UNITED STATES DISTRICT COURT
Securities and Exchange Commission,
PRESTO TELECOMMUNICATIONS, INC. and ALFRED LOUIS VASSALLO, JR., aka BOBBY VASSALLO,
COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
Plaintiff Securities and Exchange Commission ("Commission") alleges as follows:
1. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e) and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d)(1), 78u(d)(3)(A), 78u(e) & 78aa. Defendants have, directly or indirectly, made use of the means or instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange, in connection with the transactions, acts, practices and courses of business alleged in this complaint.
2. Venue is proper in this district 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, because certain of the transactions, acts, practices and courses of conduct constituting violations of the federal securities laws occurred within this district.
3. This matter involves the ongoing, fraudulent, unregistered offer and sale of at least $11 million worth of Presto Telecommunications, Inc. ("Presto") common stock by Alfred Louis Vassallo, Jr., aka Bobby Vassallo ("Vassallo") (collectively, the "defendants"). Presto purports to be an international telecommunications company "positioned to become Latin America's Premier Integrated Communications Provider...." Vassallo is Presto's founder, president, chief executive officer, and chairman of the board of directors.
4. From at least 1998 to the present, Presto and Vassallo have offered and sold Presto common stock to some 800 investors in 42 states and raised at least $11 million. The defendants have falsely represented that (1) Presto has business relationships with telecommunications companies such as AT&T Corporation ("AT&T"), Sprint Corporation ("Sprint"), MCI Corporation ("MCI"), and Qwest Communications International, Inc. ("Qwest"), and that one or more of those companies have expressed interest in acquiring Presto or making a capital investment in Presto; (2) Presto has "alliances" or is a "partner" with telecommunications equipment makers Cisco Systems, Inc. ("Cisco") and Unisys Corporation ("Unisys"); (3) the United States Department of Commerce ("Commerce Department") was making a "push" with Mexican telecommunications regulators on Presto's behalf; and (4) investor funds would be used to build and operate Presto's network in Mexico.
5. Contrary to the defendants' representations, (1) AT&T, Sprint, MCI, and Qwest have never done business with Presto, and none has expressed an interest in acquiring Presto or making a capital investment in Presto; (2) Cisco and Unisys have never had alliances or partnerships with Presto; (3) the Commerce Department has never agreed to take any action on Presto's behalf in Mexico; and (4) while the defendants represented that investor funds would be used to pay for legitimate business expenses, primarily fiber optics and equipment, only 16% of investor and company funds were spent on equipment and fiber, and Vassallo misappropriated at least $1.2 million in investor and company funds for personal expenses.
6. In addition, the defendants failed to disclose to investors that a license granted to Presto's Mexican subsidiary in 1998 to operate a commercial telecommunications network in Mexico was the subject of revocation proceedings that commenced in November 2001. Only after learning of the Commission's investigation did Presto and Vassallo inform investors in November 2003 of the revocation proceedings that had been pending for two years.
7. The defendants, by engaging in the conduct described in this complaint, have violated the securities registration provisions, Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§77e(a) and (c), and the antifraud provisions of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), and 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.
8. By this complaint, the Commission seeks a temporary restraining order, preliminary and permanent injunctions, disgorgement with prejudgment interest and civil penalties against the defendants. The Commission also seeks an asset freeze against the defendants, an accounting, an order preventing destruction of documents, and the appointment of a receiver over Presto.
9. Presto is a Delaware corporation with its principal place of business in San Diego, California. It has about five employees and virtually no operations. Presto purports to be a telecommunications company and claims on its website (www.prestotel.com) that it is "positioned to become Latin America's Premier Integrated Communications Provider through its Next Generation Internet Protocol (IP) Network." Presto is the 49% owner of Presto Telecomunicaciones, S.A. de C.V. ("Presto Mexico"), a Mexican entity, which, in 1998, was granted a license by the Mexican government to operate a commercial telecommunications network in Mexico. Presto is not registered with the Commission in any capacity, and no registration statement has been filed or is in effect with respect to the offer and sale of Presto's securities.
10. Alfred Louis Vassallo, Jr., aka Bobby Vassallo, age 53, resides in La Jolla, California. He is Presto's founder, president, chief executive officer, and chairman of the board of directors. Vassallo has never held any securities licenses.
11. Since at least 1998, Presto and Vassallo have offered and sold Presto common stock to at least 800 investors in 42 states. The defendants have raised at least $11 million from investors.
12. Investor funds have been deposited into bank and brokerage accounts over which Vassallo exercises signatory authority. Vassallo has offered and sold Presto stock through a network of family, friends, and acquaintances of existing investors. Vassallo has offered and sold Presto stock directly from the company and by selling his own "founder's" shares. Vassallo has also provided Presto stock to individuals and entities that have loaned funds to Presto or to him personally.
13. Presto currently uses an Internet website (www.prestotel.com) to promote its business and its purported alliances with telecommunications equipment makers, including Cisco and Unisys. Vassallo is responsible for the content of the website, which he uses to communicate information to shareholders. Similarly, Presto and Vassallo have represented in investor newsletters and business plans that Cisco and Unisys are Presto "partners" and that Presto has "strategic alliances" with both companies.
14. The defendants' solicitation of investors is currently ongoing. Recent bank statements for Presto Mexico's California account at the Bank of America show investor deposits in this account from August 2003 through early January 2004.
15. From at least October 2000 to the present, the defendants have verbally represented to investors that Presto carries telecommunications traffic for telecommunications companies, including AT&T, Sprint, MCI, and Qwest. The defendants also falsely represent that one or more of those companies have expressed an interest in acquiring Presto or making a capital investment in Presto. For example, as recently as December 2003, Vassallo represented that a $2 million capital investment in Presto from Qwest was imminent; that Presto was carrying traffic for AT&T; and that Presto is likely to be acquired by AT&T, MCI, or Sprint within six months. Vassallo previously made similar representations to investors about a takeover of Presto by Qwest, Sprint, or AT&T, and that Presto carried telecommunications traffic for Qwest and AT&T. These representations are false. AT&T, Sprint, MCI, and Qwest have not done business with Presto and have never discussed an acquisition of, or investment in, Presto. Vassallo knew or was reckless in not knowing that were no such business relationships with AT&T, Sprint, MCI, and Qwest.
16. From at least December 2002 to the present, Presto has had posted on its website a page called "Alliances," which features the logos of Cisco and Unisys and links users to those companies' websites. Presto has made similar representations about "partnerships" and "alliances" with Cisco and Unisys in its investor newsletters and business plans. The representations about partnerships and alliances with Cisco and Unisys are false. Cisco and Unisys have never entered into any alliance or partnership with Presto. Vassallo knew or was reckless in not knowing that were no alliances or partnerships with Cisco and Unisys.
17. In July 2003, Presto's board of directors, of which Vassallo is chairman, sent investors an unsigned letter that represented that Presto was lobbying the Mexican telecommunications regulators to secure a "start of operations certificate" and that its effort was being complemented by a "push" from the Commerce Department. Presto's November 2003 newsletter to investors repeats the representation. These representations are false. The Commerce Department has never undertaken any efforts to assist Presto in resolving Presto's regulatory problems in Mexico or elsewhere. Vassallo knew or was reckless in not knowing that the Commerce Department was not making a "push" on Presto's behalf.
18. From at least October 2000 to the present, Presto and Vassallo have verbally represented to investors that their investment would be used to purchase telecommunications equipment and fiber optics necessary to commence and run network operations. Investors were never told, however, that Vassallo would treat Presto's bank and brokerage accounts as his own. Presto raised at least $11 million from investors and it received at least $1.8 million from unidentified sources. Of those funds, only 16%, or $2 million, was used for optical networking equipment and fiber optics. Vassallo spent at least $1.2 million of investor and company funds to support a lavish lifestyle that included jewelry, automobiles, a down payment on a home, mortgage payments, home improvements, political and charitable contributions, and private school tuition for Vassallo's children, one of whom attended school in Switzerland. Another $2.4 million cannot be accounted for, but of that amount, at least $800,000 was withdrawn in cash from accounts that Vassallo controlled. Another $2.1 million was refunded to investors, and the balance spent on business expenses such as payroll and rent. Vassallo knew about these payments because he controlled Presto's accounts.
19. In November 1998, the Mexican government granted Presto's Mexican subsidiary a license to operate a commercial telecommunications network in Mexico. Under the license, the subsidiary had to commence network operations within 365 days after the license was granted. The subsidiary did not start operations by the deadline and was granted a 180-day extension. Despite the extension, the subsidiary failed to commence operations.
20. In November 2001, Mexican regulators initiated an administrative proceeding to revoke the license and Vassallo was served with a notice of the initiation of the revocation proceeding.
21. From November 2001 to at least November 2003, despite having actual notice of the revocation proceeding, Presto and Vassallo failed to disclose to investors that the license granted by the Mexican government to Presto's Mexican subsidiary has been the subject of the revocation proceedings that began in November 2001.
22. After Presto and Vassallo learned of the Commission's investigation, Presto disclosed to investors that the revocation proceeding had begun. In Presto's November 25, 2003 investor newsletter, which Vassallo wrote, Presto represented that "due to the delay of commencing operations under our license¼ [the Mexican regulators] actually started a revocation proceeding. We have been verbally assured that the revocation proceeding is being terminated."
23. In fact, the revocation proceedings are still pending.
24. The Commission realleges and incorporates by reference 1 through 23 above.
25. Presto and Vassallo, by engaging in the conduct described above, directly or indirectly:
26. No registration statement has been filed with the Commission or has been in effect with respect to the above securities.
27. By reason of the foregoing, Presto and Vassallo, and each of them, violated, and unless restrained and enjoined will continue to violate, Sections 5(a) and 5(c) of the Securities Act.
28. The Commission realleges and incorporates by reference 1 through 23 above.
29. The defendants, and each of them, by engaging in the conduct described above, directly or indirectly, in the offer or sale of securities by the use of means or instruments of transportation or communication in interstate commerce or by use of the mails:
30. By engaging in the conduct described above, each of the defendants violated, and unless restrained and enjoined will continue to violate, Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a).
31. The Commission realleges and incorporates by reference 1 through 23 above.
32. The defendants, and each of them, by engaging in the conduct described above, directly or indirectly, in connection with the purchase or sale of a security, by the use of means or instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange, with scienter:
33. By engaging in the conduct described above, each of the defendants violated, and unless restrained and enjoined will continue to violate, 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.
WHEREFORE, the Commission respectfully requests that the Court:
Issue findings of fact and conclusions of law that the defendants committed the alleged violations.
Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d), temporarily, preliminarily, and permanently enjoining defendants Presto and Vassallo and their officers, agents, servants, employees and attorneys, and those persons in active concert or participation with any of them, who receive actual notice of the order by personal service or otherwise, and each of them, from violating Sections 5(a), 5(c) and 17(a) of the Securities Act, 15 U.S.C. §§77e(a), (c) and 77q(a), and 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.
Issue in a form consistent with Fed. R. Civ. P. 65, a temporary restraining order and a preliminary injunction freezing the assets of defendants Presto and Vassallo; appointing a receiver over defendant Presto; prohibiting each of the defendants from destroying documents; and ordering accountings from the defendants.
Order each defendant to disgorge all ill-gotten gains from their illegal conduct, together with prejudgment interest thereon.
Order each defendant to pay civil penalties under 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).
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.
Grant such other and further relief as this Court may determine to be just and necessary.
DATED: January 27, 2004
/s/ David S. Brown
David S. Brown
Attorney for Plaintiff
Securities and Exchange Commission
|Home | Previous Page||