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UNITED STATES DISTRICT COURT
CASE NO.
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF Plaintiff, Securities and Exchange Commission ("SEC" or "Commission") alleges that: INTRODUCTION 1. The Commission brings this action to restrain and enjoin Defendants from continuing to violate the federal securities laws in connection with their ongoing, unregistered offering of securities issued by Defendant Virtual Cash Card LLC d/b/a Virtual Cash ("Virtual Cash"), in the form of "Accounts Receivable Purchase Agreements" and promissory notes promising annual returns ranging from 36% to 42%. Virtual Cash is purportedly in the business of "payday advance" loans - short term loans to individuals made through the Internet and retail stores which are presumably repaid in two weeks with a 20% fee. Since at least February 2002, Virtual Cash and its principals, Defendants Eric L. Turner ("Turner") and Kenneth M. May ("May"), have raised at least $1 million from investors nationwide through "independent sales operations," including Defendant Omni Advertising, Inc. ("Omni"), a boilerroom operation run by Defendant Anthony Joseph Pinone ("Pinone") employing unlicensed sales agents. Using offering materials and scripts, sales agents falsely tell prospective investors, among other things, that their investment is safe, will generate returns between 36% to 42%, and is secured by accounts receivables purchased on their behalf. The offering materials further assure investors that Virtual Cash is authorized to operate a payday advance business in the State of Florida. In fact, Virtual Cash is not licensed to operate a payday advance business, has purchased few accounts receivable - many of which have defaulted - and most of the investors proceeds have been used to pay exorbitant, undisclosed commissions, "consulting" fees and salaries to Virtual Cash's principals. Unless immediately restrained and enjoined, Defendants will continue to violate the federal securities laws and place investor funds at serious risk of diversion. DEFENDANTS 2. Defendant Virtual Cash is a Florida limited liability company organized in January 2002, with principal offices located at 3600 South State Road 7, Suite 251, Miramar, Florida 33023. 3. Defendant Turner is 35 years old and resides in Miami, Florida. Turner is the chief executive officer, president, operating manager and treasurer of Virtual Cash. 4. Defendant May is 60 years old and resides in Plantation, Florida. May is Virtual Cash's vice president and secretary. 5. Defendant Omni is a Florida corporation incorporated in January 1978, with its principal office located at 21218 St. Andrews Boulevard, Suite 115, Boca Raton, Florida 33433. 6. Defendant Pinone is 65 years old and resides in Boca Raton, Florida. Pinone is the president of Omni and solicits investor funds for Virtual Cash. RELIEF DEFENDANTS 7. Relief Defendant Virtual Cash Card International, Inc. ("Virtual Cash Int'l") is a Florida corporation incorporated in September 2001, with principal offices located at 3600 South State Road 7, Suite 221, Miramar, Florida 33023. Turner is the chief executive officer, president and secretary of Virtual Cash Int'l. Virtual Cash Int'l has received investors' funds. 8. Relief Defendant Omni Advertising and Marketing, Inc. ("Omni A&M") is a Florida corporation incorporated in October 1985, with principal offices located at the same address as Omni. Omni A&M has received investors' funds. 9. Relief Defendant Kenance Consulting, Inc. ("Kenance") is a Florida corporation located at 2121 SW 82nd Terrace, Plantation, Florida 33317. Kenance's corporate address is located at the same address as May's residence. May is the president of Kenance, which has received investors' funds. JURISDICTION AND VENUE 10. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b), 77t(d) and 77v(a); and 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. 11. This Court has personal jurisdiction over the Defendants and venue is proper in the Southern District of Florida because many of the Defendants' acts and transactions constituting violations of the Securities Act and the Exchange Act occurred in the Southern District of Florida. In addition, the principal offices of Defendants Virtual Cash and Omni are located in the Southern District of Florida, and Defendants Turner, May and Pinone reside in the Southern District of Florida. Relief Defendants Virtual Cash Int'l, Omni A&M and Kenance's principal offices are located in the Southern District of Florida. 12. 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 set forth in this Complaint. THE FRAUDULENT SCHEME I. VIRTUAL CASH'S UNREGISTERED OFFERING 13. Virtual Cash purportedly provides consumers with payday advances in the form of short-term loans obtained through the Internet and retail stores. Virtual Cash purports to provide borrowers with a cash advance for up to $500. In return, the customer authorizes Virtual Cash to debit his or her bank account at a later date -- usually within in two weeks -- for the amount of the loan plus a 20% fee. Virtual Cash's written materials claim to have "immediate funds available for any emergency regardless of credit history through our existing payloan [sic] stores." The written materials also claim that Virtual Cash distributes a "Virtual Cash Debit CardTM" that functions like an ATM card allowing the user to "instantly" gain access to "cash, good or services" including prepaid long distance services. 14. Purportedly to fund the payday advance loans, Defendants have raised money from the general public by offering potential investors securities in the form of "Accounts Receivable Purchase Agreements" and promissory notes offering annual returns ranging from 36% to 42%, and even higher. Virtual Cash has been offering these securities since at least February 2002, and to date has raised at least $1 million from more than 70 investors located throughout the country. 15. Virtual Cash's written offering materials explain that Virtual Cash is "factoring" present and future accounts receivables generated through its loan advance business by raising funds from investors who execute an "Accounts Receivable Purchase Agreement" and promissory note. The Accounts Receivable Purchase Agreement provides for monthly interest payments of 3% (for an annual return of 36%) and provides investors with the option of increasing their return to 42% if they leave their interest to accrue. If an investor is willing to invest a $50,000 minimum, the promised returns are even higher: a 4% monthly return (for an annual return of 48%) or up to 54% if investors leave their interest to accrue. The Virtual Cash investment has a term of 12 months, or longer if the investor chooses to renew the agreement. Virtual Cash's offering materials claim that it can pay such high returns because its payday advance business generates "a minimum of 150% return" on the money the company has available to lend out to its customers. 16. Virtual Cash's securities are being offered and sold to the general public through Omni, which operates an independent boiler room operation. Omni sales agents contact potential investors for Virtual Cash through "cold call" telephone solicitations and through unsolicited e-mails. During sales calls, telemarketers solicit funds from potential investors by emphasizing, among other things, the investment's high returns, the safety of the investment and of Virtual Cash's business, its expansion efforts and affiliations with other businesses. Sales agents also direct potential investors to Virtual Cash's Internet website for more information regarding the investment opportunity. Virtual Cash's website devotes pages to further describing the investment opportunity and the payday advance industry. 17. Omni sales agents send a package of written offering materials to prospective investors who express an interest in investing. The offering materials include, among other things, an introductory letter from Turner describing Virtual Cash as part of the "eighty billion dollar payday industry" and offering investors the opportunity to receive a 3% monthly return (or 4% for for a $50,000 minimum investment), several pages describing Virtual Cash's business and "affiliations," newspaper articles describing the payday advance business in general, an "Accounts Receivable Purchase Agreement," a sample "promissory note" and a document with bank wiring instructions. The promissory note - signed by Defendant Turner - assures investors that the note will be fully collateralized "by an equal amount of accounts receivable." 18. Virtual Cash pays Omni a sales commission rate of 15% on the investor's principal investment. The company also pays May an additional 3% commission override on every dollar raised from investors. 19. No registration statement has been filed or is in effect with the Commission in connection with the securities offered by Virtual Cash. In addition, Virtual Cash does not require that its sales agents be licensed. Although sales agents tell prospects that the minimum investment is $10,000, Virtual Cash has accepted funds from investors for less than that amount. II. MATERIAL MISREPRESENTATIONS AND OMISSIONS IN CONNECTION
A. Use of Investor Proceeds 20. Virtual Cash's offering materials and website falsely represent to investors that their funds will be used for factoring accounts receivable and the materials represent that the investment is 100% secured by collateral. For example, the sample promissory note that is included in Virtual Cash's offering materials states that Virtual Cash "acknowledges that the aggregate note issued will [sic] collateralized by an equal amount of current accounts receivable." Additionally, at least one version of the Accounts Receivable Purchase Agreement represents that "[t]here are no additional costs to Factor related to the purchase of the Accounts Receivables" and assures prospective investors that all costs, charges and fees of "independent factoring agents" "are paid directly by [Virtual Cash] directly from [its] operating account." 21. Virtual Cash and Omni's sales agents, with the knowledge of Turner and May, repeat the same representations regarding use of investor proceeds in oral statements to potential investors. In fact, May and Turner regularly participate in soliciting potential investors. 22. These representations are grossly false and misleading. In fact, bank records show that of the money raised from investors, only $156,000 was actually used to purchase accounts receivable. Most of the proceeds raised from investors have been used to pay operating expenses, salaries to May and Turner, "consulting" fees to a company wholly-owned by May, interest to investors, and sales commissions to sales agents, with a 3% override on all sales to May. 23. Virtual Cash failed to disclose to prospective investors that at least 15% of their funds are being used to pay sales commissions to Omni. Further, Virtual Cash failed to disclose to prospects that May will receive an additional commission of 3% on all investor funds raised. B. Safety and Security of the Virtual Cash Investment 24. Virtual Cash's written materials tell potential investors that the investment is safe, "secured" and "low risk." Turner's cover letter represents that Virtual Cash has "joined the ranks of several successful chains" in the payday advance business, assures investors that Virtual Cash has a "secure business model" and is poised to experience exponential growth. The offering materials further represent that Virtual Cash has signed an agreement with an Internet company that is processing over 300 loans per day. The materials also suggest that the "high yield" returns were available because the business will generate, at a minimum, huge (over 150%) interest in advance fees. 25. Omni sales agents and, on occasion, May and Turner, reinforce these representations concerning the safety of these investments by assuring potential investors that their investment is secured by an equal amount of accounts receivables, and that Virtual Cash is processing many loans and experiencing few defaults. 26. These oral and written representations are blatantly false and misleading. Of the over $1 million raised by investors to date, only $156,000 has been used to purchase accounts receivable. Contrary to representations to investors, Virtual Cash's processes very few loans per day, and many of those end up in default. C. Authority to Transact Business 27. Virtual Cash's offering materials and its website also mislead investors into believing that Virtual Cash is authorized to operate a payday advance business in the State of Florida. Specifically, the company's Accounts Receivable Purchase Agreements states that Virtual Cash "is properly licensed existing business in good standing under the laws of Florida." 28. Under Florida law, a company operating a payday advance business is required to be registered with the state as such. Virtual Cash is headquartered in Florida, but in fact has never been licensed or authorized to conduct its payday advance business in Florida. III. ROLE OF TURNER AND MAY Turner 29. Defendant Turner is the mastermind behind the Virtual Cash offering and as the CEO and president of Virtual Cash, has knowingly or recklessly made, and directed and authorized to be made, the material misrepresentations and omissions to prospective and actual investors set forth above. 30. Both Virtual Cash's offering materials and its website list Turner as the company's founder and chief executive officer. Turner reviewed and approved Virtual Cash's offering materials and website, and knew, or was severely reckless in not knowing, that the offering materials and website contained material misrepresentations and omissions, as set forth above. 31. Turner oversees Virtual Cash's operations and has the final word concerning its fundraising efforts. Turner also manages the day-to-day operations of Relief Defendant Virtual Cash Int'l and its purported loan processing business. 32. Turner has signature authority over the bank accounts for Virtual Cash and Virtual Cash Int'l and controls the movement of funds in those accounts. He signs all interest checks to investors and commission checks to sales agents. 33. Turner also participates in sales solicitations of investors. In particular, Turner speaks with potential investors in situations where a prospect initially expresses uncertainty about investing with Virtual Cash. He also solicits investors in writing. For example, in the introductory letter included in the offering materials, he boasts about how investors will enjoy "substantial monthly returns" with Virtual Cash and that Virtual Cash "expect[s] exponential growth in the months and years ahead." He concludes the letter by inviting the investor to share in this "exciting and profitable opportunity." In addition, Turner's name is listed on the signature line of the sample promissory note that is distributed to potential investors. 34. Turner also communicates with Omni and its sales office, and directs or authorizes Omni's sales agents to disseminate Virtual Cash's materially false and misleading offering materials. May 35. May is the vice-president of Virtual Cash, and has knowingly or recklessly made, and directed and authorized to be made, the material misrepresentations and omissions to prospective and actual investors set forth above. 36. Virtual Cash's offering materials and website describe May as vice-president of Virtual Cash. May signs the "Accounts Receivable Purchase Agreement" included in the offering materials on behalf of Virtual Cash. May reviewed Virtual Cash's offering materials and website and knows, or was severely reckless in not knowing, that the offering materials and website contained material misrepresentations and omissions, as set forth above. 37. As vice-president, May is responsible for dealing with investors and making sure that the fundraising part of the business runs smoothly. For example, May often takes part in soliciting funds from prospects on the telephone. As part of his responsibilities, May oversees the activities of Omni and the processing of commission payments to Omni's sales agents. May also directs or authorizes Omni's sales agents to disseminate Virtual Cash's materially false and misleading offering materials. 38. As set forth above, May receives an undisclosed sales commission of 3% on all monies raised from investors. IV. ROLE OF OMNI AND PINONE 39. Omni is the boiler room operation offering and selling the Virtual Cash investments. Omni has an unknown number of unlicensed sales agents working out of its office. Omni is not registered with the Commission as a broker or dealer. 40. Omni is run and operated by Pinone, who is the president of the company. Pinone has personally participated in the solicitation of Virtual Cash investors. 41. As set forth above, Virtual Cash is paying sales commissions to Omni. Specifically, bank records show that Omni's commissions are paid through a bank account in the name of Omni A&M and that the company has received at least $148,000 in commissions out of investors' funds. V. VIRTUAL CASH'S FRAUDULENT SCHEME IS ONGOING 42. The Virtual Cash offering is ongoing. Bank records show that Virtual Cash has made sales to investors as recent as October 31, 2002. Upon information and belief, sales agents are presently offering and selling Virtual Cash's securities to the public. In fact, a sales agent offered Virtual Cash's securities to a prospective investor on November 19, 2002. Virtual Cash is also currently soliciting investors through its website. COUNT I SALE OF UNREGISTERED SECURITIES IN VIOLATION OF
(As Against All Defendants) 43. The Commission repeats and realleges paragraphs 1 through 42 of this Complaint. 44. No registration statement was filed or in effect with the Commission pursuant to the Securities Act and no exemption from registration exists with respect to the securities and transactions described in this Complaint. 45. Since a date unknown through the present, Defendants Virtual Cash, Turner, May, Omni and Pinone, directly and indirectly, have been: (a) making use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell securities as described herein, through the use or medium of a prospectus or otherwise; (b) carrying securities or causing such securities, as described in this Complaint, to be carried through the mails or in interstate commerce, by any means or instruments of transportation, for the purpose of sale or delivery after sale; and/or (c) making use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise, as described in this Complaint, without a registration statement having been filed or being in effect with the Commission as to such securities. 46. By reason of the foregoing, Defendants Virtual Cash, Turner, May, Omni and Pinone, directly and indirectly, have 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). COUNT II FRAUD IN VIOLATION OF
(As Against Defendants Virtual Cash, Turner & May) 47. The Commission repeats and realleges paragraphs 1 through 42 of its Complaint. 48. Since a date unknown but since at least February 2002 through the present, Defendants Virtual Cash, Turner and May, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce and by use of the mails, in the offer or sale of securities, as described in this Complaint, have been, knowingly, willfully or recklessly employing devices, schemes or artifices to defraud. 49. By reason of the foregoing, Defendants Virtual Cash, Turner and May, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(1). COUNT III FRAUD IN VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT
(As Against Defendants Virtual Cash, Turner & May) 50. The Commission repeats and realleges paragraphs 1 through 42 of its Complaint. 51. Since a date unknown but since at least February 2002 through the present, Defendants Virtual Cash, Turner and May, directly and indirectly, by use of the means and instrumentality of interstate commerce, and of the mails in connection with the purchase or sale of the securities, as described in this Complaint, have been, knowingly, willfully or recklessly: (a) employing devices, schemes or artifices to defraud; (b) making untrue statements of material facts and omitting 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) engaging in acts, practices and courses of business which have operated, are now operating and will operate as a fraud upon the purchasers of such securities. 52. By reason of the foregoing, Defendants Virtual Cash, Turner and May, directly or indirectly, have 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. COUNT IV FRAUD IN VIOLATION OF
(Against Defendants Virtual Cash, Turner & May) 53. The Commission repeats and realleges paragraphs 1 through 42 of its Complaint. 54. Since a date unknown but since at least February 2002 through the present, Defendants Virtual Cash, Turner and May, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce and by the use of the mails, in the offer or sale of securities, as described in this Complaint, have been: (a) obtaining money or property by means of untrue statements of material facts and omissions to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (b) engaging in transactions, practices and courses of business which are now operating and will operate as a fraud or deceit upon purchasers and prospective purchasers of such securities. 55. By reason of the foregoing, Defendants Virtual Cash, Turner and May, directly and indirectly, have violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and 77(q)(a)(3). COUNT V UNREGISTERED BROKER-DEALER IN VIOLATION OF
(As Against Defendants Omni, Pinone and May) 56. The Commission repeats and realleges paragraphs 1 through 42 of its Complaint. 57. Since a date unknown through the present, Defendants Omni, Pinone and May, directly and indirectly, by use of the mails or any means or instrumentality of interstate commerce, while acting as brokers or dealers engaged in the business of effecting transactions in securities for the accounts of others, have been effecting transactions in securities, or induced or attempted to induce the purchase or sale of securities, without registering as broker-dealers in accordance with Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b). 58. By reason of the foregoing, Defendants Omni, Pinone and May, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1). COUNT VI AIDING AND ABETTING VIOLATIONS BY OMNI, PINONE AND MAY
(As Against Defendant Turner) 59. The Commission repeats and realleges paragraphs 1 through 42 of its Complaint. 60. Since a date unknown through the present, Defendant Turner, through the conduct described herein, has knowingly, willfully or recklessly aided and abetted Omni, Pinone and May in, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, while acting as brokers or dealers engaged in the business of effecting transactions in securities for the accounts of others, have been effecting transactions in securities, or induced or attempted to induce the purchase or sale of securities, without registering as broker-dealers in accordance with Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b). 61. By reason of the foregoing, Defendant Turner has aided and abetted, and unless enjoined, will continue to aid and abet violations by Omni, Pinone and May of Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1). RELIEF REQUESTED WHEREFORE, the Commission respectfully requests that the Court: I. Declaratory Relief Declare, determine and find that Defendants Virtual Cash, Turner, May, Omni and Pinone committed the violations of the federal securities laws alleged in this Complaint. II. Temporary Restraining Order, Preliminary and Permanent Injunctive Relief Issue a Temporary Restraining Order, a Preliminary Injunction and a Permanent Injunction, restraining and enjoining: (a) Defendants Virtual Cash, Turner, May, Omni and Pinone, their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them, from violating Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c); (b) Defendants Virtual Cash, Turner and May their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them, from violating Section 17(a)(1) 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; and Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and 77(q)(a)(3); (c) Defendants Omni, Pinone and May, their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them from violating Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1); and (d) Defendant Turner, his agents, servants, employees, attorneys, and all persons in active concert or participation with him, and each of them, from aiding and abetting Omni's or any other person or entity's violations of Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1). III. Disgorgement Issue an Order requiring Defendants Virtual Cash, Turner, May, Omni and Pinone and Relief Defendants Virtual Cash Int'l, Omni A&M and Kenance to disgorge all ill-gotten profits or proceeds that they have received as a result of the acts and/or courses of conduct complained of herein, with prejudgment interest. IV. Penalties Issue an Order directing Defendants Virtual Cash, Turner, May, Omni and Pinone to pay civil money 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. § 78(d)(3). V. Asset Freeze and Accounting Issue an Order temporarily freezing the assets of Defendants Virtual Cash, Turner, May, Omni and Pinone, and Relief Defendants Virtual Cash Int'l, Omni A&M and Kenance until further Order of the Court, and requiring accountings by Defendants Virtual Cash, Turner, May, Omni and Pinone and Relief Defendants Virtual Cash Int'l, Omni A&M and Kenance. VI. Records Preservation and Expedited Discovery Issue an Order requiring Defendants Virtual Cash, Turner, May, Omni and Pinone and Relief Defendants Virtual Cash Int'l, Omni A&M and Kenance to preserve any records related to the subject matter of this lawsuit that are in their custody, possession or subject to their control, and to respond to discovery on an expedited basis. VII. Further Relief Grant such other and further relief as may be necessary and appropriate. VIII. Retention of Jurisdiction Further, the Commission respectfully requests that the 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 Commission for additional relief within the jurisdiction of this Court. Respectfully submitted,
http://www.sec.gov/litigation/complaints/comp17868.htm
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