UNITED STATES OF AMERICA
In the Matter of
ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTION BY DEFAULT
The Securities and Exchange Commission (Commission) issued its Order Instituting Proceedings (OIP) on July 12, 2004, pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act). A telephonic prehearing conference was held on August 23, 2004, at which the Division of Enforcement (Division) appeared, but Respondent Dale Carone (Carone) did not. The same day, the Division advised the undersigned by letter that it is seeking to bar Carone from being associated with any broker or dealer.
The OIP was served on Carone on July 17, 2004. Carone's Answer was due on August 6, 2004. See 17 C.F.R. § 201.220(b). Carone has not filed an Answer and, thus, he is in default. See 17 C.F.R. §§ 201.155(a), .220(f).
As authorized under Rule 155(a) of the Commission's Rules of Practice, 17 C.F.R. § 201.155(a), I find the following allegations in the OIP to be true:
Carone, age 40, was the executive vice president and director of public relations at LinkNet, Inc. (LinkNet), and Latina de America Latina, Ltd. (Latina), in 1999 and 2000. Carone supervised LinkNet's and Latina's boiler-room operations through which LinkNet and Latina sold their stock to investors throughout the United States.
LinkNet was organized as a Utah corporation in 1991, and headquartered in Salt Lake City, Utah. LinkNet provided discount long distance services to clients throughout the United States. During an offering of its stock, LinkNet maintained a boiler room in Encino, California, that sold LinkNet's and Latina's stock to investors. LinkNet's securities were never registered with the Commission and its stock was never publicly traded.
Latina is a Nevada corporation organized in January 2000. Latina provided discount long distance services to Mexico and shared the same corporate offices as LinkNet. Latina's securities are not registered with the Commission nor is its stock publicly traded.
On January 16, 2003, the Commission filed a complaint initiating a civil injunctive action, SEC v. Carone, Docket No. CV 03 374NM (FMOx) (C.D. Cal.), against Carone and other named defendants as a result of a fraudulent offering of securities. The complaint charged Carone with violations of the antifraud, securities registration, and broker-dealer registration provisions of the federal securities laws. The complaint sought: the entry of an injunction against Carone from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder; an order that Carone be barred from participating in any offering of penny stock; an order of disgorgement, with prejudgment interest thereon, and; the imposition of a civil penalty against Carone.
In its complaint, the Commission alleged that:
1. In 1999 and 2000, LinkNet and Latina conducted a fraudulent offering scheme, collectively raising over $17 million and defrauding more than 1,900 investors located throughout the United States.
2. LinkNet and Latina hired Carone and others to organize and operate a boiler room to solicit investors to purchase securities in LinkNet and Latina.
3. In his capacity as executive vice president and director of public relations for LinkNet and Latina, Carone directed the activities of the LinkNet boiler room.
4. The complaint also alleged that, in connection with the sale of LinkNet and Latina securities, Carone and others made numerous misrepresentations to investors, including: that a public offering of LinkNet stock was imminent; that LinkNet's stock would shortly be listed on NASDAQ; and that LinkNet and Latina had contracts for the sale of hundreds of millions of minutes of long distance service that would generate millions of dollars in revenue to the companies. It was also alleged that Carone and others failed to disclose that at least thirty percent of the offering proceeds were paid as commissions to the boiler-room operations.
5. Finally, the complaint alleged that Carone acted as an unregistered broker in connection with the sales of the stock of LinkNet and Latina, and through boiler-room operations of those issuers.
Despite being served with a summons and complaint, Carone failed to answer the Commission's complaint. On January 23, 2004, the Commission filed a motion for default judgment against Carone based on his failure to file an answer to the complaint.
On March 9, 2004, Judge Nora M. Manella granted the Commission's motion for default judgment against Carone, enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, ordering Carone to pay disgorgement of $1,157,028, plus prejudgment interest of $233,074, and a civil penalty of $110,000. Carone was also barred from participating in an offering of penny stock.
In light of the foregoing, I find that it is appropriate in the public interest to bar Carone from associating with any broker or dealer.
IT IS ORDERED that, pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, Dale Carone is hereby BARRED from association with any broker or dealer.
Robert G. Mahony
Administrative Law Judge
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