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U.S. Securities and Exchange Commission

UNITED STATES DISTRICT COURT
DISTRICT OF COLUMBIA

Case No. 1:02CV00397 ESH

SECURITIES AND EXCHANGE COMMISSION
1801 California Street, Suite 4800
Denver, Colorado 80206

Plaintiff,

vs.

EAGLE BUILDING TECHNOLOGIES, INC.
20283 State Road 7, Suite 213
Boca Raton, Florida 33498

and

ANTHONY M. DAMATO,
19244 nature View Ct
West Palm, Florida 33498

Defendants.

COMPLAINT
SEEKING INJUNCTION AND OTHER EQUITABLE RELIEF

The United States Securities and Exchange Commission files this Complaint against the Defendants Eagle Building Technologies Inc. and Anthony M. Damato seeking a permanent injunction prohibiting the defendants from violating the anti-fraud and reporting provisions of the federal securities laws, seeking entry of civil penalties and other equitable relief. In support of its Complaint, the Commission alleges:

I. Defendants

1. Eagle Building Technologies Inc. operates from offices in Boca Raton, Florida and Washington D.C. Eagle is a Nevada corporation that manufactures and distributes masonry building blocks. Eagle was formerly known as Eagle Capital International, Ltd., but changed its name on or about May 14, 2001. Eagle is a public company whose securities are registered with the Securities and Exchange Commission. At all times material to this Complaint, the company's securities were traded over-the-counter under the trading symbol "EGBT" or under its previous trading symbols of "EGCP" or "ECIC."

2. Anthony M. Damato has been a Director, and Chairman of the Board of Directors of Eagle from on or about May 1999 to the current date. Damato served as the President and Chief Executive Officer of Eagle from June 1, 1999 until approximately October 2001 and again from January 7, 2002 to the current date. Damato owned 563,905 shares of Eagle stock as of December 31, 2000. At all times material to this Complaint, Damato lived and worked in Boca Raton, Florida. Damato controlled and directed the day-to-day business activities of Eagle.

II. Jurisdiction and Venue

3. The Commission brings this action pursuant to the authority, conferred upon it in Section 21(d) and (e) of the Securities Exchange Act of 1934, as amended, (Exchange Act), 15 U.S.C. §§ 78u(d) and (e), to seek injunctions and other equitable relief against defendants who are violating the federal securities laws.

4. This Court has jurisdiction over this action pursuant to Sections 21(e) and 27 of the Exchange Act, 15 U.S.C. §§78u(e) and 78aa.

5. Venue lies in this Court pursuant to Section 22(a) of the Securities Act and Section 27 of the Exchange Act because certain of the transactions, acts, practices and courses of business constituting the violations of law alleged herein occurred within this judicial district.

6. In connection with the transactions, acts, practices, and courses of business described in this Complaint, each of the defendants, directly and indirectly, has made use of the means or instrumentalities of interstate commerce, of the mails, and/or of the means and instruments of transportation or communication in interstate commerce.

III. Fraud

A. False Annual Report for 2000

7. Eagle has registered its securities with the Securities and Exchange Commission under Section 12(g) of the Exchange Act and is subject to the quarterly and annual reporting requirements of Sections 13 and 15(d) of the Exchange Act. Section 13(a)(1) requires every issuer of a security that is registered with the Commission to file an annual report certified by an independent public accountant. Section 13(b) requires the annual report to contain a balance sheet and earnings statement.

8. Eagle filed its annual report for the year ending December 31, 2000 on Form 10-KSB with the Commission in Washington D.C. on April 18, 2001. Damato reviewed and signed the annual report as the company's President and Director. Eagle's other directors also sign the annual report. Eagle's annual report contains financial statements including a Consolidated Balance Sheet and a Consolidated Statement of Operations for the year 2000, which were audited by Tanner & Company, certified public accountants.

9. In its annual report, Eagle and Damato represent that the company manufactures and distributes technologically advanced building products, including a mortarless concrete building block, through licensing agreements with Integrated Masonry Systems International, Inc. (IMSI). The defendants state in the annual report that Eagle has the exclusive right to market IMSI products in India, and that Eagle formed Eagle Building Technologies, Private Ltd. of India, a 100 percent owned subsidiary, to market its products in India.

10. Eagle and Damato falsely state in the annual report that Eagle contracted with Jayant Tipnis Consultants PL, an Indian company, in July 2000 to sell 750,000 units of IMSI blocks valued at over $1.5 million USD. They also falsely state that Eagle received a second order from Jayant Tipnis Consultants PL for an additional 10 million IMSI blocks.

11. Eagle and Damato falsely state in the annual report in the section on Management's Discussion and Analysis or Plan of Operations, and in the Consolidated Statement of Operations contained in its financial statements that during 2000 it had sales of $3,354,847. The company also states that it is "generating cash flow in excess of its operating requirements solely from the India Operations." Of the $3,354,847 in sales, at least $2,499,667 is attributed to purported sales from operations in India.

12. Damato knew that the statements in Eagle's annual report that the company had generated $3,354,847 in sales from its India operations were false because he knew there were no substantive operations in India.

13. Damato created the fictitious purchase order dated June 5, 2000 and a fictitious contract dated January 1, 2001 from Jayant Tipnis Consultants PL in India, referred to in paragraph 10 above, to support his false statements about operations in India.

14. Damato also fabricated account statements from a bank in India that showed the fictitious receipt of payments for sales of IMSI blocks, equipment, and consulting services. Damato provided these false documents to Eagle's accountants who included the information in the financial statements.

15. As a Director, Chairman and Chief Executive Officer of Eagle, Damato's knowledge of the lack of operations in India, his creation of these false purchase documents and bank records, and the false statements about sales revenues in the annual report that he reviewed and signed is attributed to Eagle.

B. False Quarterly Reports during 2001

16. During 2001, Eagle filed three quarterly reports with the SEC on Form 10-QSB by mailing the reports to Washington D.C. Each of the quarterly reports contain unaudited financial statements including a Statement of Operations, and a discussion of the company's business operations in the section titled Management's Discussion and Analysis. Damato reviewed and signed each of the quarterly reports as the Chairman and Chief Executive Officer of Eagle.

17. Eagle filed its quarterly report for the period ending March 31, 2001 with the SEC on May 14, 2001. Eagle and Damato falsely state, in the March quarterly report in the Statement of Operations and in the section titled Management's Discussion and Analysis, that Eagle had sales of $4,098,661, which were "primarily due to sales of IMSI Block System and the development work in India." Of the $4,098,661 in sales, at least $3,446,584 is attributed to purported sales from operations in India.

18. Eagle filed its quarterly report for the period ending June 30, 2001 with the SEC on August 13, 2001. Eagle and Damato falsely state, in the June quarterly report in the Statement of Operations and in the section titled Management's Discussion and Analysis, that Eagle had quarterly sales of $5,290,120. The defendants falsely state the net profits were "primarily due to revenue from Eagle Building Technologies, PL of India . . . . " Of the $5,290,120 in sales, at least $3,984,948 is attributed to purported sales from operations in India.

19. Eagle filed its quarterly report for the period ending September 30, 2001 with the SEC on November 20, 2001. Eagle and Damato falsely stated, in the September quarterly report in the Statement of Operations and in the section titled Management's Discussion and Analysis, that Eagle had quarterly sales of $6,115,904. The defendants falsely state the net profits were "primarily due to operations of Eagle Building Technologies, PL of India." Of the $6,115,904 in sales, at least $3,177,174 is attributed to purported sales from operations in India.

20. Damato knew these statements about sales revenues of $4,098,661, $5,290,120, and $6,115,904 in the March, June, and September 2001 quarterly reports respectively were false and misleading because there were no substantive operations in India. Damato created the fictitious purchase order and bank statements to support these false sales figures, which he provided to Eagle's accountants to include in the unaudited financial statements.

21. As a Director, Chairman and Chief Executive Officer of Eagle, Damato's knowledge of the false statements about sales revenues in the quarterly reports that he reviewed and signed is attributed to Eagle.

22. During the time when Damato and Eagle were issuing false and misleading information about purported sales revenues received from operations in India in Eagle's annual and quarterly reports, Damato was buying and selling the securities of Eagle.

C. False Press Releases

23. On September 25, October 26, and November 8, 2001, Eagle issued three press releases, through a public relations firm, that contain false and misleading information or omit material facts. These press releases were drafted by an officer and director of Eagle, who provided copies of the press releases to Damato prior to sending them to the public relations firm for publication. Damato reviewed the press releases before they were sent for publication, but did not modify them in any material way although he knew, or was reckless in not knowing, that the press releases contained false and misleading information.

September 25, 2001 Press Release

24. On September 25, 2001, Eagle and Damato issued a press release through the PR Newswire in which Eagle stated, "In the wake of the worst terrorist attack in US history, the Federal Aviation Administration is mandating tightened security at America's 450 commercial airports. One company is showing how new technology can greatly improve safety at airport security checkpoints. On Thursday, September 27, 2001, Eagle Building Technologies, Inc. (OTC Bulletin Board: EGBT) will demonstrate BioSterile's Insight Detection Sentinel surveillance system. This equipment has been tested at New York's LaGuardia airport . . . . " The press release also stated that the technology "detects specific types of explosives, from TNT to plastic bombs, as well as illegal drugs, and other weapons."

25. The September 25, 2001 press release is false and misleading for several reasons. Damato and Eagle imply in the press release that the Sentinel system can be used at American airports to combat terrorism. However, Damato and Eagle fail to disclose material information that the Sentinel surveillance system has not been tested or approved by the Federal Aviation Administration for use at American airports. The defendants state that the Sentinel system has been tested at the LaGuardia airport, but fail to disclose that the system failed that test. The defendants also failed to disclose that another level of FAA certification is required in order for U.S. airports to use the technology as an explosives detection system. This technology was never tested or approved for use in U.S. airports by the FAA. The defendants also fail to disclose that neither BioSterile nor Eagle have the production facilities to commercially produce the Sentinel system.

26. Damato and Eagle knew or were reckless in not knowing that the Sentinel surveillance system had not been tested or approved by the Federal Aviation Administration for use at American airports. Damato knew that the Sentinel surveillance system had been tested at the LaGuardia airport, but failed that test. Damato knew there were no production facilities to manufacture the Sentinel system.

November 8, 2001 Press Release

27. On November 8, 2001 Eagle and Damato issued a press release through the Business Newswire stating that Eagle will demonstrate the BioSterile Sentinel system before Congressional leaders. The defendants further state that, "We are confident that the cost-effectiveness and unique dual display technology of the Sentinel will make this surveillance system the most viable option for the nation's airports and in turn restore America's confidence in air travel."

28. Damato and Eagle knew the statements in the November 8, 2001 press release were false and misleading because the Sentinel system had not been tested and approved by the Federal Aviation Administration, a necessary prerequisite before the system could be used in American airports.

October 26, 2001 Press Release

29. On October 26, 2001, Eagle and Damato issued a press release through the Business Newswire stating that Eagle represents BioSterile Technology Inc., which has equipment to sterilize mail. The press release also states that BioSterile's equipment is capable of killing virtually any bacteria, including anthrax. Additionally the press release states, "As a representative of BioSterile technology, we are prepared to provide sound answers and feasible solutions for the US government to sterilize the estimated 300 million pieces of mail being processed each day."

30. This October 26, 2001 press release is false and misleading because Damato and Eagle fail to disclose material facts that BioSterile's equipment has not been tested for killing the anthrax bacteria. Further the defendants fail to disclose that Eagle does not have the capability to produce the number of BioSterile machines necessary to sterilize 300 million pieces of mail processed each day.

31. Damato and Eagle knew or were reckless in not knowing that the BioSterile equipment had not been tested on anthrax, and that the company could not produce enough machines to handle one tenth of the mail processed each day.

D. Press Releases Increase Trading Activity

32. From September 24, 2001, the day before Eagle issued the first press release discussed above, to November 8, 2001, the date of the last press release discussed above, the closing bid for Eagle's shares increased from $5.40 to $10.00. During the thirty-four trading days before September 25, 2001, the average daily trading volume was 44,424 shares per day. During the thirty-four trading days from September 25, 2001 to November 8, 2001 the average daily trading volume increased to 74,547 shares per day.

FIRST CLAIM FOR RELIEF

Violations by Defendants Eagle Building Technologies and Damato
Of Anti-Fraud Provisions of Section 10(b) of the Exchange Act and Rule 10b-5

33. Plaintiff repeats and realleges paragraphs 1-32 above.

34. Defendants Eagle and Damato directly and indirectly, with scienter, in connection with the purchase or sale of securities, by use of the means or instrumentalities of interstate commerce or by use of the mails, have employed devices, schemes, or artifices to defraud; have 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 have engaged in acts, practices, or courses of business which have been and are operating as a fraud or deceit upon the purchasers or sellers of such securities.

35. By reason of the conduct described above, Eagle and Damato violated, are violating, and unless restrained and enjoined will violate Section 10(b) of the Exchange Act and Rule 10b-5.

SECOND CLAIM FOR RELIEF

Violations by Defendants Eagle Building Technologies and Damato
Of Anti-Fraud Provisions of Section 13(a) of the Exchange Act
and Rules 12b-20, 13a-1 and 13a-13

36. Plaintiff repeats and realleges paragraphs 1-35 above.

37. Eagle, an issuer of securities registered pursuant to Section 12(b) of the Exchange Act, filed materially false and misleading annual and quarterly reports with the Commission, and failed to include such further material information as was necessary to make the required statements, in the light of the circumstances under which they were made, not misleading.

38. By reason of the foregoing acts, Eagle violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.

39. Damato knew of, and caused Eagle's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and substantially assisted Eagle in committing these violations.

40. Damato aided and abetted Eagles violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and unless restrained and enjoined will continue to aid and abet violations of these provisions.

THIRD CLAIM FOR RELIEF

Violations by Defendants Eagle and Damato
Of Record Keeping and Internal Control Provisions of Sections 13(b)(2)(A) and (B)
and Rule 13b2-1 of the Exchange Act

41. Plaintiff repeats and realleges paragraphs 1-36 above.

42. Eagle directly and indirectly failed to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of its assets and failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that:

    - transactions are executed in accordance with management's general or specific authorization;

    - transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets;

    - access to assets is permitted only in accordance with management's general or specific authorization;

    - and the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

43. Eagle falsified or caused to be falsified its books, records or accounts which are subject to Section 13(b)(2)(A) of the Exchange Act.

44. Damato caused Eagle to falsify is books, records and accounts that are subject to Section 13(b)(2)(A). As an officer and director of the corporation, Damato's acts and knowledge are attributed to Eagle.

45. By reason of the foregoing, Eagle violated Section 13(b)(2)(A) and (B) of the Exchange Act and Rule 13b2-1, and unless restrained and enjoined will continue to aid and abet violations of these provisions.

46. Damato knew of Eagle's violations of Section 13(b)(2)(A) and (B) of the Exchange Act and Rule 13b2-1 and he substantially assisted Eagle in committing these violations.

47. By reason of the foregoing, Damato aided and abetted Eagle's violations of Section 13(b)(2)(A) and (B) of the Exchange Act and Rule 13b2-1, and unless restrained and enjoined will continue to aid and abet violations of these provisions.

FOURTH CLAIM FOR RELIEF

Violations by Damato
Of Record Keeping Provisions of Section 13(b)(5) of the Exchange Act

48. Plaintiff repeats and realleges paragraphs 1-47 above.

49. Damato knowingly circumvented or knowingly failed to implement a system of internal accounting controls or knowingly falsified books, records and accounts described in Section 13(b)(2) of the Exchange Act.

50. By reason of the foregoing, Damato violated Section 13(b)(5) of the Exchange Act, and unless restrained and enjoined will continue to aid and abet violations of these provisions.

FIFTH CLAIM FOR RELIEF

Violations by Damato
Of Record Keeping Provisions of Rule 13b2-2 of the Exchange Act

51. Plaintiff repeats and realleges paragraphs 1-40 above.

52. Damato directly or indirectly caused to be made materially false or misleading statements, or omitted to state or caused other persons to omit to state material facts necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with (1) any audit or examination of the financial statements of the issuer required to be made pursuant to the Exchange Act or (2) the preparation or filing of any document or report required to be filed with the Commission pursuant to the Exchange Act or otherwise.

53. By reason of the foregoing, Damato violated Rule 13b2-2 of the Exchange Act, and unless restrained and enjoined will continue to aid and abet violations of these provisions.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:

I.

Find that Eagle and Damato, and each of them, committed the violations alleged.

II.

Enter an injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, permanently restraining and enjoining each defendant and persons in active concert or participation with them, from violating, directly or indirectly, Sections 10(b), 13(a) and 13(b)(2)(A) and (B), 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2.

III.

Order defendant Damato to prepare an accounting that identifies all of his bank and brokerage accounts, and documents any purchases or sales he made directly or indirectly in the securities of Eagle and the proceeds generated from those transactions.

IV.

Order defendant Damato to disgorge all illegal gains, together with prejudgment interest.

V.

Order defendant Damato to pay civil penalties pursuant to Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3), in an amount to be determined by the Court.

VI.

Enter an order pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. 78u(d)(2), unconditionally prohibiting Damato from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, 15 U.S.C. 78l, or that is required to file reports pursuant to Section 15(d) of the Exchange Act, 15 U.S.C. 780(d).

VII

Grant such other relief, as this Court may deem just or appropriate.

Dated: February 28, 2002

Respectfully submitted,

/s/ Leslie Hendrickson Hughes
Leslie Hendrickson Hughes
Attorney for Plaintiff
Securities and Exchange Commission
1801 California Street, Suite 4800
Denver, Colorado 80202
(303) 844-1086
(303) 844-1010 facsimile
e-mail: HughesLJ@sec.gov
Colorado Bar No: 15043


http://www.sec.gov/litigation/complaints/complr17389.htm

Modified: 03/05/2002