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U.S Securities and Exchange Commission

Litigation Release No. 16929 / March 9, 2001

Securities and Exchange Commission v. Global Telelink Services, Inc., Global Contact Corporation and Robert Smith III, Civil Action File No. 1 01-CV-0632 (N.D. Ga.) (Filed March 8, 2001)

The Securities and Exchange Commission ("Commission") announced that the Honorable Marvin Shoob, United States District Judge for the Northern District of Georgia, entered an Order of Preliminary Injunction and other relief against Global Telelink Services, Inc. ("GTS"), Global Contact Corporation ("Global Contact") and Robert Smith III ("Smith"). The Court's order appointed a Receiver for GTS and Global Contact and froze the assets of all defendants. Without admitting or denying the allegations of the complaint, GTS, Global Contact and Smith consented to the entry of the preliminary injunction and other relief. The Commission's complaint alleges that GTS, Global Contact and Smith operated a Ponzi scheme that raised more than $10 million from more than 300 mostly elderly investors.

The Commission's complaint alleges that the GTS scheme was based upon purported investments in customer owned, telephone gateway switches offered and sold in units, involving a switch, lease/back agreement and buy/back agreement, that constitute securities. The complaint further alleges that the Global Contact scheme was based upon purported investments in workstations in purported telephone call centers, offered and sold in units, involving a call center workstation, lease/back agreement and buy/back agreement, that constitute securities. No registration statement was filed with the Commission in connection with either of these securities. The complaint alleges that GTS and Global Contact devised and controlled both investments and directly made all payments to investors. Investors were not told that GTS and Global Contact had no operating revenues and that all payments to investors in either scheme were made with money raised from subsequent investors. Nor were they told that neither GTS nor Global Contact had operating revenues, that they were both losing money and were both dependent on revenue from new investors to sustain their operations. The complaint also alleges that GTS had looted a sinking fund established to buy back the GTS switches at the end of their lease terms in order to purchase a telephone call center and to pay the operating expenses of GTS and Global Contact, without telling GTS investors that the sinking fund was be used for those purposes.

The complaint seeks permanent injunctions against defendants GTS, Global Contact and Smith to prevent future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also seeks an accounting, disgorgement and prejudgment interest as well as civil penalties from the defendants.


http://www.sec.gov/litigation/litreleases/lr16929.htm

Modified:03/09/2001