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U.S. Securities and Exchange Commission

UNITED STATES DISTRICT COURT
DISTRICT OF PUERTO RICO


Securities and Exchange Commission,

Plaintiff,   

v.

CARLOS SOTO,

Defendant,   

and

BASLE ADVISERS and ICR CORPORATION,

Relief Defendants.   


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CASE NO.

COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF

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

INTRODUCTION

1. The Commission brings this action to restrain and enjoin Defendant Carlos Soto ("Soto") and two entities under his control, Relief Defendants, Basle Advisers ("Basle") and ICR Corporation ("ICR"), from violating the federal securities laws in connection with the fraudulent offer and sale of securities. From a date unknown but at least during the past decade, Soto, a stock broker employed by Morgan Stanley DW, Inc. ("Morgan Stanley") lured Morgan Stanley account holders to invest at least $50 million with him by stating to them that he would invest their funds in low risk mortgage-backed securities issued by the Government National Mortgage Association ("Ginnie Mae"). Contrary to Soto's representations, he diverted the investors' money to accounts in the names of Basle and ICR and then used the funds for personal use and to engage in speculative and risky trading including short sales. Soto is still in control of millions of dollars of investors' funds so there is a serious risk of further diversion, misuse or theft.

DEFENDANTS

2. Soto is a stockbroker with Morgan Stanley DW, Inc. Soto resides in Puerto Rico.

3. Basle is, upon information and belief, a Puerto Rican corporation whose principal place of business is Puerto Rico. Basle is under the exclusive control of Soto.

4. ICR Corporation is, upon information and belief, a Puerto Rican corporation whose principal place of business is Puerto Rico. ICR is under the exclusive control of Soto.

JURISDICTION AND VENUE

5. 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.

6. This Court has personal jurisdiction over the Defendants and venue is proper in the District of Puerto Rico because many of Defendants' acts and transactions constituting violations of the Securities Act and the Exchange Act occurred in the District of Puerto Rico.

7. Defendant and Relief 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

8. At all relevant times, Soto was employed by Morgan Stanley, or its predecessor, as a stockbroker.

9. At a date unknown but at least over a decade ago, Soto solicited Morgan Stanley account holders to invest in Ginnie Mae securities. Soto assured the Morgan Stanley account holders that the Ginnie Mae securities were extremely low risk with guaranteed rates of return between 7% -8%.

10. After convincing Morgan Stanley account holders to invest in the Ginnie Mae securities, Soto instructed them to make a check payable to Morgan Stanley for the amount of their investment.

11. Instead of depositing the investor checks in Morgan Stanley accounts for the benefit of the investors, Soto deposited the checks into numerous accounts under various names, including ICR and Basle.

12. Contrary to his representations to investors, Soto did not invest investor funds in Ginnie Mae securities. Instead, Soto used the investor funds, which he had diverted to accounts under his control, for personal uses and to engage in risky and speculative trading, including short sales.

13. In order to mask his fraudulent activities, Soto fabricated statements purportedly showing an investment in Ginnie Mae securities and gave those statements to the investors.

14. Soto also made bogus interest payments to investors in order to give the appearance that their monies were invested in the Ginnie Mae Securities.

15. On or about February 9, 2004, Morgan Stanley's branch manager confronted Soto concerning activities in certain client accounts. Soto orally confessed to Morgan Stanley's branch manager and admitted that he had engaged in a scheme to divert investor monies for personal uses and to engage in risky and speculative trading such as short sales.

16. On or about February 10, 2004, Soto faxed a written narrative describing his fraudulent activaties to Morgan Stanley's branch manager and its counsel.

17. In the narrative referred to above, Soto admits to fraudulently raising over $56 million from investors. Soto admits that $32 million dollars is currently located in various accounts and that he returned approximately $7 million to investors by way of interest payments or otherwise. Soto completely and utterly fails to account for approximately $17 million out of the purportedly $56 million raised from investors.

COUNT I
FRAUD IN VIOLATION OF SECTION 17(a)(1) OF THE SECURITIES ACT

18. The Commission repeats and realleges Paragraphs 1 through 17 of this Complaint as if fully set forth herein.

19. From a date unknown, but at least for the last decade, Defendant Soto, 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, knowingly, willfully or recklessly employed devices, schemes or artifices to defraud.

20. By reason of the foregoing, Soto, directly and indirectly, violated and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act, 15 U.S.C. 77q(a)(1).

COUNT II
FRAUD IN VIOLATION OF SECTION 10(b)OF THE EXCHANGE ACT AND RULE 10b-5 PROMULGATED THEREUNDER

21. The Commission repeats and realleges Paragraphs 1 through 17 of this Complaint as if fully set forth herein.

22. From a date unknown, but at least for the last decade, through the present, Defendant Soto, 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 securities, knowingly, willfully or recklessly: (a) employ 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) engaged in acts, practices and courses of business which have operated, and will operate as a fraud upon the purchasers of such securities.

23. By reason of the foregoing, Defendant Soto, directly or indirectly, 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.

COUNT III
FRAUD IN VIOLATION OF SECTIONS 17(a)(2) AND 17(a)(3) OF THE SECURITIES ACT

24. The Commission repeats and realleges Paragraphs 1 through 17 of its Complaint as if fully set forth herein.

25. From a date unknown, but during at least the last decade, Defendant Soto, 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, (a) obtained 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) engaged in transactions, practices and courses of business which operated as a fraud or deceit upon purchasers and prospective purchasers of such securities.

26. By reason of the foregoing, Defendant Soto, directly and indirectly, has 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).

RELIEF REQUESTED

WHEREFORE, the Commission respectfully requests that the Court:

I. Declaratory Relief

Declare, determine and find that Defendant Soto 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 in the form of an asset freeze, and a Preliminary Injunction in the form of an asset freeze against Defendant Soto and Relief Defendant Basle and ICR. Issue a Permanent Injunction, restraining and enjoining Defendant Soto his officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them, from violating: (a) Section 17(a)(1) of the Securities Act, 15 U.S.C. 77q(a); (b) 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 (c) 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).

III. Disgorgement

Issue an Order requiring Defendant Soto and Relief Defendants Basle and ICR Corp 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 Defendant Soto 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 freezing the assets of Defendant Soto and Relief Defendants Basle and ICR until further Order of the Court, and requiring from each of the Defendants and Relief Defendants a document sworn to before a notary public setting forth all assets (whether real or personal) and accounts (including, but not limited to, bank accounts, savings accounts, securities or brokerage accounts, and deposits of any kind) in which they (whether solely or jointly), directly or indirectly (including through a corporation, trust or partnership), either have an interest or over which they have the power or right to exercise control.

VI. Records Preservation and Expedited Discovery

Issue an Order requiring Defendant Soto and Relief Defendants Basle and ICR 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.

DATE: February _____, 2004

Respectfully submitted,

By: _____________________
AUSA Rebecca Kellogg
Federal Building
452 Carlos Chardon Ave.
Hato Rey 00918
DC Bar No.:
Direct Dial No. (787) 766-5656

Alise M. Johnson
Senior Trial Counsel
Florida Bar No. 0003270
Direct Dial: (305) 982-6322

Kerry Zinn
Senior Trial Counselv Florida Bar No. 118559
Direct Dial: (305) 982-6379

Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
801 Brickell Avenue, Suite 1800
Miami, Florida 33131
Telephone: (305) 982-6300
Facsimile: (305) 536-4154


http://www.sec.gov/litigation/complaints/comp18500.htm


Modified: 12/12/2004