U.S. SECURITIES & EXCHANGE COMMISSION
Litigation Release No. 17888/ December 10, 2002
Securities and Exchange Commission v. Nutrition Superstores.com, Inc., Advanced Wound Care, Inc., Franchise Direct, Inc., Anthony F. Musso, Jr., Jeffery Gill, Wayne Santini and Andrew W. Doney, Case No. 02-81116-CIV-MIDDLEBROOKS (S.D. Fla., filed December 10, 2002)
The Securities and Exchange Commission today announced that it filed a civil action in the United States District Court for the Southern District of Florida against defendants Nutrition Superstores.com, Inc., Advanced Wound Care, Inc., Franchise Direct, Inc., Anthony F. Musso, Jr., Jeffrey Gill, Wayne Santini and Andrew W. Doney for perpetuating a fraudulent offering of unregistered securities.
According to the Commission's complaint, between 1998 and 2001, defendants raised at least $10.5 million from over 770 investors nationwide who purchased stock in Nutrition Superstores and Advanced Wound Care, both purported distributors of health and nutrition products. Securities were sold through a group of unlicensed sales agents affiliated with a boiler-room, Franchise Direct. Using scripts and employing hard pressure sales tactics, the sales agents - given bogus "vice president" titles by the issuer de jour (Nutrition Superstores or Advanced Wound Care) - made egregious misrepresentations and omissions concerning, among other things, the companies' holdings and business operations, projected revenues, their impending "hot" Initial Public Offerings ("IPO"), use of investor proceeds, and expected profits. In addition, Advanced Wound Care made misrepresentations regarding purported celebrity endorsements. Defendants also did not disclose that Franchise Direct and its sales agents received up to 25% of all investor proceeds as commissions.
Based on the foregoing, the Commission seeks permanent injunctions against Nutrition Superstores, Advanced Wound Care, Franchise Direct, Musso, Gill, Santini, and Doney, based on their violations of Sections 5(a), 5(c) and 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; and as against Franchise Direct and Doney based on their violations of Section 15(a)(1) of the Exchange Act. (In the alternative, with regard to Musso and Gill, the Commission seeks to charge them as "control persons" of Nutrition Superstores and/or Advanced Wound Care under Section 20(a) of the Exchange Act for Nutrition Superstores' and Advanced Wound Care's violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder). In addition, the Commission seeks disgorgement with prejudgment interest against Nutrition Superstores, Advanced Wound Care, Franchise Direct, Musso, Gill, Santini, and Doney; and civil monetary penalties against Franchise Direct, Musso, Gill, Santini, and Doney. Finally, the Commission seeks officer and director bars against Musso, Gill and Santini.
Simultaneous with filing the Commission's complaint, the Commission instituted and simultaneously settled an administrative proceeding pursuant to Section 8A of the Securities Act and Sections 15(b) and 21C of the Exchange Act making findings and imposing remedial sanctions and a cease-and-desist order against John Vailati, the President of Franchise Direct, for his role in the fraudulent scheme.