UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

SECURITIES AND EXCHANGE COMMISSION 450 Fifth Street, N.W. Washington, DC 20549-0708, Plaintiff, v. SITESTAR CORPORATION, FREDERICK T. MANLUNAS, and CLINTON J. SALLEE, Defendants.

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Case No.

COMPLAINT

Plaintiff United States Securities and Exchange Commission ("Commission") alleges:

NATURE OF THE ACTION

1. During August and October 2000, Sitestar Corporation announced tender offers to purchase all of the outstanding shares of two Internet companies, Mothernature.com, Inc. and Fashionmall.com, Inc. Frederick T. Manlunas and Clinton J. Sallee, Sitestar's Chairman of the Board of Directors and Chief Executive Officer, respectively, purchased shares of both companies prior to Sitestar's tender offers. After Sitestar publicly announced the proposed tender offers, but before the offers expired or were withdrawn, Manlunas and Sallee sold virtually all of their shares of the target company stock. Manlunas and Sallee purchased and sold their shares of Mothernature and Fashionmall while in possession of material, nonpublic information and made illegal profits of $7,650 and $1,863, respectively.

JURISDICTION

2. This Court has jurisdiction over this action pursuant to Sections 21 and 27 of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u and 78aa].

3. Defendants, directly or indirectly, have made use of the means or instrumentalities of interstate commerce, or of the mails, or the facilities of a national securities exchange in connection with the transactions, acts, practices and courses of business alleged herein.

DEFENDANTS

4. Sitestar Corporation is a Nevada corporation with principal offices in Encino, California. Sitestar's common stock is registered pursuant to Section 12(g) of the Exchange Act [15 U.S.C. § 771(g)] and is traded on the OTC Bulletin Board under the ticker symbol SYTE.

5. Frederick T. Manlunas, age 34, resides in Glendale, California. Manlunas was, at the relevant time, Sitestar's Chairman of the Board of Directors.

6. Clinton J. Sallee, age 30, resides in Santa Monica, California. Sallee was, at the relevant time, Sitestar's President and Chief Executive Officer.

FACTUAL ALLEGATIONS

Trading In Mothernature Stock

7. During August 2000, Manlunas and Sallee decided that Sitestar would make a tender offer for all of the outstanding shares of Mothernature.

8. On or about August 16, 2000, Sallee contacted a Mothernature officer to discuss Sitestar's proposed offer. In addition, on or about August 21, 2000, Sitestar representatives met with investment bankers to discuss making an offer for Mothernature.

9. Between August 17 and continuing to August 24, 2000, Manlunas and Sallee purchased 35,000 and 5,000 shares, respectively, of Mothernature stock for their personal accounts.

10. On August 25, 2000, Sitestar publicly announced a proposed tender offer for all of Mothernature's outstanding common stock at $0.75 per share. Sitestar's offer represented a 50% premium over the previous day's closing price.

11. Following the public announcement, Mothernature shares closed at $0.6875, up 37% from the previous trading day.

12. Mothernature's management failed to support the tender offer and, as a result, Manlunas and Sallee decided that Sitestar would increase the tender offer price.

13. On August 28, 2000, Manlunas purchased an additional 20,100 shares of Mothernature stock for his personal account on the open market. The next day, Sitestar purchased 2,500 shares of Mothernature stock on the open market.

14. On September 7, 2000, Sallee sent a letter to Mothernature in which he stated that Sitestar was prepared to increase its tender offer price to $1.15 per share.

15. On September 22, 2000, Sitestar publicly announced that it had increased its proposed tender offer to $1.15 per share. Following the announcement, the price of Mothernature's shares closed at $0.90625, up 20% from the previous trading day.

16. Between October 2, 2000, and October 12, 2000, while the proposed tender offer was still pending, Manlunas and Sallee sold all of their Mothernature stock. Manlunas realized $7,338 in trading profits from selling 55,100 shares of Mothernature stock. Sallee realized $419 in trading profits from selling 5,000 shares of Mothernature stock.

17. After Manlunas and Sallee sold their Mothernature securities, Sitestar withdrew its proposed tender offer on October 18, 2000.

18. The information that Manlunas and Sallee possessed concerning the Mothernature tender offer at the time of their purchases and sales of Mothernature securities was material and non-public. Manlunas and Sallee each had a fiduciary duty to Sitestar and its shareholders to disclose such information before trading or to abstain from trading. Manlunas and Sallee knew or were reckless in not knowing that their purchases and sales of Mothernature securities while in possession of such information breached their fiduciary duties.

Trading In Fashionmall Stock

19. During August 2000, Manlunas and Sallee decided that Sitestar would also make a tender offer for all of the outstanding shares of Fashionmall.

20. On or about August 21, 2000, Sitestar representatives met with investment bankers to discuss making an offer for Fashionmall.

21. Between September 15 and October 17, 2000, Manlunas and Sallee purchased 2,500 and 3,000 shares, respectively, of Fashionmall stock for their personal accounts.

22. On October 23, 2000, Sitestar publicly announced a proposed tender offer for all of Fashionmall's outstanding common stock at $3.00 per share. Sitestar's offer represented a 39% premium over the previous day's closing price.

23. Following the public announcement, Fashionmall shares closed at $2.4375, up 13% from the previous trading day.

24. Between October 24 and December 29, 2000, Manlunas sold all of his Fashionmall stock and Sallee sold all but one share of his Fashionmall stock. Manlunas realized $312 in trading profits from selling 2,500 shares of Fashionmall stock. Sallee realized $1,444 in trading profits from selling 2,999 shares of Fashionmall stock.

25. After Manlunas and Sallee sold their Fashionmall securities, Sitestar withdrew its proposed tender offer on January 2, 2001.

26. The information that Manlunas and Sallee possessed concerning the Fashionmall tender offer at the time of their purchases and sales of Fashionmall securities was material and non-public. Manlunas and Sallee each had a fiduciary duty to Sitestar and its shareholders to disclose such information before trading or to abstain from trading. Manlunas and Sallee knew or were reckless in not knowing that their purchases and sales of Fashionmall securities while in possession of such information breached their fiduciary duties.

FIRST CLAIM

Violations of Section 17(a) of the Securities Act

27. Paragraphs 1 through 26 are realleged and incorporated herein by reference.

28. By reason of the foregoing, defendants Manlunas and Sallee violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and are likely to commit such violations in the future unless enjoined from doing so.

SECOND CLAIM

Violations of Section 10(b) of the
Exchange Act and Rule 10b-5 Thereunder

29. Paragraphs 1 through 28 are realleged and incorporated herein by reference.

30. By reason of the foregoing, defendants Manlunas and Sallee violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and are likely to commit such violations in the future unless enjoined from doing so.

THIRD CLAIM

Violations of Section 14(e) of the
Exchange Act and Rule 14e-3 Thereunder

31. Paragraphs 1 through 30 are realleged and incorporated herein by reference.

32. After Sitestar had taken a substantial step or steps to commence tender offers for the common stock of Mothernature and Fashionmall, defendants Manlunas and Sallee directly or indirectly, engaged in fraudulent, deceptive or manipulative acts or practices in connection with the tender offers by Sitestar, by purchasing or selling or causing to be purchased or sold the securities of Mothernature and Fashionmall, while in possession of material information relating to the tender offers, which information they knew or had reason to know was nonpublic and which information they knew or had reason to know was obtained, directly or indirectly, from Sitestar or the issuers of the securities sought by the tender offers, or a person acting on behalf of either Sitestar or the issuers.

33. By reason of the foregoing, defendants Manlunas and Sallee violated Section 14(e) of the Exchange Act and Rule 14e-3 thereunder and are likely to commit such violations in the future unless enjoined from doing so.

FOURTH CLAIM

Violations of Section 14(e) of the
Exchange Act and Rule 14e-5 Thereunder

34. Paragraphs 1 through 33 are realleged and incorporated herein by reference.

35. After the public announcement of Sitestar's tender offer for Mothernature, but before the tender offer expired or was withdrawn, defendants Manlunas and Sitestar directly or indirectly purchased or arranged to purchase Mothernature common stock outside of the tender offer.

36. By reason of the foregoing, defendants Manlunas and Sitestar violated Section 14(e) of the Exchange Act and Rule 14e-5 thereunder.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that this Court enter a judgment:

1. against defendant Sitestar:

   (i) permanently enjoining it and its agents, servants, employees, and attorneys-in-fact, and all persons in active concert or participation with it who receive actual notice of the injunction by personal service or otherwise, and each of them, from violating Section 14(e) of the Exchange Act and Rule 14e-5 thereunder;

2. against defendant Manlunas:

   (i) permanently enjoining him and his agents, servants, employees, and attorneys-in-fact, and all persons in active concert or participation with him who receive actual notice of the injunction by personal service or otherwise, and each of them, from violating Section 17(a) of the Securities Act and Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5, 14e-3 and 14e-5 thereunder;

   (ii) ordering him to disgorge all profits from the trading alleged herein, with prejudgment interest; and

   (iii) ordering him to pay a civil penalty pursuant to Sections 21A and 21(d)(3) of the Exchange Act;

3. against defendant Sallee:

   (i) permanently enjoining him and his agents, servants, employees, and attorneys-in-fact, and all persons in active concert or participation with him who receive actual notice of the injunction by personal service or otherwise, and each of them, from violating Section 17(a) of the Securities Act and Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder;

   (ii) ordering him to disgorge all profits from the trading alleged herein, with prejudgment interest; and

   (iii) ordering him to pay a civil penalty pursuant to Section 21A of the Exchange Act;

4. granting such other relief as this Court may deem just and appropriate.

Respectfully submitted,

James M. McHale (D.C. Bar No. 111773)
Antonia Chion
Scott W. Friestad
Howard A. Scheck
Robert Long

Attorneys for Plaintiff
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0708
(202) 942-4516 (Scheck)
(202) 942-9639 (fax)

Dated:
Washington, D.C.