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UNITED STATES DISTRICT COURT
Plaintiff, the United States Securities and Exchange Commission ("Commission"), for its Complaint states as follows: SUMMARY 1. As described in detail below, between approximately September 1997 and October 2000, AlphaCom, Inc. ("AlphaCom"), Robert Snyder ("Snyder") and James Stamp ("Stamp") (collectively, "Defendants") engaged in a scheme in which they raised at least $8.9 million from over 1,000 investors in at least 22 states through the fraudulent offer and sale of securities of AlphaCom by misrepresenting to investors that AlphaCom owned the exclusive rights to novel Internet-related technologies. In reality, and contrary to defendants representations, AlphaCom entered into contingent agreements to acquire and/or share in the ownership of the technologies and failed to make payments totaling $4 million that were necessary to fulfill the agreements. AlphaCom never owned exclusive rights to the technologies. 2. As part of the scheme to defraud, Snyder also misrepresented to investors that their funds would be used for working capital for AlphaCom. Instead, Snyder misappropriated investor funds from AlphaCom's offering to pay $451,000 to buy a house and to lend $500,000 to Gary Kendron ("Kendron"), a long-time personal business associate of Snyder. 3. As President of AlphaCom and signatory to the unfulfilled agreements, Snyder knew that AlphaCom never owned exclusive rights to any Internet-related technology. Stamp was initially reckless in representing to investors that AlphaCom owned the Internet technologies. Later, Stamp learned that AlphaCom did not own the technologies. After learning that his representations were false, Stamp proceeded to complete the sales of AlphaCom's securities without telling investors that AlphaCom did not own the technologies. 4. Defendants, directly and indirectly, have engaged in transactions, acts, practices and courses of business which constitute violations of the securities registration, broker-dealer registration and antifraud provisions of the federal securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)], Sections 10(b), 15(a) and 15(c) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78j(b), 78o(a) and 78o(c)], and Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5]. Snyder and AlphaCom, directly and indirectly, or by aiding and abetting, have engaged in transactions, acts, practices and courses of business which constitute violations of reporting requirements of the federal securities laws set forth in Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 thereunder [15 U.S.C. § 78o(d); 17 C.F.R. §§ 240.15d-1, and 240.15d-13]. There is a reasonable likelihood that, unless permanently restrained and enjoined, Snyder, AlphaCom and Stamp will engage in transactions, acts, practices, and courses of business similar to those described herein. 5. The Commission brings this action pursuant to authority conferred upon it by 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Sections 21(d) and 21(e) of the Exchange Act [15 U.S.C. § 78u(d) and (e)], for an order permanently enjoining Defendants, prohibiting Snyder from acting as an officer or director of any issuer whose securities are registered pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78(l)] or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)], imposing civil penalties on Defendants, and granting other equitable relief against Defendants Snyder and AlphaCom and Relief Defendant Kendron. JURISDICTION 6. This Court has jurisdiction over this action 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], and 28 U.S.C. §1331. 7. Defendants, directly and indirectly, singly and in concert, have made use of the means and instrumentalities of interstate commerce and of the mails in connection with the transactions, acts, practices and courses of business alleged in this Complaint. 8. The transactions, acts, practices, and courses of business alleged in this Complaint occurred in the Northern District of Ohio and elsewhere. DEFENDANTS 9. Robert Snyder. Snyder, age 58, resides in Wadsworth, Ohio. From September 1997 to present, Snyder has been AlphaCom's President and Chief Executive Officer, a member of the Board of Directors, and its majority shareholder. At all relevant times, Snyder continuously offered and sold AlphaCom securities to investors. Snyder never registered as a broker-dealer with the Commission. 10. AlphaCom, Inc. AlphaCom is a company that purported to own Internet technologies. AlphaCom bought the assets of its predecessor, AlphaBeta Communications, in September 1997. As a term of purchase of AlphaBeta's assets, AlphaCom agreed to pay Snyder $200,000 if AlphaCom engaged in a public offering of stock. Snyder formed AlphaCom as a Nevada corporation in December 1997. 11. James Stamp. Stamp, age 60, resides in Norton, Ohio. Stamp is an accountant. Stamp raised at least $1,700,000, directly or indirectly, through the fraudulent offer and sale of AlphaCom securities. Stamp never registered as a broker-dealer with the Commission. RELIEF DEFENDANT 12. Gary Kendron. Kendron, age 52, resides in Barberton, Ohio. Kendron, a long-time personal business associate of Snyder, owns floral wholesale and packaging businesses. Kendron received $500,000 of investor funds from AlphaCom in September 2000 and never repaid AlphaCom, as described in more detail at Paragraphs 42 through 45 below. OVERVIEW 13. AlphaCom stated to investors that it was engaged in the business of developing Internet technology products and selling them through multi-level marketing. AlphaCom represented that it owned exclusive rights to: (1) Network Utilities, or "NU," compression software that was supposed to increase Internet downloading speeds; (2) Very Minimal Shift-Keying, or "VMSK," technology that was supposed to increase the speed of Internet access and the number of wireless modem and cellular telephone calls received or transmitted per cellular tower at any given time; and (3) the Insat Modem, a modem enabling wireless access to the Internet. In reality, AlphaCom did not own exclusive rights to these technologies and had little product to sell. 14. From September 1997 through October 2000, AlphaCom and Snyder continuously told prospective investors that the stock of AlphaCom would become publicly traded in the near future. During this period, AlphaCom, Snyder and Stamp offered and sold AlphaCom common stock to investors based on: (1) their contention that investors should buy the stock before it became publicly traded at a higher price; and (2) their false claims concerning AlphaCom's ownership of NU, VMSK and the Insat Modem, described below. AlphaCom's registration of its common stock was not effective with the Commission until June 30, 2000, and its stock was never publicly traded. THE ALPHACOM OFFERING 15. From at least September 1997 through October 2000, AlphaCom, Snyder and Stamp raised a total of $8.9 million from over 1,000 investors in at least 22 states in the offer and sale of AlphaCom securities. Of the $8.9 million, AlphaCom raised: (1) $2.2 million by selling AlphaCom common stock as part of "units," AlphaCom common stock that had been issued to Snyder or his family, AlphaCom common stock that had been issued to Kendron, and other shares of AlphaCom common stock; (2) $1.7 million by selling AlphaCom promissory notes ("Convertible Notes") that were convertible, and were converted, into AlphaCom common stock upon AlphaCom's registration of AlphaCom common stock; and (3) $5 million by selling shares of AlphaCom common stock for which a registration statement was filed with the Commission. 16. AlphaCom, Snyder and Stamp offered and sold AlphaCom securities through public meetings in Akron and elsewhere, telephone calls with investors, newsletters, and Internet communications throughout the relevant time period. 17. The same class of AlphaCom common stock constituted all or part of each security offered and sold during the AlphaCom offering. 18. The sales of AlphaCom securities occurred on a continuous basis throughout the offering. 19. AlphaCom securities were purchased with personal and cashier's checks. 20. All of the funds raised in the AlphaCom securities offering were to provide general working capital for AlphaCom's business purpose. 21. In the offer and sale of its securities, AlphaCom did not provide financial statements or the equivalent to investors before they invested. 22. AlphaCom did not deliver a statutory prospectus to any investors until September 2000, after they had already invested in AlphaCom's securities. UNREGISTERED SALES OF ALPHACOM SECURITIES 23. Snyder, AlphaCom and Stamp offered and sold shares of AlphaCom common stock and Convertible Notes while no registration statement was filed or in effect with the Commission as to those securities. 24. On July 23, 1999, AlphaCom filed a registration statement with the Commission concerning a self-underwritten offering of 2,800,000 shares of common stock. On June 30, 2000, AlphaCom's registration statement was declared effective. Snyder, AlphaCom and Stamp sold AlphaCom securities before the registration statement was declared effective. MISREPRESENTATIONS IN THE OFFER AND SALE OF ALPHACOM SECURITIES Snyder and AlphaCom's Misrepresentations 25. In the offer and sale of AlphaCom securities, AlphaCom and Snyder misrepresented to investors that AlphaCom owned the exclusive rights to three different Internet-related technologies -- the InSat Modem, NU and VMSK. 26. As founder and President of AlphaCom, Snyder knew that AlphaCom did not own or have exclusive rights to the InSat Modem, NU or VMSK. 27. In 1997, Snyder attempted and failed to obtain the exclusive rights to sell the InSat Modem, a modem that was invented by others and in production prior to AlphaCom's incorporation. 28. In 1998, Snyder attempted and failed to obtain ownership of NU through a contingent joint venture agreement with NU's inventor, Olirund Lafe. AlphaCom never made the payments necessary to obtain ownership of NU under the agreement. Rather, AlphaCom only paid $320,000 of the $1 million that was required. In January 1999, Lafe notified Snyder in writing that he rescinded the joint venture agreement. 29. In December 1999, Snyder signed an agreement to buy VMSK from its inventor, Harold Walker. The agreement was contingent upon AlphaCom paying Walker $500,000 within 30 days of completion of AlphaCom's public offering of stock pursuant to AlphaCom's registration statement filed with the Commission, and another $2.5 million within 60 days after that payment, for a total of $3 million. In October 2000, AlphaCom failed to fulfill its obligations under the agreement, having paid Walker only $500,000 of the required $3 million. In October 2000, Walker notified Snyder and AlphaCom that the agreement was terminated. 30. Snyder knew that AlphaCom had no significant assets other than its purported ownership of the Internet technologies described above. 31. In the offer and sale of AlphaCom securities, AlphaCom and Snyder misrepresented to investors that their funds would be used as working capital in AlphaCom's business. Instead of using investors' funds for AlphaCom's business, Snyder paid himself a total of $451,000 to buy a house in May and August 2000 and paid his long-time personal business associate, Kendron, $500,000 in September 2000 from proceeds of the sales of AlphaCom common stock. In furtherance of the fraudulent AlphaCom offering, Snyder also paid himself a salary and "interest" on his stock sales. Stamp's Misrepresentations 32. In the offer and sale of AlphaCom securities, Stamp misrepresented to investors that AlphaCom owned the exclusive rights to NU and VMSK. Initially, Stamp's representations were made recklessly because he had no basis other than Snyder's assertion for those representations. Stamp knew that Lafe and Walker, not Snyder, had invented NU and VMSK, respectively. Stamp, however, did not do anything to verify whether AlphaCom actually acquired any ownership rights to those technologies from either Lafe or Walker. 33. During January through May 2000, Stamp learned that AlphaCom did not own NU or VMSK. In January or February 2000, AlphaCom's Chief Officer of Operations informed Stamp that there was no joint venture between Lafe and AlphaCom. In early February 2000, Stamp wrote an e-mail to Snyder stating, "I [Stamp] don't know if we will ever have NU." In February or March 2000, two former agents of AlphaCom told Stamp that they learned from Walker that AlphaCom did not own VMSK. In May 2000, an AlphaCom officer also informed Stamp that AlphaCom did not own VMSK. Stamp, however, did not disclose these facts to investors to whom he offered and sold AlphaCom stock. Stamp completed the sales of AlphaCom stock by subsequently delivering over one million dollars in investor funds to AlphaCom's offices by July 2000. SNYDER AND STAMP ACTED AS UNREGISTERED BROKER-DEALERS 34. Snyder and Stamp offered and sold AlphaCom securities to investors as described above. 35. Snyder and Stamp engaged in the business of effecting transactions in securities for the accounts of others by soliciting investors, making representations about the investments to investors, processing documents needed to effect the purchases of the investments and processing investors' funds. As described above, Snyder received compensation for his efforts in connection with the sale of AlphaCom securities. Snyder also told Stamp that he would receive commissions for selling AlphaCom securities, but failed to pay him. Stamp sold AlphaCom securities, in part, because he expected to receive commissions for each of his sales. 36. At the time that they offered and sold the AlphaCom securities, Snyder and Stamp were not registered with the Commission as broker-dealers and had not obtained the necessary regulatory approval to sell securities as properly licensed associated persons of registered broker-dealers. ALPHACOM'S PERIODIC REPORTING FAILURES 37. AlphaCom filed a registration statement with the Commission that was declared effective pursuant to the Securities Act on June 30, 2000. 38. During all relevant times after June 30, 2000, AlphaCom has had over 300 shareholders of record. 39. AlphaCom filed with the Commission its Annual Report on Form 10-K for the Fiscal Year ended December 31, 2000, without required audited financial statements. 40. AlphaCom has not filed any quarterly, annual, or periodic reports with the Commission since April 2001. 41. As AlphaCom's President, Snyder caused AlphaCom to file with the Commission a Form 10-K for the Fiscal Year ended December 31, 2000, without audited financial statements, and signed the form. Snyder also failed to have AlphaCom file periodic reports with the Commission since April 2001. RELIEF DEFENDANT 42. Kendron received AlphaCom investor funds to which he has no legitimate claim. 43. In September 1998, Kendron received $500,000 of investor funds. AlphaCom's Chief Financial Officer had AlphaCom's attorneys prepare a note that required Kendron to pay $500,000 and interest back to AlphaCom within a year. Instead of signing that note, Kendron, with Snyder's consent, prepared a non-recourse note. He secured the note with no collateral other than 100,000 shares of restricted AlphaCom common stock, which were of minimal value. Under the terms of the note revised by Kendron, transfer of the AlphaCom shares constituted payment in full in the event of default. 44. Neither Snyder nor any other officer of AlphaCom approached Kendron to repay the loan at any time between its execution date and maturity date. 45. Kendron never repaid the $500,000 to AlphaCom. COUNT ONE Violations of Sections 5(a) and 5(c) of the Securities Act. [15 U.S.C. §§ 77e(a) and 77e(c)] 46. Paragraphs 1 through 45 are realleged and incorporated by reference. 47. The investments described herein, namely the securities described in Paragraphs 15 through 24, constitute "securities" within the meaning of Section 2(1) of the Securities Act [15 U.S.C. § 77b(1)] and Section 3(a)(10) of the Exchange Act [15 U.S.C. § 78c(a)(10)]. 48. As described in Paragraphs 15 through 24 above, the sales of AlphaCom securities by Snyder, AlphaCom and Stamp were not registered in accordance with the provisions of the Securities Act, and no exemption from registration is available for these securities transactions. 49. At the relevant times alleged in this Complaint, Defendants Snyder, AlphaCom and Stamp, directly and indirectly, made use of the means or instruments of transportation or communication in interstate commerce or of the mails, to sell or offer to sell securities through the use or medium of a prospectus or otherwise, and carried such securities or caused them to be carried through the mails or in interstate commerce by the means or instruments of transportation for the purpose of sale or delivery after sale, while no registration statement was filed or in effect as to those securities. 50. By reason of the activities described in Paragraphs 46 through 49 above Defendants Snyder, AlphaCom and Stamp have violated Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)]. COUNT TWO Violations of Section 17(a)(1) of the Securities Act.
51. Paragraphs 1 through 45 are realleged and incorporated by reference herein. 52. At the times alleged in this Complaint, Defendants Snyder, AlphaCom and Stamp, in the offer or sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, directly or indirectly, have employed devices, schemes or artifice to defraud, all as more fully described in Paragraphs 1 through 45 above. 53. In the offer and sale of AlphaCom securities described above in Paragraphs 1 through 45 and as part of the scheme to defraud, Defendants Snyder and AlphaCom have made false and misleading statements of material fact and have omitted to state material facts to investors and prospective investors regarding, among other things: 1) AlphaCom's ownership of NU and VMSK, 2) AlphaCom's exclusive right to sell InSat Wireless Modem and 3) the use of proceeds of the AlphaCom securities offering, all as more fully described above in Paragraphs 25 through 31 above. 54. Defendants Snyder and AlphaCom knew or were reckless in not knowing the facts and circumstances described in Paragraph 53 above. 55. In the offer and sale of AlphaCom securities described above in Paragraphs 1 through 45 and as part of the scheme to defraud, Defendant Stamp made false and misleading statements of material fact or omitted to state material facts to investors and prospective investors regarding, among other things, AlphaCom's ownership of NU and VMSK, as more fully described above in Paragraphs 32 and 33 above. 56. Defendant Stamp knew or was reckless in not knowing the facts and circumstances described in Paragraph 55 above. 57. By reason of the activities described in Paragraphs 51 through 56 above, Defendants Snyder, AlphaCom and Stamp have violated Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)]. COUNT THREE Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act.
58. Paragraphs 1 through 45 are realleged and incorporated by reference herein. 59. At the times alleged in this Complaint, Defendants Snyder, AlphaCom and Stamp, in the offer or sale of securities described above in Paragraphs 1 through 45 by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly or indirectly, have obtained money or property by means of untrue statements of material facts and have 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; and have engaged in transactions, practices or courses of business which operated or would operate as a fraud and deceit upon the purchaser as more fully described in Paragraphs 1 through 45 above. 60. By reason of the activities described in Paragraphs 58 and 59 above, Defendants Snyder, AlphaCom and Stamp have violated Section 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(2) and 77q(a)(3)]. COUNT FOUR Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
61. Paragraphs 1 through 45 are realleged and incorporated by reference as if set forth fully herein. 62. At the times alleged in the Complaint, Defendants Snyder, AlphaCom and Stamp in connection with the purchase and sale of securities described above in Paragraphs 1 through 45, by the use of the means and instrumentalities of interstate commerce and of the mails, directly and indirectly, have employed devices, schemes or artifice to defraud; have made untrue statements of material facts or have 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 have engaged in acts, practices or courses of business which have operated or would operate as a fraud or deceit upon persons as more fully described in Paragraphs 1 through 45 above. 63. Defendants Snyder, AlphaCom and Stamp knew or were reckless in not knowing of the activities described in Paragraph 62 above. 64. By reason of the activities described in Paragraphs 61 through 63 above, Defendants Snyder, AlphaCom and Stamp 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] promulgated thereunder. COUNT FIVE Violations of Section 15(a) of the Exchange Act.
65. Paragraphs 1 through 45 are realleged and incorporated by reference herein. 66. At the times alleged in this Complaint, Defendants Snyder and Stamp, as more fully described in Paragraphs 34 through 36 above, have been in the business of effecting transactions in securities for the accounts of others; and have been in the business of buying and selling securities for their own accounts through a broker or otherwise. 67. Defendants Snyder and Stamp have made use of the mails or the means or instrumentalities of interstate commerce to effect transactions in and to induce or attempt to induce the purchase or sale of securities, as more fully described in Paragraphs 16 and 34 through 36 above. 68. At the times alleged in this Complaint, Defendants Snyder and Stamp were not registered with the Commission as a broker or dealer, as required by Section 15(b) of the Exchange Act [15 U.S.C. §78o(b)], as more fully described in Paragraph 36 above. 69. By reason of the activities described in Paragraphs 65 through 68 above, Defendants Snyder and Stamp violated Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)]. COUNT SIX Violations of Section 15(c) of the Exchange Act.
70. Paragraphs 1 through 45 are realleged and incorporated by reference herein. 71. At the times alleged in this Complaint, Defendants Snyder and Stamp each acted as a broker or dealer, as more fully described in Paragraphs 34 and 35 above. 72. At the times alleged in this Complaint, Defendants Snyder and Stamp, acting as brokers or dealers, have made use of the mails and means and instrumentalities of interstate commerce to effect transactions in and to induce or attempt to induce the purchase or sale of securities, otherwise than on a national securities exchange of which they were members, by means of manipulative, deceptive or other fraudulent devices or contrivances, as more fully described in Paragraphs 1 through 45 above. 73. Snyder and Stamp knew, or were reckless in not knowing, of the activities described in Paragraph 72 above. 74. By reason of the activities described in Paragraphs 70 through 73 above, Defendants Snyder and Stamp violated Section 15(c) of the Exchange Act [15 U.S.C. §78o(c)]. COUNT SEVEN Violations of Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 thereunder.
75. Paragraphs 1 through 45 are realleged and incorporated by reference herein. 76. AlphaCom filed a registration statement with the Commission which became effective pursuant to the Securities Act on June 30, 2000. 77. During all relevant times, AlphaCom has had over 300 shareholders of record at the beginning of each fiscal year since the effective date of its registration statement. 78. AlphaCom filed with the Commission its Annual Report on Form 10-K for the Fiscal Year ended December 31, 2000 without required audited financial statements. 79. AlphaCom has not filed any quarterly or annual reports with the Commission since April 2001. 80. AlphaCom, through Defendant Snyder, directly and indirectly, filed with the Commission an annual report on Form 10-K for the year ended December 31, 2000, that was not in accordance with such rules and regulations the Commission has prescribed as necessary or appropriate in the public interest and for the protection of investors, and, since April 2001, has failed to file annual and quarterly reports required by Rules 15d-1 and 15d-13 under the Exchange Act. 81. By reason of the activities described in Paragraphs 37 through 41 and 75 through 80 above, Defendant AlphaCom violated, and Defendant Snyder aided and abetted AlphaCom's violations of, Section 15(d) of the Exchange Act [15 U.S.C. §78o(d)] and Rules 15d-1 and 15d-13 thereunder [17 C.F.R. 240.15d-1; 17 C.F.R. 240.15d-13]. RELIEF REQUESTED WHEREFORE, the Plaintiff respectfully requests that the Court: I. Find that Snyder, AlphaCom and Stamp committed the violations alleged above. II. Issue Orders of Permanent Injunction, in forms consistent with Rule 65(d) of the Federal Rules of Civil Procedure, restraining and enjoining:
III. Issue an Order pursuant to Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)] prohibiting Defendant Snyder, permanently and unconditionally, from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78(l)] or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)]. IV. Issue an Order requiring Defendants Snyder and AlphaCom and Relief Defendant Kendron to disgorge any and all ill-gotten gains (including prejudgment interest). V. Impose civil penalties against Defendants Snyder, AlphaCom and Stamp in accordance with Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78(u)(d)(3)]. VI. 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. VII. Issue Orders for such further relief as the Court may deem appropriate.
Dated: July __, 2003 http://www.sec.gov/litigation/complaints/comp18228.htm
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