U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16819 / December 6, 2000
Securities and Exchange Commission v. Topz 3, LLC, et al., United States District Court for the Central District of California, Civil Action No. CV 00-12763 MMM (SHx) (C.D.Cal)
On December 6, 2000, the Securities and Exchange Commission ("Commission") filed a complaint in federal court in Los Angeles charging Mark R. Avila ("Avila") of Woodland Hills, California, Stephen R. Keenum ("Keenum") of Newhall, California, and Pacific Crest Holdings, Inc. ("PCH") and Topz 3, LLC ("Topz 3") of Encino, California, (collectively the "Defendants") with securities fraud in connection with the sale of $6.2 million in securities of Topz 3 to 360 investors nationwide. Topz 3 was formed to own, develop, and operate three fast-food Topz restaurants in the Los Angeles area.
The complaint alleges that Defendants misled the investors with financial projections for which they had no basis and failed to disclose that a substantial portion of investors' funds would be used to support the restaurants associated with prior PCH offerings. Specifically, Defendants sent prospective Topz 3 investors offering documents that estimated that each Topz 3 restaurant would earn monthly operating profits of $1,469 to $12,633 and that investors would receive distributions from those operating profits. The complaint alleges that Defendants had no basis for these positive projections. In fact, current Topz restaurants associated with prior offerings were operating at a loss, and Defendants were using a substantial portion of Topz 3 investor funds to maintain those restaurants and to pay distributions to investors associated with those prior offerings. In total, Defendants transferred over $1 million of Topz 3 investor funds to those prior offerings.
The Commission seeks to permanently enjoin Defendants from future violations of the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act") and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; PCH from future violations of the broker dealer registration provisions of Section 15(a) of the Exchange Act; and Avila and Keenum from aiding and abetting PCH's violation of Section 15(a). The Commissions also seeks civil penalties from Defendants and disgorgement from PCH.
On July 12, 2000, the Commission filed a complaint in federal court in Los Angeles charging Avila and Keenum, among other defendants formerly employed by Papa Holdings, Inc., with securities fraud in connection with the sale of $23 million in securities related to the Papashon restaurant chain.
See also Lit. Rel. No. 16624.