U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18366 / September 26, 2003
SECURITIES AND EXCHANGE COMMISSION v. DARYL G. DESJARDINS, ROBERT S. ZABA, ALNOOR JIWAN, RONALD D. BROUILIETTE, JR. and BRIAN A. KOEHN, 1:03CV01992 (D.D.C. SEPTEMBER 25, 2003) (PLF);
SEC SUES FIVE INDIVIDUALS FOR ENGAGING IN FRAUDULENT SCHEME, INCLUDING BRIBERY OF A TRANSFER AGENT, TO DISTRIBUTE SHARES OF PAY POP, INC.
SEC ALSO SUES ATTORNEY FOR INSIDER TRADING AND INDIVIDUAL FOR UNREGISTERED DISTRIBUTION OF PAY POP STOCK
On September 25, 2003, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Columbia, alleging that defendants Daryl G. Desjardins, Robert S. Zaba, Alnoor Jiwan, Ronald D. Brouillette and Brian A. Koehn engaged in a fraudulent scheme to sell the stock of Pay Pop, Inc. ("Pay Pop"), a now defunct telecommunications company. The scheme included creating purportedly "free trading" Pay Pop stock (i.e., legend-free stock certificates that created the false impression that the stock complied with U.S. registration requirements), issuing a series of materially false and misleading public statements and selling Pay Pop shares to unsuspecting investors.
The Commission's Complaint alleges that purportedly "free trading" Pay Pop stock was secured through a series of bribes paid to Jiwan, who was a senior manager of Pay Pop's transfer agent, CIBC Mellon Trust Company ("CIBC Mellon"). In exchange for the bribes, the Complaint alleges, CIBC Mellon issued Pay Pop stock certificates free of any restrictive legends, without requiring proof that the Pay Pop shares were subject to a registration statement filed with the Commission or exempt from such registration. The Complaint alleges that by the end of the fraudulent scheme, approximately 98 million Pay Pop shares were illegally issued and distributed to the public.
The Commission's Complaint also alleges that defendants Desjardins and Zaba made a series of material misrepresentations and omissions regarding Pay Pop to create continued demand for Pay Pop stock. As alleged in the Complaint, at Desjardins' and Zaba's direction, Pay Pop issued a series of press releases that falsely reported multi-million dollar investment bank financings that did not exist, the purchase and sale of valuable Caribbean beach resort property that never occurred, the growth in Pay Pop's client base and revenue in the face of business decline, the signing of material contracts that never existed, and the successful expansion into new business territories that were either never pursued or recently abandoned. As further alleged in the Complaint, Koehn, who was not an accountant, created fictitious "audited" financial statements that grossly inflated Pay Pop's assets.
The Complaint alleges that Brouillette sold Pay Pop stock for the benefit of Desjardins and Zaba. According to the Complaint, Brouillette did this through, among other things, trading of Pay Pop stock through a series of nominee accounts, systematic unauthorized trading in his customers' accounts and knowingly making various false and misleading statements to his customers about Pay Pop's business prospects. After being terminated by his brokerage firm and being barred from acting as a registered representative by NASD, the Complaint alleges that Brouillette continued to act as an unregistered securities broker.
As a result of the scheme, the Complaint alleges that Zaba and Desjardins made over $3 million (U.S.) from the sale of Pay Pop stock. Pay Pop received none of the proceeds from the fraudulent stock sales and ultimately its stock became worthless.
The Commission's Complaint alleges that the defendants violated Sections 5 and 17(a) of the Securities Act of 1933 (the "Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 thereunder. The Complaint further alleges that Jiwan aided and abetted the defendants' violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and that Brouillette also violated Section 15(a)(1) of the Exchange Act. The Complaint seeks, with respect to each defendant, permanent injunctions, accountings, disgorgement, prejudgment interest, civil penalties and penny stock bars. The Complaint also seeks an order barring Desjardins and Zaba from serving as officers or directors of any public company.
The Commission also filed two settled actions against Sean P. Nevett and Warren J. Soloski, an attorney, and, in addition, entered a settled cease-and-desist order against Soloski. The settled action against Nevett alleges that he engaged in an unregistered public distribution of Pay Pop stock in violation of Section 5 of the Securities Act. Without admitting or denying the Commission's allegations, Nevett consented to the entry of a final judgment enjoining him from future violations of Section 5 of the Securities Act; payment of $386,997.96, representing disgorgement of $257,061.01, plus prejudgment interest of $79,936.95, and a $50,000 civil penalty; and an order barring him from participating in the distribution of penny stocks for two years. Securities and Exchange Commission v. Sean Nevett, 1:03CV01994 (D.D.C. Sept. 25, 2003) (PLF); Litigation Release No. 18367.
The civil action and administrative order against Soloski arise out of his alleged insider trading on material nonpublic information he obtained through his representation of Pay Pop. Without admitting or denying the Commission's allegations and findings, Soloski consented to the entry of the cease-and-desist order and to the entry of a final judgment requiring payment of $2,133.11, representing disgorgement of $922.14, plus prejudgment interest of $288.83 and a one-time civil penalty of $922.14. Securities and Exchange Commission v. Warren J. Soloski, 1:03CV01993 (D.D.C. Sept. 25, 2003) (PLF); Litigation Release No. 18368; In re Warren J. Soloski, Exchange Act Release No.34-48551 and Securities Act Release No. 33-8293.
The Commission acknowledges the assistance in its investigation by the Federal Bureau of Investigation, NASD Regulation, Inc., the District Attorney for San Diego County, California, the Organized Crime Agency of British Columbia, the Royal Canadian Mounted Police, the British Columbia Securities Commission, and the Ontario Securities Commission.
The Commission's investigation in this matter is continuing.