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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION

LITIGATION RELEASE NO. 17178 / OCTOBER 11, 2001

SECURITIES EXCHANGE COMMISSION V. WAMEX HOLDINGS, INC., ET AL., United States District Court for the Southern District of New York Civil Action No. 01 CV 9056 (October 11, 2001).

SEC SUES TWENTY-SIX ENTITIES AND INDIVIDUALS IN $30 MILLION MARKET MANIPULATION SCHEME

The Securities and Exchange Commission announced today that it filed a complaint in the federal District Court for the Southern District of New York against: WAMEX Holdings, Inc. ("WAMX"), a New York-based company with purported plans to operate an Alternative Trading System ("ATS"); Mitchell H. Cushing, WAMX's former CEO; Russell A. Chimenti, Jr., WAMX's former Chief Administrative Officer; Edward A. Durante, a stock promoter residing in Gardiner, New York; Roger M. DeTrano, a consultant hired by WAMX; Trevor Koenig, a former broker residing in British Columbia, Canada; Charles R. Eisenstein, of Brooklyn, New York; Alfred Peeper, a resident of Spain; Eugene C. Geiger, a former broker residing in Colorado; Heartland Capital ("Heartland"), a California-based investment firm; Scott Cameron, the owner of Heartland, residing in British Columbia, Canada; Roger H. Chlowitz, David Weiss, and Bruce M. Millstein, all of whom are California residents and former employees of Heartland; and certain foreign entities that were either involved in, or received proceeds from, the fraudulent scheme.

The Commission's Complaint alleges that from December 1999 through June 2000, the Defendants engaged in a market-manipulation scheme which drove WAMX's stock price from $1.375 per share to an all-time high of $19.50 per share. The complaint alleges that as a result of this scheme, WAMX's market capitalization grew from $250,000 to over $185 million, allowing Durante and his cohorts to dump 6.9 million WAMX shares into the market for profits of over $24 million. In addition, the complaint alleges the following:

  • In late 1999, Durante, DeTrano, Cushing, and Chimenti devised a scheme to raise capital for WAMX by manipulating the public market for WAMX stock. To further the scheme, DeTrano transferred millions of WAMX shares to Durante-controlled nominee accounts at Union Securities, Ltd., a Canadian brokerage firm. Durante then instructed Koenig, his broker for these accounts, to execute a series of manipulative public trades to create artificial price increases in WAMX stock.
  • DeTrano, Cushing, and Chimenti made false public statements through press releases, SEC filings, and Internet publications concerning, among other things: approximately $6.9 million in funding that WAMX had supposedly raised "from a private Investment Group"; WAMX's ability to legally operate an ATS; and the purportedly "extensive experience" of Cushing and Chimenti in the investment banking industry. In fact: WAMX had only received a fraction of the financing it had reported, all of which came from the Durante's fraudulent stock sales; WAMX had never obtained regulatory approval to operate its ATS; and Cushing's and Chimenti's so-called investment banking experience consisted of their employment at several notorious boiler rooms in the United States and Austria. Cushing neglected to disclose that he faced arrest in Austria as a result of his fraudulent securities activities there. In addition, WAMX filed a Form 8-K in March 2000 containing an audit opinion rendered by Eisenstein, who claimed to be a CPA. Eisenstein, a convicted embezzler and tax accountant for Cushing and Chimenti, was never a CPA and rendered this false opinion without performing an actual audit.
  • Durante also entered into a series of manipulative transactions known as "Block Deals" with Peeper and Peeper's stockbroker, Geiger. The Block Deals involved pre-arranged public market purchases of large blocks of WAMX stock in a manner that disguised the fact that Peeper was actually receiving secret discounts of 50% or higher from Durante. The Block Deals misled investors into believing that there was a highly liquid market for WAMX shares at artificially inflated prices. Peeper resold these shares during the course of the scheme for profits of around $6 million.
  • Durante hired Heartland, an unregistered broker-dealer controlled by Cameron, to solicit investors to purchase WAMX shares in exchange for undisclosed commissions of approximately 25%. Heartland's employees, Chlowitz, Weiss, and Millstein, failed to disclose these commissions to investors and, in some cases, falsely told investors that they were not being charged commissions.

The Commission's complaint charges all of the defendants with violations of the antifraud 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. In addition, the complaint charges several of the defendants with other violations, including Sections 5(a) and 5(c) of the Securities Act, Sections 13(a), 13(d), 15(a), and 16(a) of the Exchange Act, and Rules 13a-1, 13a-11, 13a-13, 13d-1, and 16a-3 thereunder. The Commission seeks injunctions prohibiting future violations of the securities laws, disgorgement, and civil penalties. The Commission is also seeking an order barring Cushing and Chimenti from serving as an officer or director of any public company. Finally, the Commission is seeking disgorgement from several entities that have been charged as relief defendants, including Exchange Bank & Trust, a purported offshore bank that received approximately $19.6 million in ill-gotten proceeds.

In addition to the Commission's civil action against DeTrano, Cushing, and Chimenti, these individuals were arrested on June 14, 2000 for their role in the WAMX scheme by the United States Attorney's Office for the Southern District of New York ("USAO"). The Commission suspended trading in WAMX securities on the same day. Koenig was arrested in September 2001 for his role in the fraud. The Commission acknowledges the valuable assistance of the USAO, the FBI, NASD Regulation, Inc., and the British Columbia Securities Commission in connection with this matter.

See Securities Exchange Act of 1934 Release No. 42937.


http://www.sec.gov/litigation/litreleases/lr17178.htm

Modified: 10/12/2001