UNITED STATES DISTRICT COURT
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF
Plaintiff Securities and Exchange Commission ("Commission") alleges:
1. The Commission brings this action to restrain and enjoin defendants Rhino Ecosystems, Inc. ("Rhino"), Charles Cini ("Cini"), Gordon Novak ("Novak"), Mark Wiertzema ("Wiertzema"), and Melvin Levine ("Levine") (collectively, "Defendants") from making materially false and misleading statements and failing to disclose material information in filings with the Commission in violation of the federal securities laws. In mid-2000, Defendants Cini, Novak, Wiertzema, and Levine participated in a fraudulent scheme involving the issuance of 650,000 shares of common stock of Rhino to nominees through a S-8 offering. On September 14, 2000, Rhino registered the shares in a registration statement filed with the Commission, which falsely claimed that these shares were paid to individuals for legitimate services rendered to the company. In fact, none of these individuals rendered any bona fide services to Rhino, but were rather acting as nominees for Defendants in their fraudulent scheme. Levine planned to sell the nominees' shares to a European-based investment fund, and have a portion of the proceeds deposited in Defendants' offshore accounts, in violation of the anti-fraud provisions of the federal securities laws. Unbeknownst to the individual defendants, the European investment fund never existed and its "representative" was an undercover agent of the Federal Bureau of Investigation. In addition to a permanent injunction, the Commission seeks an order imposing civil monetary penalties against Defendants pursuant to Section 21(d) of the Securities Exchange Act of 1934 ("Exchange Act").
2. Defendant Rhino, a Florida corporation, purportedly designs, develops, and markets a plumbing product. Rhino's principal place of business is located in Ontario, Canada. Rhino's common stock trades on the Over-The-Counter Bulletin Board and its securities are registered with the Commission pursuant to Section 12 of the Exchange Act.
3. Defendant Cini, age 51, has been president of Rhino since September 2001. Cini has been an undisclosed control person of Rhino since at least August 2000. Cini resides in an unknown location in Canada.
4. Defendant Novak, age 51, has been Rhino's vice-president since February 1999. Novak resides in Toronto, Canada.
5. Defendant Wiertzema, age 50, is Rhino's Chief Financial Officer and, prior to September 2001, served as Rhino's president. Wiertzema lives in Toronto, Canada.
6. Defendant Levine, age 70, is a stock promoter. In 1996, the Commission entered a cease-and-desist order against Levine for committing or causing violations of several of the antifraud provisions of the federal securities laws. Levine resides in Pompano Beach, Florida.
JURISDICTION AND VENUE
7. This Court has jurisdiction over this action pursuant to Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d), 78u(e) and 78aa.
8. Certain of the acts and transactions constituting violations of the Exchange Act have occurred within the Southern District of Florida. Rhino is a Florida corporation and Levine resides in Florida. Defendants have engaged in many of the acts complained of herein within the Southern District of Florida.
9. Defendants, directly and indirectly, have made use of the means and instrumentalities of interstate commerce, the means and instruments of transportation and communication in interstate commerce, and the mails, in connection with the acts, practices, and courses of business complained of herein.
THE FRAUDULENT SCHEME
10. In the summer of 2000, Levine, Wiertzema, Novak, and Cini held a series of meetings and discussed ways to raise money for Rhino and, at the same time, enrich themselves.
11. The individual defendants agreed to participate in a scheme that involved the use of a fraudulent S-8 stock offering. It was agreed that Rhino would sign fictitious consulting agreements with various nominees of Defendants - for their purported expertise in areas such as alternative medicine, accounting, and marketing - and grant them approximately 650,000 shares of common stock.
12. The 650,000 shares issued to Defendants' nominees would be transferred to Hermitage House Investments Ltd. ("Hermitage"), an offshore corporation owned and controlled by Levine which, in turn, would sell the shares to a European-based investment fund (the "Fund"). The Fund's representative and his associates agreed to participate in the scheme if they received undisclosed kickbacks. The Fund's representative and his associates explained to the individual defendants that they required 60% of the total purchase price as their kickback. Wiertzema, Novak, Cini, and Levine agreed to these terms. Unbeknownst to the Defendants, the Fund never existed. In fact, its "representative" was an undercover agent of the Federal Bureau of Investigation (the "UCA").
13. The UCA posed as a corrupt securities trader employed by the U.S. based corporate representative of the Fund. The UCA and his associates told the individual defendants that the UCA worked with two due diligence officers who reviewed and approved securities to be purchased by the Fund. The UCA and his associates further stated that the purported manager of the Fund was corrupt and had knowledge of the UCA's illegal activities.
14. It was agreed that Cini, Novak, and Levine would each get $500,000, while Wiertzema would receive $100,000. Another individual, who had been associated with Novak and Levine in an unrelated deal, was also to receive $500,000. After the individual defendants each received his cut, Rhino would receive the remaining $500,000.
15. Rhino then entered into bogus consulting agreements with individuals selected by Defendants and granted them approximately 650,000 free-trading shares of Rhino common stock pursuant to a Regulation S-8 stock offering.
16. The individuals receiving the S-8 shares agreed to transfer their Rhino stock to Hermitage, that would then sell the shares to the Fund. The Fund was also to purchase additional shares for approximately $1.4 million from another Rhino shareholder.
17. The Fund agreed to pay Hermitage a total of $8.6 million for the Rhino stock, with $6 million returned to the Fund's representative and his associates as a kickback.
THE FALSE FILINGS
18. On or about September 14, 2000, Rhino filed a registration statement, signed by Wiertzema and Novak, in connection with the S-8 stock offering ("S-8 Filing").
19. Ten consultants were identified in the S-8 Filing, including Levine's daughter and friends, as persons purportedly retained to provide Rhino with engineering, design, and marketing services. In reality, these persons were simply nominees to facilitate the fraudulent scheme.
20. Shortly after the S-8 Filing was made, the UCA cancelled the proposed $8.6 million transaction between the Fund and Hermitage. As a result, on November 13, 2000, Rhino amended its S-8 Filing and cancelled, or deregistered, the offering of 390,000 shares. The amended S-8 filing falsely stated that the shares were deregistered because Rhino had not received services "of equal value for the shares."
21. On or about November 14, 2000, Rhino filed a Form 10-KSB for the fiscal year ended July 31, 2000 ("Form 10-KSB"), which contained material misrepresentations. The 10-KSB, signed by Wiertzema and Novak, falsely stated that the shares issued to the nominees were "to compensate for services received or to be received." In fact, the shares issued to the consultants were not for the services described in the S-8 Filing, but rather were issued as part of the fraudulent transaction described above.
22. The Form 10-KSB also falsely stated that Rhino deregistered 390,000 of the consultants' shares because "services would not be rendered." In fact, the 390,000 shares were deregistered only because the illegal transaction was terminated by the UCA.
FRAUD IN VIOLATION OF SECTION 10(b)
23. The Commission repeats and realleges paragraphs 1 through 22 of its Complaint.
24. Through three false filings with the Commission, the S-8 Filing on September 14, 2000, the 10-KSB filed on November 14, 2000, and the amended S-8 Filing on November 15, 2000, Defendants directly and indirectly, by use of the means and instrumentality of interstate commerce, and of the mails, and of any facility of any national securities exchange, in connection with the purchase or sale of the securities, as described herein, have been, knowingly, willfully or recklessly: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (c) engaged in acts, practices and courses of business that have operated, are now operating and will operate as a fraud upon the purchasers of such securities, through acts which included, but are not limited to, making the misrepresentations and omissions of material fact described in paragraphs 1 through 22, above.
25. By reason of the foregoing, Defendants directly and indirectly, each violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240. 10b-5, thereunder.
VIOLATIONS OF SECTION 13(a) OF THE SECURITIES EXCHANGE
26. The Commission repeats and realleges paragraphs 1 through 22 of its Complaint.
27. At all relevant times, Rhino was an issuer subject to these reporting requirements.
28. During the third and fourth quarters of 2000, Rhino violated Section 13(a) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder by filing with the Commission materially false financial and informational statements for Rhino in a S-8 Filing and a Form 10-KSB filing.
29. By reason of the foregoing, Rhino violated and, unless enjoined, will again violate Section 13(a) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder.
VIOLATIONS OF SECTION 13(a) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULES 13a-1 AND 20b-20 AS AGAINST WIERTZEMA AND NOVAK
30. The Commission repeats and realleges paragraphs 1 through 22 of its Complaint.
31. At all relevant times, Rhino was an issuer subject to the reporting requirements of 13(a) of the Exchange Act.
32. Wiertzema and Novak aided and abetted or caused Rhino's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder by filing with the Commission materially false financial and informational statements for Rhino in a S-8 Filing and on Form 10-KSB.
33. By reason of the foregoing, Wiertzema and Novak aided and abetted or caused Rhino's violations, and, unless enjoined, will again aid and abet or cause violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder.
WHEREFORE, the Commission respectfully requests that the Court:
Declare, determine and find that Defendants each committed the violations of the federal securities laws alleged herein.
PERMANENT INJUNCTION AS TO DEFENDANTS
Issue a Permanent Injunction, restraining and enjoining:
(a) Defendant Rhino, its officers, agents, servants, employees, attorneys, and all persons in active concert or participation with it, and each of them, from violating 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, and Sections 13(a) of the Exchange Act [15 U.S.C. §§ 78m(a) and (b)(2)] and Rules 13a-1 and 12b-20 [17 C.F.R. §§ 240.13a-1, 240.12b-20], thereunder.
(b) Defendants Wiertzema and Novak, and all persons in active concert or participation with them, and each of them, from violating 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, and from aiding and abetting violations of Section 13(a) of the Exchange Act [15 U.S.C. §§ 78m(a)] and Rules 13a-1 and 12b-20 [17 C.F.R. §§ 240.13a-1, 240.12b-20], thereunder.
(c) Defendants Cini and Levine, and all persons in active concert or participation with them, and each of them, from violating 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.
Issue an Order directing Defendants to pay a civil penalty pursuant to Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3), for their violations of the federal securities laws as complained herein.
Grant such other and further relief as may be necessary and appropriate. Further, the SEC respectfully requests that this Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may hereby be entered, or to entertain any suitable application or motion by the SEC for additional relief within the jurisdiction of this Court.
Dated: August 13, 2002