IN THE UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ( the "Commission") alleges as follows:
1. From at least July 1999 through March 2001, defendant Joao P. Santos ("Santos"), a former stockbroker and convicted felon, engaged in a scheme to defraud four investors of more than $483,000. Santos, acting by and through defendants PinPoint Media, Inc. ("PinPoint") and Luxury Superstore, Inc. ("Luxury Superstore"), companies owned and controlled by him, made false and misleading statements to these individual investors in order to obtain their funds and to convert them for his personal use.
2. Santos solicited funds by falsely representing to prospective investors that he would invest their money in either the stock of publicly traded companies, or in his business, PinPoint. Santos concealed the scheme and lulled the defrauded investors by giving them false assurances, including false account statements that purported to show their holdings in various legitimate investments.
3. In fact, Santos never invested or used any of the investor funds as represented. Instead, he commingled all investor funds raised in one Luxury Superstore bank account, controlled solely by him, and spent the money on himself. Among other things, Santos used investor funds to pay for personal credit card debts, cars, exotic vacations, and expensive clothing.
4. By knowingly or recklessly engaging in the conduct described in this Complaint, defendants Santos, PinPoint, and Luxury Superstore violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a); Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b); and Rule 10b-5, 17 C.F.R. § 240.10b-5 thereunder.
JURISDICTION AND VENUE
5. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act, 15 U.S.C. § 77t(b), and Sections 21(d) and (e) of the Exchange Act, 15 U.S.C. §§ 78u(d) and (e), to enjoin such acts, transactions, practices and courses of business, and for other appropriate relief.
6. This Court has jurisdiction over this action 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.
7. Certain of the acts, transactions, practices and courses of business constituting the violations alleged herein occurred within the Eastern District of Pennsylvania and elsewhere, and were effected, directly or indirectly, by making use of the means and instruments of transportation and communication in interstate commerce, or the means and instrumentalities of interstate commerce, or the mails, or the facilities of a national securities exchange.
8. Joao P. Santos, age 26, resides in Philadelphia, PA.
9. PinPoint Media, Inc. is a corporation organized and existing under the laws of the Commonwealth of Pennsylvania. Although PinPoint was incorporated by Santos in May 2001, he began using this name shortly after his termination from his prior employer, a broker-dealer, in 1999. According to Santos, who is the sole owner, PinPoint is a business that prints advertisements on pizza boxes. Santos also uses the name PinPoint, LLC for this business. PinPoint LLC, which is not an incorporated entity, appears on the fictitious account statements that Santos provided to investors. PinPoint has never been registered with the Commission or any regulatory licensing authority in any capacity. Until at least sometime in 2001, Pinpoint maintained offices in Philadelphia, PA.
10. Luxury Superstore, Inc. is a corporation organized and existing under the laws of the State of Delaware. Luxury Superstore was incorporated in August 1999. According to Santos, who owns and operates this company, Luxury Superstore purchases for subsequent buyers unique and expensive luxury items, including automobiles. Santos deposited all investor funds raised in the fraudulent scheme detailed herein into a Luxury Superstore bank account, which he solely controlled.
11. In furtherance of the fraudulent scheme detailed herein, Santos also used the names "Elite Capital," "LS Trading," and "LS, Inc.," none of which is incorporated or registered with the Commission or any regulatory licensing authority. Nevertheless, Santos represented that these entities were "trading" companies that he owned and operated.
12. Santos was formerly a stockbroker employed by First Liberty Investment Group ("First Liberty"), a broker-dealer registered with the Commission. In June 1999, First Liberty terminated Santos for allegedly making unauthorized withdrawals of customer funds and converting them for his personal use.
13. In August 2000, as a result of the conduct described in Paragraph 12 above, the National Association of Securities Dealers Inc. ("NASD") barred Santos from being employed by, or otherwise associated with, any broker-dealer firm that is an NASD member.
14. On January 8, 2001, as a further result of the conduct described in Paragraph 12 above, Santos pled guilty in the United States District Court for the Eastern District of Pennsylvania to one felony count of mail fraud in connection with the theft of approximately $108,000 of customer funds. He was sentenced, among other things, to five years' probation and ordered to pay $12,890 in restitution and a $10,000 fine. He is currently serving his probation.
THE SCHEME TO DEFRAUD
15. Beginning in July 1999, almost as soon as he was terminated from First Liberty, Santos knowingly or recklessly embarked on a scheme to defraud investors by falsely representing either that he would invest their funds in the stock market or in his advertising business, PinPoint. As a result of this fraudulent scheme, between July 1999 and March 2001, Santos raised more than $483,000 from four investors. He then misappropriated the vast majority of these funds for his personal benefit. Furthermore, Santos, by giving false assurances and making false representations to investors, knowingly and recklessly lulled and continued to lull investors throughout 2001.
16. Despite Santos's representations that investors would receive returns on their investments, no investor ever did. Instead, each investor lost nearly all of the funds he or she had entrusted to Santos. Rather than investing the funds as promised, Santos commingled the funds of all four investors in one bank account in the name of Luxury Superstore, controlled solely by him. Santos used the funds for various personal expenses that he never disclosed to investors. Santos spent investor funds to purchase securities for himself; to pay credit card and other personal debt; to buy cars; and to pay for expensive clothing, exotic vacations and entertainment. Santos also used investor funds to write checks payable either to himself or cash and to make ATM cash withdrawals.
17. Santos, by and through PinPoint, concealed the scheme to defraud by lulling investors through false assurances and by making false and misleading representations. For example, with respect to those investors who believed Santos had invested their funds in the stock market, he created and sent to them, among other things, fictitious monthly account statements that purported to show that the investors' funds had been used to purchase the stocks of well-known public companies. With respect to those investors who believed that they had invested in PinPoint, Santos told them that PinPoint was doing well when, in fact, it was not.
Fraudulent Solicitation of Funds for Investment in the Stock Market
18. Santos raised more than $300,000 from two investors, James LaBarge and Evelyn Ameye, by representing to each that he would purchase for him or her the stock of publicly traded companies and manage their investments. Rather than invest the funds as promised, Santos misappropriated the funds and converted them to his own use.
19. James LaBarge is 52 years old and lives in New York. LaBarge was one of Santos's customers when Santos was employed as a stockbroker by First Liberty. In March 1999, LaBarge transferred his account from First Liberty to another broker-dealer. However, LaBarge maintained contact with Santos. Santos told LaBarge that he had left First Liberty to start his own brokerage firm and that he worked at the Philadelphia Stock Exchange ("PHLX"); neither was true. He never told LaBarge that First Liberty had terminated him for theft of client funds. Nor did Santos ever tell LaBarge that the NASD had barred him from employment with any member firm or that he had pled guilty to a felony charge in connection with the theft of customer funds.
20. In order to convince LaBarge that he was a successful trader, Santos gave him a document that Santos falsely claimed the PHLX had provided to him. This document, which purportedly detailed Santos's trading activity over an unspecified time, contained the names of well-known brokerage firms, as well the name of a "brokerage" firm identified only as "PINP." Upon information and belief, Santos intended "PINP" to refer to PinPoint in an attempt to convince LaBarge that Santos operated a legitimate and successful brokerage firm that traded on the PHLX. Pinpoint, however, has never been a broker-dealer registered with either the Commission or any regulatory licensing authority.
21. In July 1999, shortly after First Liberty terminated Santos's employment, LaBarge gave Santos an unspecified amount of money to conduct "short term stock trading" on his behalf.
22. On September 14, 1999, at Santos's direction, LaBarge wired $21,000 from his brokerage account to the Luxury Superstore bank account controlled by Santos. Santos falselyrepresented to LaBarge that he would invest this money in the stock market. In October 1999, LaBarge again gave Santos more than $20,000, purportedly to pay for stocks that Santos falsely represented had been purchased for LaBarge. However, none of the money that LaBarge gave Santos was used to purchase stocks or any other investment on LaBarge's behalf.
23. In order to conceal his fraudulent conduct from LaBarge, Santos sent LaBarge fictitious monthly account statements, which reflected stock holdings in various well-known publicly traded companies. For example, the most recent statement, dated August 27, 2001, falsely reflects the total value of the portfolio to be $78,133, comprised of $43,338 in uninvested cash and $34,795 invested in shares of two publicly traded companies, DCH Technology and Human Genome Sciences, the shares of which are traded on the AMEX and NASDAQ, respectively.
24. Despite growing concerns about Santos's business methods, LaBarge continued his relationship with Santos until September 2001, when he told Santos to sell his investments and return his money. Santos promised LaBarge that he would return all of his money by November 2001. However, in late December 2001 or early January 2002, Santos falsely represented to LaBarge that the Commission was holding up the "certificates" so that he could not sell them and return LaBarge's funds.
25. Evelyn Ameye is in her mid-50's and resides in Pennsylvania. Ameye gave Santos $259,514, which included her mother's life savings, none of which has been repaid.
26. In the spring of 2000, Ameye met Santos, who had a personal relationship with her granddaughter. On several occasions Ameye and Santos discussed the stock market, and Santos bragged that he was a hedge fund manager and owned a seat on the PHLX, neither of which was true. Santos falsely represented to Ameye that, because he owned a seat on the PHLX, he had access to inside information that gave him a "10 to1" margin on investments. He further stated that although he normally only accepted institutional clients, he would, as a favor to her, take Ameye as one of his few private clients. Ameye told Santos that she was dissatisfied with the returns on her mutual fund investments, and Santos promised her that he could do better making investments in the stock market on her behalf.
27. As a result of these discussions, Ameye agreed to give Santos money to purchase for her benefit the stock of public companies. On June 1, 2000, Ameye gave Santos a check for $75,000, made payable to "Elite Capital." Santos falsely represented to her that he would invest this money in the stock market on her behalf. Within days, Santos sent an e-mail to Ameye in which he stated that he had invested the funds in one of his hedge funds and that it had appreciated $1,500 in three days. Neither representation was true. He also urged Ameye to transfer quickly to him her IRA money, which was then being managed by a registered investment adviser.
28. On August 1, 2000, Ameye sent Santos another check in the amount of $18,535, which came from her IRA account.
29. In October 2000, Ameye sent Santos a third check for $40,000, made payable to "LS Trading," which he agreed to hold in an unspecified interest bearing account, until he found a suitable stock in which to invest her money for her benefit.
30. Santos also persuaded Ameye to allow him to manage her 90 year-old mother's entire life savings, which she needed to pay nursing home expenses. Although he was notspecific, Santos told Ameye that he could generate enough monthly interest payments to defray her mother's nursing home expenses. On November 21, 2000, Ameye wired approximately $125,979 from her mother's bank account to Santos's Luxury Superstore bank account.
31. As a result of Santos's false and misleading statements, Ameye believed that all of the money she gave Santos, a total of $295,514, would be used by Santos to purchase securities in publicly traded companies on her and her mother's behalf.
32. In the winter of 2000, following the death of her mother, Ameye asked Santos for a statement detailing her mother's investments. After repeated requests, Santos, as he had done with LaBarge, gave Ameye fictitious account statements that purported to reflect her and her mother's portfolios as of March 30, 2001. These documents had the name PinPoint, LLC written across the top and identified two separate accounts, the Evelyn A.B. Fund, and the Evelyn Ameye Fund. These documents also falsely represented that the total value of these two accounts, comprised of the stock of various well-known publicly traded companies including Merck, Oracle, and Sun Microsystems, was $207,019.
33. Initially, Ameye, an unsophisticated investor, was not suspicious of the account statements because she had received similar statements from Santos in the past. However, Ameye grew concerned after Santos continued to tell her that, despite the fact that the account statements showed that she and her mother owned liquid securities, he would be unable to return any money for at least six months.
34. To date, Santos has not returned any of Ameye's or her mother's money. Rather, Santos attempted to lull Ameye through false assurances and deliberate misrepresentations:
(a) In February 2001, Santos told Ameye via e-mail that he had an unspecifieddeal in progress at the PHLX related to his advertising business which, if successful, would provide him with significant financing;
(b) In April 2001, Santos stated in a letter to Ameye that he was involved in a limited partnership on the PHLX that would be selling its seat on the PHLX in approximately six months;
(c) On May 15, 2001, Santos again claimed in an e-mail to Ameye that he had found a firm to purchase his seat on the exchange and would return her money after the sale was completed in three months; and
(d) On June 21, 2001, Santos told Ameye in a meeting at his PinPoint office that her stock was being held in the name of a limited partnership on the PHLX and that it would take three to six months to reregister the stock in her name. Santos also told Ameye for the first time that her holdings had lost significant value back in November 2000 and that the money he then owed her was significantly less than her original investment.
35. In actuality, Santos spent all of Ameye's and her mother's funds on various personal expenses that he never disclosed to Ameye. For example, in June 2000, Santos used $45,000 of the funds raised from Ameye to purchase for his personal account several call options in various stocks. Santos lost all of this money within months.
36. At no time did Ameye ever give any funds to Santos for investment in his business or in anything other than the purchase of stocks of publicly traded companies for her and/or her mother's benefit.
Fraudulent Solicitation of Investments in PinPoint
37. In addition to falsely representing to investors that he would invest their money inthe stock market, Santos raised $182,635 from two other investors, Scott M. Brooks and John Kolla, by falsely representing that their funds would be used to develop and grow his advertising business, PinPoint. Santos represented to Brooks and Kolla that their funds, together with funds from other investors, would be pooled and used to develop PinPoint into a profitable enterprise. Santos further told Brooks and Kolla they would receive a good return on their investments once the company became profitable. Based on Santos's representations, Brooks and Kolla gave Santos funds in the belief their money would be pooled and used to create a profit in Santos's business enterprise, and that they -- like Santos and other unidentified investors -- would share in the profits to be generated by the successful execution of Santos's business plans. Furthermore, Santos retained exclusive control over the management of PinPoint, and Brooks and Kolla had absolutely no input into the affairs of the business. Thus, Brooks and Kolla were passive investors who exercised no control over the funds that they gave Santos to invest in PinPoint.
38. None of the funds raised from Brooks or Kolla was invested as represented. Rather, Santos used those funds, as he did the funds of the other investors, for his personal benefit.
Scott M. Brooks
39. Scott M. Brooks is 38 years old and lives in Philadelphia. In early 2000, Santos told Brooks, an acquaintance, about a business idea, which involved generating revenue by selling advertising space on pizza boxes. Brooks liked the idea and agreed to invest in the business, which eventually took the name of PinPoint. Brooks never authorized Santos to use his money for anything other than the development of the advertising business of PinPoint.
40. On various occasions between April 2000 and March 2001, Brooks gave Santos atotal of $152,635 to invest in PinPoint. As he had done with other investor funds, Santos deposited Brooks's money into the Luxury Superstore bank account and then used the money for his personal benefit.
41. Santos told Brooks that he would be contacting other potential investors to obtain funds to invest in PinPoint. Although Brooks never signed any documentation in connection with his investment, Santos told him that he could draw money out of the business once it became profitable. Brooks never participated in the management of the company and relied solely on Santos's oral progress reports, which he typically received when Santos called him to solicit additional funds. Santos told Brooks that the business was progressing well when, in fact, it was not.
42. John Kolla, a friend of Santos's father, is in his 50's and lives in the Philadelphia area. In the fall of 1999, Kolla gave Santos $30,000 to invest in his new business, PinPoint. Santos told Kolla that he would receive a good return on his investment.
43. As with all other investor funds, Santos deposited Kolla's $30,000 into the Luxury Superstore bank account controlled by him. Santos then used the money for his personal benefit. 44. In November 2001, Kolla contacted Santos and requested the return of his money. Santos responded by requesting Kolla to consider accepting stock in an unspecified publicly traded company in lieu of money. To date, Kolla has received neither cash nor stock in repayment of his investment.
Misuse of Investor Funds
45. As a result of the illegal conduct alleged above, Santos fraudulently solicited morethan $483,000 of investor funds, the vast majority of which he misappropriated for his personal use. Between September 14, 1999 and June 1, 2001, Santos deposited the funds raised from LaBarge, Ameye, Brooks and Kolla into the Luxury Superstore bank account, which Santos controlled. Santos used the investors' money for a variety of undisclosed purposes. He spent at least $77,700 of these funds to pay his credit card and other personal debt. Santos also wrote more than $120,000 in checks payable either to himself or cash. In addition, he spent $41,775 on cars; $42,027 on travel and entertainment, including vacations in Florida and the Caribbean; $22,414 on expensive clothing; and $56,756 in unexplained ATM cash withdrawals.
46. In addition, Santos used $119,000 of investor funds to purchase securities for his personal account. On June 9, 2000 Santos opened a brokerage account in his own name and transferred $45,000 of Ameye's money to that account. Thereafter, Santos used these funds to purchase for his personal account several call options in various stocks. Santos lost all of $45,000 within months.
47. In December 2000, Santos opened another account in his own name at another broker-dealer to which he transferred $74,000 of investor funds. By January 1, 2001, Santos had lost $44,576 of these funds in short term stock trading. Santos then wired the remaining funds to a personal bank account and used the money to purchase $25,000 of worthless stock in a privately held company, Media First Inc.
48. Ameye, whose name was not on either of Santos's brokerage accounts, knew nothing of these accounts or Santos's trading in them.
49. Santos never used the money raised from these four investors as he had represented. More specifically, Santos did not use the funds raised from LaBarge and Ameye topurchase publicly traded stock on their behalf. Nor did Santos use the funds raised from Brooks and Kolla to develop the business of PinPoint.
CLAIM FOR RELIEF
Violations of Section 17(a) of the Securities Act,
50. The Commission realleges and incorporates by reference each and every allegation in Paragraphs 1 through 49 above as if the same were fully set forth herein.
51. From at least July 1999 and continuing throughout the year 2001, defendants Santos, PinPoint, and Luxury Superstore, knowingly or recklessly, in connection with the offer, purchase or sale of securities, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce, or the means or instrumentalities of interstate commerce, or the mails, or the facilities of a national securities exchange:
(a) employed devices, schemes or artifices to defraud;
(b) obtained money or property by means of, or made, untrue statements of material fact, or omitted 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
(c) engaged in acts, transactions, practices, or courses of business which operated as a fraud or deceit upon offerees, purchasers and prospective purchasers of securities.
52. By reason of the foregoing, defendants Santos, PinPoint, and Luxury Superstore, knowingly or recklessly violated Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a); Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b); and Rule 10b-5, 17 C.F.R. § 240.10b5 thereunder.
WHEREFORE, the Commission respectfully requests that this Court:
Permanently restrain and enjoin defendants Santos, Pinpoint, and Luxury Superstore, and their agents, officers, servants, employees, attorneys, and those persons in active concert or participation with them, directly or indirectly, singly or in concert, from violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77(q)a; 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.
Order defendants Santos, PinPoint, and Luxury Superstore to disgorge any and all ill-gotten gains, together with prejudgment interest, derived from the activities set forth in this Complaint, in accordance with a plan of disgorgement acceptable to the Court and to the Commission.
Order defendants Santos, Pinpoint, and Luxury Superstore to pay civil 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), in an amount to be determined by the Court.
Grant such other and further relief as the Court may deem just and appropriate.
Attorneys for Plaintiff:
Dated: April 4, 2002