8. Angelica Gwinnett, 41, of Paramus, New Jersey, is the President and CEO of U.S. Funding Corporation. 9. U.S. Funding Corporation, a New Jersey corporation, was incorporated in December 2001. U.S. Funding Corporation previously operated as U.S. Funding Company and U.S. Funding Company LLC, and has also operated under the names Gwinnett Associates and Axiom Capital, Inc. (collectively referred to as "U.S. Funding" or the "Company"). U.S. Funding purports to be in the commercial accounts receivable business - purchasing receivables from businesses at a discount off the face value. While the Company claims to have been in business since 1998, Company records evidence no operations prior to late 2001. 10. Capital Concept Marketing, Inc., a Florida corporation headquartered in Boca Raton, Florida, has been operating since early 2001. CCM provides telemarketing and Internet-based advertising services. CCM was not registered as a securities broker or dealer during the relevant period. 11. Charles Fremer, 52, of Coral Springs, Florida, is the President of CCM. Fremer holds no securities licenses and was not affiliated with a registered securities broker or dealer during the relevant period. FACTUAL ALLEGATIONS The Securities Offering 12. In or around October 2001, U.S. Funding retained CCM to solicit potential investors in the Company. U.S. Funding agreed to pay CCM a 35% commission on all funds raised through CCM's marketing efforts. 13. CCM, directly and through others, solicited investors using bulk e-mail, commonly known as spam. The spam e-mail typically promised investors a rate of return of 45% over two years, fully secured. 14. CCM sent potential investors responding to the spam an offering package that had been provided to CCM by U.S. Funding. The offering package included a description of U.S. Funding's factoring business, unaudited financial statements for the nine months ended September 30, 2001, an Accounts Receivable Purchase Agreement ("Agreement"), and wire transfer instructions. 15. The Agreement promised that U.S. Funding would pay investors 20% to 25% annually, depending on whether the investor made a one-year or two-year investment, respectively. U.S. Funding agreed to return the investor's principal at the end of the pertinent term. 16. Potential investors were instructed to send the completed Agreement to U.S. Funding and to wire transfer funds to U.S. Funding's bank account. 17. U.S. Funding thereafter sent the investor four checks representing the investor's 20% to 25% return on the investment. U.S. Funding post-dated the checks so that they could be cashed over the course of the following year on a quarterly basis. The checks were accompanied by a cover letter representing that the checks represented the return on the investor's investment. 18. U.S. Funding has raised at least $2 million from approximately 63 investors since October 2001. Investor funds were pooled in U.S. Funding's bank accounts. 19. Using investor funds, U.S. Funding acquired its first accounts receivable in December 2001. Between December 2001 and April 2002, U.S. Funding paid approximately $1,000,000 to acquire accounts receivable from at least four separate commercial entities. U.S. Funding typically paid 70% to 80% of the face value of the receivables. 20. No registration statement was filed with the Commission or was in effect with respect to the securities offered by defendants prior to the offer or sale of these securities. Nor was CCM or its president, Charles Fremer, registered as a securities broker or dealer during the relevant period. Defendants' Fraudulent Misrepresentations 21. U.S. Funding and Gwinnett represented that investors' funds would be used to acquire accounts receivable, and that investors were guaranteed 20% to 25% in annual returns, depending on whether their investment was for a one or two-year term, respectively, plus the return of their principal. U.S. Funding and Gwinnett further represented that "[t]here is no additional costs [sic] to [investor] related to the purchase of the accounts receivables stated herein. All expenditures and/or fees needed to facilitate this agreement. . . are paid directly by [U.S. Funding] from [U.S. Funding's] operating bank account." 22. U.S. Funding did not disclose to investors its agreement to pay 35% of the offering proceeds to CCM. U.S. Funding has paid at least $350,000 to CCM since October 2001. 23. Unbeknownst to investors, Angelica Gwinnett has withdrawn at least $300,000 from U.S. Funding's bank accounts, and has paid an additional $13,000 to her fiancé. Among other things, Gwinnett transferred $75,000 of investor funds to her house account at a Las Vegas casino for a weekend of gambling. 24. In total, almost 40% of the money invested in U.S. Funding to date has been paid to U.S. Funding's telemarketers, president, and other third parties. As a result, it is financially impossible for U.S. Funding to pay the promised 20% to 25% return rate to investors. To the contrary, investors are guaranteed to lose a significant portion of their investment. 25. In addition, as part of the offering materials, U.S. Funding (through CCM) provided potential investors with a copy of its unaudited financial statements for the nine-month period ended September 30, 2001. The Company's balance sheet shows $2.3 million in accounts receivable owned by U.S. Funding as of September 30. The income statement shows $495,000 in revenue, $159,000 in expenses (including $40,000 in commissions), and net income of $356,000 for the period. The Company further represented to investors that "U.S. Funding Company has been providing factoring services to small and medium sized business [sic] in New York and New Jersey since 1998." 26. These representations are false. U.S. Funding did not even acquire its first accounts receivable until December 2001. 27. Furthermore, the financial statements provided to investors show that commissions reduced the Company's revenue by 8% for the period ended September 30. In reality, U.S. Funding is contractually obligated to pay a commission rate of 35% of funds raised from investors. 28. Gwinnett and U.S. Funding knew or were reckless in not knowing that the Company's representations to investors were false or misleading. Virtually all of the checks drawn on U.S. Funding's bank accounts were signed by Gwinnett. Gwinnett participated in negotiating the Company's factoring agreements. FIRST CAUSE OF ACTION Violations of Section 17(a) of the Securities Act
29. The Commission incorporates paragraphs 1 through 28 by this reference. 30. Defendants U.S. Funding and Gwinnett have, by engaging in the conduct set forth above, directly or indirectly, in the offer or sale of securities, by the use of means or instruments of transportation or communication in interstate commerce, or of the mails: (a) with scienter, employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or by omitting 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; or (c) engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon the purchasers of such securities. 31. By reason of the foregoing, defendants U.S. Funding and Gwinnett have directly or indirectly violated Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and unless enjoined will continue to violate Section 17(a) of the Securities Act. SECOND CAUSE OF ACTION Violations of Section 10(b) of the Exchange Act and Rule 10b-5
32. The Commission incorporates Paragraphs 1 through 28 by this reference. 33. Defendants U.S. Funding and Gwinnett have, by engaging in the conduct set forth above, directly or indirectly, by use of means or instrumentalities of interstate commerce, or of the mails, or of a facility of a national security exchange, with scienter: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon other persons, in connection with the purchase or sale of securities. 34. By reason of the foregoing, defendants U.S. Funding and Gwinnett, directly or indirectly, violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. §§ 240.10b-5] and unless enjoined will continue to violate Section 10(b) of the Exchange Act and Rule 10b-5. THIRD CAUSE OF ACTION Violations of Section 5(a) and 5(c) of the Securities Act
35. The Commission incorporates paragraphs 1 through 28 by this reference. 36. Defendants, by engaging in the conduct set forth above, directly or indirectly, through use of the means or instruments of transportation or communication in interstate commerce or of the mails, offered to sell or sold securities in the form of investment contracts in its commercial accounts receivable factoring business or carried or caused such securities to be carried through the mails or in interstate commerce, for the purpose of sale or delivery after sale. 37. No registration statement was filed with the Commission or was in effect with respect to the securities offered by defendants prior to the offer or sale of these securities. 38. By reason of the foregoing, defendants have directly or indirectly violated Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)], and unless restrained and enjoined will continue to violate these provisions. FOURTH CAUSE OF ACTION Violations of Section 15(a) of the Exchange Act
39. The Commission incorporates paragraphs 1 through 28 by this reference. 40. Defendants CCM and Fremer, directly or indirectly, through use of the means or instruments of transportation or communication in interstate commerce or the mails, acted as a broker and/or effected transactions in, and induced or attempted to induce the purchase or sale of, securities (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills) without being registered with the Commission in accordance with Section 15(b) of the Exchange Act [15 U.S.C. § 78o(b)]. 41. By reason of the foregoing, defendants CCM and Fremer, directly or indirectly, violated, and unless enjoined will continue to violate, Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)]. FIFTH CAUSE OF ACTION Violations of Section 20(a) of the Exchange Act
42. The Commission incorporates paragraphs 1 through 28 by this reference. 43. By virtue of their stock ownership, agency, course of conduct and/or agreement with themselves and other persons, defendants Gwinnett and Fremer directly or indirectly controlled other persons who violated the provisions of the Exchange Act and rules thereunder. Gwinnett and Fremer are therefore liable under Section 20 of the Exchange Act [15 U.S.C. § 78t] to the same extent as the controlled person for any violations of the Exchange Act. PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that the Court: I. Enjoin each of the defendants from future conduct that violates the provisions of the federal securities laws alleged in this complaint. II. Order defendants to disgorge their ill-gotten gains in an amount according to proof, plus prejudgment interest thereon. III. Order defendants to pay civil money penalties pursuant to Section 20(d)(1) of the Securities Act [15 U.S.C. §77t(d)(1)] and Section 21A of the Exchange Act [15 U.S.C. §78u-1]. IV. Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered, or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court. V. Grant such other and further relief as this Court may deem just, equitable, and necessary. Dated: May 1, 2002 Respectfully submitted, Judith L. Anderson, JA 4939
Attorneys for Plaintiff
Local Counsel: Susan Cassell, SC 8081
http://www.sec.gov/litigation/complaints/complr17503.htm
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