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Edwin H. Nordlinger (EN-6258)
UNITED STATES DISTRICT COURT
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SECURITIES AND EXCHANGE COMMISSION, v. SYNDICATED FOOD SERVICE INTERNATIONAL, INC.,
Defendants. |
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04 Civ. ________ COMPLAINT |
Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against defendants Syndicated Food Service International, Inc. ("Syndicated"), Nick Pirgousis ("Pirgousis"), Frank Dolney ("Dolney"), William Brown ("Billy Brown"), Gary Todd ("Todd"), Mario Casias ("Casias"), Delta Asset Management Company, LLC ("Delta"), William Keeler ("Keeler"), William Scott ("Scott"), Iain H.T. Brown ("Iain, Jr."), Iain Brown ("Iain, Sr."), Fidra Holdings Ltd. ("Fidra"), Jeffrey Richardson ("Richardson"), Peter Moulinos ("Moulinos"), Michelle Kramish Kain ("Kain"), Joseph Ferragamo ("Ferragamo"), Adam Klein ("Klein"), Christopher Quintana ("Quintana"), and Thomas Tanis ("Tanis") (collectively, the "Defendants"), alleges as follows:
1. From at least June 1997 through February 2003, Pirgousis and Dolney orchestrated a massive broker bribery scheme involving the stock of nine public companies, including Syndicated. Through the use of domestic and offshore nominee brokerage accounts, Pirgousis and Dolney sold stock surreptitiously into the public market for personal gain and paid undisclosed kickbacks (often in the form of stock and cash) to boiler rooms responsible for selling the stock to the public. To conceal their control over large blocks of Syndicated stock, Pirgousis and Dolney also filed false and misleading periodic reports with the Commission on Syndicated's behalf and failed to file disclosures with the Commission identifying the stock they beneficially owned.
2. During the relevant period, Pirgousis and Dolney profited by more than $10 million from their sales of Syndicated stock and by millions more from their sales of stock in the other eight companies.
3. In total, investors lost more than $26 million as a result of the broker bribery scheme involving the stock of the nine public companies.
4. Pirgousis and Dolney principally used the Staten Island, New York branch office of Delta ("Staten Island Branch"), a registered broker-dealer, to sell their stock to the public during the period 2001 through the beginning of 2003, and a New York, New York branch office of LH Ross & Company, Inc. ("LH Ross Branch"), a registered broker-dealer, during 1999 and 2000. Billy Brown and Gary Todd controlled the Staten Island Branch, and Quintana and others controlled the LH Ross Branch. Casias was a registered representative at the Staten Island Branch, and Ferragamo and Klein were registered representatives at the LH Ross Branch. Billy Brown, Todd, Casias, Ferragamo, and Klein received undisclosed kickbacks from Pirgousis and Dolney.
5. Keeler, a former officer of Syndicated, and Scott, a former director of Syndicated, among other things, signed Syndicated's periodic filings with the Commission that contained material misrepresentations and omitted material facts.
6. During the relevant period, Moulinos and Kain, both attorneys, prepared Syndicated's periodic filings with the Commission that contained material misrepresentations and omitted material facts.
7. Iain, Sr. and Iain, Jr. controlled the operations of Fidra, an offshore entity used by Pirgousis and Dolney to further the undisclosed kickback scheme.
8. Richardson, a former stock trader at Sierra Brokerage Services Inc., executed manipulative stock trades at the direction of Pirgousis and others.
9. All of the Defendants except for Tanis, directly or indirectly, have engaged in transactions, acts, practices and courses of business which constitute violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)], and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. In addition, Pirgousis, Dolney, Iain, Jr., and Iain, Sr., directly or indirectly, have engaged in transactions, acts, practices and courses of business which constitute violations of Sections 13(d) and 16(a) of the Exchange Act [15 U.S.C. §§ 78m(d) and 78p(a)] and Rules 13d-1, 13d-2 and 16a-3 thereunder [17 C.F.R. 240.13d-1, 240.13d-2, and 240.16a-3]. Syndicated, directly or indirectly, has engaged in transactions, acts, practices and courses of business which constitute violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R. 240.12b-20, 240.13a-1, and 240.13a-13]. Pirgousis and Keeler, as control persons of Syndicated pursuant to Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)], directly or indirectly, have engaged in transactions, acts, practices and courses of business which constitute violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R. 240.12b-20, 240.13a-1, and 240.13a-13]. Additionally, Tanis, as a control person of Syndicated pursuant to Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)], directly or indirectly, has engaged in transactions, acts, practices and courses of business which constitute violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1, 13a-13, and 13a-14 thereunder [17 C.F.R. 240.12b-20, 240.13a-1, 240.13a-13, and 240.13a-14].
10. Unless restrained and enjoined by this Court, the Defendants will continue to engage in the transactions, acts, practices, and courses of business described herein, and in transactions, acts, practices, and courses of business of a similar type and object. By this action, the Commission seeks permanent injunctive relief, disgorgement, officer and director bars, penny stock bars, and civil penalties.
11. The Commission brings this action pursuant to Sections 20(b), 20(d), 20(e), and 20(g) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), 77t(e), and 77t(g)] and Sections 21(d) and 21(e) of the Exchange Act [ 15 U.S.C. §§ 78u(d) and 78u(e)].
12. This Court has jurisdiction of 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), 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
13. In connection with the transactions, acts, practices, and courses of business described in this complaint, each of the Defendants, directly or indirectly, has made use of the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange. Certain of the transactions, acts, practices, and courses of business alleged herein occurred within this District, and venue is proper pursuant to Section 22(a) of the Securities Act and Section 27 of the Exchange Act.
14. Syndicated is a Florida corporation with its home office in Virginia and business operations currently located in North Carolina and Indiana. Syndicated's common stock has been registered with the Commission pursuant to Section 12(g) of the Exchange Act since 1999. Its stock traded over the counter on the OTC Bulletin Board from 1997 through at least March 2002, and presently trades on the Pink Sheets. Prior to a merger in November 2001, Syndicated was known as Floridino's International Holdings, Inc. and principally operated family-style Italian restaurants in New York and Florida. Syndicated did not timely file its annual reports for the years ended December 31, 2001 and December 31, 2002, and its quarterly reports for the period January 2003 through September 2003. It has failed to file quarterly reports for 2002. On or about October 14, 2003, Syndicated's new management, led by Tanis, filed one 685-page annual report for the years ending December 31, 2001 and December 31, 2002.
15. Nick Pirgousis, age 47, is a resident of New York, New York. Pirgousis served as Chairman of Syndicated from January 1999 until February 2002. Pirgousis controlled a number of corporate nominees, including Rockets Red Glare, Inc. ("Rockets"), Artifaqs, Inc. ("Artifaqs"), and Raffles Toho Inc. ("Raffles") (collectively, the "Pirgousis entities"), through which he engaged in Syndicated stock transactions.
16. Frank Dolney, age 45, is a resident of Eagle Lake, Florida. During the period January 1999 to June 2002, Dolney acted as a Director, Treasurer and Secretary of Syndicated. Dolney, along with Pirgousis, controlled Fidra, a Bahamian entity that traded heavily in Syndicated stock during the relevant period. Dolney also traded Syndicated stock during 2001 through nominee accounts.
17. William Keeler, a resident of Florida, was Syndicated's Chief Executive Officer from November 1999 until his removal from the position in March 2002.
18. William Scott, age 60, is a certified public accountant licensed in Florida and New Jersey. Scott was a director of Syndicated from March 1999 to November 2001. Scott prepared various books and records for the Pirgousis entities on a regular basis, and prepared financial statements for Syndicated and its auditors concerning Syndicated's New York restaurant operation, which the company later transferred to Pirgousis in a sham transaction in 2001. Scott signed one Form 10-K on behalf of Syndicated without ever reading the filing and signed backdated minutes of Syndicated's board of directors meetings at a time when he was no longer a Syndicated director. Scott also prepared the taxes for Pirgousis' nominees and the Pirgousis entities. Scott also traded in Syndicated in 2001 at Pirgousis' direction.
19. Peter Moulinos, age 35 and an attorney who resides in New York, New York, prepared Syndicated's Commission filings during the period 1999 through the fall of 2000.
20. Michelle Kain, age 49 and an attorney who resides in Fort Lauderdale, Florida, prepared Syndicated's Commission filings during a portion of 2000 and throughout most of 2001. In addition, Kain prepared a Form 13D on behalf of Almond Resources Ltd., an entity owned and controlled by Iain Brown, Sr., in July 2001.
21. Thomas Tanis, age 50 and a resident of Alpharetta, Georgia, is a director and the current CEO of Syndicated. Tanis became associated with Syndicated in 2002 after Pirgousis resigned as the company's Chairman.
22. Delta Asset Management Company, LLC is a registered broker-dealer with offices in Boca Raton, Florida, Mineola, New York ("Mineola Branch"), and Staten Island, New York. During the fall of 2001, the Staten Island Branch retailed more than 1.99 million shares of Syndicated purportedly free-trading stock to its clients. The Staten Island Branch also raised more than $2 million in a private placement of Syndicated stock to the public. During 2001, Delta's home office was located in South Carolina until December 2001, when the home office moved to the Mineola Branch.
23. William Brown, age 64, resides in New York, New York. Billy Brown opened the office of supervisory jurisdiction for the Staten Island Branch in October 2000. Billy Brown was formerly a registered representative; however, on June 29, 2001, the NASD prohibited Billy Brown from associating with any member firm until he complied with an arbitration judgment awarded in April 2001. Billy Brown has not complied with the judgment. In February 2003, Billy Brown consented with the NASD to a permanent bar from associating with any broker-dealer.
24. Gary Todd, age 48, resides in New York, New York. Todd managed the Staten Island Branch as an undisclosed principal with Billy Brown.
25. Mario Casias, age 33 and a resident of Bayonne, New Jersey, was a registered representative at the Staten Island Branch who recommended Syndicated stock to Delta customers during 2001. Casias made numerous misrepresentations to clients in an effort to entice purchases of Syndicated stock, and he received undisclosed kickbacks for selling Syndicated stock to investors.
26. Fidra Holdings Ltd., a Bahamian entity formed in 1997, is managed by Iain, Sr. and Iain, Jr. The entity conducts investment activity and was controlled by Pirgousis and Dolney during the relevant period. Since its inception, Fidra traded large volumes of Syndicated stock at Pirgousis' direction.
27. Iain Brown, a Canadian citizen and a resident of Nassau, Bahamas, is the president of Fidra. Iain, Sr. also formed Almond Resources, Ltd. ("Almond"), which he wholly owns, and Hynford Holdings Ltd., Bahamian-based investment companies. These two entities held large amounts of Syndicated stock. In addition, Fidra and Almond purportedly loaned more than $3 million to Syndicated from 1998 through 2002.
28. Iain H.T. Brown, the son of Iain, Sr., assists his father with Fidra's business, and is also a resident of the Bahamas. He is a Canadian citizen, and a former stockbroker in Canada. From 1998 through 2002, Iain, Jr. placed hundreds of stock trades through various brokerage accounts in the United States and Canada at Pirgousis' direction. Iain, Jr. controls Chivas Holdings, Ltd. ("Chivas"), a Bahamian company which received 500,000 shares of Syndicated stock in 1999 and sold Syndicated stock in the public market in 2001 and early 2002.
29. Jeffrey Richardson, age 44 and a resident of Columbus, Ohio, was a registered representative and the president, part-owner, and head trader of Sierra Brokerage Services Inc. ("Sierra"), an Ohio-based broker-dealer. Pirgousis, Dolney, and Todd controlled numerous brokerage accounts at Sierra. Richardson filed Syndicated's Form 15c2-11 in November 1997. From November 1997 through July 2002, Richardson acted as a market maker in Syndicated stock. The NASD permanently barred Richardson on October 16, 2003 for unlawfully engaging in unregistered distributions of stock through Sierra during the fall of 2001.
30. Christopher Quintana, age 32 and formerly a registered representative, is a resident of Freehold, New Jersey. Quintana's birth name is Quentin Quintana. During at least 1999 through 2000, Quintana was a principal of the LH Ross Branch. During that time, Quintana was not a registered representative. Quintana received undisclosed kickbacks from Pirgousis and Dolney for selling various securities through the LH Ross Branch.
31. Joseph Ferragamo, age 34, is a resident of New York, New York. Ferragamo was a representative with the LH Ross Branch in 1999 and 2000. Ferragamo received undisclosed kickbacks for selling stock while at the LH Ross Branch.
32. Adam Klein, age 26, is a resident of New York, New York. Klein was a representative with the LH Ross Branch in 1999 and 2000. Klein received undisclosed kickbacks for selling Syndicated stock while at the LH Ross Branch.
33. In 1997, Dolney and Pirgousis conducted a Regulation D (Rule 504) offering ("504 Offering") of Syndicated securities. Syndicated completed the offering in July 1997 and, in total, issued 500,000 shares of common stock and 900,000 warrants to nineteen investors. However, the 504 Offering, which purportedly raised $100,000 in capital from the nineteen purportedly "accredited investors," was a sham designed to benefit Pirgousis and Dolney.
34. Pirgousis and Dolney took control of the 504 Offering and issued all of the 504 Offering securities to their nominees, many of whom were relatives of Pirgousis. Indeed, the 504 Offering nominees did not complete any offering documentation in connection with the 504 Offering; Pirgousis compensated many nominees for acting as his nominees; Pirgousis later instructed the nominees to sign stock powers when Pirgousis needed to transfer 504 Offering stock (and, on occasion, Pirgousis even forged signatures himself); and Pirgousis used nominee bank accounts under his control to pay Syndicated the money raised during the 504 Offering. In short, Pirgousis and Dolney maintained control over the stock and warrant certificates at all times. By August 1997, Pirgousis and Dolney controlled all of the equity issued in the 504 Offering.
35. Scott, who eventually became a director of Syndicated, was a Pirgousis nominee in the 504 Offering, and he received compensation for acting as a nominee. Dolney and Pirgousis were promoters of Syndicated in 1997 and they received additional, restricted Syndicated stock through two entities as compensation for conducting the 504 Offering.
36. In September 1997, to benefit financially from their 504 Offering activities, Dolney and Pirgousis solicited Richardson to file a Form 15c2-11 ("Form 211") with the NASD to initiate public trading in Syndicated's common stock. Richardson, through Sierra, prepared the Form 211 and filed it with the NASD on September 23, 1997.
37. The Form 211 filed by Richardson contains numerous misrepresentations. For example, in the Form 211, Richardson stated that he filed the Form 211 after "Michael Floridino [a founding director and officer of Syndicated] saw [his] name as a market maker and contacted [him]." This statement was false. In fact, Dolney requested that Richardson file the Form 211. Richardson made this false statement to conceal Doleny's and Pirgousis' involvement with Syndicated.
38. Syndicated began trading on the OTC Bulletin Board in November 1997. By that time, Pirgousis and Dolney controlled all of Syndicated's purportedly free-trading stock (500,000) and outstanding warrants (900,000), and 50,000 restricted Syndicated shares (or a total of 22% and 100% of the company's outstanding stock and warrants, respectively).
39. Dolney and Pirgousis caused the restricted shares that were not under their direct control to be locked up for three years.
40. In June and July 1999, Pirgousis and Dolney conducted a second Regulation D (Rule 505) offering ("505 Offering") of Syndicated securities, purportedly to raise $1 million in capital. As with the 504 Offering, the 505 Offering was a sham. Pirgousis again utilized various nominees to conceal his control over the 505 Offering stock. In fact, Pirgousis, through Artifaqs and Raffles, received 1.5 million of the 2 million shares offered in the 505 Offering. Iain, Jr. (through Chivas) received the remaining 500,000 shares.
41. In connection with the 505 Offering, Syndicated issued 2 million shares of common stock to three entities: Chivas (500,000 shares), Artifaqs (598,000 shares), and Raffles (902,000 shares). Each of the entities entered into written stock purchase agreements in connection with the 505 Offering. Moulinos, Syndicated's then-outside counsel, prepared the stock purchase agreements concerning the offering.
42. Minutes describing a June 1999 Syndicated board of director's meeting, signed by Dolney, Pirgousis, and Scott, lists the issuance of stock to Chivas, Artifaqs, and Raffles. Dolney and Scott knew, or recklessly disregarded, at the time that Pirgousis controlled Raffles and Artifaqs.
43. From 1997 through the first quarter of 2002, Pirgousis and Dolney used Fidra to sell a large portion of stock into the public market and to pay brokers undisclosed kickbacks for selling their stock to the public.
44. Iain, Sr. and Iain Jr., who handled Fidra's day-to-day operations, acted upon Pirgousis' instruction to buy, sell, transfer and deposit stock, including Syndicated stock, through accounts held in Fidra's name. Iain, Sr. and Iain, Jr. reviewed Fidra's brokerage and bank statements regularly. Iain, Sr. and Iain, Jr. also provided Pirgousis with signed, blank checks drawn on bank accounts held in Fidra's name, and Pirgousis distributed those checks to his nominees and others at his own discretion. Iain, Sr. and Iain, Jr. knew, or recklessly disregarded, that Pirgousis was an officer and director of Syndicated.
45. Pirgousis instructed the transfer of funds, including undisclosed broker kickback payments, from Fidra's accounts to various entities and persons. Pirgousis received quarterly statements from Fidra concerning his transactions and, on occasion, Pirgousis reviewed the statements at Fidra's offices in the Bahamas.
46. In August 1999, Pirgousis and Dolney purchased an additional 650,000 restricted Syndicated shares from a former officer and director of Syndicated for $32,000. Pirgousis and Dolney purchased the shares with a check drawn on a Fidra brokerage account. Pirgousis and Dolney held these shares in the names of Luno Holdings and Empresas Flagler, both offshore entities that they controlled. Pirgousis and Dolney, through Iain, Sr. and Iain, Jr., also used Empresas Flagler to facilitate their broker kickback scheme described below.
47. Throughout the course of the scheme, Dolney and Pirgousis acted as partners, and together, they used Fidra to further their efforts to sell stock surreptitiously into the public market and to pay undisclosed kickbacks to brokers as compensation for selling Pirgousis' and Dolney's stock to the public.
48. During a meeting in early 1998 between Dolney and principals of a New York branch office of a registered broker dealer, Dolney informed the principals of the branch office that he had a number of "504 deals" that were ready to be sold to the public. Pirgousis and Dolney subsequently agreed to pay kickbacks (of approximately 40% of the gross stock sale proceeds) to the principals of the branch office as compensation for selling Pirgousis' and Dolney's stock to the public.
49. The principals of the branch office began to retail the stocks controlled by Dolney and Pirgousis, including Syndicated stock, during 1998. Although the principals of the branch office moved from one brokerage firm to another during 1998 and early 1999, they continued to retail stocks for Pirgousis and Dolney pursuant to the undisclosed kickback arrangement from 1998 though at least May of 1999. The kickback arrangement and the kickback payments were never disclosed to investors, and Pirgousis and Dolney knew, or recklessly disregarded, that investors were not informed of the kickback arrangements.
50. From at least June 1999 through at least December 2000, Dolney and Pirgousis began to pay Quintana and other principals of the LH Ross Branch undisclosed kickbacks to sell their stock to the public through the LH Ross Branch. The kickback arrangement and the kickback payments to Quintana and other principals at the LH Ross Branch were never disclosed to investors, and Pirgousis and Dolney knew, or recklessly disregarded, that investors were not informed of the kickback arrangement.
51. Dolney and Pirgousis paid Quintana and other principals of the LH Ross Branch approximately 40% of the gross stock sale proceeds as compensation for selling stock to clients of the LH Ross Branch.
52. Quintana and others at the LH Ross Branch retailed at least nine stocks controlled by Dolney and Pirgousis through the LH Ross Branch pursuant to the illicit kickback agreements, including: Genethera, Inc. (formerly Hand Brand Distribution Inc.) ("GTHA"), Canterbury Information Technology Inc. ("CITI"), e*Machinery Net Inc. (formerly Harvard Financial Services Corp.) ("EMAC"), Evans Systems Inc. ("EVSI"), Trident Systems Int'l Inc. ("TDNT"), Uniservice Corp. ("UNSRA"), Salient Cybertech Inc. ("Salient"), America's Senior Financial Services, Inc. ("AMSE"), and Syndicated.
53. Quintana and others at the LH Ross Branch received kickbacks throughout the course of the scheme involving the LH Ross Branch, but the form of the kickback changed over time. Initially, Dolney and Pirgousis issued "options" to purchase stock to Quintana and others at approximately one-third the stock's then-current market value. In turn, Quintana and others exercised the "options" and then "crossed out" (i.e., sold the stock to their brokerage clients from their own nominee accounts) the newly-acquired stock at prevailing market prices, thereby netting approximately two-thirds of the market price as profit. Iain, Sr. and Iain, Jr. transferred the stock from nominee accounts under the control of Pirgousis and Dolney to brokerage accounts controlled by Quintana and others.
54. Eventually, Pirgousis and Dolney began paying Quintana and others at the LH Ross Branch cash kickbacks. Quintana and others received the cash directly from Pirgousis or from others, usually at Pirgousis' direction. Quintana and others paid a portion of the kickback payments to the individual brokers responsible for making the stock sales. For example, Quintana and others at the LH Ross Branch paid Ferragamo and Klein 25% of the sale proceeds, because Klein and Ferragamo were large producers within the office. Ferragamo's and Klein's LH Ross Branch clients purchased more than 67,550 shares of Syndicated stock (for a total of $606,000) during the period December 1999 through May 2000.
55. Ferragamo and Klein did not disclose to the customers to whom they sold Syndicated stock that they were receiving 25% of the sale proceeds.
56. Quintana and others also received kickbacks in the form of wire transfers sent from accounts held in the name of Fidra. For example, during the course of the LH Ross Branch scheme, Fidra sent $95,000 in wire transfers to a Quintana-controlled bank account, which was maintained in the name of CBIZ Holdings, Inc. Iain, Sr. directed Fidra to make these kickback payments, and he knew, or recklessly disregarded, that these payments were kickbacks being paid to brokers.
57. LH Ross Branch brokers and telemarketers, supervised by Quintana, Ferragamo, and Klein, made material misrepresentations about Syndicated to induce clients to purchase Syndicated shares. One broker told his client that Syndicated was "in the real estate business." Another investor was told that Syndicated was a "hotel holding company." Many of the "brokers" at LH Ross Branch were not registered and assumed the identities of other registered representatives in the office while soliciting LH Ross clients. LH Ross brokers also failed to provide investors with required disclosures when soliciting sales of "penny" stocks, such as many of the stocks at issue.
58. Quintana, Ferragamo, Klein, and others knew, or recklessly disregarded, that telemarketers assumed the identities of registered brokers while soliciting sales of stock from investors and that the telemarketers made material misstatements and omitted material facts while soliciting investors.
59. Pirgousis and Dolney instructed the principals of the LH Ross Branch to deal with Richardson as the market maker on the kickback deals. As such, the principals of the LH Ross Branch contacted Richardson routinely and discussed the trading of the various securities. The principals of the LH Ross Branch often informed Richardson of their clients' stock purchases and instructed Richardson to adjust his price quotations in the stocks in an effort to direct the trades through the market and to create the impression of increased demand for the stocks. Richardson often quoted the stock prices at artificially high levels to create the impression of increased market demand for the stocks. The principals of the LH Ross Branch also engaged in prearranged trades with Richardson so that stock could flow through the market from Richardson to the LH Ross Branch. They contacted him to inform him that LH Ross Branch clients placed orders to purchase stock so that Richardson could place competing matched orders to sell the same stock. In addition, Richardson often received guarantees against loss from the principals of the LH Ross Branch, and the principals of the LH Ross Branch also assured Richardson that he would not need to carry a debit or credit in his stock inventory for any long period of time, and that Richardson's inventory position would be satisfied.
60. Pirgousis and Dolney maintained numerous nominee accounts at Sierra, and they sold large of quantities stock, including Syndicated stock, from those accounts throughout the relevant time period.
61. LH Ross Branch clients realized a loss of more than $2.6 million on their Syndicated stock purchases as a result of the LH Ross Branch activities described above. Moreover, during the period from 1998 through 2000, clients of the LH Ross Branch and other brokerage firms realized millions of dollars in losses in connection with the kickback arrangements relating to the other eight securities, GTHA, CITI, EMAC, TDNT, EVSI, AMSE, UNSRA, and Salient.
62. During the period January 2001 through February 2003, Dolney and Pirgousis paid Billy Brown, Todd, and Delta brokers kickbacks to sell stock to the public. The kickbacks were never disclosed to investors.
63. The Staten Island Branch received undisclosed kickbacks in connection with the sale of many securities, including: Syndicated, GTHA, CITI, and EMAC. In fact, the first "deal" that the Staten Island Branch took part in concerned CITI stock. Pirgousis and Dolney paid Casias, Billy Brown, and Todd undisclosed kickbacks (of approximately 40% of the stock sale proceeds) for selling these stocks for Pirgousis and Dolney.
64. From August 2001 through January 2002, Todd, Billy Brown, and brokers at the Staten Island Branch sold more than 1.99 million shares of Syndicated stock in accordance with the kickback arrangement. Delta also raised more than $2.2 million in a private placement offering of Syndicated stock during 2001. While soliciting clients, Delta brokers made numerous baseless representations concerning the company, its stock, and the use of private placement offering proceeds. Additionally, Delta brokers failed to provide investors with the necessary disclosures while soliciting sales of "penny stocks."
65. Bank records show that Pirgousis and Dolney paid hundreds of thousands of dollars to Todd and Billy Brown during 2001. In addition, Pirgousis and Dolney, through nominees, provided 100,000 shares of stock to Billy Brown and Todd, who in turn sold the stock for approximately $300,000 through a domestic brokerage account under their control. These kickbacks to Billy Brown, Todd and others at Delta were never disclosed to Delta's clients.
66. As noted above, Delta solicited investments of more than $2.2 million during a private placement of Syndicated stock during 2001. In connection with the private placement offering, investors received a "Strategic Business Plan," which contained material misrepresentations concerning the use of offering proceeds. In addition, investors received a Confidential Private Placement Offering memorandum, dated September 1, 2001, which contained a copy of Syndicated's misleading Form 10-QSB for the period ending June 30, 2001, which is described below.
67. The "Strategic Business Plan" falsely stated that Syndicated is conducting an offering to raise $35 million and that it intends to use the proceeds of the offering "To acquire the businesses of 4 Acquisitions, namely Beasley [and three other entities]; to provide monies for capital improvements including the relocation and establishment of the food manufacturing business; to pay transaction costs."
68. Pirgousis and Keeler misrepresented, and omitted to state, material facts to investors while soliciting investors to buy shares in the private placement. For example, during a telephone conversation with a potential investor, Pirgousis and Keeler falsely told the potential investor that, although the company secured financing for the acquisitions through another source, the investor's funds would not be used to pay past debts, and that the money would not find its way into the officer's pockets. In fact, Pirgousis, Dolney, Kain, Scott and others received at least $1.2 million of the $2.2 million raised in the private placement.
69. During telephone solicitations with investors, Casias made numerous misstatements and baseless claims about Syndicated, the market for its shares, and the use of private placement proceeds. For example, in October 2001, Casias guaranteed one brokerage client against loss in connection with a private placement investment. Based upon Casias' guarantee, the brokerage client invested $1 million in Syndicated's private placement offering.
70. Telemarketers at Delta, who were not registered representatives, solicited clients to purchase stock and also made material misrepresentations to investors. Additionally, while speaking with a potential investor about the Syndicated private placement, Billy Brown falsely told the investor that Syndicated ran the Olive Garden chain of restaurants. Based upon Brown's misrepresentation, the investor wrote a check for $4,000, made payable to Syndicated, and mailed it to Billy Brown. The check was later deposited into Syndicated's bank account.
71. During the time period that Delta retailed Syndicated stock, the price of Syndicated stock rose quickly from approximately $1 per share to more than $5 per share. When Delta stopped retailing Syndicated stock, the company's stock price dropped back to below $1 per share.
72. Principals of the Mineola Branch knew, or recklessly disregarded, that principals of the Staten Island Branch and others at Delta received undisclosed kickbacks in connection with the sale of Syndicated and other stocks. Delta received a portion of the commissions generated by the Staten Island Branch in connection with the trades of CITI, GTHA, EMAC, and Syndicated stock.
73. During the relevant period, Pirgousis and Dolney profited by more than $10 million from their sales of Syndicated stock and by millions more from their sales of stock in the other eight securities mentioned above.
74. In total, investors lost more than $26 million as a result of the broker bribery scheme involving the stock of the nine public companies.
75. Throughout the time period at issue, Pirgousis, Iain, Jr., Richardson, Dolney, and principals of the LH Ross Branch also manipulated the price of, and market for, Syndicated stock through the following conduct: (1) a "street sweep" of Syndicated's stock to secure additional Syndicated shares just prior to the time that the Staten Island Branch began to retail Syndicated stock; (2) the execution of prearranged trades; and (3) wash sale transactions to show market volume and activity.
76. In anticipation of Delta kickback arrangement in the fall of 2001, Pirgousis and Dolney conducted a "street sweep" of Syndicated stock from May through the middle of August 2001, whereby they purchased as many shares of Syndicated stock on the open market as they could. They purchased the shares through accounts under their control at Sierra in an effort to control a greater amount of Syndicated's float. These purchases amounted to more than 50% of the trading volume during that time period. During that time period, no retail account at Sierra sold a share of Syndicated stock into the market. By controlling an even greater percentage of Syndicated's float, Pirgousis and Dolney were able to orchestrate better the trading of Syndicated stock at the time that the Staten Island Branch began its retail efforts and to protect the scheme against short sellers.
77. Pirgousis, Iain, Jr., Richardson, and others also executed prearranged trades in an effort to transfer ownership surreptitiously between parties. Richardson's brokerage clients (including Fidra), as well as third parties (including accounts controlled by principals of the LH Ross Branch), placed simultaneous purchase and sale orders for Syndicated stock at below market prices. Richardson knew that such trades were "prearranged" block trades (i.e., the parties negotiated the trade prior to placing the order) due the timing of the orders, the price of the orders, and the size of the orders. Richardson often contacted the parties involved to confirm the orders and did not report such trades in order to avoid negatively affecting the stock's price. Richardson executed these trades through Sierra's proprietary account in order to earn a profit on the trade. Nominees of Pirgousis, in whose names many of these trades were made, never spoke with Richardson in connection with these "prearranged" trades, because Pirgousis controlled the accounts, and in fact placed all of the trades.
78. At Pirgousis' instruction, Richardson also refused to execute client sell orders for Syndicated shares during the time period that Delta was retailing Syndicated stock.
79. Pirgousis, Iain, Jr., and Richardson also engaged in wash sale transactions involving Syndicated stock and the other stocks that Pirgousis and Dolney sold pursuant to the undisclosed kickback arrangements. For example, on many occasions, Fidra traded the same stock between two of its accounts that were maintained at separate brokerage firms. The trades were wash sales in that, as a result of the transactions, there was no change in beneficial ownership. Iain, Jr. placed the orders for all trades on behalf of Fidra at Pirgousis' direction. When Fidra traded a stock in its account at Sierra as part of a wash sale transaction, the trade always passed through Sierra's proprietary trading account (i.e, Richardson acted as the middleman through whom Fidra traded shares from one of its brokerage accounts to another). Richardson received a small "spread" on each trade as compensation for acting in this manner. These trades had the effect of creating artificial trading volume in Syndicated's stock. Pirgousis engaged in similar transactions with other nominee accounts at Sierra.
80. To conceal their control over Syndicated and its stock, Pirgousis and Dolney filed false and misleading reports with the Commission on Syndicated's behalf.
81. During the course of the scheme, Syndicated filed the following periodic reports with the Commission:
i. A Form 10SB-12G ("Form 10") dated October 20, 1999;
ii. Six amendments to the Form 10 between December 20, 1999 and February 2, 2001;
iii. A Form 10-KSB for the period ending December 31, 1999 dated April 13, 2000 and its amendment filed on January 10, 2001; and
iv. A Form 10-KSB for the period ending December 31, 2000 dated April 13, 2001.
82. Pirgousis participated in the preparation of each of these filings made by Syndicated to the Commission.
83. The Form 10 contains numerous material misrepresentations and omits material facts. The Form 10 was the first periodic filing made by Syndicated to the Commission.
84. Pirgousis signed the Form 10, and Moulinos prepared the Form 10.
85. The Form 10 misrepresents the status of beneficial ownership of Syndicated's outstanding stock by failing to disclose Pirgousis', Iain, Jr.'s, Iain, Sr.'s, and Dolney's beneficial ownership (through Fidra and numerous other nominees) of Syndicated stock at the time of the filing. Dolney, Iain, Jr., Iain, Sr., and Pirgousis controlled approximately 1,090,917 shares (or 81%) of Syndicated's purportedly free-trading stock, and at least 5,600,917 shares (or 73%) of the 7,657,000 Syndicated shares outstanding at the time of the Form 10 filing.
86. The Form 10 fails to state that Pirgousis and Dolney were promoters of Syndicated prior to becoming members of Syndicated's Board of Directors, that Pirgousis and Dolney conducted and controlled the 504 Offering in 1997, and that Pirgousis and Dolney received stock compensation from Syndicated for conducting the 504 Offering.
87. The Form 10 also does not disclose the issuance of the 505 Offering stock to Artifaqs, Chivas, and Raffles.
88. Pirgousis and Moulinos knew, or recklessly disregarded, that the Form 10 contained material misstatements and omitted material facts. For example, Moulinos knew, or recklessly disregarded, that Syndicated conducted the 505 Offering and issued 1.5 million shares of stock to Raffles and Artifaqs, and that Pirgousis controlled these entities.
89. The six amendments to its Form 10 filed by Syndicated between the period December 20, 1999 and February 2, 2001 also contained misrepresentations and omitted material facts.
90. For example, Syndicated did not disclose any issuance of stock to Raffles in connection with the 505 Offering until it filed its second amendment to the Form 10 in December 1999. Then, Syndicated misleadingly disclosed that Pirgousis held only 464,000 shares beneficially through Raffles.
91. Syndicated has never disclosed in the Form 10 or its amendments that it issued stock to Artifaqs in connection with the 505 Offering.
92. Pirgousis signed each of the amendments to the Form 10, and Pirgousis knew, or recklessly disregarded, that the amendments to the Form 10 contained material misrepresentations and omitted material facts.
93. Moulinos prepared four of the six amendments to the Form 10. Moulinos knew, or recklessly disregarded, that the Form 10 and the amendments that he prepared contained material misrepresentations and omitted material facts.
94. Kain prepared the two amendments to the Form 10 that Syndicated filed in 2001, and she knew, or recklessly disregarded, that those filings contained material misstatements and omitted material facts. For example, Kain knew, or recklessly disregarded, that Pirgousis and Dolney were promoters of Syndicated in 1997 and controlled the 504 Offering, but that material fact is not disclosed in the amendments.
95. Syndicated's Form 10-KSB for the period ending December 31, 1999 ("1999 10K") also contains many material misstatements and omits material facts.
96. Pirgousis signed the 1999 10K, and Moulinos prepared the 1999 10K.
97. The 1999 10K stated that Rockets is a "major supplier" of food products for Syndicated, but it does not disclose that Rockets was controlled and owned by Pirgousis.
98. The 1999 10K also stated, "The Company has realized an unrealized gain on short term marketable investments of $380,321 and a realized gain on short term marketable investments of $29,793 as a result of its investment in shares of [CITI] . . . . The Company intends to sell this investment during fiscal 2000." The 1999 10K fails to disclose that Dolney and Pirgousis also controlled a substantial amount of CITI stock through Fidra and other nominees, and that they paid various brokers undisclosed kickbacks to retail their CITI stock to the public.
99. Additionally, the 1999 10K stated that Syndicated has entered into a $500,000 mortgage "payable to a financial institution. . . . [which is] secured by land owned by the Company." The statement omits that the "financial institution" is Fidra, an entity controlled by Pirgousis and Dolney, and the 1999 10K fails to disclose the relationship between Fidra and Pirgousis and Dolney.
100. The 1999 10K also discloses that Syndicated has issued an "unsecured note payable to a contractor" valued at $237,207. This statement omits that the contractor referenced in the statement is RCI General Contracting Inc., an entity controlled by Pirgousis.
101. The 1999 10K also fails to disclose the beneficial ownership of Syndicated stock by Dolney, Pirgousis, Iain, Sr., and Iain, Jr. At the time of the filing, Iain, Jr. personally controlled 500,000 restricted Syndicated shares through Chivas. Moreover, Dolney, Iain, Jr., Iain, Sr., and Pirgousis, acting as a group, controlled (through various nominees and Fidra) at least 830,657 shares of free trading Syndicated stock (or 72% of Syndicated's float). Additionally, Pirgousis and Dolney continued to control 4,510,000 of Syndicated's restricted stock (or 58% of the total number of shares outstanding).
102. Moulinos and Pirgousis knew, or recklessly disregarded, that the 1999 10K contained material misrepresentations and omitted material facts.
103. On January 10, 2001, Syndicated filed an amendment to the 1999 10K. Pirgousis, Dolney, Keeler, and Scott signed the amended 1999 10K. Kain prepared the 1999 10K.
104. The amendment to the 1999 10K filed on January 10, 2001, contains the same material misrepresentations and omits to state the same material facts as the 1999 10K.
105. Kain, Pirgousis, Dolney, Keeler, and Scott knew, or recklessly disregarded, that the amended 1999 10K filed on January 10, 2001 contained material misrepresentations and omitted material facts.
106. Syndicated's Form 10-KSB for the period ending December 31, 2000 ("2000 Form 10K") makes the same material misrepresentations and omits the same material facts set forth above concerning Rockets, the RCI note, the CITI stock trading, and the beneficial ownership of Syndicated stock by Pirgousis, Iain, Sr., Iain, Jr., and Dolney. As of December 31, 2000, Pirgousis, Dolney, Iain, Sr., and Iain, Jr., as a group, controlled more than 70% of Syndicated's outstanding stock; however, the 2000 Form 10K fails to disclose this fact.
107. Keeler, Dolney, Pirgousis, and Scott signed the 2000 10K filing, which was filed on or around April 13, 2001. Kain prepared the 2000 10K.
108. Kain, Pirgousis, Dolney, Keeler, and Scott knew, or recklessly disregarded, that the 2000 10K contained material misrepresentations and omitted material facts.
109. In January 2001, Keeler, with Pirgousis' approval, entered into a fraudulent factoring arrangement with United Container Corp. ("United Container"), a Florida-based box manufacturer, whereby Keeler agreed to record sham payables to United Container on Syndicated's books for box orders that Syndicated purportedly received from a third party. United Container then factored its accounts receivable to independent, third party factors, which provided money to United Container based upon bogus confirmations provided by Syndicated concerning the amounts owed to United Container by Syndicated. This scheme continued through December 2001.
110. Keeler prepared a chronology of the United Container factoring scam prior to his departure from Syndicated. In it, Keeler: (1) described how accounts receivable confirmations were not signed by the third party; (2) stated that Syndicated rarely forwarded third party purchase orders to United Container in connection with the Syndicated's third party billing arrangement; and (3) stated that Syndicated, as of April 2001, began booking its third party bills as sales. According to Keeler's chronology, Syndicated began booking its third party bills as sales, because Pirgousis "needed to show an increase in sales."
111. From April through July 2001, Keeler included more than $999,000 in fictitious sales in Syndicated's financial records as a result of the third party billing arrangements.
112. On or about August 17, 2001, Syndicated filed its Form 10-QSB for the period ending June 30, 2001. Syndicated reported sales for its food and beverage unit of $2,431,299 for the first six months of 2001. The filing reports that consolidated gross sales were $2,452,390 for the same six months, or a 134% increase over the same period in 2000. However, because the sales figures contained in the filing include "sales" resulting from the factoring scheme, these sales figures materially misrepresented the company's actual sales.
113. In its Form 10-QSB for the period ending September 30, 2001, Syndicated stated that it sold its New York restaurant operation to the operation's "current manager" for $44,000 and the assumption of $292,000 in debt. The filing fails to state, however, that this transaction was not an arms-length transaction, but merely another sham transaction orchestrated by Pirgousis. In actuality, Pirgousis used a nominee to purchase the restaurant operation himself with Syndicated's money. Pirgousis arranged for the "sale" of the restaurant operation, and he provided the nominee with a check written on the bank account of Rockets for $44,000 to cover the "purchase." Prior to writing the check, Pirgousis caused Syndicated to deposit $44,000 from one of its accounts into Rockets' bank account. Moreover, the "debt" referred to in the filings concerns the unsecured note that Syndicated issued to RCI in 1999; however, the filing does not disclose Pirgousis' or Dolney's relationship to RCI. Syndicated also recorded sham receivables as sales in connection with the factoring scheme referenced above in the Form 10-QSB for the period ending September 30, 2001.
114. Pirgousis signed Syndicated's Form 10-QSB for the periods ending June 30, 2001 and September 30, 2001. Kain prepared these filings. Keeler provided information about the company's financials to Kain in connection with these filings.
115. Pirgousis, Kain, and Keeler knew, or recklessly disregarded, that the Form 10Q-SB for the periods ending June 30, 2001 and September 30, 2001 contained material misrepresentations and omitted material facts. For example, Kain knew, or recklessly disregarded, that Pirgousis controlled RCI prior to preparing the filing.
116. At all times during which Pirgousis and Keeler acted as directors and officers of Syndicated, Pirgousis and Keeler each were controlling persons of Syndicated for the purposes of Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)]. Among other things Pirgousis was Chairman of Syndicated and Keeler was the CEO of Syndicated; each had responsibility for, and actively participated in and directed, the management and operations of Syndicated; and each possessed, directly or indirectly, the power to direct or control, or cause the direction or control of, and directed or controlled, the management and operations of Syndicated.
H. Pirgousis, Iain, Sr., Iain, Jr., and Dolney Failed to Disclose Their Beneficial Ownership of Syndicated Stock and Filed a False Form 13D and Forms 3
117. In July 2001, Iain, Sr. converted a debenture that he received from Syndicated into more than 1,300,000 shares of Syndicated stock. The shares were issued to Almond, an entity wholly-owned by Iain, Sr. Kain subsequently prepared and filed a Form 13D with the Commission on Almond's behalf in connection with the converted shares.
118. The Form 13D falsely states that Almond was the beneficial owner of the shares.
119. Moreover, the Form 13D fails to disclose the shares beneficially owned at the time by Pirgousis, Dolney, Iain, Sr., and Iain, Jr., acting as a group.
120. Iain, Jr. signed the Form 13D as "president" of Almond.
121. The Form 13D contains material misrepresentations and omits material facts.
122. Kain and Iain, Sr. knew, or recklessly disregarded, that the Form 13D contained material misrepresentations and omitted material facts. For example, Kain knew prior to preparing the From 13D that Iain, Sr. was the true beneficial owner of the shares, not Almond. Moreover, Kain prepared the Form 13D at Pirgousis' direction and had conversations with Dolney and Pirgousis about the Form 13D shortly before filing the Form 13D with the Commission.
123. Pirgousis, Dolney, Iain, Jr., and Iain, Sr. (the "Group"), acting as a group, failed to make accurate disclosures of their beneficial ownership of Syndicated's stock as required under the Exchange Act. Because each of them had the ability to influence and make investments through Fidra and other nominees, all of them collectively constituted a group for purposes of Section 13(d) of the Exchange Act, and thus were required to disclose their collective ownership. The Group never filed a disclosure of beneficial ownership of the Group's shares during the time period October 1999 through September 2003. The Group failed to file the required beneficial ownership disclosures that accurately states the number of shares beneficially owned by the Group in order to further their control over Syndicated and the undisclosed kickback scheme.
124. Pirgousis and Dolney each filed and signed a Form 3, on June 16, 2000 and December 6, 2000 respectively, with the Commission. These forms fail to state accurately the number of Syndicated shares beneficially owned by Pirgousis and Dolney. Pirgousis and Dolney knew, or recklessly disregarded, that the forms that they signed contained material misstatements and omitted material facts. Pirgousis and Dolney filed no other beneficial ownership disclosure during the relevant period.
125. On or about October 14, 2003, Syndicated filed a 685-page document, which purports to be a Form 10-KSB for years 2001 and 2002 ("2001/2002 10K"). Syndicated's current management signed the 2001/2002 10K and Tanis certified it pursuant to Rule 13a-14 of the Exchange Act in his role as Syndicated's CEO. The filing contains many of the same misstatements and omissions noted above in other Syndicated filings.
126. Tanis knew that at least one of the statements made in the 2001/2002 10K was materially misleading. The 2001/2002 10K stated that the company engaged in a private offering in September 2001 and that, "the Company self underwrote the [September 2001] private offering. There were no discounts or commissions paid to effect the private offering." This statement is false. In fact, Tanis knew that the private placement was conducted through Delta in 2001, and understood that Syndicated provided 100,000 shares to Delta for providing such a service.
127. Syndicated failed to file quarterly reports for 2002 with the Commission.
128. At all times during which Tanis acted as a director and officer of Syndicated, Tanis was a controlling person of Syndicated for the purposes of Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)]. Among other things, Tanis was a director and CEO of Syndicated; he had responsibility for, and actively participated in and directed, the management and operations of Syndicated; and he possessed, directly or indirectly, the power to direct or control, or cause the direction or control of, and directed or controlled, the management and operations of Syndicated.
129. Paragraphs 1 through 128 are hereby realleged and incorporated by reference.
130. All Defendants, except Tanis, and each of them, directly and indirectly, singly or in concert, in the offer or sale of Syndicated securities, by use of the means or instruments of transportation or communication in interstate commerce or by use of the mails, knowingly or recklessly, have: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact and omissions 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 (c) engaged in transactions, acts, practices and courses of business which operated or would operate as a fraud or deceit upon purchasers of the securities referenced above.
131. As part and in furtherance of this violative conduct, all Defendants, except Tanis, and each of them, knowingly or recklessly engaged in some or all of the manipulative and fraudulent transactions, acts, practices, and courses of business described above, including, among other things: undisclosed domination and control of the market for Syndicated stock, undisclosed kickback agreements to sell stock to the public, pre-arranged orders to trade stock, rigged market prices of stock, false filings by Syndicated, and a false Form 13D filing. These transactions, acts, practices, and courses of business operated as a fraud or deceit upon investors who purchased the securities referenced above.
132. By reason of the foregoing, all of the Defendants, except Tanis, and each of them, have violated, and, unless enjoined, will again violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
133. Paragraphs 1 through 128 are hereby realleged and incorporated by reference.
134. All Defendants, except for Tanis, and each of them, directly and indirectly, singly and in concert, by use of the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange, in connection with the purchase and sale of securities, knowingly or recklessly, have: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts or omissions 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 (c) engaged in transactions, acts, practices and courses of business which operated or would operate as a fraud or deceit upon purchasers of the securities referenced above.
135. As part and in furtherance of this violative conduct, all Defendants, except Tanis, and each of them, knowingly or recklessly engaged in some or all of the manipulative and fraudulent transactions, acts, practices, and courses of business described above, including, among other things: undisclosed domination and control of the market for Syndicated stock, undisclosed kickback agreements to sell stock to the public, pre-arranged orders to trade stock, rigged market prices of stock, false filings by Syndicated, and a false Form 13D filing. These transactions, acts, practices, and courses of business operated as a fraud or deceit upon investors who purchased the securities referenced above.
136. By reason of the foregoing, all Defendants, except Tanis, and each of them, have violated, and, unless enjoined, will again 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.
137. Paragraphs 1 through 128 are hereby realleged and incorporated by reference.
138. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers of registered securities to file with the Commission factually accurate annual and quarterly reports. Exchange Act Rule 12b-20 provides that in addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.
139. By reason of the foregoing, Syndicated violated Sections 13(a) and Rules 12b-20, 13a-1, and 13a-13 thereunder.
140. Paragraphs 1 through 128 are hereby realleged and incorporated by reference.
141. During the relevant time period, as alleged herein, Defendants Pirgousis, Keeler, and Tanis were, directly or indirectly, control persons of Syndicated for purposes of Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)].
142. By reason of the foregoing, Defendants Pirgousis, Keeler, and Tanis, as control persons, are jointly and severally liable with and to the same extent as Syndicated for Syndicated's violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13] thereunder.
143. Paragraphs 1 through 128 are hereby realleged and incorporated by reference.
144. Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] requires companies filing reports with the Commission to file reports that do not contain untrue statements of material fact or omit material facts necessary to make the statements made, in light of the circumstances in which they were made, not misleading. Rule 13a-14 thereunder [17 C.F.R. 240.13a-14], requires the principal executive officer and principal financial officer of the company to sign a certification that the report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances in which such statements were made, not misleading.
145. By reason of the foregoing, defendant Tanis violated Exchange Act Rule 13a-14 [17 C.F.R. 240.13a-14] in certifying the 2001/2002 10K.
146. Paragraphs 1 through 128 are hereby realleged and incorporated by reference.
147. Section 13(d) of the Exchange Act and Rule 13d-1 thereunder require that any person that acquires more than 5% of a company's class of stock registered under Section 12 of the Exchange Act must notify the issuer and the Commission within 10 days of the acquisition. Exchange Act Rule 13d-2 requires that the person notify the issuer and the Commission of any material increases or decreases in the percentage of beneficial ownership.
148. As noted above, Pirgousis, Dolney, Iain, Sr., and Iain, Jr. had beneficial ownership of more than 5% of Syndicated's outstanding shares of common stock during the course of the scheme.
149. By reason of the foregoing, Pirgousis, Dolney, Iain, Sr., and Iain, Jr. violated and, unless enjoined, will continue to violate Section 13(d) of the Exchange Act [15 U.S.C. §78m(a)] and Rules 13d-1 and 13d-2 thereunder [17 C.F.R. 240.13d-1, 13d-2].
150. Paragraphs 1 through 128 are hereby realleged and incorporated by reference.
151. Section 16(a) of the Exchange Act and Rule 16a-3 thereunder require that any person that directly or indirectly beneficially owns more than 10% of a company's class of stock registered under Section 12 of the Exchange Act must notify the Commission within ten days of the acquisition. Additionally, Section 16(a) of the Exchange Act requires that if there has been a change of such ownership during a month, the reporting persons shall file with the Commission a statement indicating their ownership at the end of the calendar month and the changes in that ownership that occurred during the month. Exchange Act Rule 16a-3 requires that initial statements of beneficial ownership be filed on Form 3, and that statements of changes in beneficial ownership be filed on Form 4.
152. As noted above, Pirgousis, Dolney, Iain, Sr., and Iain, Jr. had beneficial ownership of more than 10% of Syndicated's outstanding shares of common stock during the course of the scheme.
153. By reason of the foregoing, Pirgousis, Dolney, Iain, Sr., and Iain, Jr. violated and, unless enjoined, will continue to violate Section 16(a) of the Exchange Act [15 U.S.C. §78p(a)] and Rule 16a-3 thereunder [17 C.F.R. 240.16a-3].
WHEREFORE, the Commission respectfully requests that this Court:
Enter a Final Judgment of Permanent Injunction permanently restricting and enjoining all Defendants, except for Tanis, and each of them, and their agents, servants, employees, attorneys, attorneys in fact, and those persons in active concert or participation with them who receive actual notice of the Final Judgment by personal service or otherwise, from violating, directly or indirectly, Section 17(a) of the Securities Act [15 U.S.C. §77q(a)], 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.
Enter a Final Judgment of Permanent Injunction permanently restricting and enjoining Pirgousis, Dolney, Iain, Jr. and Iain, Sr., and each of them, and their agents, servants, employees, attorneys, attorneys in fact, and those persons in active concert or participation with them who receive actual notice of the Final Judgment by personal service or otherwise, from violating, directly or indirectly, Sections 13(d) and 16(a) of the Exchange Act [15 U.S.C. §§ 78m(a) and 78p(a)] and Rules 13d-1, 13d-2, 16a-3 thereunder [17 C.F.R. 240.13d-1, 240.13d-2, 240.16a-3].
Enter a Final Judgment of Permanent Injunction permanently restricting and enjoining Syndicated, Pirgousis, Keeler, and Tanis, and each of them, and their agents, servants, employees, attorneys, attorneys in fact, and those persons in active concert or participation with them who receive actual notice of Final Judgment by personal service or otherwise, from violating Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13] thereunder and additionally, with respect to Tanis only, Rule 13a-14 of the Exchange Act [17 C.F.R. § 240.13a-14].
Enter a Final Judgment ordering all Defendants, except Tanis, Syndicated, and Moulinos, to disgorge an amount equal to the funds and benefits they obtained illegally as a result of the violations alleged herein, plus prejudgment interest.
Enter a Final Judgment ordering all Defendants to pay civil money penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3)(A) of the Exchange Act [15 U.S.C. § 78u(d)(3)(A)].
Enter a Final Judgment pursuant to Section 20(e) of the Securities Act [15 U.S.C. §77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. §78u(d)(2)] permanently prohibiting Dolney, Pirgousis, Scott, and Keeler, and each of them, from serving as an officer or director of any issuer that has a class of securities registered with the Commission pursuant to Section 12 of the Exchange Act [15 U.S.C. §78l] or that is required to file reports with the Commission pursuant to Section 15(d) of the Exchange Act [15 U.S.C. §78o(d)].
Enter a Final Judgment pursuant to Section 21(d) of the Exchange Act [15 U.S.C. §78u(d)] permanently prohibiting Casias, Klein, Ferragamo, Quintana, Todd, and Billy Brown, and each of them, from participating in any offering of penny stock.
Grant such other and further relief as the Court may deem just and appropriate.
Dated:
March ___, 2004
New York, New York
Of Counsel:
Mark K. Schonfeld
Caren N. Pennington
William F. McGovern
John P. Nowak
Jonathan E. Green
http://www.sec.gov/litigation/complaints/comp18643.htm
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