U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20628 / June 25, 2008
Securities and Exchange Commission v. Watermark Financial Services Group, Inc., et al., Civil Action No. 08 CV 361(S) (W.D.N.Y.)
SEC Obtains Preliminary Injunctive Relief in Case Involving a $5.7 Million Offering Fraud and Ponzi Scheme in Western New York
At a hearing on June 16, 2008, the Honorable William M. Skretny, United States District Judge for the Western District of New York, granted the Securities and Exchange Commission's motion for preliminary injunction and other relief against defendants Watermark Financial Services Group, Inc. ("Watermark Financial"), Watermark M-One Holdings, Inc. ("Watermark Holdings"), M-One Financial Services, LLC ("M-One"), Watermark Capital Group, LLC ("Watermark Capital"), Guy W. Gane, Jr., and Lorenzo Altadonna. Entered on June 18, 2008, the court's order continues in place various forms of interim relief initially ordered by the court on May 16, 2008, when the court granted the Commission's application for a temporary restraining order and other relief to halt the fraud orchestrated by Gane and the other defendants. The court's June 18, 2008 order preliminarily enjoins: (a) Watermark Financial, Watermark Holdings, M-One, Gane, and Altadonna from violating Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"); (b) Watermark Financial, Watermark Holdings, M-One, Watermark Capital, Gane, and Altadonna from violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 thereunder; and (c) Gane from violating Section 15(a) of the Exchange Act. The order also (a) continues a freeze over the assets of the defendants and relief defendants Guy W. Gane, III and Jenna Gane, two of Gane's children, and Denkon, Inc., a Florida company; (b) directs the defendants and relief defendants to provide verified accountings; and (c) prohibits the defendants and relief defendants from destroying, altering, or concealing documents.
The defendants and relief defendants Guy W. Gane, III and Jenna Gane filed no opposition to the Commission's motion and ultimately consented to the relief. Relief defendant Denkon, Inc., however, opposed the Commission's motion. At the June 16, 2008 hearing, the court found that "Denkon, Inc. received funds from defendants that it did not have a legitimate claim to" and concluded that Denkon, Inc. should be included in the June 18, 2008 order.
The Commission's complaint, filed on May 15, 2008, alleges that from at least May 2005 to the present, Gane and M-One orchestrated a securities offering fraud that has raised at least $5.7 million from approximately 90 investors, including a number of senior citizens, through the sale of debentures and promissory notes issued by the various entity defendants. Gane is a principal of each of the issuing entities. The complaint further alleges that the defendants told investors that their money would be used to purchase or develop real estate, but instead Gane: (i) used new investor funds to pay back earlier investors; (ii) misappropriated investors' funds by using them to pay himself, his family, and others; and (iii) transferred substantial portions of investor funds to Denkon, Inc., Guy W. Gane, III, and Jenna Gane for no apparent consideration. In addition, the complaint alleges that the debentures offering was not registered with the Commission and that Gane violated the broker-dealer registration provisions of the federal securities laws.
The litigation is pending.