U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20371 / November 26, 2007
Accounting and Auditing Enforcement Release No. 2753 / November 26, 2007
Securities and Exchange Commission v. Joseph J. Monterosso and Luis E. Vargas, Civil Action No. 07-61693 (S.D. Fla., filed on November 21, 2007)
SEC Charges Two Former Globetel Executives With Creating $119 Million in False Invoices
The Securities and Exchange Commission today announced it has filed securities fraud charges against Joseph J. Monterosso and Luis E. Vargas, former executives at GlobeTel Communications Corp. of Fort Lauderdale, Fla. The Commission's complaint, filed in the Southern District of Florida on November 21, 2007, alleges that Monterosso and Vargas created $119 million in fake invoices and caused GlobeTel to overstate its revenue for two years.
The complaint alleges that Monterosso and Vargas created hundreds of false invoices that made it appear that GlobeTel's three wholly-owned subsidiaries, Centerline Communications, LLC ("Centerline"), Volta Communications, LLC ("Volta"), and Lonestar Communications, LLC ("Lonestar") bought and sold telecom "minutes" with other wholesale telecom companies. In reality, there were no transactions under the program that GlobeTel executives described as the "off-net" revenue program. Two of GlobeTel's subsidiaries - Volta and Lonestar - actually did no business. The third subsidiary, Centerline, reported millions of dollars in business with Monterosso's and Vargas' own private company, Carrier Services Inc. ("CSI"), which did not occur.
The Commission alleges that Monterosso and Vargas created hundreds of false invoices from technical data they obtained from their friends in the telecom industry. Those invoices - and the technical data that Monterosso and Vargas provided to the company's auditors - caused GlobeTel to report $119 million in false revenue. This so-called "off-net" revenue accounted for approximately 80 percent of the revenue GlobeTel reported between the third quarter of 2004 and the second quarter of 2006 - four out of every five dollars that the company reported.
The complaint alleges that Monterosso and Vargas received hundreds of thousands of dollars in payments from GlobeTel - including about $300,000 in cash that Vargas withdrew from CSI's bank accounts and gave to Monterosso.
GlobeTel has not filed a quarterly or annual statement for any period after the second quarter of 2006. On May 8 and June 29, 2007, GlobeTel filed Forms 8-K announcing that it will restate its financials for 2004 through 2006 to eliminate about $120 million in revenue. On November 2, 2007, the company filed a restated Form 10-KSB for 2004 in which the company reduced its annual revenue by $17.68 million.
In its complaint, the Commission alleges that Monterosso and Vargas violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5, 13b2-1 and 13b2-2 thereunder and that they aided and abetted violations of Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. The Commission seeks permanent injunctions, disgorgement with prejudgment interest and civil penalties. The Commission also seeks to bar permanently Monterosso and Vargas from acting as an officer or director of a public company.
The Commission's investigation continues.