IN THE UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ( the "Commission") alleges as follows:
1. Alan H. Catalan ("Catalan"), individually and through his company, Going Platinum, Inc. ("Going Platinum"), used the broad reach of the Internet to raise $2.4 million from the sale of nearly 100,000 investment contracts at $25 each from thousands of investors during 2000, 2001 and 2002 in what ultimately became a Ponzi and pyramid scheme, wherein most of the money was misappropriated and approximately $1 million was used to pay obligations to existing investors for their recruitment of new investors.
2. Going Platinum and Catalan (collectively referred to as "Defendants") solicited investors through a combination of false and misleading representations concerning the company and its purported investment program, including but not limited to: false promises of great riches (up to $160,000 per month) in return for a modest investment of $25; false statements about the technical status of the website and its supposed features; false statements about the participationof advertisers and other website vendors; false statements about the sources and availability of financial backing; false statements about the technical and financial viability of the investment program; false statements about the overall financial condition of the company; false statements about the use of investor proceeds; and false statements about whether in fact the investment was a pyramid scheme.
3. Investors in Going Platinum had absolutely no role in managing or otherwise making decisions concerning the business of Going Platinum. Instead, the concept was that, through the efforts of Catalan, the Going Platinum web site would attract advertisers and retailers who would, in turn, provide the revenue that would generate the returns for investors.
4. Contrary to defendants' representations, Going Platinum was little more than an empty shell with no significant revenues other than investor funds.
5. By knowingly or recklessly engaging in the conduct described in this Complaint, defendants Going Platinum and Catalan have violated, and unless restrained and enjoined will continue to violate, Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a); Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b); and Rule 10b-5, 17 CFR § 240.10b-5 thereunder.
6. By engaging in the conduct described in this Complaint, defendants Going Platinum and Catalan have violated, and unless restrained and enjoined will continue to violate, Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and (c).
JURISDICTION AND VENUE
7. The Commission brings this action pursuant to Section 20(b) of the Securities Act, 15 U.S.C. § 77t(b), and Sections 21(d) and (e) of the Exchange Act, 15 U.S.C. §§ 78u(d)and (e), to enjoin such acts, transactions, practices and courses of business; obtain disgorgement and civil penalties; and for other appropriate relief.
8. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.
9. Certain of the acts, transactions, practices and courses of business constituting the violations alleged herein occurred within the Eastern District of Pennsylvania and elsewhere, and were effected, directly or indirectly, by making use of the means and instruments of transportation or communication in interstate commerce, or the means and instrumentalities of interstate commerce, or the mails, or the facilities of a national securities exchange.
10. Alan Harvey Catalan, age 36, is a resident of Lancaster, Pennsylvania. At all relevant times, Catalan was the Chief Executive Officer, Secretary and Treasurer of Going Platinum, Inc.
11. Going Platinum, established in May 2000, is a corporation organized and existing under the laws of the State of Delaware. At all relevant times, Catalan controlled Going Platinum, and acted as the sole owner of the company.
THE DEFENDANTS' FRAUDULENT CONDUCT
12. At all times material hereto, defendant Going Platinum acted by and through defendant Catalan.
13. In April 2000, Catalan introduced Going Platinum and its new website GoingPlatinum.com to the public. Using direct telephone solicitations, e-mails, the Going Platinum website, "spam" messages, and self-serving posts in chat rooms on the world wide web,Catalan boasted that Going Platinum would be a unique and innovative on-line community offering a variety of attractive on-line services in one virtual location. Defendants claimed that the commercial offerings-shopping, advertisements-were potential sources of revenue, and that they planned to share such revenues with those who "joined" as members of the community.
14. Defendants falsely represented that Going Platinum was operating under a highly advanced computer system, with sophisticated servers and other hardware. In fact, Going Platinum began with only a few leased personal computers and did not have its own servers.
15. Defendants falsely represented that "Major" companies, such as MCI/Worldcom and J.P. Morgan were financial backers, and that vendors and advertisers, including Andersen Consulting, were on board.
16. Contrary to the statements that Catalan and those acting pursuant to his direction made, Going Platinum was little more than an empty shell. Indeed, there is no evidence that any company provided significant financial backing to Going Platinum. In fact, other than some loans from Catalan's family members, investors' payments were the only funds that Going Platinum generated.
17. Quite simply, Going Platinum had none of the hardware, software, advertisers, retailers, content, technical personnel or financial backing to make any of the grandiose promises a reality.
18. Moreover, the single most important software feature - the programs required to calculate and track investor returns -- did not exist during 2000, 2001 and most of 2002. Without such tracking software (which was not commercially available), defendants had no way to calculate what share of the company's revenue was generated by members and their recruits.
19. Even if the software had existed, the business model was still fatally flawed. Going Platinum's main source of income was to be advertising dollars paid for the right to place ads on the site, or for "hits" on their ads, or other measures of website traffic. But Defendants' program was based on projected advertising rates that were ten to100 times the going industry rates, and, as a result, it was simply impossible for members to have enough web-surfing activity to ever generate the promised income.
20. To create investment incentives, Catalan developed a multi-level marketing ("MLM") pyramid. Members were encouraged to recruit new members and promised a share of their recruits' earnings.
21. Catalan and Going Platinum represented that investors would become "members" and would receive "positions" that would entitle them to a "10% personal ownership share in the community."
22. Defendants promised that "[j]ust like the Board of Directors of a large publicly traded company works to increase `shareholder value,' the Going Platinum management team will be constantly working to increase `member value.'"
23. The available returns depended upon whether the member joined for free or paid an initial $25 fee.
24. Free members were promised 10% of the revenue generated from his or her use of the Going Platinum website -- clicking banner advertisements, using on-line services, or making purchases from vendors or in the shopping mall. Members were also entitled to a percentage of the revenues paid for their recruits' activities.
25. Catalan proclaimed that "just by telling a few people," new members could grow their "income exponentially."
26. The second, supposedly more lucrative, type of membership into the community was available to those who paid a $25 membership fee.
27. Some investors mailed their investments to Going Platinum at Catalan's direction; other investors made investments using a secure Internet transaction.
28. According to the website, members could earn "up to ten times more money" from Going Platinum by investing, even though they could "play the most passive of roles in the program."
29. The structure of the enterprise purported to allocate website revenue in proportion to the level of each member's investment. Greater revenue was available to members who paid the fees required for additional "positions."
30. Catalan represented that members who paid for ten positions could earn ten times as much as those who joined free and got only one position.
31. Examples on the website purported to demonstrate how a member who started with a $25 investment could earn up to $160,000 per month.
32. Catalan told investors that they did not have to actually recruit new investors in order to receive commissions; rather, Going Platinum promised to create a down-line network for existing members by crediting them with referrals that the member had no role in bringing into the program.
33. Accordingly, the promised success of Going Platinum was not based upon the efforts of each individual investor, but rather on the managerial efforts of Catalan and GoingPlatinum in creating a website that would attract advertisers and retailers who, in turn, would provide the revenue. Investors had no role in managing or making decisions concerning the business of Going Platinum.
34. Between May of 2000 and August of 2001, Catalan and Going Platinum raised approximately $2.4 million from close to 100,000 investors.
35. Although Catalan represented to investors that the fees being collected were segregated, the investor funds were placed into a Going Platinum operating account, and then used to pay operating expenses and recruiting "commissions." Going Platinum sent commission checks by mail and/or wired them directly into investors' bank accounts.
36. Ultimately, the program turned into a pyramid or Ponzi scheme. Defendants used the pooled investor funds to pay approximately $1 million in commissions due to members for recruiting new members.
37. To allay fears that the program was a pyramid scheme, Catalan misrepresented to potential investors on the website that Going Platinum was not a pyramid scheme.
38. Catalan also hid the fact that Going Platinum was losing money. For the year 2000, Going Platinum had operational losses of approximately $560,000 after taxes, and by May of 2001, Catalan was informed that Going Platinum required an influx of cash.
39. In August of 2001, defendants started a new "Platinum Rush" program, offering existing investors the opportunity to increase their share of the revenues by making additional monthly payments of $25. Defendants thereby raised an additional $30,000 to $50,000.
40. In October 2001, Going Platinum's landlord obtained a $1.2 million judgment against the company for nonpayment of rent and the company's leased computer equipment was repossessed.
FIRST CLAIM FOR RELIEF
Violations of Section 17(a) of the Securities Act,
41. The Commission realleges and incorporates by reference each and every allegation in Paragraphs 1 through 40 above as if the same were fully set forth herein.
42. From at least May 2000 and continuing throughout the year 2002, Catalan and Going Platinum, knowingly or recklessly, in connection with the offer, purchase or sale of securities, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce, or the means or instrumentalities of interstate commerce, or the mails, or the facilities of a national securities exchange:
(a) employed devices, schemes or artifices to defraud;
(b) obtained money or property by means of, or made, untrue statements of material fact, or 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
(c) engaged in acts, transactions, practices, or courses of business which operated as a fraud or deceit upon offerees, purchasers and prospective purchasers of securities.
43. By engaging in the foregoing conduct, Going Platinum and Catalan violated 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. § 240.10b5 thereunder.
SECOND CLAIM FOR RELIEF
Violation of Section 5(a) and 5(c) of the Securities Act
44. The Commission realleges and incorporates by reference each and every allegation in Paragraphs 1 through 43 above as if the same were fully set forth herein.
45. From April of 2000 and continuing through the year 2002, as a result of the conduct alleged herein, defendants Catalan and Going Platinum offered for sale and sold securities in the form of investment contracts, and made use of the means and instruments of transportation and communication in interstate commerce, and of the mails, to sell and offer to sell such securities. Defendants Catalan and Going Platinum caused such securities to be carried through the mails and in interstate commerce, by the means and instruments of transportation, for the purpose of sale and delivery after sale.
46. With respect to the securities sold by Catalan and Going Platinum, no registration statements have been filed with the Commission or were in effect at the time of the conduct described herein, and no valid exemption from registration was available.
47. By reason of the foregoing, defendants Catalan and Going Platinum violated and, unless restrained and enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).
WHEREFORE, the Commission respectfully requests that this Court:
Permanently restrain and enjoin Going Platinum and Catalan, and their agents, officers,servants, employees, attorneys, and those persons in active concert or participation with them, directly or indirectly, singly or in concert, from violating of Sections 5(a), 5(c), and 17(a) of the Securities Act, 15 U.S.C. §§ 77(e)(a) and (c); 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.
Order Going Platinum and Catalan to disgorge any and all ill-gotten gains, together with prejudgment interest, derived from the activities set forth in this Complaint, in accordance with a plan of disgorgement acceptable to the Court and to the Commission.
Order Catalan and Going Platinum to pay civil penalties 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), in an amount to be determined by the Court.
Grant such other and further relief as the Court may deem just and appropriate.