U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19275 / June 20, 2005
SEC Sues Texas Broker-Dealer Morgan Spaulding, Inc. , its Principal Jackie Gross and Telvest Communications, LLC, For Securities Fraud
SEC Also Sues Telvest and John Flanders as Unregistered Broker-Dealers
Securities and Exchange Commission v. Jackie Gross, et al., Civil Action No. 3:05CV1251(N) (N.D. Tex., filed June 20, 2005)
On June 20, 2005, the United States Securities and Exchange Commission filed a complaint alleging that Jackie Gross and two entities he owned and controlled, including Morgan Spaulding, Inc., a defunct Texas-based broker-dealer, engaged in a fraudulent scheme to distribute nearly $15 million in stock issued pursuant to Regulation S, a section of the federal securities laws that permits companies to sell unregistered shares to overseas investors. The complaint seeks disgorgement of the defendants' ill-gotten gains, civil penalties, and permanent injunctions against future violations of certain of the antifraud and broker-dealer registration provisions of the federal securities laws. The complaint also charges Telvest Communications, a Texas company that Gross controlled and Arizona-based broker John Flanders with acting as unregistered broker-dealers in connection with the fraudulent transactions.
The Commission's complaint alleges that from approximately late 2001 through September 30, 2003, Gross, along with Telvest and his wholly owned entity Morgan Spaulding, engaged in a deliberate scheme to defraud overseas purchasers of Regulation S stock. These defendants facilitated the sale of nearly $15 million in unregistered shares of U.S.-based companies to overseas investors by, among other things, deceiving the investors into believing that nearly all of the stock purchase price would be remitted to the companies issuing shares. Transaction confirmations sent to investors disclosed only a fee of either one percent of the purchase price or a flat $50, concealing the fact that approximately 55 to 70 percent of the purchase price would be paid to Gross, Morgan Spaulding and Telvest; to overseas brokerage firms as undisclosed commissions; and as "finder fees" to promoters including defendant John Flanders. In truth, only about 30 to 45 percent of the invested proceeds actually made it to the issuers. The complaint alleges that Telvest and Flanders acted as unregistered broker-dealers in connection with the fraudulent transactions.
The complaint also alleges that Gross directed and controlled the day-to-day operations of Telvest and Morgan Spaulding during the period of the fraud, and closely supervised the Morgan Spaulding employees who administered the fraudulent stock sales. As alleged in the complaint, Gross, on behalf of Telvest, entered into the agreements with the issuing companies, and directed the wire transfers to the overseas brokerage firms and finders in amounts far in excess of the fees and commissions disclosed to investors.
The Commission's complaint alleges that Gross, Morgan Spaulding and Telvest violated 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. Telvest and Flanders are charged with violating Section 15(a) of the Exchange Act. Gross is also charged with Telvest's and Morgan Spaulding's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and for Telvest's violation of Section 15(a) of the Exchange Act, as a control person under Section 20(a) of the Exchange Act.