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U.S. Securities and Exchange Commission

UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF MICHIGAN


SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,

v.

PATRICK D. QUINLAN, LEE P. WELLS,
KEITH D. PIETILA,
ALEXANDER J. AJEMIAN
JOHN P. O'LEARY, CHERYL A. SWAIN
and KEVIN C. LASKY

Defendants.


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No.

Judge

Magistrate Judge

PLAINTIFF SECURITIES AND EXCHANGE COMMISSION'S COMPLAINT FOR
PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF

Plaintiff, the Securities and Exchange Commission ("Plaintiff" or "Commission"), alleges as follows:

NATURE OF THE ACTION

1. This action involves a large scale securities offering and accounting fraud perpetrated by senior officers and personnel of MCA Financial Corporation ("MCA") to buttress a failing, high-risk mortgage banking business. As a result, the investing public lost at least $68 million.

2. From 1994 through 1999, MCA sponsored and sold approximately 73 series of pass-through certificates with assets totaling approximately $71 million. Each series corresponded to a distinct pool ("pool") of mortgages and land contracts (collectively referred to as "mortgages"), and each pass-through certificate represented ownership of an undivided fractional interest in a pool. In addition, MCA sold approximately $19 million of debentures pursuant to registration statements filed with the Commission to raise working capital for its mortgage banking operations.

3. From at least 1994 through 1999, MCA, through the Defendants, engaged in a scheme to defraud the pass-through certificate investors by distributing offering materials to investors which contained material misstatements and omissions concerning, among other things, the risk, rate of return and historical performance of the pass-through certificates causing investors to lose at least approximately $49 million. Also, from at least 1994 through 1999, MCA, through the Defendants, engaged in a scheme to defraud the debenture investors by materially misrepresenting, among other things, MCA's poor financial condition in registration statements and periodic reports filed with the Commission causing investors to lose all of the approximately $19 million invested.

4. Defendants Patrick D. Quinlan ("Quinlan"), Lee P. Wells ("Wells"), Keith D. Pietila ("Pietila"), Alexander J. Ajemian ("Ajemian"), John P. O'Leary ("O'Leary") and Cheryl A. Swain ("Swain"), directly or indirectly, have engaged in, and unless restrained and enjoined by this Court will continue to engage in, transactions, acts, practices, and courses of business which violate 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 thereunder [17 C.F.R. 240.10b-5].

5. Defendant Kevin C. Lasky ("Lasky"), directly or indirectly, has aided and abetted, and unless restrained and enjoined by this Court, will continue to aid and abet transactions, acts, practices, and courses of business which violate 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 thereunder [17 C.F.R. 240.10b-5].

6. Defendants Quinlan, Wells, Pietila, Ajemian and O'Leary, directly or indirectly, have engaged in, and unless restrained and enjoined by this Court will continue to engage in, transactions, acts, practices, and courses of business which violate Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)] and Rule 13b2-1 thereunder [17 C.F.R. § 240.13b2-1]. Defendants Quinlan, Wells, Pietila, Ajemian and O'Leary, directly or indirectly, have aided and abetted, and unless restrained and enjoined by this Court, will continue to aid and abet transactions, acts, practices, and courses of business which violate Sections 13(b)(2)(A), 13(b)(2)(B) and 15(d) of the Exchange Act [15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(2)(B) and 78o(d)] and Rules 12b-20, 15d-1 and 15d-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.15d-1 and 240.15d-13].

7. Defendants Quinlan, Wells, Pietila and Ajemian, directly or indirectly, have engaged in, and unless restrained and enjoined by this Court will continue to engage in, transactions, acts, practices, and courses of business which violate Rule 13b2-2 [17 C.F.R §240.13b2-2] under Section 13(b) of the Exchange Act [15 U.S.C. §§ 78m(b)].

8. The Commission brings this action to enjoin such transactions, acts, practices and courses of business pursuant to Sections 20(b) and 20(d) of the Securities Act [15 U.S.C. §§77t(b) and 77t(d)] and Sections 20(e), 21(d) and 21(e) of the Exchange Act [15 U.S.C. §§ 78t(e), 78u(d) and 78u(e)].

JURISDICTION AND VENUE

9. The Court has jurisdiction over this action pursuant to Sections 20(b), 20(d), 20(e) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), 77t(e) 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].

10. Venue is proper in this Court 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].

11. Quinlan, Wells, Pietila, Ajemian, O'Leary, Swain and Lasky are all residents in the Eastern District of Michigan. The acts, practices and courses of business constituting the violations alleged herein have occurred within the jurisdiction for the United States District Court for the Eastern District of Michigan and elsewhere.

12. Quinlan, Wells, Pietila, Ajemian, O'Leary, Swain and Lasky have made use of the means and instrumentalities of interstate commerce and of the mails in connection with the acts, practices and courses of business alleged herein in the Eastern District of Michigan and elsewhere.

13. Quinlan, Wells, Pietila, Ajemian, O'Leary, Swain and Lasky will, unless enjoined, continue to engage in the acts, practices and courses of business set forth in this Complaint and acts, practices and courses of business of similar purport and object.

DEFENDANTS

14. Quinlan is a resident of Grosse Pointe Farms, Michigan. Quinlan was Chairman of the Board, Chief Executive Officer and a director of MCA from its inception through January 1999. Quinlan owned approximately 20% of MCA's common stock, and his brothers owned approximately 10% of MCA's common stock. Quinlan was a director of Property Corporation of America ("PCA") and owned 50% of PCA's common stock.

15. Wells is a resident of Grosse Pointe Shores, Michigan. Wells was President and Chief Operating Officer of MCA from July 1995 through January 1999, was Executive Vice President of MCA from its inception through July 1995 and was a director of MCA from its inception through January 1999. Wells owned approximately 10% of MCA's common stock, and his parents and other family members owned approximately 18% of MCA's common stock. Wells was a director and officer of PCA and owned 50% of PCA's common stock.

16. Pietila is a resident of Ann Arbor, Michigan. Pietila was Executive Vice President and Chief Financial Officer of MCA from July 1995 through January 1999, was Chief Operating Officer and Vice President of MCA from its inception through January 1995 and was a director of MCA from its inception through January 1999. In January 2002, Pietila pled guilty to federal charges of mail fraud and making false statements to the Commission based on his conduct at MCA.

17. Ajemian is a resident of Highland, Michigan. Ajemian was Controller and Treasurer of MCA from its inception through January 1999, was Senior Vice President of MCA from July 1995 through January 1999 and was Vice President of MCA from its inception through July 1995. In August 2001, Ajemian pled guilty to federal charges of mail fraud and making false statements to the Commission based on his conduct at MCA.

18. O'Leary is a resident of Davisburg, Michigan. O'Leary worked for MCA from approximately 1994 through late 1998, eventually becoming Senior Vice President of Corporate Finance.

19. Swain is a resident of Beverly Hills, Michigan. During the relevant time period, Swain was MCA's Vice President of Marketing Syndication. Swain had managerial responsibility for administering and marketing MCA's pass-through certificate and debenture offerings. In November 2001, Swain pled guilty to federal charges of mail fraud based on her conduct at MCA.

20. Lasky is a resident of Birmingham, Michigan. During the relevant time period, Lasky was MCA's Vice President of Portfolio Management.

OTHER ENTITIES

21. MCA was incorporated in 1989 under the laws of the state of Michigan as a holding company for four wholly-owned subsidiaries and was headquartered in Troy and Southfield, Michigan. MCA was a privately held corporation whose common stock was not registered with the Commission. The Quinlan and Wells families owned approximately 60% of MCA's common stock.

22. MCA sold approximately $3.37 million of preferred stock in 1993 and 1994 pursuant to a registration statement filed with the Commission. In addition, MCA sold approximately $24.3 million of debentures in four series between 1991 and 1999 pursuant to registration statements filed with the Commission. There was no established public trading market for the preferred stock or the debentures.

23. In light of its sales of preferred stock and debentures, at all times relevant to this Complaint, MCA filed, pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)] and the rules and regulations promulgated thereunder, periodic and other informational reports, including Forms 10-K and 10-Q, with the Commission. Among other things, these periodic reports contained MCA's financial statements. The accounting firms of Doeren Mayhew and Grant Thornton issued joint unqualified opinions on MCA's financial statements included in its registration statements and annual reports

24. PCA was incorporated in 1986 under the laws of the state of Michigan and was headquartered in Detroit, Troy and/or Southfield Michigan. Quinlan and Wells each owned 50% of PCA's common stock. MCA owned all of PCA's non-voting preferred stock. PCA was the general partner/managing member of several limited partnerships/limited liability companies (the "Related Limited Partnerships") which purchased a significant quantity of real estate from MCA.

25. MCA and PCA filed for bankruptcy in February 1999. In August 2000, the bankruptcy court approved a plan for MCA and PCA, among others, which provided for liquidation and distribution of their assets to creditors.

MCA'S HIGH RISK MORTGAGE BANKING BUSINESS

26. MCA primarily was involved in the residential mortgage-banking business, acting as the mortgagee lending funds to borrowers to purchase homes. A significant amount of MCA's mortgages were "non-conforming" such that the home buyers generally posed a higher credit risk than average home buyers. Many of the homes purchased through MCA mortgages were situated in economically depressed areas within the Detroit city limits.

27. MCA typically obtained the funds to lend to home buyers from short-term lines of credit provided by a number of major banks. These short-term loan arrangements were called "warehousing" agreements because they contemplated that MCA would merely hold or "warehouse" the mortgages for a short period of time, pending resale of the mortgages into a secondary market. MCA was required to repay the warehouse lender the borrowed funds when the mortgages were resold. MCA could maintain mortgages on most of its warehouse lines of credit for only 180 days before repaying the warehouse lender.

28. Accordingly, MCA needed to sell its mortgages within a short period of time. MCA sold the mortgages in at least two ways. One was simply to sell the mortgages to other mortgage bankers. The other was to package the mortgages into pools and offer units of ownership interests in these pools, otherwise known as pass-through certificates, to investors.

29. MCA relied heavily on securities offerings to finance its mortgage-banking business. From 1994 through 1999, MCA sponsored and sold approximately 73 series of pass-through certificates with assets totaling approximately $71 million. Each series corresponded to a separate and distinct pool of mortgages, and each pass-through certificate represented the ownership of an undivided fractional interest in a pool.

30. Pass-through certificate investors were to receive on a quarterly basis their pro-rata portion of the amounts received by MCA on account of the mortgages included in their pool minus the expenses MCA was contractually permitted to deduct. Thus, the values of these certificates were ultimately based on future interest and principal payments by the borrowers of the pooled mortgages. Furthermore, information regarding the credit risks of the mortgages in the pool and the value of the corresponding real estate collateral was important to potential investors in these certificates.

31. In addition to offering pass-through certificates to fund its mortgage banking activities, MCA sold corporate debentures. From 1994 through 1999, MCA sold three series of corporate debentures totaling approximately $19 million. MCA registered the debentures under Section 5 of the Securities Act and, as a result, filed periodic reports containing its financial statements under Section 15(d) of the Exchange Act.

MCA'S FINANCIAL DIFFICULTIES

32. At least as early as 1994, Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, realized that MCA was in financial trouble due to the plummeting margins in MCA's mortgage banking business. In fact, MCA disclosed in its 1995 annual report a net loss of $277,546.

33. In the meantime, MCA's senior management and personnel were growing desperate, as reflected in Quinlan's statement in an internal report:

"We all know that in 1994 we almost lost the MCA family jewels - between $6-8 million of cash vanished in our conforming mortgage commerce. It was totally associated with the historic collapse within the mortgage banking industry. We woke up in March of 1995 and saw ourselves almost six feet underground."

34. Quinlan further described 1994 as "A Year from Hell" and "a treacherous year" noting that from approximately May 1994 to May 1995, MCA was "in deep red ink for the first time ever and there were no quick answers to turn things around."

35. MCA's problems continued through 1999, when MCA finally filed for bankruptcy. In fact, MCA lost millions in fiscal year 1996 and 1997 in its mortgage banking business. MCA's financial situation deteriorated so badly that in or about February 1997, Quinlan drafted a memo to O'Leary, Lasky, Ajemian, Pietila and Wells expressing pride that MCA was only "$500,000 short of making payroll."

MCA'S FRAUDULENT SCHEMES

36. Primarily to avoid going out of business between 1994 and 1999, MCA, through the Defendants, executed a fraudulent scheme to inflate its income and equity and enhance its cash flow. As part of that scheme, MCA made numerous material misrepresentations and omissions in connection with the offer and sale of the pass-through certificates and debentures.

FRAUDULENT SCHEME WITH RESPECT TO THE PASS-THROUGH CERTIFICATES

37. From at least 1994 through 1999, MCA, through the Defendants, executed a fraudulent scheme in connection with MCA's offer and sale of pass-through certificates which caused investors to lose at least approximately $49 million. Through the fraudulent scheme, MCA was able significantly to improve its cash flow and income by selling investors the pass-through certificates at a price which far exceeded their value.

38. Between 1994 and 1999, MCA sponsored and sold approximately 73 series of pass-through certificates with assets totaling approximately $71 million. MCA, in connection with the sale of each series, distributed a prospectus to potential investors that, for the most part, was identical except with respect to the specific description of the mortgages to be included in the pool.

39. However, MCA's prospectus contained numerous material misstatements and omissions regarding the risk, rate of return and historical performance of the pass-through certificates including, but not limited to, the misstatements and omissions described below.

A. Material Misstatements and Omissions Regarding the Risk of the Pass-Through Certificates

40. In its prospectus, MCA represented that none of the mortgages included in a pool had a loan-to-value ratio in excess of a specific percentage, usually 90% but never more than 100%. Loan-to-value ratio is a significant measure of the risk of a mortgage loan because it compares the loan amount to the actual value of the real estate securing the loan. To the extent the loan amount exceeds the value of the underlying real estate, there is more exposure if a default occurs.

41. However, MCA placed a significant number of mortgages in most pools whose loan-to-value ratio exceeded the maximum loan-to-value ratio MCA provided in its prospectus, significantly increasing the riskiness of the investment. MCA originated these mortgages by purchasing real estate, selling that real estate at an inflated price to a Related Limited Partnership, advancing the Related Limited Partnership a small down payment (usually 10 or 20%) for the real estate and accepting an executed mortgage for the remaining portion of the purchase price ("related party mortgage"). The sales price reflected the property's value only after substantial rehabilitation, even though the rehabilitation work had not been completed or, for that matter, even begun.

42. MCA sold related party mortgages to the pools because it significantly enhanced MCA's cash flow and income since MCA sold the mortgages at a price which exceeded MCA's cost to purchase the underlying real estate and originate the mortgage. However, contrary to the terms of the prospectus, the loan-to-value ratios of the related party mortgages exceeded 100% since the mortgage principal amounts substantially exceeded the actual value of the properties in light of the artificially inflated price which the Related Limited Partnerships paid for the real estate.

43. Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, were aware that MCA's prospectus misstated the risk of investing in MCA's pass-through certificates. For instance, Quinlan outlined the procedure for creating related party mortgages in an October 14, 1994 memo to Wells and Ajemian. In that memo, Quinlan explained how a property which MCA purchased for $17,400 could be marked up and sold to a Related Limited Partnership shortly thereafter for $40,000, allowing MCA to recognize a gross gain on sale of real estate in its income statement of $22,600. Quinlan further explained that MCA would advance the Related Limited Partnership a 20% down payment, or $8000, and receive a mortgage of $32,000 from the Related Limited Partnership which could be sold into a pool. MCA was able to enter into such transactions with the Related Limited Partnerships because the Related Limited Partnerships were controlled by PCA, which was in turn controlled by Quinlan and Wells. The loan-to-value ratio of the mortgage described in Quinlan's memo was 183%.

B. Material Misstatements and Omissions Regarding the Anticipated Rate of Return of the Pass-Through Certificates

44. In its prospectus, MCA estimated that the anticipated rate of return on each pass-through certificate series would be approximately 10% per annum. However, MCA, in reality, did not expect such a rate of return because MCA was aware that the Related Limited Partnerships, in light of the inflated price they had paid for the real estate, could not afford the payments on the related party mortgages which MCA had placed in most pools.

45. Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, were aware that the pass-through certificates could not expect a 10% rate of return in light of the Related Limited Partnerships' inability to repay the related party mortgages. For instance, Wells drafted a memo in or about February 1995 to Quinlan, Pietila, Ajemian and O'Leary which attached an in-depth financial analysis of the Related Limited Partnerships completed by he and Ajemian, among others, which concluded that the Related Limited Partnerships could not afford their debt service.

46. In addition, Ajemian drafted a memo in or about September 1997 which noted that the Related Limited Partnerships were projecting a $500,000 - $1 million loss for the year.

47. Also, Ajemian, Pietila and O'Leary drafted a memo to Quinlan and Wells in or about May 1998 which described the Related Limited Partnerships' inability to make payments on the related party mortgages stating:

"At our regular FMC meeting on May 12, 1998, we looked at a cashflow analysis . . . for the rental partnerships . . . Needless to say it isn't very pretty, with very few dollars available for debt service. We discussed methods to improve this, however, it is apparent that none of these 'tweaks' will make a material difference."

C. Material Misstatements and Omissions Regarding the Historical Performance of the Pass-Through Certificates

48. In its prospectus, MCA flaunted the performance of prior series of MCA pass-through certificates. In that regard, MCA noted that prior series had "generally outperformed their original projections, in that the annualized return to Certificateholders on their investment in a Pool has generally equaled or exceeded the return originally anticipated." However, MCA's prior series of pass-through certificates were not performing nearly as well as described in the prospectus in light of the Related Limited Partnerships' inability to repay the related party mortgages included in the pools.

49. Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain, among others, were aware that the statements in MCA's prospectus regarding the historical performance of MCA's pass-through certificates were false.

50. For instance, Swain drafted a memo to Ajemian, O'Leary, Pietila, Wells and Quinlan in or about October 1997 in which she noted that "[a]s we have previously discussed, the pools are not liquidating according to their anticipated schedule, as stated in each pool's Confidential Memorandum."

51. Swain drafted another memo to Ajemian, O'Leary, Pietila, Wells and Quinlan in or about May 1998 entitled "Risks Associated with Current Management of Existing Pools" in which she noted that MCA continued to sell $12 million in pass-through certificates each year but that none of these programs were "fully operational" or "paying its own interest and principal." Swain further stated that MCA did not know "what it takes to make these pools work" in that "the assets are not reconciled to the investor funds, and pools do not receive the benefits of the payoffs and principal and interest payments." Finally, Swain noted that the majority of pools could not "withstand a simple audit without massive reconstruction."

52. In addition, while touting the performance of prior series of pass-through certificates, MCA, through the Defendants, failed to disclose that it had further impaired the rate of return of prior series by, contrary to the terms of the prospectus: (A) selling related party mortgages included in completed pass-through certificate offerings to third parties in exchange for cash; or (B) causing the Related Limited Partnerships to execute in MCA's favor additional mortgages on real estate securing mortgages included in completed pass-through certificate offerings and pledging the additional mortgages as collateral to MCA's warehouse lenders in exchange for cash.

53. In either situation, MCA, as a result of these actions, further reduced the rate of return on the pass-through certificates since the Related Limited Partnerships were required to make multiple mortgage payments on the same property when they could not afford even one. In addition, MCA potentially contaminated pass-through certificate investors' security interest in the real estate securing their pool.

54. Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain, among others, were aware that MCA's sale and double pledging of mortgages assigned to completed pool offerings significantly hampered the pass-through certificates' rate of return. In fact, Swain in her memo entitled "Risks Associated with Current Management of Existing Pools" suggested as a solution to the pass-through certificates' poor historical performance that MCA "immediately cease selling pool assets from the pools" unless "the pool receives the full principal payment of the loan."

55. Nonetheless, Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, directed the sale and double pledging of mortgages assigned to completed pool offerings because, among other things, MCA desperately needed cash to pay its expenses. For example, Quinlan drafted a memo to Lasky in or about October 1996 which noted that MCA was going to have a cash shortfall of $750,000. He assigned Lasky the task of selling $100,000 of mortgages included in completed pool offerings to help combat the shortfall. Quinlan's memo was carbon copied to Pietila, Wells, Ajemian and O'Leary.

56. In addition, O'Leary prepared an "Action Plan" in or about July 1996 which assigned Lasky the task of utilizing mortgages included in completed pool offerings as a means to acquire $10-15 million of new working capital.

FRAUDULENT SCHEME WITH RESPECT TO THE DEBENTURES

57. In order to, among other things, obtain additional working capital to continue operations while suffering large losses on its mortgage banking business, MCA, from at least 1994 through 1999, through the Defendants, engaged in the fraudulent sale of three series of debentures by including materially false financial statements in its annual reports and registration statements.

58. MCA's financial statements materially overstated its income, equity and cash flow in a variety of ways which include, but are not limited to, the misstatements and omissions described below. For instance, MCA improperly recognized gains on sales of real estate to related parties and improperly recorded certain mortgages held for resale at cost instead of the lower of cost or market. In addition, MCA failed to disclose related party mortgages held for resale and failed to write down uncollectible related party receivables. MCA also failed to disclose its fraudulent sale of pass-through certificates as a potential liability.

59. Nonetheless, from at least 1995 through 1998, Quinlan, Pietila and Wells, among others, signed MCA's debenture registration statements, annual reports and/or quarterly reports filed with the Commission. In addition, in at least 1997 and 1998, Quinlan, Pietila, Wells and Ajemian signed a representation letter to MCA's auditors which stated that MCA's financial statements were fairly presented in accordance with GAAP, related party transactions had been properly recorded and disclosed in MCA's financial statements and that the cost of land contracts and mortgages held for resale on MCA's balance sheet approximated value. As a result of the material misstatements and omissions, MCA debenture investors lost all of the approximately $19 million invested.

A. Improper Recognition of Gains on Sale of Real Estate to Related Parties

60. As described previously, MCA's mortgage banking business was suffering significant losses from at least 1994 through 1999. To, among other things, avoid reporting these losses in its financial statements, Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, devised a scheme to inflate MCA's income which involved purchasing real estate, selling it to the Related Limited Partnerships at an inflated price and improperly recognizing the gain on sale as revenue by the full accrual method, which means that MCA recognized all of the profit at the time of the sale. As described previously, MCA sold the real estate to the Related Limited Partnerships at a price equal to the actual value of the property after substantial rehabilitation, even though the rehabilitation had not been completed or, for that matter, even begun. MCA was able to enter into such transactions with the Related Limited Partnerships because the Related Limited Partnerships were controlled by PCA, which was in turn controlled by Quinlan and Wells.

61. In 1996, MCA improperly recorded gains on sale of real estate to related parties of approximately $6.5 million while its net pretax income was approximately $1.1 million. In 1997, MCA improperly recorded gains on sale of real estate to related parties of approximately $8.3 million while its net pretax income was approximately $1.4 million. In 1998, MCA improperly recorded gains on sale of real estate to related parties of approximately $4.2 million while its net pretax income was approximately $4.5 million. Obviously, without the improper gains, MCA's financial position would have been significantly weaker.

62. MCA's recognition of these gains on sale was not in accordance with generally accepted accounting principles ("GAAP"). Under GAAP, MCA could not record the gains under the full accrual method unless the collectibility of the sales price from the Related Partnerships was "reasonably assured." GAAP also provides that collectibility shall be assessed by, among other things, "credit standing of the buyer" and "adequacy of cash flow from the property."

63. As described above, Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, were aware that the collectibility of the sales price for the properties sold to the Related Limited Partnerships was not reasonably assured. For instance, Wells drafted a memo in or about February 1995 to Quinlan, Pietila, Ajemian and O'Leary which attached an in-depth financial analysis of the Related Limited Partnerships completed by he and Ajemian, among others, which concluded that the Related Limited Partnerships could not afford their debt service.

64. In addition, Ajemian drafted a memo in or about September 1997 which noted that the Related Limited Partnerships were projecting a $500,000 - $1 million loss for the year. Also, as described in detail above, Ajemian, Pietila and O'Leary drafted a memo to Quinlan and Wells in or about May 1998 which described the Related Limited Partnerships' inability to make payments on the related party mortgages.

65. In addition, Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, were aware that the sole purpose of these real estate sales was to artificially and improperly inflate MCA's income.

66. For instance, Ajemian in a presentation to Quinlan and Wells admitted that without the real estate sales to the Related Limited Partnerships, MCA "would be underwater."

67. Ajemian also drafted a memo to Quinlan, Wells, Pietila and O'Leary in or about 1998 which noted that the Related Limited Partnerships would not purchase any real estate "without the need for the immediate paper profit by MCA." In addition, in or about October 1994, Quinlan drafted a memo to Wells (and copied to Ajemian) which ordered Wells to have MCA purchase several properties so that MCA could "resell the properties into a PCA sponsored partnership in order to realize the gain."

68. Furthermore, in or about October 1997, Quinlan drafted a memo which noted that MCA had to achieve a net income of $5.0-5.5 million "do-or-die" and then listed potential real estate sales to Related Limited Partnerships under the heading of "revenue enhancements." Also, in or about December 1997, Quinlan drafted another memo in which he noted that he was responsible for having the Related Limited Partnerships "step up to the plate" so that "MCA is assured that we are going to be above $5 million in pre-tax earnings for the FYE January 31, 1998."

B. Improper Valuation of Certain Mortgages Held for Resale

69. To, among other things, avoid writing down certain mortgages held for resale to their actual value which would have significantly reduced MCA's income and equity, MCA, through the Defendants, improperly recorded those mortgages at cost even though their cost exceeded their market value.

70. For 1996, 1997 and 1998 respectively, MCA disclosed approximately $74.7, $64.8 and $122.8 million of mortgages held for resale.

71. Under GAAP, mortgages held for resale are to be reported at the lower of cost or market value, determined as of the balance sheet date. The amount by which cost exceeds market value is to be accounted for as a valuation allowance to be included in the determination of net income. Cost is defined as the amount of cash or its equivalent paid to acquire an asset. Market value is defined as the amount of cash or its equivalent that could be obtained by selling an asset in orderly liquidation.

72. MCA, through the Defendants, improperly recorded three types of mortgages held for resale at cost even though cost exceeded market value on these mortgages: related party mortgages, remetered mortgages and double pledged mortgages.

(i) Related Party Mortgages

73. MCA, through the Defendants, improperly recorded related party mortgages held for resale at cost even though cost exceeded market value in light of the Related Limited Partnerships' inability to repay the mortgages and the high loan-to-value ratios of these mortgages, as described previously.

74. Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, were aware that the related party mortgages were not properly valued in MCA's financial statements. As an example, Ajemian drafted a memo entitled "MCAFC Audit Issues" while preparing for the fiscal year 1997 audit which was circulated to at least Quinlan, Wells, Pietila and O'Leary. Ajemian listed as an audit issue in the memo "unfunded liability, R/E mortgages" and expressed concern about the increase in the amount of related party mortgages held for resale recorded at cost. Ajemian further noted that, as a result, MCA's "unfunded liability" had increased.

75. Ajemian also drafted another memo in or about January 1998 to Quinlan, Wells, Pietila and O'Leary in which he noted that the Related Limited Partnerships had "nothing left for debt service" after paying all of their expenses and that to avoid having to write down MCA's related party mortgages held for resale due to lack of adequate payments, MCA simply rolled "the 'interest paid to' dates forward each month for appearances sake" on the mortgages leaving "no audit trail." Ajemian recognized the gravity of MCA's auditors discovering that the Related Limited Partnerships were unable to repay MCA's related party mortgages held for resale in the 1997 "MCAFC Audit Issues" memo when he wrote that "[t]he ramifications of a bust on the interest are tremendous."

76. MCA also utilized the related party mortgages as a means to enhance its cash flow by pledging the mortgages to its warehouse lenders in exchange for cash. MCA was able to significantly enhance its cash flow in this manner, at least in the short term, since MCA borrowed from the warehouse lenders approximately 80-90% of the mortgage's principal amount, which greatly exceeded the price MCA paid for the underlying real estate and the costs of generating the mortgage.

(ii) Remetered Mortgages

77. MCA, through the Defendants, improperly recorded "remetered" mortgages, described below, at cost even though cost far exceeded value.

78. MCA regularly pledged many related party mortgages to its warehouse lenders in exchange for cash. However, pursuant to the terms of most of its warehouse lending agreements, MCA was required to remove the mortgages from the warehouse line after 180 days. MCA, though, could not find a market to sell many of the related party mortgages because of the Related Limited Partnerships' failure to make the required loan payments. Furthermore, MCA did not have sufficient cash of its own to repay the warehouse lenders at the expiration of the 180-day time limit.

79. Accordingly, at the expiration of the 180-day time limit, MCA, through the Defendants, among others, in violation of the terms of the warehouse lending agreements, caused the Related Limited Partnerships to execute new mortgages on the real estate in MCA's favor and pledged the new mortgages as collateral either on the same or a different warehouse line. MCA then utilized the funds obtained from pledging the new mortgages to repay the warehouse lender which held the old mortgage. Nonetheless, MCA improperly recorded these "remetered" mortgages at cost even though cost far exceeded market value because of the Related Limited Partnerships' prolonged failure to make the required loan payments on the mortgages.

80. Quinlan, Wells, Pietila, Ajemian, O'Leary and Lasky, among others were aware that remetering was inappropriate. Quinlan described remetering in a memo drafted in or about October 1998 which was copied to Wells, Pietila, Ajemian and Lasky. In the memo, Quinlan noted that MCA had millions of dollars of related party mortgages "rolling over at its warehouse lenders every month." He then noted that MCA could not "use the same assets over and over again with these same banks" because "it's against the rules and we would get caught." Finally, Quinlan noted that MCA needed "new inventory to replace these mortgages rolling off with new addresses/properties."

81. Lasky, at the direction of Quinlan, Wells, Ajemian, Pietila and O'Leary, among others, primarily was responsible for executing the paperwork provided to the warehouse lenders in connection with remetering the related party mortgages.

(iii) Double Pledged Mortgages

82. MCA, through the Defendants, improperly recorded at cost related party mortgages where the underlying real estate already secured mortgages that: (a) had been included in completed pool offerings; or (b) MCA valued at cost in its balance sheet. Obviously, the cost of these mortgages far exceeded market value in light of the especially high loan-to-value ratio, the Related Limited Partnerships inability to repay and the potentially contaminated security interest in the underlying real estate.

83. As noted above, MCA engaged in this practice because it needed cash to fund its mortgage banking losses, and it could pledge the new mortgages as collateral to its warehouse lenders, although in violation of the terms of the warehouse lending agreements, in exchange for cash. However, MCA could not afford to record these new mortgages at their actual value because it would have significantly reduced MCA's income and equity. Accordingly, MCA improperly recorded these mortgages at cost.

84. Quinlan, Wells, Pietila, Ajemian, O'Leary and Lasky, among others, were aware that recording the double pledged mortgages at cost was improper. In this regard, Ajemian's above-referenced 1997 "Audit Issues" memo listed as an issue "double borrowed loans." Ajemian noted that "[b]ased on John O'Leary's reconciliation, there are loans on more than one line" which "could have ugly implications in more ways than one." Ajemian assigned the following mitigating action to O'Leary:

"Clean up as much as possible . . . prior to year-end. Don't give auditors schedules with a lot of detail."

85. In addition, an MCA employee drafted a memo to O'Leary and Lasky in or about April 1998 expressing concern that $6.5 million in loans were "double booked" and noting that "we need a plan to pay these loans off with cash."

C. Failure to Disclose the Dubious Nature of Some Assets.

86. In an effort to disguise the dubious nature of a significant portion of its assets, MCA, through the Defendants, failed to disclose that the borrowers on millions of dollars of mortgages held for resale were the Related Limited Partnerships.

87. Under GAAP, financial statements shall include disclosures of material related party transactions. The disclosures must include, among other things, the nature of the relationship, a description of the transactions and the dollar amounts of the transactions. Related parties are defined under GAAP to include parties with which the enterprise may deal or parties in which the enterprise has an ownership interest if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own interests.

88. For purposes of GAAP, MCA was related to the Related Limited Partnerships. MCA owned preferred stock in PCA, the general partner of the Related Limited Partnerships, and Quinlan and Wells owned all of the common stock of PCA.

89. In addition, MCA dictated the actions of the Related Limited Partnerships. For example, in or about February 1995, Quinlan, Wells, Pietila, Ajemian and O'Leary appointed a special committee which included Wells and Ajemian to analyze the financial situation of the Related Limited Partnerships to determine if they could afford their debt service. Furthermore, after the special committee concluded that the Related Limited Partnerships could not afford their debt service, Quinlan, Wells, Pietila, Ajemian and O'Leary agreed that MCA and its affiliates would be responsible for paying the shortfall.

90. MCA's senior management and personnel also routinely made major strategic financial decisions for the Related Limited Partnerships. Indeed, MCA acknowledged that investors would consider transactions with the Related Limited Partnerships as material by segregating in its financial statements revenue earned from gains on sale of real estate to the Related Limited Partnerships from revenue earned from gains on sale to other parties.

91. As of 1997 and 1998 respectively, the Related Limited Partnerships were borrowers on at least $13.5 and $38.2 million of the mortgages held for resale respectively. The Related Limited Partnerships also were borrowers on several million dollars of mortgages in 1995 and 1996. However, MCA, through the Defendants, failed to disclose that the Related Limited Partnerships were borrowers on a material amount (or any amount) of the mortgages held for resale in MCA's financial statements.

D. Failure to Write Down Related Party Receivables

92. MCA, through the Defendants, inflated its income and equity by continuing to list as an asset money owed by PCA and the Related Limited Partnerships even though MCA knew that PCA and the Related Limited Partnerships were unable to repay the debt. By continuing to record these debts as 100% collectible, MCA avoided writing down the receivables to their actual value, which would have caused a corresponding reduction in MCA's income and equity.

93. As of 1996, 1997 and 1998 respectively, MCA disclosed approximately $4.6, $4.1 and $3.6 million in accounts receivable from PCA and the Related Limited Partnerships. MCA generated these receivables by, among other things, advancing funds to PCA and the Related Limited Partnerships for: (i) the 10% down payment when the Related Limited Partnerships purchased real estate from MCA; and (ii) the maintenance and rehabilitation of such real estate. MCA deemed those accounts receivable 100% collectible.

94. Under GAAP, an estimated loss from a loss contingency shall be accrued by a charge to income if: (1) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired at the date of the financial statements; (2) the amount of the loss can be reasonably estimated. GAAP defines "probable" as the future event or events are likely to occur.

95. Because of the close relationship of the entities, Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, were aware that the accounts receivable due from PCA and the Related Limited Partnerships were impaired and could reasonably estimate the amount of loss.

96. For instance, Wells drafted a memo in or about February 1995 to Quinlan, Pietila, Ajemian and O'Leary which attached an in-depth financial analysis of the Related Limited Partnerships completed by he and Ajemian, among others. That memo concluded that the Related Limited Partnerships could not afford a significant portion of their debt service. Furthermore, Ajemian drafted a memo in or about September 1997 which noted that PCA was projecting a $500,000 - $1 million loss for the year. Also, as noted previously, Ajemian, Pietila and O'Leary drafted a memo to Quinlan and Wells in or about May 1998 which stated that the Related Limited Partnerships' cash flow "isn't very pretty, with very few dollars available for debt service."

97. Quinlan, Wells, Pietila, Ajemian and O'Leary, among others, also were aware that PCA's and the Related Limited Partnerships' net worth was insufficient to repay the receivable if they were liquidated since most of their assets were the overpriced pieces of real estate purchased from MCA.

E. Failure to Disclose in the Debenture Offering Materials Potential Liability from the Fraudulent Sale of the Pass-Through Certificates

98. MCA, through the Defendants, improperly failed to disclose in its financial statements attached to the debenture offering materials and its annual and quarterly reports that it would likely incur significant liability from its fraudulent sale of the pass-through certificates. Such a disclosure would have had an enormous impact on investors' opinion of MCA's financial strength because the liability, when incurred, would have substantially reduced MCA's equity and income.

99. Under GAAP, MCA was required to disclose in its financial statements reasonably possible material loss contingencies. GAAP defines reasonably possible to mean that the chance of the future event or events occurring is more than remote but less than likely. GAAP also provides that:

"Disclosure is not required of a loss contingency involving an unasserted claim or assessment when there has been no manifestation by a potential claimant of an awareness of a possible claim or assessment unless it is considered probable that a claim will be asserted and there is a reasonable possibility that the outcome would be unfavorable."

100. Even though the pass-through certificate investors had not asserted their claim against MCA by the time MCA filed for bankruptcy, Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain, among others, were aware that it was probable that the pass-through certificate investors would assert a claim against MCA for MCA's fraudulent conduct in the sale of the pass-through certificates. In addition, Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain, among others, were aware that there was a reasonable possibility that the result of such a claim would be unfavorable.

101. For example, Swain drafted a memo to Quinlan, Wells, Pietila, Ajemian and O'Leary in or about August 1997 noting that MCA was "getting increasing numbers of telephone and written inquiries from our broker dealer network and investors relating to the anticipated life of the pool programs." She further explained that "the situation is very serious" and "there is a real risk of a full investigation."

102. In addition, Swain drafted another memo to Quinlan, Wells, Pietila, Ajemian and O'Leary in or about October 1997 repeating her prior concern that the pools were "not liquidating according to their anticipated schedule, as stated in each pool's confidential memorandum." She also reiterated her concern about the number of investor and broker-dealer inquiries and concluded by noting that:

"Unless we take strong action to allocate significant resources to these older pools, the situation will only grow increasingly worse, as more and more pools reach their anticipated life. As this happens, our risk of a full audit only increases."

103. Finally, Swain drafted the memo in or about May 1998 to Quinlan, Wells, Pietila, Ajemian and O'Leary which advised that none of the pool programs were "fully operational," that MCA did "not even know what it takes to makes these pools work" and that none of the pools "could withstand a simple audit without massive reconstruction." Swain also noted:

"The slow principal paydowns on these pools will only continue to lead to more audits, as time passes, and broker-dealer firms and their reps begin to wonder what possibly could be going on. I continue to receive calls from investors inquiring on pool performance."

COUNT I

Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. §77q(a)(1)]

104. Paragraphs 1 through 103 are realleged and incorporated by reference.

105. From at least 1994 through January 1999, Defendants Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, employed devices, schemes and artifices to defraud as more fully described in Paragraph 104.

106. Defendants Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain knew or were reckless in not knowing of the facts and circumstances alleged in Paragraphs 104 and 105.

107. As a result of the conduct alleged in Paragraphs 104 through 106, Defendants Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain violated Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)].

COUNT II

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)]

108. Paragraphs 1 through 103 are realleged and incorporated by reference.

109. From at least 1994 through January 1999, Defendants Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain, in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, obtained money and property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and engaged in transactions, practices and courses of business which operated as a fraud and deceit upon investors and prospective investors, all as more fully described in Paragraph 108.

110. As a result of the conduct alleged in Paragraphs 108 and 109, Defendants Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain violated Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§77q(a)(2) and 77q(a)(3)].

COUNT III

Violations of 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]

111. Paragraphs 1 through 103 are realleged and incorporated by reference.

112. From at least 1994 through January 1999, Defendants Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain, in connection with the purchase and sale of securities, by the use of the means and instrumentalities of interstate commerce and by the use of the mails, directly and indirectly: used and employed devices, schemes and artifices to defraud; made untrue statements of material facts and 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; and engaged in acts, practices and courses of business which operated or would have operated as a fraud and deceit upon purchasers and sellers and prospective purchasers and sellers of securities, as more fully described in Paragraph 111.

113. Defendants Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain knew or were reckless in not knowing of the facts and circumstances alleged in Paragraphs 111 and 112.

114. As a result of the conduct alleged in Paragraphs 111 through 113, Defendants Quinlan, Wells, Pietila, Ajemian, O'Leary and Swain violated 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].

COUNT IV

Aiding and Abetting Violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3)

of the Securities Act [15 U.S.C. §§ 77q(a)(1), 77q(a)(2) and 77q(a)(3)],

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]

115. Paragraphs 1 through 103 are realleged and incorporated by reference.

116. From at least 1994 through January 1999, MCA, through certain of its officers, directors and employees, in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly: employed devices, schemes and artifices to defraud; obtained money and property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and engaged in transactions, practices and courses of business which operated as a fraud and deceit upon investors and prospective investors as more fully described in Paragraph 115.

117. MCA knew or was reckless in not knowing of the facts and circumstances alleged in Paragraphs 115 and 116.

118. As a result of the conduct alleged in Paragraphs 115 through 117, MCA, through certain of its officers, directors and employees, violated Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1), 77q(a)(2) and 77q(a)(3)].

119. From at least 1994 through January 1999, MCA, through certain of its officers, directors and employees, in connection with the purchase and sale of securities, by the use of the means and instrumentalities of interstate commerce and by the use of the mails, directly and indirectly: used and employed devices, schemes and artifices to defraud; made untrue statements of material facts and 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; and engaged in acts, practices and courses of business which operated or would have operated as a fraud and deceit upon purchasers and sellers and prospective purchasers and sellers of securities, as more fully described in Paragraphs 115.

120. MCA knew or was reckless in not knowing of the facts and circumstances alleged in Paragraphs 115 and 119.

121. As a result of the conduct alleged in Paragraphs 115, 119 and 120, MCA, through certain of its officers, directors and employees, violated 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].

122. As a result of the conduct alleged in Paragraphs 115 through 121, Defendant Lasky knowingly provided substantial assistance to MCA and certain of its officers, directors and employees in the violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1), 77q(a)(2) and 77q(a)(3)], 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] and thereby aided and abetted MCA's violations of these provisions of the federal securities laws.

COUNT V

Aiding and Abetting Violations of Section 15(d)
of the Exchange Act [15 U.S.C. § 78o(d)] and
Rules 12b-20, 15d-1 and 15d-13 thereunder
[17 C.F.R. §§ 240.12b-20, 240.15d-1 and 240.15d-13]

123. Paragraphs 1 through 103 are realleged and incorporated herein by reference.

124. Between at least 1994 and January 1999, MCA filed with the Commission financial statements in its annual reports on Form 10-K and quarterly reports on Form 10-Q that were not prepared in accordance with GAAP, as more fully described in Paragraph 123.

125. Between at least 1994 and 1999, MCA, directly and indirectly, filed with the Commission annual reports on Form 10-K and quarterly reports on Form 10-Q that were not in accordance with such rules and regulations that the Commission has prescribed as necessary and appropriate in the public interest and for the protection of investors, and also failed to include in those reports such further material information as was necessary to make the required statements, in light of the circumstances under which they were made, not misleading, as more fully described in Paragraph 123.

126. As a result of the conduct alleged in Paragraphs 123 through 125, MCA violated Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)] and Rules 12b-20, 15d-1 and 15d-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.15d-1 and 240.15d-13].

127. As a result of the conduct alleged in Paragraphs 123 through 126, Defendants Quinlan, Wells, Pietila, Ajemian and O'Leary knowingly provided substantial assistance to MCA in its violations of Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)] and Rules 12b-20, 15d-1 and 15d-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.15d-1 and 240.15d-13] and thereby aided and abetted MCA's violations of these provisions of the federal securities laws.

COUNT VI

Aiding and Abetting Violations of Section 13(b)(2)(A) and
13(b)(2)(B) [15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B)] of the Exchange Act

128. Paragraphs 1 through 103 are realleged and incorporated herein by reference.

129. From at least 1994 through January 1999, MCA, directly and indirectly, failed to make and keep books, records and accounts, which in reasonable detail accurately and fairly reflected the transactions and disposition of the assets of MCA, as more fully described in Paragraph 128.

130. From at least 1994 through January 1999, MCA failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP or any other criteria applicable to such statements as more fully described in Paragraph 128.

131. As a result of the conduct alleged in Paragraphs 128 through 130, MCA violated Section 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B)].

132. As a result of the conduct alleged in Paragraphs 128 through 131, Defendants Quinlan, Wells, Pietila, Ajemian and O'Leary knowingly provided substantial assistance to MCA in its violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B)] and thereby aided and abetted MCA's violations of these provisions of the federal securities laws.

COUNT VII

Violations of Exchange Act Rule 13b2-1 [17 C.F.R. 240.13b2-1]

133. Paragraphs 1 through 103 are realleged and incorporated herein by reference.

134. From at least 1994 through January 1999, Defendants Quinlan, Wells, Pietila, Ajemian and O'Leary, directly and indirectly, falsified or caused to be falsified books, records and accounts subject to Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. §§ 78m(b)(2)(A)] as more fully described in Paragraphs 133.

135. As a result of the conduct alleged in Paragraphs 133 and 134, Defendants Quinlan, Wells, Pietila, Ajemian and O'Leary violated Rule 13b2-1 [17 C.F.R. 240.13b2-1] promulgated under Section 13(b)(2) of the Exchange Act [15 U.S.C. § 78m(b)(2)].

COUNT VIII

Violations of Exchange Act Rule 13b2-2 [17 C.F.R. § 240.13b2-2]

136. Paragraphs 1 through 103 are realleged and incorporated herein by reference.

137. From at least 1994 through January 1999, Defendants Quinlan, Wells, Pietila and Ajemian, directly and indirectly, made or caused to be made materially false and misleading statements, or omitted to state or caused another person 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 an audit and examination of the financial statements of MCA or the preparation and filing of a document or report to be filed with the Commission as more fully described in Paragraph 136.

138. As a result of the conduct alleged in Paragraphs 136 and 137, Defendants Quinlan, Wells, Pietila and Ajemian violated Rule 13b2-2 [17 C.F.R. § 240.13b2-2] promulgated under Section 13(b)(2) of the Exchange Act [15 U.S.C. § 78m(b)(2)].

COUNT IX

Violations of Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)]

139. Paragraphs 1 through 103 are realleged and incorporated herein by reference.

140. From at least 1994 through January 1999, Defendants Quinlan, Wells, Pietila, Ajemian and O'Leary knowingly circumvented and knowingly failed to implement a system of internal accounting controls and knowingly falsified books, records and accounts described in Section 13(b)(2) of the Exchange Act [15 U.S.C. § 78m(b)(2)] as more fully described in Paragraph 139.

141. As a result of the conduct alleged in Paragraphs 139 and 140, Defendants Quinlan, Wells, Pietila, Ajemian and O'Leary violated Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)].

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:

I.

Issue findings of fact and conclusions of law that the Defendants committed the violations charged and alleged herein.

II.

Issue an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, permanently restraining and enjoining Defendant Quinlan, his officers, agents, servants, employees, attorneys and those persons in active concert or participation with him who receive actual notice of the Order, by personal service or otherwise, and each of them from, directly or indirectly, engaging in the acts, practices or courses of business alleged above, or in conduct of similar purport and object, as principals or aiders and abettors, in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 15(d) of the Exchange Act [15 U.S.C. §§ 78j(b), 78m(b)(2)(A), 78m(b)(2)(B), 78m(b)(5) and 78o(d)] and Rules 10b-5, 12b-20, 13b2-1, 13b2-2, 15d-1 and 15d-13 thereunder [17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13b2-1, 240.13b2-2, 240.15d-1 and 240.15d-13].

III.

Issue an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, permanently restraining and enjoining Defendant Wells, his officers, agents, servants, employees, attorneys and those persons in active concert or participation with him who receive actual notice of the Order, by personal service or otherwise, and each of them from, directly or indirectly, engaging in the acts, practices or courses of business alleged above, or in conduct of similar purport and object, as principals or aiders and abettors, in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 15(d) of the Exchange Act [15 U.S.C. §§ 78j(b), 78m(b)(2)(A), 78m(b)(2)(B), 78m(b)(5) and 78o(d)] and Rules 10b-5, 12b-20, 13b2-1, 13b2-2, 15d-1 and 15d-13 thereunder [17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13b2-1, 240.13b2-2, 240.15d-1 and 240.15d-13].

IV.

Issue an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, permanently restraining and enjoining Defendant Pietila, his officers, agents, servants, employees, attorneys and those persons in active concert or participation with him who receive actual notice of the Order, by personal service or otherwise, and each of them from, directly or indirectly, engaging in the acts, practices or courses of business alleged above, or in conduct of similar purport and object, as principals or aiders and abettors, in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 15(d) of the Exchange Act [15 U.S.C. §§ 78j(b), 78m(b)(2)(A), 78m(b)(2)(B), 78m(b)(5) and 78o(d)] and Rules 10b-5, 12b-20, 13b2-1, 13b2-2, 15d-1 and 15d-13 thereunder [17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13b2-1, 240.13b2-2, 240.15d-1 and 240.15d-13].

V.

Issue an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, permanently restraining and enjoining Defendant Ajemian, his officers, agents, servants, employees, attorneys and those persons in active concert or participation with him who receive actual notice of the Order, by personal service or otherwise, and each of them from, directly or indirectly, engaging in the acts, practices or courses of business alleged above, or in conduct of similar purport and object, as principals or aiders and abettors, in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 15(d) of the Exchange Act [15 U.S.C. §§ 78j(b), 78m(b)(2)(A), 78m(b)(2)(B), 78m(b)(5) and 78o(d)] and Rules 10b-5, 12b-20, 13b2-1, 13b2-2, 15d-1 and 15d-13 thereunder [17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13b2-1, 240.13b2-2, 240.15d-1 and 240.15d-13].

VI.

Issue an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, permanently restraining and enjoining Defendant O'Leary, his officers, agents, servants, employees, attorneys and those persons in active concert or participation with him who receive actual notice of the Order, by personal service or otherwise, and each of them from, directly or indirectly, engaging in the acts, practices or courses of business alleged above, or in conduct of similar purport and object, as principals or aiders and abettors, in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 15(d) of the Exchange Act [15 U.S.C. §§ 78j(b), 78m(b)(2)(A), 78m(b)(2)(B), 78m(b)(5) and 78o(d)] and Rules 10b-5, 12b-20, 13b2-1, 15d-1 and 15d-13 thereunder [17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13b2-1, 240.15d-1 and 240.15d-13].

VII.

Issue an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, permanently restraining and enjoining Defendant Swain, her officers, agents, servants, employees, attorneys and those persons in active concert or participation with her who receive actual notice of the Order, by personal service or otherwise, and each of them from, directly or indirectly, engaging in the acts, practices or courses of business alleged above, or in conduct of similar purport and object, as principals or aiders and abettors, in violation of 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 thereunder [17 C.F.R. §§ 240.10b-5].

VIII.

Issue an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, permanently restraining and enjoining Defendant Lasky, his officers, agents, servants, employees, attorneys and those persons in active concert or participation with him who receive actual notice of the Order, by personal service or otherwise, and each of them from, directly or indirectly, engaging in the acts, practices or courses of business alleged above, or in conduct of similar purport and object, as principals or aiders and abettors, in violation of 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 thereunder [17 C.F.R. §§ 240.10b-5].

IX.

Issue an Order pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)] prohibiting Defendants Quinlan, Wells, Pietila and Ajemian, permanently and unconditionally, 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. § 78o(d)].

X.

With regard to the Defendants' violative acts, practices and courses of business set forth herein, issue an Order imposing upon them appropriate 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)].

XI.

Retain jurisdiction of this action in accordance with the principles 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.

XII.

Grant Orders for such further relief as the Court may deem appropriate.

Respectfully submitted,

___________________________________
Scott B. Tandy
Charles J. Kerstetter
Peter K.M.Chan
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
175 West Jackson Boulevard, Suite 900
Chicago, IL 60604-2615
(312) 353-7390

Dated: April 24, 2002

DESIGNATION OF ASSISTANT U.S. ATTORNEY

Pursuant to Rule 83.20(g), Local Rules of the United States District Court for the Eastern District of Michigan, plaintiff hereby designates Ellen Christensen, Esq. (Bar Number 29574), Assistant U.S. Attorney, 211 W. Fort Street, Suite 201, Detroit, Michigan, 48226, 313-226-9112, to receive service of all notices and papers.


http://www.sec.gov/litigation/complaints/complr17484.htm

Modified: 04/23/2002