SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17105 / August 16, 2001
SECURITIES AND EXCHANGE COMMISSION v. PACKETSWITCH.COM, INC. AND STEVEN A. RISTAU, United States District Court for the Northern District of California, Civil Action No. 01-20626 (RMW)
Judge Appoints Receiver Over Fraudulent Internet Technology Company Sued by SEC
The Securities and Exchange Commission announced that on August 14, 2001, the Honorable Ronald M. Whyte, United States District Judge for the Northern District of California, appointed a receiver over PacketSwitch.Com, Inc., a San Jose, California company that is alleged to have raised more than $3.7 million by fraudulently claiming that the company had a proprietary technology for broadcasting movies wirelessly over the Internet. The Court's order, which granted preliminary injunctive relief, found that the Commission had demonstrated a probability of success on the merits of the action against PacketSwitch.Com and appointed Jerome E. Robertson as Receiver over the company.
The Commission's complaint, filed on July 9, 2001, alleges that from at least February 1999 through September 2000, PacketSwitch.Com and its founder and former CEO, Steven A. Ristau, fraudulently raised funds from at least 700 investors. According to the complaint, Ristau knew many of the investors through his relationships with large churches in the San Jose area. Among other things, the defendants told investors that PacketSwitch.Com:
According to the complaint, each of these claims was false. In particular, the complaint alleges, PacketSwitch.Com was a start-up company with no revenue and no real product and its purported technology was simply an off-the-shelf commercial product that did not have the capability of broadcasting movies wirelessly over the Internet.
The complaint further alleges that the defendants failed to disclose that a significant portion of the funds raised went to finance Ristau's lavish lifestyle. This includes more than $550,000 that went towards the purchase of a $1.8 million home in San Jose, as well as funds used to pay for Ristau's family vacation to Hawaii, his delinquent child support, his personal bodyguards, Lexus automobile, and other personal items. The complaint also alleges that Ristau improperly received sales commissions based on a percentage of the proceeds raised by the company.
The complaint alleges that Ristau and PacketSwitch.Com violated the registration and antifraud provisions of the federal securities laws, Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In addition, the complaint alleges that Ristau violated the broker-dealer registration provisions of Section 15(a) of the Exchange Act. The Commission seeks a permanent injunction against defendants' future violations of these provisions, disgorgement of all ill-gotten gains, civil money penalties against Ristau, and an order prohibiting Ristau from acting as a director or officer of any public company.