UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

Plaintiff, Securities and Exchange Commission ("Commission") alleges:

I. SUMMARY OF ALLEGATIONS

1. Defendants, who include a real estate developer, attorneys, securities brokers and mortgage brokers, disseminated false and misleading information to induce investors to buy more than $20 million in risky municipal bonds (the "Bonds") that are now in default. As a result of Defendants' fraudulent scheme, investors may lose as much as half of their initial investment.

2. Holmes Harbor Sewer District (the "Sewer District") on Whidbey Island, Washington issued the municipal bonds at defendants' urging for the stated purpose of facilitating development of a business park in Everett, Washington. The bonds were offered and sold using false and misleading written offering materials. Those materials falsely claimed that there were definite contracts in place to finance, construct and lease the business park. These representations provided false assurance to investors that there was a good chance that the bonds would be repaid. In fact, there were no definite contracts to finance, construct or lease the business park.

3. On October 26, 2000, the Sewer District completed the sale of all of the bonds to an underwriting firm that later sold the bonds to both individual and institutional investors. With the proceeds of the bonds, the developer obtained control of the development property and made undisclosed payments to those who helped promote the fraud. The developer never constructed the project.

4. The Commission brings this action to obtain injunctions against future violations of the securities laws, disgorgement of ill-gotten gains, and civil penalties against all defendants.

II. JURISDICTION AND VENUE

5. The Commission brings this action pursuant to Section 20(b) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77t(b)] and Section 21(d) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78u(d)] to enjoin the Defendants and to obtain other relief.

6. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Sections 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(e) and 78aa]. Defendants, directly or indirectly, have made use of the means and instrumentalities of interstate commerce, or of the mails, in connection with the acts, practices and courses of business alleged in this Complaint.

7. Venue in this District is proper 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]. Certain of the transactions, acts, practices and courses of conduct alleged in this Complaint occurred within the Western District of Washington.

III. THE DEFENDANTS AND THEIR ROLES IN THE FRAUD

8. Defendant Terry Richard Martin ("Terry Martin") is a resident of Mukilteo, Washington. Terry Martin was the leader of the fraud, and was the controlling shareholder of the company responsible for developing the business park.

9. Silver Legacy Corporation, ("Silver Legacy") is a corporation organized under the laws of the State of Washington with its principal place of business in Mukilteo, Washington. It is wholly owned and controlled by Terry Martin and his wife, and was the entity through which Terry Martin received bond proceeds.

10. Silver Sound LLC is a limited liability company organized under the laws of the State of Washington with its principal place of business in Mukilteo, Washington. It is wholly owned and controlled by Terry Martin and his wife, and was designated as the developer of the business park.

11. Jonas David Smith ("Smith") is a resident of Edmonds, Washington. He is an attorney who is licensed to practice law in Washington. In addition to performing legal services for Terry Martin, Silver Legacy Corporation and Silver Sound LLC, Smith held himself out as a partner with Terry Martin in connection with the land acquisition, financing and leasing of the business park.

12. Michael W. McCall ("McCall") is a resident of Elk Grove, California. He is an attorney licensed to practice law in California and Wyoming and, at all relevant times, was an associate at the firm of Schuering, Zimmerman & Scully, LLP, of Sacramento, California. The Sewer District retained McCall as bond counsel, special tax counsel and disclosure counsel. By serving as its counsel, McCall was responsible for informing the Sewer District about the procedure for offering and issuing the bonds, and verifying the accuracy of statements made to the investors.

13. Charles J. Tull ("Tull") is a resident of Bellingham, Washington. He is licensed to practice law in Washington and, at all relevant times, was a partner of the law firm Langabeer, Tull & Lee, P.S., of Bellingham, Washington. In September 1999, the Sewer District retained Tull to serve as bond counsel for the Bonds, and he was later retained as disclosure counsel. Tull's compensation was contingent upon the successful issuance and sale of the Bonds. By serving as its counsel, Tull was responsible for informing the Sewer District about the procedure for offering and issuing the bonds, and verifying the accuracy of statements made to the investors. However, at the time he was retained by the Sewer District, Tull had no prior experience acting as bond counsel or disclosure counsel for any municipal securities offering.

14. IBIS Securities LLC ("IBIS") is a limited liability company organized under the laws of the State of California with its principal place of business in Walnut Creek, California. At all relevant times, IBIS was registered with the Commission as a broker-dealer and a municipal securities dealer and specialized in underwriting municipal securities. In 1999, Martin retained IBIS to assist one or more of Martin's companies in obtaining financing for Martin's real estate projects through the issuance of municipal securities. Under the agreement with Martin, IBIS's fees were contingent upon successful issuance and sale of municipal securities.

15. Kenneth R. Martin ("Ken Martin") is a resident of Concord, California, and, at all relevant times, was the managing member and a control person of IBIS. As manager of Ibis, Ken Martin provided direction and guidance on how to structure the bond offering, and oversaw the offering and sale of the bonds to investors. Ken Martin is not related to Terry Martin.

16. George Tamura ("Tamura") is a resident of San Leandro, California, and, at all relevant times, was a Vice President of IBIS. Along with Ken Martin, Tamura provided direction and guidance on how to structure the bond offering, oversaw the offering and sale of the bonds to the investors, and answered questions from prospective investors about the bonds and the development.

17. Goldman Sig, Inc. is a corporation that was organized under the laws of the State of Washington on October 17, 2000. Its principal place of business isEdmonds, Washington.

18. Signal Mortgage, Inc. ("Signal Mortgage") is a corporation organized under the laws of the State of Washington with its principal place of business inEverett, Washington. Signal Mortgage engages in mortgage loan brokering.

19. John H. White ("White") is a resident of Stanwood, Washington and, at all relevant times, was a Vice President and co-owner of Signal Mortgage. In 1999, Martin asked White to assist Martin and his companies in obtaining construction financing for the development of the business park. Subsequently, White was the Incorporator of Goldman Sig, Inc. and was one of its Directors.

20. Edward L. Tezak ("Tezak") is a resident of Sheridan, Montana. He is an attorney licensed to practice law in Minnesota, Colorado, Montana, and Washington. Tezak agreed to assist White and Signal Mortgage in seeking construction financing for the development of the business park and later agreed with Martin and Signal Mortgage to "verify funds" for a fee. Subsequently, Tezak became a Director of Goldman Sig, Inc.

IV. FACTUAL ALLEGATIONS

A. Terry Martin Enlists The Sewer District To Issue The Bonds

21. The Sewer District is a public corporation and political subdivision of Washington State based on Whidbey Island, in Island County. It supplies water and sewer services to certain communities on Whidbey Island.

22. In 1999, Terry Martin, a developer, attended meetings of the Sewer District and presented his plans for developing the business park, the Silver Sound Corporate Center (the "Project"). Martin described the Project as the acquisition and development of 39.9 acres of vacant land in Everett, Washington for commercial use. During 1999, Terry Martin proposed to the Sewer District's Board of Commissioners that the Sewer District issue bonds to fund the Project in exchange for an administrative fee of $100,000.

23. On May 7, 1999, Terry Martin and Smith engaged a real estate broker to act as Terry Martin's agent and nominee and, in that role, enter into a contract with the owners of the Project property, Marc and Joan Bhend (the "Bhends"), that in essence entitled Terry Martin to purchase the 39.9 acres of the property for $5,950,000. The contract allowed the buyer sixty days to study the feasibility of developing the property before having to close and pay the purchase price. Terry Martin subsequently obtained extensions of the time to close the contract in exchange for increases in the purchase price. The total purchase price for the 39.9-acre Project site eventually increased to $6.2 million.

24. In or about August 1999, the Board of Commissioners held a meeting to consider a resolution authorizing the Sewer District to form an improvement district to issue bonds for the Project. Terry Martin and Smith attended. The Board authorized formation of the improvement district. In that meeting and subsequent meetings, the Board also authorized the Sewer District to retain McCall and Tull and their respective firms to prepare for the offering and issuance of the Bonds.

B. Defendants' Preparation And Dissemination Of The Official Statement

25. Beginning in March 2000, attorneys McCall and Smith and investment banker Ken Martin drafted what is called an Official Statement. The Official Statement is a written document that described to potential investors the Bonds, the developer, the scope and purpose of the Project, and how bond proceeds would be utilized to assist in completing the development. They sent drafts of all, or portions of, the Official Statement to the developer's principal, Terry Martin, a second investment banker, Tamura, the disclosure counsel, Tull, and the mortgage broker, White. The latter group provided comments and feedback on these drafts. McCall, Ken Martin and Smith then sent a Preliminary Official Statement to the underwriter, IBIS.

26. In May 2000, IBIS distributed the Preliminary Official Statement to other municipal securities brokers and to potential investors, including to institutional investors.

27. Also in May 2000, in connection with an anticipated June 2000 sale of the Bonds, Tezak, an attorney, assisted by White and Terry Martin, engaged in an elaborate ruse to create the appearance that White's firm, Signal Mortgage, had found the necessary construction and backup financing for the Project. First, on May 9, 2000, Tezak entered into an agreement with Terry Martin and Signal Mortgage to "work with Terry to allow Terry to verify funds available equal to or greater than $20,500,000." Pursuant to this agreement, Tezak then provided White and Terry Martin with a letter from a clerical employee at Goldman Sachs, a prominent investment banking firm, confirming that certain unidentified accounts had over $20.5 million in securities and cash. Second, at Terry Martin's request, Tezak wrote two letters to a bank that was supposed to receive the "funds" from Goldman Sachs in which he represented that an additional $43 million was available for the Project from the "family of accounts" and that there was a family of accounts "sufficient to secure a sixty-three million, five hundred thousand [dollar] line of credit." A bank, in reliance on Goldman Sachs' and Tezak's letters, then issued a letter confirming the availability of the funds for a loan. White and Terry Martin then gave the letters from Tezak and the bank to the Sewer District, IBIS, McCall, Tull, and Ken Martin, as "proof" that Signal Mortgage had arranged for back-up and construction financing. In reality, none of the money in the accounts had been pledged to the Project. The owner of the accounts had declined to invest in the Project, and had only authorized Tezak to verify the amount of his holdings for some other investment. Terry Martin and Tezak knew that the funds described in the letters had not, in fact, been pledged to the Project. White, Ken Martin, McCall, and Tull were aware that the source of the "funds" was anonymous and knew, or were reckless in not knowing, that such funds had not been pledged in any way to help finance the Project.

28. In June 2000, Terry Martin, attorneys Smith and Tull, investment bankers Ken Martin and Tamura and mortgage broker White met in Seattle, Washington to discuss the Project with potential institutional investors who had received the preliminary Official Statement. At this meeting, Terry Martin and Smith represented that the Project had been fully leased to a large corporation that enjoyed a "AAA" credit rating, but which they were contractually prevented from naming, and that Signal Mortgage had arranged financing to fund backup and construction financing for the Project, but that Signal Mortgage could not disclose the source of this financing. The institutional investors informed Ken Martin that they were not interested in purchasing the Bonds due to the failure to disclose the identity of the purported lessee and the actual source of Signal Mortgage's financing. The Project was put on hold for several months.

29. Beginning in August and continuing through September 2000, Ken Martin, McCall, Tamura, Smith, Terry Martin and Tull rewrote the Preliminary Official Statement. The final draft of the Preliminary Official Statement, dated October 19, 2000, was also provided to Terry Martin, Smith, Ken Martin, Tamura, McCall, Tull, White and they each read it. The drafters then sent the revised Preliminary Official Statement to the Sewer District and IBIS.

30. In October 2000, IBIS distributed the Preliminary Official Statement to other municipal securities brokers and to potential investors.

31. On October 25 and 26, 2000, IBIS "closed" the offering on the Bonds by purchasing them at a discount from the Sewer District, and resold them to investors directly and through other brokers. IBIS gave purchasers of the Bonds an Official Statement that updated the information contained in the Preliminary Official Statement.

32. In connection with the closing and issuance of the Bonds on October 26, 2000, Smith individually, and McCall and Tull on behalf of their respective law firms, executed opinion letters stating that each had reviewed the Official Statement, had examined documents and made inquiries to determine its accuracy and completeness, and that it did not contain any materially untrue statements or omissions. Terry Martin provided a "certificate of the developer" stating that he had reviewed the Official Statement for accuracy, particularly the sections pertaining to the Developer and the Project, and that it did not contain any materially untrue statements or omissions.

33. In connection with the closing, the Sewer District selected a bank to act as Trustee for the funds that IBIS would provide to the Sewer District from its sale of the Bonds, and to collect and disburse the special assessments that the property owners were supposed to make to pay interest and principal on the Bonds in the future.

C. False and Misleading Material Misstatements and Omissions in the Official Statement

1. Material Misstatements and Omissions Regarding The Intended Use Of Bond Proceeds To Acquire The Project Site

34. The Official Statement described the Project site as a 39.9 acre parcel of land in Everett. The Official Statement falsely stated that the developer, Silver Sound, would acquire the entire site prior to or concurrent with the issuance of the Bonds. The Official Statement further misrepresented that the Sewer District would acquire 15 acres of the site for a total cost of $6.2 million paid from Bond proceeds. It also misrepresented that the remaining 24.9 acres of the site would be "segregated and retained by the Developer" for construction of six commercial-use buildings.

35. At closing, $6.2 million of Bond proceeds was paid to the property owners, the Bhends, for the entire 39.9 acre site, not just the 15 acres slated for public improvements. The Bhends then issued two deeds of trust, purporting to convey 15 acres to the Sewer District and 24.9 acres to the developer. However, the Project site was not properly divided into separate 15 acre and 24.9 acre parcels.

36. The misrepresentations concerning the acquisition of the site and the cost of the acquisition were material to investors for several reasons. The legal enforceability of the Bonds and the exemption of interest paid on the bonds from federal taxation were important considerations for investors. Because the Sewer District used the proceeds, in part, to purchase property for private development, there was a risk that the Bonds would not be enforced and there was an additional risk that the Bonds would not qualify for tax-exempt status under federal and state law. Additionally, the developer's financial commitment to the success of the Project was an important consideration for investors. Because the developer did not have a significant financial investment in the Project at the outset, the developer lacked any meaningful incentive to complete the Project and the investors faced increased risk of default on the Bonds.

37. Terry Martin and his companies, Silver Legacy and Silver Sound knew, or were reckless in not knowing, that the Official Statement falsely described the acquisition of the Project site, the use of Bond proceeds, and the conveyance of 15 acres of the property to the Sewer District. Terry Martin knew that the entire Project site would be acquired with Bond proceeds because he personally negotiated and executed a land purchase agreement with the property owners for the purchase of the entire Project site for $6.2 million. Terry Martin and his companies knew that Silver Sound would acquire the property for no cost. Further, Terry Martin attended meetings with other Project and Bond participants where he was informed that it was illegal to use municipal bond proceeds to purchase private land. Finally, Terry Martin and his companies knew that the property would not be segregated unless and until the City of Everett approved a development plan for the Project. They also knew that no development plan had been approved by the City of Everett at the closing of the Bonds.

38. Smith knew, or was reckless in not knowing, that the statement that 15 acres of public land would be purchased with $6.2 million in Bond proceeds was false and misleading. Smith assisted Terry Martin in negotiating and finalizing the land purchase agreement with the Project site's current owners for the purchase of 39.9 acres for $6.2 million, and was aware that the developer would acquire the land for no cost. Furthermore, Smith attended meetings with other Project and Bond participants where he was informed that it was illegal to use municipal bond proceeds to purchase private land.

39. McCall also knew, or was reckless in not knowing, that $6.2 million in bond proceeds purchased 39.9 acres of land and not the 15 acres represented in the Official Statement. Prior to the closing of the Bond sale, the Chairman of the Sewer District specifically asked McCall whether it was permissible to use bond proceeds to purchase land for Terry Martin. From prior experience and practice, McCall knew that it was illegal to use proceeds from the sale of tax-exempt municipal bonds to purchase land for a private activity or purpose and that such use jeopardized the tax-exemption for the Bonds. Nevertheless, on October 25, 2000, McCall signed escrow instructions directing the trustee to wire $6.2 million of bond proceeds to the property owners of the Project site for the purchase of 39.9 acres of land.

40. Tull also knew, or was reckless in not knowing, that $6.2 million in bond proceeds was going to be used to purchase 39.9 acres of land and not the 15 acres represented in the Official Statement. Tull co-signed escrow instructions directing the bond trustee to wire $6.2 million of bond proceeds to the Project site's current owners for the purchase of 39.9 acres of land. Furthermore, Tull attended meetings with other Project and Bond participants where he was informed that it was illegal to use bond proceeds to purchase private land. Tull also knew, or was reckless in not knowing, that the Official Statement falsely represented that the land would be segregated to provide a separate 15-acre parcel to the Sewer District. Tull knew that the property would not be segregated unless and until the City of Everett approved a development plan for the Project. He knew that no development plan had been approved by the City of Everett at the closing of the Bonds.

41. Ken Martin and Tamura, knew, or were reckless in not knowing, that the Official Statement falsely represented that 15 acres of land was being purchased with $6.2 million in bond proceeds. Both Ken Martin and Tamura received and reviewed copies of the land purchase agreement with the Project site's owners. That agreement plainly states that 39.9 acres of land would be acquired for $6.2 million.

2. Misrepresentations Regarding Goldman Sachs' Purported Involvement in the Project's Financing

42. The Official Statement represented that "Goldman Sachs, Private Client Services and Signal Mortgage, Inc. had formed Goldman/Sig LLC as a participating mortgage lender for the [Project]." This statement was materially false and misleading.

43. Goldman Sachs, Private Client Services ("Goldman Sachs") had no involvement with the Bonds or the Project, and did not participate in the formation of Goldman/Sig LLC. No entity by the name Goldman/Sig LLC exists. A similarly named entity, Goldman Sig, Inc., is a Washington State corporation that was formed on October 17, 2000, nine days before the Bonds closed. White, an owner of Signal Mortgage, signed the articles of incorporation for Goldman Sig, Inc. Tezak, an attorney, assisted White in setting up the corporation and served with White as a director.

44. The misrepresentations regarding Goldman Sachs and Goldman/Sig LLC were material because Goldman Sachs is an established and widely recognized international investment banking and brokerage firm, and the statements gave investors assurance that a well-respected financial institution had sufficient confidence in the Project to lend money to it through Goldman/Sig LLC.

45. Terry Martin, knew, or was reckless in not knowing, that the Official Statement falsely described Goldman Sachs as having formed Goldman/Sig LLC. Terry Martin asked White and Tezak to incorporate Goldman Sig, Inc. and knew that they alone had formed Goldman Sig, Inc. Terry Martin insisted that White and Tezak use the name "Goldman" in order to create the false appearance that Goldman Sachs, Inc. had participated in the formation of Goldman/Sig LLC.

46. White, Tezak and Smith knew, or were reckless in not knowing, that the Official Statement falsely described Goldman Sachs as having formed Goldman/Sig LLC. White and Tezak had set up the corporation as Martin instructed them, using the "Goldman" name. Smith drafted the articles of incorporation for Goldman Sig, Inc. and filed them with Washington's Secretary of State. Thus, White, Tezak and Smith each knew, or was reckless in not knowing that, Goldman Sachs had no relationship to Goldman Sig, Inc. and that Goldman/Sig LLC did not exist.

47. McCall knew, or was reckless in not knowing, that the Official Statement falsely described Goldman Sachs as having formed Goldman/Sig. In the opinion letter he wrote on behalf of his law firm to the Sewer District, McCall stated that he had met with representatives of Goldman/Sig LLC. McCall also reviewed copies of the incorporation papers for Goldman Sig, Inc. and thus knew, or was reckless in not knowing that, Goldman Sachs had no relationship to Goldman Sig, Inc. and that Goldman/Sig LLC did not exist.

48. Tull knew, or was reckless in not knowing, that the Official Statement falsely described Goldman Sachs as having formed Goldman/Sig LLC. In the opinion letter Tull wrote on behalf of his law firm to the Sewer District, Tull stated that he had met with representatives of Goldman/Sig LLC. Tull also reviewed copies of the incorporation papers for Goldman Sig, Inc. and thus knew, or was reckless in not knowing that, Goldman Sachs had no relationship to Goldman Sig Inc. and that Goldman/Sig LLC did not exist.

3. Misrepresentations Regarding the Existence of Construction and Mortgage Financing for the Project

49. The Official Statement represented that the Developer entered into an agreement with "Goldman/Sig LLC to fund infrastructure construction and office building construction through completion and provide long-term mortgage financing." This statement was materially false and misleading.

50. No funds were ever committed to fund the construction of the Project, Goldman/Sig LLC did not exist, and Goldman Sig, Inc. lacked the financial ability to fund these loans.

51. The statement regarding construction funding was material because it created the appearance that the Developer had already obtained the financing required to build the Project through to completion - estimated at $45 million - and that construction of the office buildings could begin as soon as the offering closed. The statement regarding "long-term mortgage financing" was also material in that the District and potential investors were told that Goldman/Sig LLC had agreed to provide $20 million in back-up financing to pay off the Bonds in the event that the property owner defaulted in paying the assessments.

52. Tezak and Terry Martin knew, or were reckless in not knowing, that the representation in the Official Statement regarding construction funding was false when made because each knew that Signal Mortgage had never obtained any true commitment of financing for the Project and that Martin instructed Tezak to prepare the phony letters in May 2000 to make it appear that such financing existed.

53. Smith, White, Ken Martin, McCall, and Tull knew, or were reckless in not knowing, that the representation in the Official Statement regarding construction funding was false when made. Before the October 2000 closing, Tezak had provided his phony letters to White and Smith. Smith, in turn had provided copies of the letters to McCall and Tull and showed them to Ken Martin. McCall, Smith, Tull, White and Ken Martin each knew, based on the contents of the letters, that the letters did not represent a true commitment of funds or a loan. Despite this knowledge, none of them took steps to ascertain whether any funds existed for the purported Goldman/Sig LLC loans.

4. Misrepresentations Regarding the Lease, the "Lessee" and the Appraised Value of the Project

54. The Official Statement represented that the Developer "has executed a lease for all six of the Development Buildings within the Silver Sound Campus to a Texas-based international project consultant firm named R.A. King, Inc." The Official Statement also included an appraisal that estimated the future value of the Project at $90 million. One of the methods used in the appraisal to estimate a future value for the property was an "income capitalization" approach. In this regard, the appraiser reported that the developer had entered into a lease agreement covering the entire property to a single, unidentified tenant and that the tenant had a "Triple A (corporate) credit rating." The appraiser identified this information as an "extraordinary assumption" which, if inaccurate, could alter the opinion of value. The statements regarding the lease and credit rating were false and misleading and the appraisal opinion was therefore unsupported.

55. The representations in the Official Statement regarding the lease and the appraised value were false. During negotiations concerning a possible lease of the property, R.A. King's principal told Terry Martin that her firm would not enter into a lease, but would only agree to an option to lease. On or about September 26, 2000, Terry Martin signed a Mutual Agreement to Terminate Lease allowing R.A. King to unilaterally terminate the lease at will and for any reason. R.A. King signed a lease to occupy the completed Project subject to the rights it held under the Mutual Agreement. Accordingly, R.A. King had no binding obligation to make payments under the lease agreement.

56. R.A. King did not have an AAA credit rating. At the time of the closing, R.A. King did not have any credit rating by any commercial rating firm. At the time of the closing, R.A. King had a total of six employees and annual revenues of approximately $600,000.

57. The statements regarding the lease and the appraised value were material to investors because an agreement to lease the Project demonstrated that it would be successful and the Bonds would be repaid. Additionally, the $90 million appraisal of the Project gave investors assurance that a valuable commercial operation would be responsible for the repayment of the principal and interest on the Bonds.

58. Terry Martin knew, or was reckless in not knowing, that the Official Statement misrepresented the terms of the lease because R.A. King could cancel the lease at will. Terry Martin also knew that the enforceability of the lease was a key assumption underlying the appraisal opinion and that the appraisal opinion was therefore unsupported.

59. Smith knew, or was reckless in not knowing, that the Official Statement failed to disclose that R.A. King could cancel the lease at will. On or about September 26, 2000, Smith drafted the Mutual Agreement to Terminate Lease, had Terry Martin sign it, and then forwarded it to R.A. King.

60. Attorneys McCall and Tull, and investment bankers Ken Martin and Tamura each knew, or was reckless in not knowing, that R.A. King did not have an AAA credit rating and that the $90 million appraised valuation of the Project was unsupportable. In performing his due diligence for the Bonds, none of them examined R.A. King's credit rating, but instead reviewed information about R.A. King on the Internet. This information was insufficient to support any conclusion that R.A. King had an AAA credit rating or had any ability to pay $800,000 per month to lease the Project.

5. Misrepresentations Regarding The Project Contractor

61. The Official Statement represented that the Developer had entered into a contract with a prominent and respected construction firm, Howard S. Wright, to build the Project, and that Howard S. Wright had agreed to serve as the general contractor. These statements were false and misleading.

62. Terry Martin knew, or was reckless in not knowing, that the Official Statement falsely described Howard S. Wright as the general contractor. Prior to the closing, Terry Martin had only preliminary discussions with Howard S. Wright. Howard S. Wright did not enter into a contract to build the Project and did not agree to serve as the general contractor. Representatives from Howard S. Wright told Terry Martin that their firm would not agree to a binding contract until specific building plans had been created and specific costs designated in accordance with those plans.

63. Smith knew, or was reckless in not knowing, that the Official Statement falsely described Howard S. Wright as having entered into a contract to build the Project, and serve as general contractor. Terry Martin told Smith that Howard S. Wright would not agree to enter into a binding contract until specific building plans had been created and specific costs designated in accordance with those plans.

6. Undisclosed Payments to Certain of the Offering's Participants

64. The Official Statement contained a specific representation that the costs of issuance of the Bonds was $1,740,220, including the underwriter's discount, legal fees and expenses, and Trustee fees. The Official Statement contained a separate specific disclosure that the underwriter, IBIS, would receive $600,750 through an underwriter's discount on the purchase of the Bonds. These statements were materially false and misleading because they did not disclose that Terry Martin and his companies, Silver Legacy and Silver Sound, intended to use, and in fact used, at least an additional $355,000 in bond proceeds to provide further compensation to the underwriter, IBIS and attorneys McCall, Tull and Tezak at or shortly after the closing.

65. The Official Statement falsely stated that the Trustee would pay the developer from a Construction and Acquisition Escrow fund only on certification to the Sewer District. Pursuant to this process, the Sewer District authorized payment of $1.24 million to the developer based upon Terry Martin's representation that it was for reimbursement of prior costs that he claimed to have already incurred to benefit the public portion of the Project. In truth, Terry Martin had not actually incurred any costs to develop the public portion of the Project, and had not provided any documentation to the Sewer District to substantiate these costs.

66. At closing, the Trustee, on instructions prepared by McCall and signed by a Sewer District commissioner, wired the following Bond proceeds to the following firms or individuals: (1) $6.2 million to the existing property owners of the Project site in order to purchase all 39.9 acres in the Project site; (2) $140,000 to McCall's law firm for payment of his services as bond and disclosure counsel; (3) $100,000 to Tull's law firm for payment of his services as disclosure counsel; (4) $215,000 to Signal Mortgage, for purportedly arranging back-up and construction financing; and (5) $1.24 million to Silver Legacy's bank account at Wells Fargo Bank.

67. At closing, or shortly thereafter, Terry Martin used some of the $1.24 million in Bond proceeds that he received to make the following payments to the other participants in the offering: (1) he paid $60,000 to Tull; (2) he paid $45,000 to McCall; (3) he paid $200,000 to IBIS; and (4) he paid $50,000 to Tezak.

68. The misrepresentations in the Official Statement concerning the use of bond proceeds were material to investors. The costs of the offering, the timing and amount of payments to the developer, and the controls on payments of bond funds are all important considerations for investors. The early payment to the developer and the additional payments by the developer to the professionals that participated in the Bond offering reduced the amount of funds available for construction of public improvements and increased the risk that the Project could not be completed and that the investors would not be repaid. In addition, the circumvention of controls on payments to the developer created a risk that bond proceeds would not be spent as disclosed.

69. Terry Martin knew, or was reckless in not knowing, that the Official Statement misrepresented the use of the bond proceeds because it did not reveal that the developer would be paid $1.24 million in bond proceeds at closing. Terry Martin also knew that the developer had presented no documentation to the Sewer District to substantiate his claim that he had incurred costs for the public improvements prior to the closing.

70. On October 26, 2000, the day of the closing, Terry Martin provided McCall with a check in the amount of $45,000.00. This check was paid out of funds wired to Terry Martin at closing. Terry Martin and McCall knew, or were reckless in not knowing, that the Official Statement was materially misleading for failing to disclose that these bond proceeds were being paid to McCall.

71. On October 25, 2000, during the closing, Tull's brother and law partner stated in a telephone call that he wanted to review all of the closing documents before Tull signed a representation letter on behalf of their law firm. After this telephone call, Terry Martin provided Tull with a check in the amount of $60,000.00, and Tull signed the representation letter without having his brother review the closing documents. Terry Martin used bond proceeds to cover the check he gave to Tull. Terry Martin and Tull knew, or were reckless in not knowing, that the Official Statement was misleading for failing to disclose that these bond proceeds were being paid to Tull.

72. Terry Martin and Tezak knew, or were reckless in not knowing, that the Official Statement was misleading for failing to disclose that Bond proceeds were going to be paid to Tezak to compensate him for his participation in the offering and in the formation of Goldman Sig, Inc. pursuant to the May 9, 2000 agreement. On October 30, 2000, Terry Martin gave Tezak a $50,000 check that was paid out of Bond proceeds.

73. Terry Martin, investment bankers Ken Martin and Tamura and the underwriter, IBIS, each knew, or was reckless in not knowing, that the Official Statement misrepresented the compensation to be paid to IBIS. Two days before the closing, on October 24, 2000, Ken Martin and Tamura met with Terry Martin and requested a payment of $200,000 from the developer. On October 30, 2000, a few days after the closing, Terry Martin paid IBIS Securities $200,000 by cashier's check, using bond proceeds to fund the payment. This payment was made pursuant to the "professional services agreement" between Terry Martin and IBIS dated January 1999.

D. Subsequent Developments Concerning The Bonds And The Project

74. No commercial buildings have been constructed on the Project property. The project has generated no revenue and the developer has made no payments of interest or principal to investors in the Bonds.

75. On February 24, 2003, the Superior Court of the State of Washington for Island County, in Trimble v. Holmes Harbor Sewer District et al., ruled that the Sewer District lacked the authority under Washington law to issue the Bonds, that the bond offering was illegal and, as a result, the Bonds are void.

CLAIMS FOR RELIEF

FIRST CLAIM

Fraud in Connection with the Purchase or Sale of Securities
(Section 10(b) of the Exchange Act and Rule 10b-5
against all Defendants)

76. The Commission realleges and incorporates by reference the allegations contained in paragraphs 1 through 75.

77. Defendants, by engaging in the conduct described in paragraphs 1 through 75, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or of the mails, or the facilities of a national exchange, in connection with the purchase or sale of municipal securities, with scienter: (a) employed devices, schemes, or artifices to defraud, (b) made untrue statements of material fact or 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, or (c) engaged in transactions, act, practices or courses of conduct which operated as a fraud or deceit upon other persons.

78. By reason of the foregoing conduct, defendants violated, and unless permanently 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] promulgated thereunder.

SECOND CLAIM

Fraud in the Offer or Sale of Securities
(Section 17(a) of the Securities Act against all Defendants)

79. The Commission realleges and incorporates by reference the allegations contained in paragraphs 1 through 75.

80. Defendants, by engaging in the conduct described in paragraphs 1 through 75, directly or indirectly, in the offer or sale of municipal securities, by the use of means or instrumentalities of transportation or communications in interstate commerce or of the mails: (1) with scienter, employed devices, schemes or artifices to defraud; (2) obtained money or property by means of untrue statements of material fact or by omitting 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 (3) engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon the purchasers of such securities.

81. By reason of the foregoing transactions, acts, practices and courses of conduct, defendants violated, and unless permanently enjoined, will continue to violate Section 17(a) of the Securities Act [15 U.S.C. §77q(a)].

THIRD CLAIM

Aiding and Abetting
(Section 20(e) of the Exchange Act against Tezak,
White, Signal Mortgage, and Goldman Sig Only)

82. The Commission re-alleges and incorporates by reference the allegations in paragraphs 1 through 75.

83. Defendants Terry Martin, Silver Sound, and Silver Legacy, directly or indirectly, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce, or of the mails, with scienter (a) employed devices, schemes, or artifices to defraud; (b) made untrue statements of material facts 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, practices, or courses of business which operated or would operate as a fraud or deceit upon other persons, including purchasers and sellers of securities.

84. Defendants Tezak, White, Signal Mortgage, and Goldman Sig, Inc. by engaging in the conduct described in paragraphs 1 through 75, knowingly provided substantial assistance to Terry Martin, Silver Sound, and Silver Legacy's violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5], and therefore, pursuant to Section 20(e) of the Exchange Act, violated those provisions.

FOURTH CLAIM

Violations of Rules of the Municipal Securities Rulemaking Board
(Section 15B of the Exchange Act
[15 U.S.C. §78o-4] against IBIS)

85. The Commission re-alleges and incorporates by reference the allegations in paragraphs 1 through 75.

86. As a municipal securities dealer, IBIS did not deal fairly with its customers who purchased the Bonds.

87. For the reasons stated above, IBIS, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or of the mails, effected transactions in, or induced or attempted to induce the purchase or sale of municipal securities in contravention of Rule G-17 of the Municipal Securities Regulation Board.

88. For the reasons stated above, IBIS, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or of the mails, effected transactions in, or induced or attempted to induce the purchase or sale of municipal securities in contravention of Rule G-17 of the Municipal Securities Regulation Board.

89. By reason of the foregoing transactions, acts, practices and courses of conduct, IBIS violated, and unless permanently enjoined will continue to violate, Section 15B of the Exchange Act [15 U.S.C. §78o-4].

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that this Court:

I.

Enjoin Terry Martin, Silver Legacy, Silver Sound, Smith, McCall, Tull, Ken Martin, Tamura, Tezak, White, Goldman Sig and Signal Mortgage from violating Section 17(a) of the Securities Act [15 U.S.C. §§ 77q(a)], Sections 10(b) of the Exchange Act [15 U.S.C. §78j(b), and 78t] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].

II.

Enjoin IBIS from violating Section 17(a) of the Securities Act [15 U.S.C. §§ 77q(a)], Sections 10(b) and 15B(c)(1) of the Exchange Act [15 U.S.C. §78j(b), and 78t], and Rule 10b-5 [17 C.F.R. §240.10b-5], and Municipal Securities Rulemaking Board Rule G-17 thereunder.

III.

Order Terry Martin, Silver Legacy, Silver Sound, Smith, McCall, Tull, Tezak, White, Signal Mortgage, Goldman Sig, IBIS, Ken Martin, and Tamura, jointly and severally, to disgorge their ill-gotten gains in an amount according to proof, plus prejudgment interest thereon.

IV.

Impose civil money penalties on each defendant pursuant to Section 20(d)(1) of the Securities Act [15 U.S.C. §77t(d)(1)] and Section 21A of the Exchange Act [15 U.S.C. §78u-1].

V.

Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered, or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court.

VI.

Grant such other and further relief as this Court may deem just, equitable, and necessary.

Dated: August 27, 2003