U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20999 / April 14, 2009
SEC v. Osvaldo Pitters, Terrell J. Kuykendall and Steven M. Ivester, Civil Action No. 09-20957 CIV-GRAHAM (S.D. Fla., April 13, 2009)
The Securities and Exchange Commission (Commission) announced that on April 13, 2009, it filed a civil injunctive action against Osvaldo Pitters, Terrell J. Kuykendall, and Steven M. Ivester in connection with a financial fraud involving VoIP, Inc., a defunct Internet telecommunications provider formerly located in Altamonte Springs, Florida. The Commission's complaint, filed in the United States District Court for the Southern District of Florida, alleges that Pitters, VoIP's former Chief Financial Officer, and Kuykendall, the former General Manager of a VoIP subsidiary, recorded fictitious sales when it became apparent that the subsidiary would not meet VoIP's revenue projections in 2004 and the first quarter of 2005. Pitters and Kuykendall recorded sham transactions with third parties, thereby inflating the subsidiary's revenues. Pitters further provided false sales journals and fictitious invoices to VoIP's auditors during its audit for fiscal year 2004. As a result, VoIP filed a Form 10-K and two Forms 10-Q with the Commission that overstated the company's revenues by more than 40%.
The complaint further alleges that Ivester, VoIP's former Chief Executive Officer, was aware the subsidiary was struggling financially, but did not question the suspiciously high revenue figures. By November 2004, Ivester knew the subsidiary had generated $400,000 or less in revenues since its acquisition by VoIP, and that unpaid vendor bills and technical problems with VoIP's voice-over-Internet systems were hindering sales. Yet Ivester did not question the consolidated figures showing the subsidiary had generated over $790,000 in additional revenues before the end of 2004, and that its revenues had increased again substantially in the first quarter of 2005. In addition, the Complaint alleges in 2004 and 2005, Ivester sold more than four million shares of VoIP stock and that he failed to report the sales transactions with the Commission by filing the required Forms 4 until December 2005.
The Commission's complaint charges Pitters and Kuykendall with violating the anti-fraud provisions of the federal securities laws, specifically, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and charges Ivester with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act. The complaint further charges Pitters and Kuykendall with aiding and abetting VoIP's violations of the reporting, books and records, and internal control provisions under Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13; charges Pitters and Kuykendall with direct violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1; and further charges Pitters with knowingly making false statements to VoIP's auditors, in violation of Rule 3b2-2 under the Exchange Act. Finally, the complaint charges Ivester and Pitters with violations of the officer certification provisions under Rule 13a-14 under the Exchange Act, and charges Ivester with violations of the beneficial ownership reporting provisions under Section 16(a) of the Exchange Act and Rule 16a-3 thereunder. The Commission's complaint seeks permanent injunctive relief against all defendants, enjoining them from future violations of the provisions charged, and an order requiring them to disgorge their ill-gotten gains, with prejudgment interest, and imposing civil penalties against each of them.
On April 13, 2009, the Commission also suspended trading in VoIP's securities for ten days and instituted public administrative proceedings to determine whether the registration of its securities should be suspended or revoked. The Commission also entered an order against VoIP's former independent auditor, Jesus A. Lago, denying him the privilege of practicing before the Commission as an accountant with the right to reapply in one year. Lago consented to the order without admitting or denying the Commission's findings.