SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17114 / September 4, 2001
SECURITIES AND EXCHANGE COMMISSION v. ILAN ARBEL AND DAVID MELILLO CV 01 5985 (IG) (E.D.N.Y.) (August 30, 2001)
SEC Charges Ilan Arbel and David Melillo for Roles in Fraudulent Sales of Hollywood Securities
The Securities and Exchange Commission (the "Commission") announced that it filed a civil injunctive action charging Ilan Arbel ("Arbel"), an Israeli citizen and resident of New York City, and David Melillo ("Melillo"), a resident of Saint Petersburg, Florida, for their roles in a fraudulent scheme to sell the securities of Hollywood Productions, Inc., now known as Shopnet.com, Inc. ("Hollywood").
The Commission's complaint alleges that Arbel and Melillo sold Hollywood securities through Euro-Atlantic Securities, Inc. ("Euro") to the investing public at artificially inflated prices and shared the illicit profits. Pursuant to the scheme, Arbel, through his control of Hollywood securities, provided the supply of securities at a discount to Euro. Melillo, through his control of Euro, provided the retail sales operation - in essence a "boiler room" - that created demand for Hollywood securities and controlled the price of Hollywood securities through fraudulent and deceptive sales practices.
The Commission's complaint also alleges that the fraudulent sales practices included using part of the illicit proceeds to pay Euro brokers undisclosed commission "kickbacks" for selling Hollywood securities without customer authorization, refusing to execute customer requests to sell Hollywood securities and requiring customers to purchase Hollywood securities in the aftermarket in order to receive Hollywood securities in its initial public offering.
As a result of their fraudulent scheme, Arbel and Melillo defrauded investors of approximately $8 million from the sales of Hollywood securities.
The Commission seeks the following relief from Arbel and Melillo: (i) permanent injunctions from further violations of the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; (ii) a permanent injunction against Melillo from further violations of the rules concerning initial public offerings, Rule 101 of Regulation M; (iii) disgorgement of ill-gotten gains; and (iv) civil monetary penalties.
On August 21, 2001, the United States Attorney's Office for the Eastern District of New York filed an indictment charging Arbel and Melillo with, among other things, conspiracy to commit securities fraud.
The Commission thanks the United States Attorney's Office for the Eastern District of New York, the National Association of Securities Dealers, Inc., and the Federal Bureau of Investigation for their cooperation in this matter.