David Gane, Jeffrey D. Welsh, Southern Financial Services, Inc., Southern Waste, Inc., DBA Strategic Investors Group, Charles T. Tamburello, and Capital Research Group

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19058A / March 3, 2005

SECURITIES AND EXCHANGE COMMISSION v. DAVID GANE, JEFFREY D. WELSH, SOUTHERN FINANCIAL SERVICES, INC., SOUTHERN WASTE, INC., DBA STRATEGIC INVESTORS GROUP, CHARLES T. TAMBURELLO, AND CAPITAL RESEARCH GROUP, INC., Civil Action No. 03-61533-CIV-SEITZ/Bandstra/Gonzalez (S.D. Fla.)

COURT FINDS FIVE FLORIDA STOCK PROMOTERS COMMITTED SECURITIES FRAUD AND TOUTING VIOLATIONS; ISSUER'S FORMER PRESIDENT FOUND NOT LIABLE FOR FRAUD

On January 4, 2005, the United States District Court for the Southern District of Florida found five Florida stock promoters liable for securities fraud through their practice of "scalping" related to the stock of Dicom Imaging Systems, Inc. (formerly OTCBB: DCIM). Scalping is the practice of recommending the purchase of a stock to the general public while selling the stock at or near the same time. The court also found that the stock promoters committed touting violations by describing Dicom stock as an investment but failing to disclose all of the compensation that they received, and were entitled to receive under signed agreements, for doing so. The court further found that Dicom's former president, David Gane, D.D.S., of Atlanta, Georgia, was not liable for securities fraud violations. The court's decision followed the parties' summary judgment motions and a six-day bench trial.

The five stock promoters are:

• Jeffrey D. Welsh, age 53, of Atlanta, Georgia and formerly of Boca Raton, Florida. Welsh wrote and reviewed investment opinions about Dicom.
   
• Southern Financial Services, Inc. ("SFS"), a now-defunct Florida financial consulting firm that was run by Welsh and that issued investment opinions.
   
• Southern Waste, Inc., dba Strategic Investors Group ("SIG"), a now-defunct Florida financial public relations firm that was run by Welsh that issued investment opinions.
   
• Charles T. Tamburello, age 31, of Weston, Florida. Tamburello wrote investment opinions about Dicom.
   
• Capital Research Group, Inc. ("CRG"), a Florida investor relations firm run by Tamburello, which operates www.thesubway.com website. CRG issued investment opinions about Dicom.
   

The court found that Dicom, through Gane, hired the stock promoters in June and November 1999 to tout Dicom's stock in return for compensation through signed agreements. Dicom and Gane supplied the stock promoters with Dicom's financial projections, which were placed into a due diligence package prepared by Welsh and SFS. The due diligence package was then reviewed by Gane and distributed to brokers and potential investors.

Two of the promoters, Welsh and Tamburello, wrote investment opinions recommending Dicom stock. Welsh issued his investment opinions, and those that he approved, through SFS and SIG, while Tamburello issued his investment opinions through CRG. After issuing their favorable investment opinions, however, the stock promoters sold their Dicom shares.

The court also found that the stock promoters failed to disclose all of the compensation they either received or were to receive under the agreements signed with Dicom and that they engaged in scalping. As a result, the court found that each of the stock promoters violated Sections 17(a) and 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The court also permanently enjoined SFS and SIG from future violations of those provisions of the federal securities laws, and it assessed a civil penalty against Welsh, Tamburello, and CRG of $500 each. The court did not order disgorgement against any of the stock promoters, and it did not enter permanent injunctions against Welsh, Tamburello, or CRG.

Finally, the court found that, while Gane was "surely negligent" in connection with a material omission in the due diligence package, he did not act with "severe recklessness," the applicable standard for scienter in the Eleventh Circuit, and therefore, Gane was not liable for securities fraud under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.