U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION


SECURITIES AND EXCHANGE COMMISSION

Plaintiff,

vs.

NORTHSTAR NETWORK, INC., TIMOTHY J.
BUZZELLI and DAVID DUTTON,

Defendants,

and

SHELIA DUTTON,

elief-Defendant.


:
:
:
:
:
:
:
:
:

No.

COMPLAINT

The United States Securities and Exchange Commission ("Commission") files this complaint against Defendants NorthStar Network, Inc. ("NorthStar"), Timothy Buzzelli ("Buzzelli") and David Dutton ("Dutton") and, solely for the purposes of obtaining equitable relief, against Relief Defendant Shelia Dutton, and would respectfully show the Court as follows:

SUMMARY

1. This case involves the fraudulent, unregistered offering of the securities of NorthStar, an Internet service provider based in Dallas, while the company was under the control of Buzzelli and Dutton between October 1999 and June 2000. NorthStar's stock was publicly traded during the relevant period.

2. Buzzelli, NorthStar's president, and Dutton, a vice president, orchestrated a fraudulent offering of NorthStar's common stock, through which they raised over $1 million from approximately 250 investors in several states using written promotional material styled as an "Executive Summary."

3. The Executive Summary contained materially false and misleading statements including, but not limited to, representations that NorthStar had over $10 million in assets, that major defense contractors were interested in its purportedly "patent pending" computer cooling technology, and that it had multi-million dollar contracts with large, publicly traded telecommunications companies.

4. Buzzelli also signed NorthStar's Form 10-SB registration statement, filed with the Commission in November 1999, which stated that officers and directors of the company had not received any compensation in the form of stock or cash in 1999, and were not expected to do so for the remainder of that year, and that the company had not offered or sold any common stock during the past two years. However, at the time of this filing, Buzzelli had already received cash compensation from the company during 1999, and, within 30 days of the filing, Buzzelli, along with at least two other directors, received stock compensation. Further, the company had sold over 200,000 shares of common stock at the time the Form 10-SB was filed and over 1.1 million shares by the time the filing went effective, by operation of law, on January 28, 2000. The Form 10-SB was never amended to correct these material misstatements, and NorthStar did not subsequently file any additional filings including periodic reports.

5. By knowingly or recklessly engaging in this conduct, the defendants, directly or indirectly violated, or aided and abetted violations of, the registration, antifraud, reporting, and issuer books and records provisions of the federal securities laws, specifically, 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), 13(a), 13(b)(5), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§78j(b), 78m(a), 78m(b)(5), 78m(b)(2)(A) and 78m(b)(2)(B)], and Rules 10b-5, 13a-1 and 13a-13 thereunder [17  C.F.R. §240.10b-5, 240.13a-1 and 240.13a-13].

6. Relief Defendant Shelia Dutton, the wife of Defendant David Dutton, has received NorthStar investor funds and controls property derived from NorthStar investor funds.

7. The Commission brings this action pursuant to authority conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)], to enjoin the defendants from future violations of the federal securities laws. The Commission also seeks disgorgement of ill-gotten gains from the defendants, plus pre-judgment interest, and civil penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. §77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)].

JURISDICTION

8. The Court has jurisdiction over this action pursuant to Section 22 of the Securities Act [15 U.S.C. §77v] and Section 27 of the Exchange Act [15 U.S.C. §78aa].

9. The defendants, directly or indirectly, have made use of the means or instruments of transportation and communication, and the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange in connection with the acts, practices, and courses of business alleged herein. Certain of the transactions, acts, practices and courses of business alleged herein took place in the Northern District of Texas.

DEFENDANTS

10. Timothy Buzzelli, 45, formerly of Denton, Texas, and currently of Corinth, Texas, became president of NorthStar in October 1999, and served in that capacity until June 2000. Until the Texas Board of Public Accountancy ("Board") revoked his license on March 22, 2001, Buzzelli was a Certified Public Accountant.

11. David Dutton, 47, formerly of Denton, Texas, and currently of Lake Hawkins, Texas, was NorthStar's Vice President of Business Development during Buzzelli's tenure as president. Previously, Dutton had been employed by the City of Denton as a water plant operator.

12. NorthStar Network, Inc., a Washington corporation, had been known as Global Productions, Inc., until it changed its name to NorthStar Network, Inc. in 1999. NorthStar was publicly traded on the Over the Counter Bulletin Board ("OTC-BB"). NorthStar purports to be an Internet service provider and computer company, and NorthStar is currently headquartered in Dallas, Texas, and quoted in the Pink Sheets.

RELIEF DEFENDANT

13. Shelia Dutton, 41, the wife of Defendant David Dutton, holds all the couple's assets, including bank accounts, in her name. From October 1999 through June 2000, David Dutton placed over $180,000 of investor funds, generated through sales of NorthStar stock, in his wife's checking account. Shelia Dutton has also purchased property utilizing investor funds.

STATEMENT OF FACTS

14. From October 1999 through June 2000, Buzzelli and Dutton sold over $1 million worth of NorthStar common stock to approximately 250 investors in numerous states. Buzzelli and Dutton made many of their stock sales through word of mouth, but investors typically paid for stock, and Dutton and Buzzelli distributed stock certificates, through the mail.

15. NorthStar's stock offering was not registered with the Commission, as required under the Securities Act, or in the states in which it was sold.

16. Buzzelli drafted the Executive Summary, which the defendants used as an offering document and as the basis for oral sales presentations to investors. This document included material misrepresentations about NorthStar's technology, patents, its financial condition, and purported lucrative contracts with major telecommunications companies.

17. The Executive Summary falsely claimed NorthStar owned a "patent pending" computer cooling technology called "Flo-Cool," in which numerous defense contractors, such as Boeing, had allegedly demonstrated "enormous interest." In fact, NorthStar did not own the rights to "Flo-Cool" as the company had failed to fulfill the terms of the acquisition agreement with its inventor. Further, there was no "patent pending," for the device's design.

18. The Executive Summary also falsely claimed NorthStar had lucrative contracts with well known, publicly traded telecommunications companies like Motorola and Nortel, which would generate millions of dollars in revenue for the company by the end of 2000. In fact, NorthStar never had a contract of any kind with Nortel, and its contract with Motorola was for consulting services only, for which Motorola was not to pay in excess of $250,000.

19. The unaudited financial statements that NorthStar included in the Executive Summary boasted of $5.6 million in revenues for the twelve-month period ending December 31, 1999. NorthStar's actual revenues for the period, however, were only $632,000.

20. The Executive Summary also contained revenue projections for 2000, 2001 and 2002 of $25.2 million, $37.8 million, and $56.7 million, respectively. There was no reasonable basis for such projections.

21. Buzzelli and Dutton raised in excess of $1 million dollars from investors, ostensibly to finance the development of Flo-Cool and NorthStar's alleged multi-million dollar contracts with telecommunications companies. Bank records reveal, however, that Buzzelli and Dutton used investor funds to acquire personal property and to satisfy personal debts.

22. Dutton deposited funds generated through his fraudulent stock sales into the checking account of Relief Defendant Shelia Dutton. Shelia Dutton subsequently utilized these funds for personal expenditures including, but not limited to, the purchase of a motor vehicle, the purchase of a motor home and the purchase of real property.

23. On November 29, 1999, NorthStar filed a Form 10-SB registration statement with the Commission to register its equity securities pursuant to Section 12(g) of the Exchange Act. The Form 10-SB was signed by Buzzelli, and became effective on January 28, 2000, by operation of law.

24. In the Form 10-SB, NorthStar claimed it had not paid it officers or directors any stock or cash compensation in 1999, and did not anticipate paying any for the remainder of the year. At the time of the filing, however, Buzzelli had already received $5000 in cash from the company. Further, within 30 days of the filing, at least three officers or directors of NorthStar received stock. Buzzelli received a total of 1.5 million shares.

25. NorthStar has filed no periodic reports with the Commission since November 29, 1999. NorthStar has failed to file a form 10K for December 31, 1999, December 31, 2000 and December 31, 2002, and has failed to file a Form 10-Q for the periods ending March 31, 2000, June 30, 2000, September 30, 2000, March 31, 20001, June 30, 2001, September 30, 2001 and March 31, 2002.

26. Nearly all of the company's books and records disappeared at the time Buzzelli left the company in June 2000. NorthStar has failed to maintain books and records or a system of internal accounting controls.

CAUSES OF ACTION

FIRST CLAIM

Violations of Sections 5(a) and 5(c) of the Securities Act

27. The allegations of Paragraphs 1 through 26 of this Complaint are

realleged and incorporated herein by reference , as if set forth verbatim.

28. NorthStar, Buzzelli and Dutton have offered to sell, sold and delivered after sale, certain securities, and have, directly and indirectly: (a) made use of the means and instruments of transportation and communication in interstate commerce and of the mails to sell securities, through the use of written contracts, offering documents and otherwise; (b) carried and caused to be carried through the mails and in interstate commerce by the means of and instruments of transportation such securities for the purpose of sale and delivery after sale; and (c) made use of the means or instruments of transportation and communication in interstate commerce and of the mails to offer to sell such securities.

29. No registration statements under the Securities Act were filed with the Commission or were otherwise in effect with respect to these securities.

30. By reason of the foregoing, NorthStar, Buzzelli and Dutton violated and, unless enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. 77e(a) and 77e(c)].

SECOND CLAIM

Violations of Section 17(a) of the Securities Act

31. The Commission repeats and realleges paragraphs 1 through 26 of this Complaint and incorporates them herein by reference as if set forth verbatim.

32. Defendants NorthStar, Buzzelli and Dutton, in connection with the offer and sale of securities, by use of the means and instrumentalities of interstate commerce and by use of the mails have: (a) employed devices, schemes and artifices to defraud; (b) obtained money or property by means of untrue statements of material facts and 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 (c) engaged in acts, practices and courses of business which operate as a fraud and deceit upon purchasers, prospective purchasers and other persons.

33. Defendants NorthStar, Buzzelli and Dutton made the above-referenced misrepresentations and omissions knowingly or with reckless disregard for the truth.

34. By reason of the foregoing, Defendants NorthStar, Buzzelli and Dutton violated and, unless enjoined, will continue to violate the provisions of Section 17(a) of the Securities Act [15 U.S.C. §77q(a)].

THIRD CLAIM

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

35. The Commission repeats and realleges paragraphs 1 through 26 of this Complaint and incorporates them herein by reference as if set forth verbatim.

36. NorthStar, Buzzelli and Dutton, directly or indirectly, in connection with the purchase and sale of securities, by use of the means and instrumentalities of interstate commerce and by use of the mails have: (a) employed devices, schemes and 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 light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices and courses of business which operate as a fraud and deceit upon purchasers, prospective purchasers and other persons.

37. As part of and in furtherance of their scheme, NorthStar, Buzzelli and Dutton, directly and indirectly, prepared, disseminated or used written offering materials and made oral presentations which contained untrue statements of facts, and which 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, including, but not limited to, those set forth above.

38. NorthStar, Buzzelli and Dutton made the above-referenced misrepresentations and omissions knowingly or with reckless disregard for the truth.

39. By reason of the foregoing NorthStar, Buzzelli and Dutton violated and, unless enjoined, will continue to violate the provisions of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].

FOURTH CLAIM

Violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act And Exchange Act Rules 13a-1 and 13a-13

40. The Commission repeats and realleges paragraphs 1 through 26 of this Complaint and incorporates them herein by reference as if set forth verbatim.

41. NorthStar violated Section 13(a) [15 U.S.C. § 78m(a)] and Rules 13a-1 and 13a-13 thereunder [17 C.F.R. §§ 240.13a-1 and 240.13a-13] by falsely stating in its Form 10-SB that no officer or director had been compensated in stock or cash in 1999. Further, NorthStar failed to correct the false and misleading statements made in that filing in a timely manner, after it knew or should have known the statements were inaccurate.

42. NorthStar further violated Section 13(a) by failing to file subsequent reports as required, namely, by failing to make any further periodic filings with the Commission as required in 1999, 2000 and 2001.

43. NorthStar violated Section 13(b)(2)(A) [15 U.S.C. § 78m(b)(2)(A)] by failing to "make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the issuer" from October 1999 to June 2000.

44. NorthStar violated Section 13(b)(2)(B) [15 U.S.C. § 78m(b)(2)(B)] by failing to "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (a) transactions are executed in accordance with management's general or specific authorization; (b) transactions are recorded as necessary (i) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements and (ii) to maintain accountability for assets; (c) access to assets is permitted only in accordance with management's general or specific authorization; and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences" from the period October 1999 to June 2000.

45. Defendant Buzzelli, who was president of NorthStar from October 1999 to June 2000, aided and abetted NorthStar's violations of Sections 13(a) and 13(b)(2)(A) and Rules 13a-1 and 13a-13 thereunder, by causing NorthStar to file with the SEC materially false statements in a periodic report, namely, its Form 10-SB, as set forth above, and by failing to maintain books and records or by removing or destroying such records when he left NorthStar in June 2000.

46. By reason of the foregoing acts and practices, Defendant NorthStar violated, and Defendant Buzzelli aided and abetted NorthStar's violations, and, unless enjoined, the Defendants will continue to violate and to aid and abet violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.

FIFTH CLAIM

Violations of Section 13(b)(5) of the Exchange Act

47. The Commission repeats and realleges paragraphs 1 through 26 of this Complaint and incorporates them herein by reference as if set forth verbatim.

48. Defendant Buzzelli violated Section 13(b)(5) of the Exchange Act by failing to implement a system of internal accounting controls while he was the president of NorthStar from October 1999 to June 2000, as set forth above.

49. By reason of his foregoing acts and practices, Defendant Buzzelli violated and, unless enjoined, will continue to violate Section 13(b)(5) of the Exchange Act [15 U.S.C. §78(b)(5)].

SIXTH CLAIM

Claim Against the Relief Defendant as Custodian of Investor Funds

50. Plaintiff Commission repeats and realleges Paragraphs 1 through 26 of this Complaint and incorporates them herein by reference as if set forth verbatim.

51. As set forth in Paragraph 22, Relief Defendant Shelia Dutton has received funds and property from one or more of the Defendants, which are the proceeds, or are the traceable proceeds, of the unlawful activities of the Defendants, as alleged in paragraphs 1 through 49 above.

52. The relief defendant has obtained the funds alleged above as part of and in furtherance of the securities violations alleged in Paragraphs 1 through 49 and under circumstances in which it is not just, equitable or conscionable for her to retain the funds and property. As a consequence, the relief defendant has been unjustly enriched.

PRAYER FOR RELIEF

The Commission respectfully requests that this Court issue Orders:

53. Permanently enjoining Defendants NorthStar, Buzzelli and Dutton, and their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them from violating, directly or indirectly, Sections 5(a), 5(c) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)].

54. Permanently enjoining Defendants NorthStar, Buzzelli and Dutton, and their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them from violating Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)], and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].

55. Permanently enjoining Defendant NorthStar, and its officers, agents, servants, employees, attorneys, and those persons in active concert or participation with it from violating, directly or indirectly, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§78m(a), 78m(b)(2)(A) and 78m(b)(2)(B)] and Rules 13a-1 and 13a-13 thereunder [17 C.F.R. §§240.13a-1 and 240.13a-13].

56. Permanently enjoining Defendant Buzzelli, and his officers, agents, servants, employees, attorneys, and those persons in active concert or participation with him from violating or aiding and abetting violations of, directly or indirectly, Sections 13(a) and 13(b)(2)(A) of the Exchange Act [15 U.S.C. §§78m(a) and 78m(b)(2)(A)] and Rules 13a-1 and 13a-13 thereunder [17 C.F.R. §§240.13a-1 and 240.13a-13].

57. Permanently enjoining Defendant Buzzelli and his officers, agents, servants, employees, attorneys, and those persons in active concert or participation with him who receive actual notice by personal service or otherwise, from violating, directly or indirectly, Section 13(b)(5) of the Exchange Act [15 U.S.C. §§78m(b)(5)].

58. Assessing a civil money penalty against Defendants Buzzelli and Dutton pursuant to 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. §_78u(d)(3)].

59. Barring Defendants Buzzelli and Dutton from acting as an officer or director of any issuer required to file reports pursuant to Sections 12(b), 12(g) or 15(d) of the Exchange Act [15 U.S.C. §§78l(b), 78l(g) and 78o(d)], pursuant to Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)].

60. Requiring Defendants Buzzelli and Dutton to disgorge monies or other assets received from investors and income or profit therefrom, plus prejudgment interest on those amounts.

61. Requiring Relief Defendant Shelia Dutton to disgorge money or other assets received by her or subject to her control that constitute investor funds, or property or assets acquired with investor funds.

62. Granting such other relief as this Court may deem just and proper.

_______________________
STEPHEN J. KOROTASH
Oklahoma Bar No.: 5102

Attorney for Plaintiff
SECURITIES & EXCHANGE COMMISSION
801 Cherry Street, Suite 1900
Fort Worth, Texas 76102
(817) 978-3821/-6450
FAX: (817) 978-2700

OF COUNSEL:

SPENCER C. BARASCH
Washington, D.C. Bar No. 388886
JULIA WATSON
Texas Bar No. 00785192

United States Securities and Exchange Commission
801 Cherry Street, Suite 1900
Fort Worth, Texas 76102


http://www.sec.gov/litigation/complaints/comp17695.htm

Modified: 08/23/2002