UNITED STATES DISTRICT COURT
Plaintiff U.S. Securities and Exchange Commission, for its Complaint against defendants Brett R. Mallory and Anamar Communications, Inc., alleges the following:
1. This is an emergency enforcement action to stop the fraudulent offering of stock in Anamar Communications, Inc. ("Anamar"), a purported Internet service provider. The scheme, which capitalizes on the investing public's fascination with start-up companies, alternative telephone technologies and the Internet, was orchestrated by Brett R. Mallory ("Mallory"), Anamar's founder and CEO. Since August 2001, Mallory has raised at least $130,000 from at least 14 investors in four states, including Massachusetts, Ohio, Virginia and California, promising them that they would double their money in as little as ninety (90) days. Several investors borrowed money from family or high interest credit cards to invest in the scheme and some invested substantial portions of their life savings. 2. Mallory falsely told investors that Verizon Communications, Inc. ("Verizon"), a large telecommunications company, had agreed to purchase Anamar because Anamar owned the exclusive right to distribute a new web-basedpayphone. Mallory also falsely told investors that a stock investment in Anamar was essentially risk-free because even if the Verizon deal fell through, Verizon had agreed to pay an "opt-out" fee to Anamar and the investors could sell their shares back to Anamar. In fact, Verizon has never offered or agreed to purchase Anamar or any of its stock. Further, the investments have proven to be anything but risk-free, as investors have been unable to recover their money from Anamar.
3. Mallory's fraudulent scheme is still underway. In January 2002, Mallory offered additional Anamar shares for sale, falsely telling investors that the Verizon transaction had closed, that he was pursuing new lucrative deals that could potentially cause Anamar's stock price to increase "100 fold," and that he had a meeting scheduled with Bill Gates of Microsoft. According to one investor, between mid-January and mid-February 2002, Mallory encouraged her to tell other individuals about the opportunity to invest in his company. Mallory continues to use Anamar's website (www.anamar2000.com/ppo.htm or www.anamar2000.com/ppoletter.htm) to solicit investments in Anamar. The website provides investors with a link to PayPal, Inc., an Internet company that facilitates on-line credit card purchases. Finally, Mallory has himself declared, in writing, that he intends to undertake even "bigger" deals after the Anamar offering.
4. Through this fraudulent offering, defendants have engaged and, unless enjoined, will continue to engage in violations of the federal securities laws. Specifically, defendants have engaged in: (i) fraud in the offer or sale of securities in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"); and (ii) fraudulent or deceptive conduct in connection with the purchase or sale of securities in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") andRule 10b-5 thereunder.
5. Accordingly, the Commission seeks: (i) entry of a permanent injunction prohibiting defendants from further violations of the relevant provisions of the federal securities laws; (ii) disgorgement of defendants' ill-gotten gains, plus prejudment interest; and (iii) civil monetary penalties due to the egregious nature of defendants' violations. In addition, because of the ongoing nature of the fraud and the danger that investor funds will be dissipated or concealed before entry of a final judgment, the Commission seeks preliminary equitable relief to: (i) prohibit defendants from continuing to violate the relevant provisions of the federal securities laws; (ii) freeze defendants' assets and otherwise maintain the status quo pending final resolution of this action; (iii) prohibit defendants from accepting or depositing into their accounts any monies obtained from actual or prospective investors pending resolution of this action; (iv) require defendants to submit an accounting of investor funds and other assets in their possession; (v) prevent defendants from destroying relevant documents; and (vi) authorize the Commission to undertake expedited discovery.
6. The Commission is an agency of the United States of America established by Section 4(a) of the Exchange Act [15 U.S.C. §78d(a)].
7. The Commission seeks a permanent injunction and the disgorgement of ill-gotten gains, plus pre-judgment interest, pursuant to Section 20(b) of the Securities Act [15 U.S.C. §77t(b)] and Section 21(d)(1) of the Exchange Act [15 U.S.C. §78u(d)(1)]. The Commission seeks the imposition of civil monetary penalties pursuant to 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)].
8. This Court has jurisdiction over this action pursuant to Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§77t(d) and 77v(a)] and Sections 21(d), 21(e) and 27 of the Exchange Act [15 U.S.C. §§78u(d), 78u(e) and 78aa].
9. In connection with the conduct described in this Complaint, defendants directly or indirectly made use of the mails or the means or instruments of transportation and communication in interstate commerce.
10. Anamar is a Nevada corporation which Mallory incorporated in October 2001. From 1995 through 1999, Anamar was a registered business in the City of Boston. At all relevant times, Anamar's principal place of business was either in Amherst or Boston, Massachusetts. Anamar purports to be a one-stop Internet service provider selling everything from Internet access to web marketing devices. Between October 2001 and February 2002, Anamar employed approximately 10 employees.
11. Mallory, age 41, is the founder, president and chief executive officer of Anamar. At all relevant times, Mallory has resided in Amherst or Boston, Massachusetts.
THE ANAMAR STOCK OFFERING
Misrepresentations Concerning Purported Anamar-Verizon Transaction
12. In a series of telephone conversations with investor Pamela O. Hilson-McNair ("Hilson-McNair"), between approximately August and September 2001, Mallory solicited Hilson-McNair to invest in Anamar, a company that he said he owned. Mallory told Hilson-McNair that he had reached an agreement to sell Anamar to Verizon. In or about December 2001, Mallory also toldHilson-McNair that Verizon and Anamar would sign the final agreement to purchase Anamar by December 31, 2001 and that the deal was proceeding smoothly.
13. In or about September 2001, investor James Norman Lewis ("Lewis") spoke to Mallory by telephone after reading posted material on Anamar's website, having been directed there by investor Hilson-McNair. Mallory told Lewis that a major telephone company had agreed to purchase Anamar. In or about November 2001, Mallory also told Lewis that he had signed a final agreement with Verizon to sell Anamar and that the deal was proceeding smoothly.
14. In or about October 2001, at a birthday party in Amherst, Massachusetts, Mallory told approximately 16 potential investors that he owned Anamar. Mallory also told the potential investors that he had reached an agreement to sell Anamar to Verizon by December 31, 2001.
15. Mallory had several telephone conversations with investor Bonita A. Oliver ("Oliver") between approximately November 18, 2001 and January 20, 2002. In one of those conversations, Mallory told Oliver that Verizon was buying Anamar at $.10 per share and that Verizon's purchase of Anamar was complete. In another conversation, Mallory told Oliver that he had negotiated a better deal and that Verizon had paid $.12 per share for Anamar stock rather than $.10 per share.
16. Since at least August 2001, Mallory has been directing investors and potential investors to Anamar's website (www.anamar2000.com/ppoletter.htm or www.anamar2000.com/ppo.htm) for Anamar investment information.
17. Since at least August 2001, Anamar's website has contained information concerning a possible investment in Anamar, including, commencing in or about October 2001, a "PPO Invitation Letter," dated October 3, 2001 ("October 3 Private Placement"), which states that Anamar "recentlyclosed a business deal with Verizon Communications in which they have agreed to pay $2.5 million for ... Anamar. ... Verizon has been given 90 days from October 1, 2001 to purchase all shares of common stock in Anamar Communications, Inc. (25,000,000 shares x .10 per share = $2,500,000). So you can make some money on this. I'm putting 5,000,000 shares up for sale in a PPO @ .05 per share to be sold in 100 share lots."
18. Mallory also distributed to investors and potential investors, by mail, a January 15, 2002 letter ("January 15 Letter") which stated that: "The original deal [with Verizon] called for existing shareholders to sell all their shares. We negotiated an 11th hour deal that's even better for Anamar shareholders. Verizon now owns 80% of the corporation."
19. All of the statements above, in paragraphs 12 to 18, concerning a purported Anamar-Verizon transaction were false. Verizon has never offered or agreed to purchase, invest in or undertake any business combination with Anamar or Mallory.
20. In an e-mail communication with a former Anamar employee, on or about February 22, 2002, Mallory admitted that no Anamar-Verizon transaction ever existed, writing: "Verizon? To be honest, I was in talks with them earlier on. When I was still in Amherst [i.e., before October or November 2001]. ... But I dropped the ball. I let it slip right from under me."
Misrepresentations Concerning Doubling of Investors' Money
21. In separate conversations between August and October 2001, Mallory told investors Hilson-McNair, Lewis and Helen W. Cannon ("H. Cannon") that an investment in Anamar shares (at $.05 per share) would double in value (to $.10 per share) by December 31, 2001 or within 90 days, as a result of the anticipated Anamar-Verizon transaction. Mallory also told investors Lewis and Hilson-McNair in November and December 2001, respectively, that they could redeem their investments in January 2002 once the Anamar-Verizon deal was finalized.
22. During the October 2001 birthday party, Mallory told approximately 16 potential investors that anyone who purchased Anamar shares, at $.05 per share, would double his or her money (to $.10 per share) within three months or by December 31, 2001, as a result of the anticipated Anamar-Verizon transaction.
23. Mallory stated in the October 3 Private Placement that: "No matter what your investment, you'll double your money within 90 days. So, take the money that's collecting more dust than interest in your bank account (6% APR if you're lucky), and put it to work where it will earn you 100% interest in 90 days or less."
24. In the January 15 Letter, Mallory stated that: "Our last at bat scored us a home run with Verizon Communications, doubling the value of Anamar stock."
25. All of the statements above, in paragraphs 21 to 24, were false because the investors' investments have not doubled in value and there was no reasonable prospect that they would double in value at the time Mallory made the statements.
Misrepresentations Concerning Investment's Purportedly Risk-Free Nature
26. Between August and November 2001, Mallory told investors Hilson-McNair, Lewis, Lynne M. Curry ("Curry") and Oliver that their investments would be returned to them if the Anamar-Verizon transaction did not occur.
27. In or about October 2001, Mallory told investor H. Cannon that her investment was risk-free because her money would be held in an interest-bearing account and would not be used forany purpose until after the Anamar-Verizon transaction. Mallory also told H. Cannon that if the Anamar-Verizon transaction did not take place, her money would be returned to her, along with any interest accumulated in the interest-bearing account while the transaction was pending.
28. Mallory made it clear in the October 3 Private Placement that the investors' investments were purportedly risk-free: "I have to be honest. Verizon has the option to buy out of the deal within that 90 day period. In which case, Anamar will get an opt-out fee of $125,000. Anamar will then be free to sell to another bidder. At that point, all the stock holders will be able to stay in or sell their shares back to Anamar Communications for the price they paid. That means nobody loses anything." (Emphasis added).
29. All of the statements above, in paragraphs 26 to 28, were false because the investors' investments were not risk-free when offered by Mallory. Despite requests by some investors, Anamar and Mallory have failed to return any money to any investor.
Misrepresentations Concerning Purported Exclusive Distribution Rights
30. Throughout the course of the scheme, Mallory told at least some of the 14 known investors that Verizon was interested in acquiring Anamar because Anamar had the exclusive distribution rights to a proprietary web-based payphone.
31. In an undated Anamar "Press Release," distributed by mail, on or about January 15, 2002, to at least some of the 14 known investors, Mallory stated that, on February 5, 1999, Anamar had struck a deal with a company called Cybertotems for the "exclusive distribution rights" for a "new web-based payphone with its proprietary technology."
32. In a February 22, 2002 e-mail communication to a former Anamar employee, Malloryadmitted that Cybertotems "didn't offer any exclusive distribution deals ... ."
Mallory Used High-Pressure Sales Tactics and Artificial Deadlines to Induce Investments
33. Mallory used high-pressure sales tactics in the October 3 Private Placement to induce investments. Mallory noted therein that the stock offering was being made on a "first come, first served" basis and that "[i]f you get in too late, your money will be returned." Mallory further noted therein: "Just keep in mind; we're working with a small window of opportunity here."
34. Also, at the October 2001 birthday party, Mallory told investor Oliver that there were a limited number of investment slots in Anamar and that he would hold a slot open for her.
35. In or about October 2001, Mallory told investor H. Cannon that her investment had to be made prior to the Anamar-Verizon transaction if she wanted to double the value of her Anamar stock within a ninety (90) day period. Mallory also told H. Cannon that his offering was limited to 35 investors, that he only had two or three openings left, but that he would make an opening available for her.
36. In a late November 2001 telephone conversation with investor Curry, Mallory told her that only two Anamar investment slots remained open and that, in order to take advantage of the investment opportunity, she must send her money to him quickly because the Verizon buyout was imminent and could happen at any time.
At Least 14 Investors Have Invested in the Scheme
37. During the course of the scheme, Mallory either asked or directed potential investors, both orally and in writing, to make their investment checks payable to himself, rather than to Anamar or some other entity. The October 3 Private Placement, for example, expressly requested that investorsmake out their investment checks personally to Mallory.
38. Since August 2001, Mallory has raised at least $130,000 from at least 14 investors in four states, including Massachusetts, Ohio, Virginia and California.
Post-Investment Lulling Statements
Purported Contract with Hotel at M.I.T.
39. In an undated Anamar "Press Release," distributed by mail, on or about January 15, 2002, to at least some of the 14 known investors after they invested, Mallory stated that, on October 1, 2001, "Anamar [had] sign[ed] [a] contract with [the] Hotel at M.I.T." The "Press Release" noted that: "The first placement of Netelephony will be at Hotel of M.I.T. (Massachusetts Institute of Technology) which is located in Cambridge, MA. Anamar will be performing beta tests for verification of the software."
40. In an e-mail communication with a former Anamar employee, on or about February 22, 2002, Mallory admitted that no contract with the Hotel at M.I.T. ever existed: "Same thing with the Hotel at MIT. I had initiated talks [with them.] ... Again [as with Verizon], I dropped the ball. lack [sic] of follow through on my part was the cause."
Purported Meeting with Microsoft's Bill Gates
41. In separate telephone conversations between January and February 2002, Mallory told investors Lewis and Hilson-McNair that he had a scheduled meeting with Microsoft Corporation's Bill Gates. These statements were false. Mr. Gates did not schedule or attend any meeting involving Mallory or Anamar at any time this year.
MALLORY CONTINUES TO OFFER ADDITIONAL ANAMAR SHARES
42. In the January 15 Letter, which was distributed by mail to at least some of the 14 known investors, Mallory made an additional offering of Anamar stock. The January 15 Letter states: "There are still unissued shares available for purchase at the current par value of .10 (ten cents) per share [their alleged value after the purported Verizon-Anamar transaction]. If you wish to purchase more shares of Anamar stock, please call me directly." Mallory had no reasonable basis for making this statement concerning the value of Anamar's stock price in or about January 2002.
43. In a telephone conversation with investor Lewis in or about early January 2002, Mallory told Lewis that he could invest additional money in Anamar.
44. According to investor Hilson-McNair, between mid-January and mid-February 2002, Mallory encouraged her to tell other investors about the opportunity to invest in Anamar.
45. Mallory continues to presently offer Anamar shares for purchase through Anamar's website, which remains operational.
MALLORY PROMISES ADDITIONAL OFFERINGS
46. Mallory has promised additional stock offerings similar to the Anamar one. In the October 3 Private Placement, he writes: "If by chance you don't get in on this one [i.e., the Anamar offering], save the money you would have invested and stay tuned for my next deal. There will be another one. Even bigger than this one, in fact. Big enough to warrant an IPO. I'll share that info with you at a later date."
(Violation of Section 17(a) of the Securities Act)
47. The Commission repeats and incorporates by reference the allegations in paragraphs 1-46 of the Complaint as if set forth fully herein.
48. Defendants, directly or indirectly, acting intentionally, knowingly or recklessly, in the offer or sale of securities by use of the means or instruments of transportation or communication in interstate commerce or by use of the mails: (a) have employed, are employing, and are about to employ devices, schemes or artifices to defraud; (b) have obtained, are obtaining, and are about to obtain money or property by means of untrue statements of material fact or omissions to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) have engaged, are engaging, and are about to engage in transactions, practices or courses of business which operate as a fraud or deceit upon the purchasers of the securities.
49. As a result, defendants have violated, are violating and, unless enjoined, will continue to violate Section 17(a) of the Securities Act [15 U.S.C. §77q(a)].
(Violation of Section 10(b) of the Exchange Act and Rule 10b-5)
50. The Commission repeats and incorporates by reference the allegations in paragraphs 1-46 of the Complaint as if set forth fully herein.
51. Defendants, directly or indirectly, acting intentionally, knowingly or recklessly, by use of the means or instrumentalities of interstate commerce or of the mails, in connection with the purchase or sale of securities: (a) have employed, are employing, and are about to employ devices, schemes orartifices to defraud; (b) have made, are making, and are about to make untrue statements of material fact or have omitted, are omitting, and are about to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) have engaged, are engaging, and are about to engage in acts, practices or courses of business which operate as a fraud or deceit upon certain persons.
52. As a result, defendants have violated, are violating and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. §240.10b-5].
PRAYER FOR RELIEF
WHEREFORE, the Commission requests that this Court:
A. Enter a temporary restraining order, order freezing assets and other equitable relief and, on notice, a preliminary injunction in the proposed form of order submitted with the Commission's ex parte motion for such relief;
B. Enter a permanent injunction restraining defendants and each of their officers, agents, servants, employees and attorneys and those persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, including facsimile transmission or overnight delivery service, from directly or indirectly engaging in the conduct described above, or in conduct of similar purport and effect, in violation of:
1. Section 17(a) of the Securities Act [15 U.S.C. §77q(a)], and
2. 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];
C. Require defendants to disgorge their ill-gotten gains, plus pre-judgment interest, with said monies to be distributed in accordance with a plan of distribution to be ordered by the Court;
D. Order defendants to pay appropriate civil monetary penalties pursuant to 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)];
E. Order defendants within three (3) business days of service of the Temporary Restraining Order, to submit in writing to the Court and to the Commission, an accounting identifying the following:
1. all accounts at banks, broker-dealers, or other financial institutions in the name of either defendant or presently held for the direct or indirect benefit, or subject to the direct or indirect benefit, or subject to the direct or indirect control, of any defendant, whether in the U.S. or elsewhere;
2. all assets of every type and description with a value of at least one thousand dollars ($1000) presently held for the direct or indirect benefit, or subject to the direct or indirect control of defendants, whether in the U.S. or elsewhere;
3. all transfers of funds received or obtained through the conduct alleged herein, including the location of any persons, entities or accounts to which the transfers were made and the identity and location of any assets derived from such funds;
4. all transfers of assets of $1,000 or more by any defendant since August 1, 2001 and the location of any persons, entities or accounts to which such transfers were made;
F. Immediately prohibit the defendants from destroying, mutilating, altering, concealing or disposing of any documents relating to the defendants or to any of their financial or other business dealings;
G. Immediately establish a schedule of expedited discovery in this action;
H. Retain jurisdiction over this action to implement and carry out the terms of all orders and decrees that may be entered; and
I. Award such other and further relief as the Court deems just and proper.
Silvestre A. Fontes
Thomas J. Rappaport
Tesha L. Chavier
Attorneys for Plaintiff
Dated: March 15, 2002