UNITED STATES DISTRICT COURT
UNITED STATE SECURITIES AND EXCHANGE COMMISSION'S COMPLAINT FOR PERMANENT INJUNCTION
AND OTHER EQUITABLE RELIEF
Plaintiff, the United States Securities and Exchange Commission ("Commission" or "SEC"), alleges as follows:
1. From November 1999 to the present, the above captioned defendants engaged in a fraudulent scheme through which they raised not less than $1.1 million from twenty-five investors in twelve states and three foreign countries by marketing fictitious high yield investment contracts promising as much as 100% profit per week. This common but sophisticated fraud is known as a prime bank scam. The SEC, the Federal Deposit Insurance Corporation ("FDIC") and the Board of Governors of the Federal Reserve System, among other federal government entities, repeatedly have warned the public that prime bank instruments do not exist and any program purporting to trade such instruments is fraudulent and unlawful. Nevertheless, they continue. The instant scam is especially egregious as the principals behind it are career criminals who have at least fourteen criminal convictions among them for financial crimes ranging from embezzlement and forgery to mail and bank fraud.
2. The 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), 78aa] and 28 U.S.C. §1331.
3. The acts, practices, and courses of business constituting the violations alleged herein occurred within the jurisdiction of the United States District Court for the District of South Carolina and elsewhere.
4. Defendants, directly and indirectly, have made, and are making, use of the means and instruments of interstate commerce and the mails in connection with the acts, practices, and courses of business alleged herein in the District of South Carolina and elsewhere.
5. Cliff Goldstein, age 72, resides in Boca Raton, Florida. Goldstein, formerly known as Clifford Dixon Noe, is the Senior Trustee, Executive Vice President, and a Director of defendants GATCO and GATCORP. Through these entities, Goldstein solicits individuals to purchase interests in purported high yield investments. Goldstein's criminal history includes eleven convictions, including convictions for embezzlement, bank fraud and wire fraud.
6. Paul Howe Noe, age 75, resides in either Florida or California. Noe is the Secretary, Treasurer, and a Director of GATCO. Noe, who is Goldstein's brother, uses the alias Paul Noe Randall. Through GATCO, Noe offers individuals the opportunity to invest in purported high yield investments. Noe's criminal history includes convictions for wire fraud, mail fraud and embezzlement.
7. Carolyn M. Kaplan, age 50, resides in Norcross, Georgia. Kaplan is the Chairman and the registered agent for GATCO. She is also the Chairman, President, Secretary and a Director of GATCORP. Kaplan also uses the aliases C. Sam Kaplan and Samara Kaplan. On September 2, 1977, Kaplan was convicted and sentenced to three years for interstate transportation of falsely made securities.
8. Noel Alelov, age 43, resides in West Orange, New Jersey. He is the owner and alter ego of Golden Bridge Trust Co., which he operates from his New Jersey home. Alelov is an independent consultant for Great American Trust and, for a fee, refers clients to its high yield investments programs.
9. Russell Gerstein, age 75, resides in Las Vegas, Nevada. He is a consultant for Great American Trust and, for a fee, refers clients to its high yield investments programs.
10. Nuell W. Paschal, age 74, resides in Carthage, Mississippi. He is a consultant for Great American Trust and, for a fee, refers clients to its high yield investments programs.
11. GATCO was incorporated in South Carolina on November 19, 1984 and claims to be engaged in the business of "Trust Banking and Investment Services." GATCO's address is a mail drop in Boca Raton, Florida. Goldstein is the Senior Trustee, Executive Vice President, and Director; Noe is the Secretary, Treasurer and Director; Kaplan is the Chairman and registered agent.
12. GATCORP is the administrative arm and a wholly owned subsidiary of GATCO. GATCORP was incorporated in Florida on April 6, 2000. GATCORP's officers and directors include Goldstein, Noe and Kaplan. Goldstein's wife, Beth Goldstein, is the registered agent. GATCORP is the successor to PAAM, which was another company controlled by defendants that offered high yield investment programs. GATCORP has continued PAAM's business operations.
THE FRAUDULENT SCHEME
13. From November 1999 to present, defendants raised approximately $1.1 million from twenty-five investors in Arkansas, California, Florida, Georgia, Mississippi, Montana, North Dakota, New Jersey, New Mexico, New York, Ohio, and Pennsylvania for investment in the Great American Trust programs.
14. From November 1999 to present, defendants solicited investors for the Great American Trust program throughout the United States, including South Carolina.
15. Goldstein and Noe promoted the Great American Trust programs and communicated with investors. Goldstein and Noe solicited investors for the Great American Trust programs by telephone, by mail and in person.
16. Goldstein and Noe used paid "finders" to attract potential investors. These finders encouraged potential investors to telephone Goldstein and Noe for information about the programs. The finders and Carolyn Kaplan also promoted the Great American Trust programs and distributed literature about them. The finders and Carolyn Kaplan were fully aware of the fraudulent and fictitious nature of the Great American Trust programs.
17. At in-person meetings, Goldstein and Noe distributed Great American Trust program literature and offering materials.
18. Goldstein and Noe have told and continue to tell investors that the Great American Trust program produces returns by trading in bank guarantees, or letters of credit issued or backed by major banks. This statement is false.
19. All defendants distributed false solicitation materials to prospective investors stating, among other things, that GATCO has in excess of $5 billion under management, that it is highly regarded in the financial community and that it has a staff of thirty persons in the legal, accounting, banking, and economics departments. None of this is true, nor has it ever been true.
20. Defendants did not disclose that GATCO does not manage any trust accounts, has very few assets, has no legitimate operations, never had a thirty-person staff, and is controlled only by Goldstein, Noe and Kaplan, who are convicted criminals. In addition, Goldstein misrepresented that he has vast experience in the banking industry and has a Ph.D.
21 Defendants deposited investor funds in two South Trust Bank accounts and one Wachovia bank account in Columbia, South Carolina, as well as at least two offshore bank accounts.
22. Goldstein and Kaplan are signatories on the Great American Trust bank accounts.
23. The following examples illustrate the various high yield investments schemes that defendants operated since at least November of 1999.
The Venture Capital Finance Program
24. Great American Trust represents to companies and individuals that it provides bank guarantees and stand by letters of credit that can be used as collateral to fully guarantee bank loans. Defendants claim that the funds for these bank guarantees are raised through private placements from its foreign venture capital partners.
25. The prospective clients are then required to give the loan proceeds to Great American Trust to place in high yield investment programs.
26. Allegedly, the program would generate enough revenue to cover the loan payments for the entire loan and additional profits for Goldstein, Noe, Kaplan, Great American Trust and Great American Trust's venture capital partners. In return, Great American Trust negotiates an equity position in the client's company.
27. Great American Trust offering materials misrepresent that Goldstein and Noe are sophisticated bankers and have put together $400 million in financing for several clients.
28. In reality, the program described in paragraphs 24 through 27 does not exist. It is wholly fictitious and designed solely to defraud investors of their money.
The 100% Return High-Yield Programs
29. Goldstein and Noe, acting through PAAM, designed programs to appeal to sophisticated individuals who desired high returns in a short time frame.
30. Goldstein represented that the trading programs would generate returns through obtaining letters of credit through financing agreements, selling those letters of credit at a discount, and then using the proceeds to fuel a high yield trading program that would generate astronomical returns.
31. One iteration promised returns of 100% per week for 13 weeks and another promised a 100% return on a per transaction basis.
32. Solicitation materials misrepresented that Goldstein had initiated in excess of two billion in investments in this program during a one-year period.
33. One victim gave Goldstein and Noe $250,000 believing that Goldstein and Noe were combining his funds with other investors' funds to purchase a $10 million dollar letter of credit from Canada Trust.
34. Another victim paid Goldstein $250,000 as a placement fee for participation in PAAM's Credit Enhancement Program, which offered a return of 100% per week for 13 weeks purportedly by leasing a $25 million letter of credit from Credit Lyonnais.
35. Goldstein, through PAAM, represented that PAAM has the "authority and skills to conclude these trading agreements" that are part of the high yield programs.
36. The trading program described in paragraphs 29 through 35 does not exist. It is wholly fictitious and designed solely to defraud investors of their money.
Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)]
37. Paragraphs 1 through 36 are realleged and incorporated by reference as if fully set forth herein.
38. At the times alleged in this Complaint, all defendants, in the offer and sale of securities, made use of the means and instruments of interstate commerce and the mails; and all defendants directly and indirectly, have employed and are employing devices, schemes and artifices to defraud.
39. In the offer and sale of securities described above, and as part of the scheme to defraud, all defendants have made and are making false and misleading statements of material fact and have omitted and are omitting to state material facts to investors and prospective investors regarding, among other things: the use of investor funds, the safety of investor funds, the existence of prime bank trading programs, guarantees regarding the investment, and the existence of insurance on the investments.
40. Defendants knew or were reckless in not knowing of the facts and circumstances described in Paragraphs 37 through 40 herein.
41. By reason of the activities described herein, all defendants have violated and are violating Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)].
Violations of Section 17(a)(2) and 17(a)(3) of the Securities Act
[15 U.S.C. § 77q(a)(2) and 77q(a)(3)]
42. Paragraphs 1 through 41 are realleged and incorporated by reference as if fully set forth herein.
43. At the times alleged in this Complaint, all defendants, in the offer and sale of securities, by the use of the means and instruments of interstate commerce and the mails, directly and indirectly, have obtained and are obtaining money and property through untrue statements of material facts.
44. All defendants have omitted and are 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.
45. All defendants have engaged and are engaging in transactions, practices or courses of business which operated and will operate as a fraud and deceit upon purchasers and prospective purchasers as more fully described in above.
46. By reason of the activities described above, all defendants have violated and are violating Section 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(2) and 77q(a)(3)].
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] Promulgated Thereunder
47 Paragraphs 1 through 46 are realleged and incorporated by reference as if set forth fully herein.
48. At the times alleged in the Complaint, all defendants, in connection with the purchase and sale of securities described above, by the use of the means and instrumentalities of interstate and commerce and the mails, directly and indirectly, have employed and are employing devices, schemes and artifices to defraud.
49. All defendants have made and are making untrue statements of material fact and have and are 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.
50. All defendants have engaged and are engaging in acts, practices and courses of business which have operated and will operate as a fraud and deceit upon purchasers and sellers of such securities as more fully described above.
51. All defendants knew or were reckless in not knowing of the activities described above.
52. By reason of the activities described above, defendants violated 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.
PRAYER FOR RELIEF
WHEREFORE, the Commission requests that the Court:
Find that Defendants committed the violations alleged above.
Grant an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, restraining and enjoining defendants, their officers, agents, servants, employees, attorneys and those persons in active concert or participation with them who receive actual notice of the Order of Permanent Injunction, by personal service or otherwise, and each of them, from, directly or indirectly, engaging in the acts, practices or courses of business described above, or in conduct of similar purport and object, in violation of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§77e(a), 77e(c), 77q(a)(1), 77q(a)(2), and 77q(a)(3)] and 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.
Grant an Order requiring defendants to disgorge the ill-gotten gains that they received as a result of their wrongful conduct, including prejudgment interest.
Impose civil penalties against defendants in accordance with 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 principals 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 Orders for such further relief as the Court may deem appropriate.