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Wayne M. Carlin (WC-2114)
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission") for its complaint against Defendants Heritage Film Group LLC ("Heritage Film"), Little Giant LLC ("Little Giant"), Out of the Black Partners LLC ("Out of the Black"), James Alex ("Alex"), Karl Kozak ("Kozak"), Double Eagle Capital Management, Inc. ("Double Eagle"), Russell Finnegan ("Finnegan"), James M. Leonard ("Leonard"), American Capital Acquisitions, Inc. ("American Capital"), American Cinema Services LLC ("American Cinema"), American Film Index LLC ("American Film"), Associated Technology, Inc. ("Associated Technology"), Atlantic Capital Trust, Inc. ("Atlantic Capital"), Benchmark Entertainment Group, Inc. ("Benchmark"), Executive Services Group LLC, ("Executive Services"), Four Starz Productions Limited, Inc. ("Four Starz"), Lakshmi Film Corp. ("Lakshmi"), One Trade Corp. ("One Trade"), Southeast Research Film Foundation, Inc. ("Southeast Research"), Stark Entertainment Productions, Inc. ("Stark Entertainment"), Through the Years Entertainment, Inc. ("TTYE"), Trilink Entertainment Corp. ("Trilink"), Vanguard Entertainment Productions, Inc. ("Vanguard"), Laurence Bowsky ("Bowsky"), Vincent Cavarra ("Cavarra"), Abraham M. Daniels ("Daniels"), Paul Dickau ("Dickau"), Peter Emrich ("Emrich"), Alberto Ferreiras ("Ferreiras"), James Frankfurth ("Frankfurth"), Michael Gonzales ("Gonzales"), Howard Goodman ("H. Goodman"), Mary Goodman ("M. Goodman"), Ian Hahn ("Hahn"), Rosemarie Ingenito ("Ingenito"), Richard Jenkins ("Jenkins"), Kurt Kranz ("Kranz"), Anthony Liggio ("Liggio"), Philip Manzione ("Manzione"), William Newsom ("Newsom"), Lisa Niksic ("Niksic"), Donald O'Grady ("O'Grady"), Kurt Penberg ("Penberg"), Frank Rossi ("Rossi"), Cynthia Silver ("Silver"), Nanci Silverstein ("Silverstein"), Anthony Stark ("Stark"), Beverly Tedder ("Tedder"), Eric Thom ("Thom"), Dana Valensky ("Valensky"), and Ken Zolo ("Zolo") alleges as follows: SUMMARY 1. This action involves three fraudulent schemes, conducted from approximately December 1997 to February 2001, pursuant to which the defendants raised over $13 million from hundreds of investors nationwide through unregistered securities offerings in three issuers, Little Giant, Heritage Film, and Out of the Black. These issuers are California limited liability companies formed for the purpose of financing and producing full-length motion pictures, "Carlo's Wake," "The Amati Girls," and "Out of the Black," respectively. Each of these issuers offered securities through purported private placements ostensibly to raise capital to produce those movies. To market their unregistered securities to investors, Little Giant, Heritage Film and Out of the Black retained "offering managers" - defendant Finnegan, in the case of Little Giant and Heritage Film, and defendant Gonzales in the case of Out of the Black - who recruited and coordinated telemarketers known as Independent Sales Offices ("ISOs") to solicit investors. 2. These offerings were fraudulent because approximately 50% of the offering proceeds went to the offering managers and the ISOs as commissions for soliciting investors, rather than to the issuers for their business operations. Of over $13 million raised in aggregate, about $6.7 million went to Finnegan, Gonzales and the ISOs, who operated unlawfully as broker-dealers without registering with the Commission. The defendants did not disclose these excessive sales commissions to investors. Indeed, by diverting so large a share of the offering proceeds to pay commissions, defendants violated express representations in the offering memoranda and other materials, which stated that the issuers would use most of the offering proceeds for making movies and for other operational expenses. Beyond these misrepresentations, Alex and Heritage Film deceived investors by falsely claiming in Heritage Film's offering materials that William Hurt and Olympia Dukakis would star in that company's film, "The Amati Girls." 3. From approximately December 1997 through December 1998, Little Giant, Alex, Finnegan, Double Eagle and over 23 ISOs, aided and abetted by Leonard, fraudulently offered and sold Little Giant limited liability company units to approximately 223 investors, generating over $4 million in proceeds. Defendants Thom, American Film, Liggio, Silver, Associated Technology, Tedder, Atlantic Capital, Hahn, Benchmark, Daniels, Four Starz, Cavarra, Southeast Research, Stark, Stark Entertainment, M. Goodman, H. Goodman, TTYE, Rossi, Dickau, Jenkins, Niksic, and Manzione (collectively, the "Little Giant ISOs") were ISOs who offered and sold Little Giant securities to the public. 4. From approximately October 1998 through June 2000, Heritage Film, Alex, Finnegan, Double Eagle, and over 28 ISOs, aided and abetted by Leonard, fraudulently offered and sold Heritage Film limited liability company units to approximately 432 investors, generating over $6 million in proceeds. Defendants Kranz, American Capital, Tedder, Atlantic Capital, Daniels, Four Starz, Rossi, Dickau, Jenkins, Zolo, Lakshmi, Niksic, Bowsky, Ingenito, O'Grady, Silver, Silverstein, Cavarra, Southeast Research, Stark, Stark Entertainment, Ferreiras, TriLink, One Trade, Valensky, Vanguard, Newsom and Executive Services (collectively, the "Heritage Film ISOs") were ISOs who offered and sold Heritage Film securities to the public. 5. From approximately June 1999 through February 2001, Out of the Black, Kozak, Gonzalez, Finnegan and over 9 ISOs, fraudulently offered and sold Out of the Black limited liability company units to over approximately 245 investors, generating over $3.1 million in proceeds. Defendants Finnegan, Newsom, Executive Services, Penberg, American Cinema, Ferreiras, TriLink, Niksic, Frankfurth, and Emrich (collectively, the "Out of the Black ISOs") were ISOs who offered and sold Out of the Black securities to the public 6. Defendants Little Giant, Heritage Film, Out of the Black, Kozak, and Alex have engaged, and unless enjoined, will continue to engage, directly or indirectly, in transactions, acts practices and courses of business that constitute, or would constitute, violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77e(a), 77e(c) and 77q(a), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. 7. Defendants American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo have engaged, and unless enjoined, will continue to engage, directly or indirectly, in transactions, acts practices and courses of business that constitute, or would constitute, violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c) and 77q(a), Sections 10(b) and 15(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78o(a),and Rule 10b-5, 17 C.F.R. § 240.10b-5. 8. Defendant Leonard knowingly aided and abetted violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5, by Little Giant, Heritage Film, Alex, Finnegan and Double Eagle and unless enjoined will continue to engage, directly or indirectly, in transactions, acts, practices and courses of business which constitute violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5. JURISDICTION AND VENUE 9. The Commission brings this action pursuant to the authority conferred upon it by Section 20 of the Securities Act, 15 U.S.C. § 77t, and Section 21(d) of the Exchange Act, 15 U.S.C. § 78(d), for a final judgment: (a) permanently enjoining the Defendants from engaging in the transactions, acts, practices and courses of conduct alleged in this Complaint; (b) ordering Defendants Alex, Kozak, Leonard, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo to disgorge all ill-gotten gains plus prejudgment interest; (c) ordering Defendants Alex, Kozak, Leonard, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo to pay civil penalties; (d) barring Defendants Alex and Kozak from serving as officers and directors of any issuers that has a class of securities registered pursuant to Section 12 of the Exchange Act, 15 U.S.C. § 78l, or that is required to file reports pursuant to Section 15(d) of the Exchange Act, 15 U.S.C. § 78o(d); and (e) ordering such other relief as the Court may deem appropriate. 10. This Court has subject matter jurisdiction over this action pursuant to Sections 20(b) and 22(a) of the Securities Act, 15 U.S.C. §§ 77t(b) and 77v(a), and Sections 21(d) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(e) and 78aa. 11. Defendants, directly and indirectly, singly and in concert, have made use of the means or instruments of transportation or communication in, and the means or instrumentalities of, interstate commerce, or of the mails, in connection with the transactions, acts, practices, and courses of business alleged in this Complaint. 12. Venue lies with this court pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act 15 U.S.C. § 78aa. Venue lies in the Eastern District of New York because, among other things, certain of the transactions, acts, practices, and courses of business alleged in this Complaint, including, but not limited to, the offer and sale of securities to investors, took place in the district. THE DEFENDANTS 13. Little Giant is a California limited liability company organized in December 1997 that maintains its principal place of business in Boulder City, Nevada. Little Giant's sole business has been the development, production, and marketing of a motion picture entitled "Carlo's Wake." 14. Heritage Film is a California limited liability company organized in October 1998 that maintains its principal place of business in San Jose, California. Heritage Film's sole business has been the development, production, and marketing of a motion picture entitled "The Amati Girls." 15. Out of the Black is a California limited liability company organized in April 1999 that maintains its principal place of business in San Diego, California. Out of the Black's sole business has been the development, production, and marketing of a motion picture entitled "Out of the Black." 16. Alex, age 74, and a resident of Sherman Oaks, California, was the executive producer of "Carlo's Wake" and "The Amati Girls." Alex controlled Little Giant and Heritage Film. 17. Kozak, age 38, resides in San Diego, California. Kozak formed Out of the Black for the purpose of obtaining funding for the production of "Out of the Black." Kozak, through a fictitious business entity called FilmQuest Productions, is the managing member of Out of the Black. 18. Leonard, age 54, resides in Los Angeles, California. Leonard is an attorney admitted to the California Bar. 19. Finnegan, age 41, resides in Mission Viejo, California. Finnegan organized and coordinated ISOs that offered and sold securities in the Little Giant and Heritage Film offerings. Finnegan owned and was the Chief Executive Officer and President of Double Eagle. 20. Double Eagle is a California corporation with its principal place of business in Lake Forest, California. Double Eagle is owned and controlled by Finnegan. 21. Gonzales, age 38, and a resident of Redondo Beach, California, organized and coordinated the ISOs for the Out of the Black offering. 22. Daniels, age 54, resides in North Miami, Florida. Daniels controlled Four Starz, an ISO that sold Little Giant and Heritage Film securities to investors. Daniels previously held Series 7 and Series 63 licenses but has not been affiliated with a registered broker-dealer since December 1988. 23. Four Starz is a Florida corporation that maintains its principal place of business in North Miami Beach, Florida. Daniels controlled Four Starz. 24. Liggio a/k/a John Hobart, age 70, resides in Clover, South Carolina. Liggio controlled Associated Technology, an ISO that sold Little Giant securities to investors. Liggio passed the Series 3 examination in 1986 but was never associated with any entity registered with the Commission. 25. Silver, age 36, resides in San Clemente, California. Silver worked for Liggio and Associated Technology and offered and sold Little Giant and Heritage Film securities to investors. 26. Associated Technology is a South Carolina corporation that maintains its principal place of business in Lake Wylie, South Carolina. 27. Kranz, age 40, resides in Escondido, California. Kranz controlled American Capital, an ISO that sold Heritage Film securities to investors. 28. American Capital is a Nevada corporation with its principal place of business located in San Diego, California. Kranz controlled American Capital. 29. Tedder, age 63, resides in Fort Pierce, Florida. Tedder controlled Atlantic Capital, an ISO that sold Little Giant and Heritage Film securities to investors. 30. Atlantic Capital is a Florida corporation with its principal place of business in Stuart, Florida. Tedder controlled Atlantic Capital. 31. Hahn, age 39, resides in Miami, Florida. Hahn controlled Benchmark, an ISO that sold Little Giant securities to investors. 32. Benchmark is a Florida corporation that maintains its principal place of business in Miami, Florida. Hahn controlled Benchmark. 33. Rossi, age 41, resides in Buffalo, New York. Rossi sold Little Giant and Heritage Film securities to investors. Rossi formerly held Series 6 and Series 63 licenses but has not been associated with any entity registered with the Commission since January 1997. 34. Dickau, age 39, resides in San Bernadino, California. Dickau sold Little Giant and Heritage Film securities to investors. 35. Jenkins, age 49, resides in San Diego, California. Jenkins sold Little Giant and Heritage Film securities to investors. 36. Cavarra, age 50, resides in Fort Lauderdale, Florida. Cavarra controlled Southeast Research, an ISO that sold Little Giant and Heritage Film securities to investors. 37. Southeast Research is a Florida corporation that maintains its principal place of business in Pompano Beach, Florida. Cavarra controlled Southeast Research. 38. Zolo, age 53, resides in Fairfield, Iowa. Zolo controlled Lakshmi, an ISO that sold Heritage Film securities to investors. Zolo passed the Series 3 examination in December 1986 but has never been associated with any entity registered with the Commission. 39. Lakshmi is an Iowa corporation that maintains its principal place of business in Fairfield, Iowa. Zolo controlled Lakshmi. 40. Niksic, age 43, resides in San Diego, California. Niksic sold Little Giant, Heritage Film and Out of the Black securities to investors. 41. Bowsky, age 63, resides in West Palm Beach, Florida. Bowsky sold Heritage Film securities to investors. 42. Ingenito, age 33, resides in Los Angeles, California. Ingenito sold Heritage Film securities to investors. 43. Manzione, age 56, resides in Boca Raton, Florida. Manzione sold Little Giant securities to investors. 44. O'Grady, age 57, resides in Hobe Sound, Florida. O'Grady sold Heritage Film securities to investors. 45. Thom, age 46, resides in Los Angeles, California. Thom controlled American Film, an ISO that sold Little Giant securities to investors. 46. American Film is a California limited liability company that maintains its principal place of business in Los Angeles, California. Thom controlled American Film. 47. Silverstein, age 50, resides in Secaucus, New Jersey. Silverstein offered and sold Heritage Film securities to investors. 48. Stark, age 40, resides in Mission Viejo, California. Stark controlled Stark Entertainment, an ISO that sold Little Giant and Heritage Film securities to investors. Stark passed the Series 3 examination but has never been associated with any entity registered with the Commission. 49. Stark Entertainment is a California corporation that maintains its principal place of business in Irvine, California. Stark controlled Stark Entertainment. 50. M. Goodman, age 51, resides in Laguna Hills, California. M. Goodman controlled TTYE, an ISO that sold Little Giant securities to investors. M. Goodman formerly held Series 22 and Series 63 licenses, but has not been associated with any entity registered with the Commission since 1991. 51. H. Goodman, age 61, resides in Laguna Hills, California. H. Goodman and his wife M. Goodman, controlled TTYE, an ISO that sold Little Giant securities to investors. 52. TTYE is a California corporation that maintains its principal place of business in Laguna Hills, California. M. Goodman and H. Goodman controlled TTYE. 53. Ferreiras, age 32, resides in North Miami Beach, Florida. Ferreiras controlled TriLink Entertainment and One Trade, ISOs that sold Heritage Film and Out of the Black securities to investors. Ferreiras held Series 7 and Series 63 licenses, but has not been associated with any entity registered with the Commission since March 1998. 54. Trilink Entertainment is a Florida corporation that maintains its principal place of business in North Miami Beach, Florida. Ferreiras controlled Trilink. 55. One Trade was a Florida corporation that maintained its principal place of business in North Miami Beach, Florida. Ferreiras controlled One Trade. 56. Valensky, age 52, resides in Laguna Niguel, California. Valensky controlled Vanguard, an ISO that sold Heritage Film securities to investors. Valensky held Series 22 and Series 63 licenses, but has not been associated with any entity registered with the Commission since 1995. 57. Vanguard is a California corporation that maintains its principal place of business in Laguna Hills, California. Valensky controlled Vanguard. 58. Newsom, age 50, resides in Carlsbad, California. Newsom controlled Executive Services, an ISO that sold Heritage Film and Out of the Black securities to investors. 59. Executive Services is a Nevada limited liability company that maintains its principal place of business in Carlsbad, California. Newsom controls Executive Services. 60. Penberg, age 41, resides in San Diego, California. Penburg controlled American Cinema, an ISO that sold Out of the Black securities to investors. 61. American Cinema is a Delaware limited liability company that maintains its principal place of business in San Diego, California. Penberg controlled American Cinema and Frankfurth was the Executive Director of American Cinema during the Out of the Black offering. 62. Frankfurth, age 63, resides in San Diego, California. Frankfurth was the Executive Director of American Cinema and sold Out of the Black securities to investors. Frankfurth held Series 7 and Series 24 licenses, but has not been associated with any entity registered with the Commission since 1991. 63. Emrich, age 61, resides in San Rafael, California. Emrich sold Out of the Black securities to investors. Emrich held Series 7, 24, 39 and 63 licenses, but has not been associated with any entity registered with the Commission since 1990. THE FRAUDULENT SCHEMES 64. Between 1997 through 2001, the defendants perpetrated a fraud on several hundred investors by offering and selling securities in three issuers: Little Giant, Heritage Film, and Out of the Black. The stated purpose of these offerings was to raise capital to enable the issuers to produce and distribute motion picture films. In truth, however, approximately half of the offering proceeds went to defendants Finnegan, Gonzales, and ISOs they recruited to solicit investors - all of whom operated unlawfully as unregistered broker-dealers. These fraudulent securities offerings were as follows:
Little Giant 65. From approximately December 1997 through December 1998, Alex, Double Eagle, Finnegan and the Little Giant ISO's conducted a purported private placement of 400 limited liability company units in Little Giant at $10,000 per unit seeking to raise $4 million. The purported purpose of the offering was to obtain funds for the development and production of a film entitled "Carlo's Wake." These defendants succeeded in raising over $4 million through this offering, which was not registered with the Commission. 66. The Little Giant written offering materials provided to investors included a "Risk Disclosure" page which stated that 25% of the offering proceeds would be dedicated to "pre-production" costs (including script research, script development, script writing, location, research and miscellaneous pre-production expenses), 44% of the offering proceeds would be used to pay costs associated with the production the film, 12% of the offering proceeds would be used to pay sales commissions, 8% of the offering proceeds would be used to pay sales office overhead and bonuses, and the remainder would be used for administrative and operating expenses. 67. In late 1997, Alex hired Leonard to assist him in structuring the offering and preparing the offering materials. Leonard assisted Alex in the formation of Little Giant and drafted and reviewed the offering materials that Little Giant used in soliciting investors. 68. Little Giant entered into a contract with Alex's production company, Triple Axel Productions, Inc. ("Triple Axel"), to have Triple Axel produce "Carlo's Wake." Under this contract, Little Giant paid Triple Axel approximately $1.7 million, 42% of the offering proceeds, to produce the film. This amount included the total approximate cost of producing "Carlo's Wake," including all pre-production, production and post-production expenses. 69. In December 1997, Little Giant and Alex retained Double Eagle and Finnegan to manage Little Giant's offering of securities. Although Double Eagle was described in Little Giant's offering materials as Little Giant's "Interim Administrative Manager," Double Eagle's - and Finnegan's - only role with Little Giant was to organize and manage its securities offering. Little Giant and Alex agreed to pay Double Eagle and Finnegan between 10% and 15% of the offering proceeds to manage the offering. Finnegan collaborated with Alex and Leonard in creating Little Giant's offering materials described in paragraph 66 that outlined the use of the proceeds of the Little Giant offering. 70. In their capacity as the managers of the offering, Finnegan and Double Eagle recruited the Little Giant ISOs to market Little Giant's securities to potential investors in exchange for a commission of 40% to 45% of the gross proceeds of investor funds that Little Giant received. This amount was in addition to the 10% or 15% of the offering proceeds that Finnegan and Double Eagle received. Little Giant, Alex, and Leonard knew that Finnegan and Double Eagle had arranged to pay the Little Giant ISOs 40% to 45% sales commissions. 71. Each of the Little Giant ISOs received a copy of the Little Giant offering materials, knew the representations made in these offering materials about the use of proceeds and sales commissions, made unsolicited telephone calls to members of the general public to induce them to purchase Little Giant securities, did not disclose their commission arrangements to actual and prospective investors, and caused Finnegan and Double Eagle to transmit copies of the written offering materials to investors who indicated an interest in an investment in Little Giant. The agreements to pay the Little Giant ISOs 40% to 45% and Finnegan and Double Eagle an additional 10% to 15% of the offering proceeds rendered the statements in the "Risk Disclosure" section of the Little Giant offering materials concerning the use of proceeds materially false. In truth, Little Giant's approximately $4 million in offering proceeds were allocated as follows: approximately $1.7 million, or 42% was paid to Triple Axel for production of the film, approximately $1.7 million, or 42% was paid to the Little Giant ISOs, and approximately $478,000, or 12%, was paid to Double Eagle and Finnegan. 72. The following Little Giant ISOs received at least the following commissions for offering and selling securities in Little Giant:
73. Neither Finnegan, Double Eagle nor any of the Little Giant ISOs were registered with the Commission as a broker or dealer during the time of the Little Giant offering. 74. The misrepresentations set forth in paragraphs 66 through 72 above were and are material. Little Giant, Alex, Leonard, Finnegan, Double Eagle, and the Little Giant ISOs knew or were reckless in not knowing that those misrepresentations were false and misleading. Heritage Film 75. In approximately October 1998, Alex formed Heritage Film to finance the development and production of a film entitled "The Amati Girls." From approximately October 1998 to June 2000, Alex, Double Eagle, Finnegan, and the Heritage Film ISO's offered and sold approximately 600 limited liability company units in Heritage Film at a price of $10,000 each purportedly to raise capital to produce "The Amati Girls." Through this offering, these defendants raised approximately $6 million in proceeds. Heritage Film's offering was not registered with the Commission. 76. The "Risk Disclosure" section of the Heritage Film offering materials represented that 34% of the offering proceeds would be used for "pre-production, initial setup, interim management and administrative costs," 45% would be used to produce the movie, 1% would be retained capital, and 20% would go to "sales commissions" and "sales office overhead and bonuses." These representations were false. 77. Heritage Film contracted with Triple Axel to produce the motion picture, "The Amati Girls." Heritage Film agreed to pay Triple Axel 45% of the gross offering proceeds for all costs of associated with the production of the film. Pursuant to this contract, Heritage Film paid Triple Axel approximately $2.7 million of its offering proceeds. 78. Heritage Film and Alex contracted with Double Eagle and Finnegan to manage the Heritage Film offering. Heritage Film and Alex agreed to pay Double Eagle and Finnegan between 10% and 15% of the offering proceeds to manage the offering. Although Double Eagle was described in Heritage Film's offering materials as Heritage Film's "Interim Administrative Manager," Double Eagle's - and Finnegan's - only role with Heritage Film was to organize and manage its securities offering. 79. Finnegan and Double Eagle retained Leonard to assist with Heritage Film's offering. Alex, Finnegan and Leonard collaborated in creating the Heritage Film offering materials described in paragraph 76 that outlined the use of the proceeds of the Heritage Film offering. 80. Finnegan and Double Eagle retained the Heritage Film ISOs to offer and sell Heritage Film securities to potential investors and agreed to pay them between 40% and 45% of the offering proceeds as sales commission. Heritage Film, Alex, and Leonard knew that Finnegan had arranged to pay the ISOs 40% to 45% sales commissions. 81. Each of the Heritage Film ISOs received a copy of the Heritage Film offering materials, knew the representations made in these offering materials about the use of proceeds and sales commissions, made unsolicited telephone calls to members of the general public to induce them to purchase Heritage Film securities, did not disclose their commission arrangements to actual and prospective investors, and caused Finnegan and Double Eagle to transmit copies of the written offering materials to investors who indicated an interest in an investment in Heritage Film. 82. The agreements to pay the Heritage Film ISOs 40% to 45% and Finnegan and Double Eagle an additional 10% to 15% of the offering proceeds rendered the statements in the "Risk Disclosure" section of the Heritage Film offering materials concerning the use of proceeds materially false. In truth, the over $6 million in Heritage Film offering proceeds were allocated as follows: approximately $2.7 million, or 45%, was paid to Triple Axel for the production of the film, approximately $2.6 million, or 43%, was paid to the Heritage Film ISOs, and approximately $739,000, or 12%, was paid to Double Eagle and Finnegan. 83. The following Heritage Film ISOs received at least the following commissions for offering and selling securities in Heritage Film:
84. The Heritage Film offering documents contained false statements alleging that two famous actors, William Hurt and Olympia Dukakis, had agreed to star in "The Amati Girls." Alex inserted language into the Heritage Film offering materials stating that "Oscar Award-winning William Hurt and Olympia Dukakis have agreed to star in this exciting ensemble cast" and "The Amati Girls will feature actors William Hurt and Olympia Dukakis, both of whom have been recognized by the Motion Picture Academy for their past performances." Alex knew that Hurt and Dukakis had not agreed to appear in "The Amati Girls" because Alex sent their agents several unsuccessful letters requesting that Hurt and Dukakis sign contracts. 85. Neither Finnegan, Double Eagle nor any of the Heritage Film ISOs were registered with the Commission as a broker or dealer during the time of the offering. 86. The misrepresentations set forth in paragraphs 76 through 84 above were and are material. Heritage Film, Alex, Finnegan, Double Eagle and the Heritage Film ISOs either knew or were or are reckless in not knowing that the misrepresentations in paragraphs 76 through 83 were false and misleading and Alex and Heritage Film knew or were reckless in not knowing that the misrepresentations in paragraph 84 were false and misleading. Out of the Black 87. In approximately April 1999, Kozak formed Out of the Black to produce and distribute a film entitled "Out of the Black." From June 1999 through February 2001, Kozak, Gonzales, and the Out of the Black ISO's conducted an offering of 310 limited liability company units in Out of the Black at $10,000 per unit. These defendants raised approximately $3.1 million from the Out of the Black offering. Out of the Black's offering was not registered with the Commission. 88. Kozak, the producer of the movie "Out of the Black," controlled Out of the Black through a fictitious business entity, FilmQuest Productions. 89. Out of the Black, Kozak, Gonzales and the Out of the Black ISO's distributed three offering memoranda to actual and prospective investors in connection with the Out of the Black offering. Out of the Black's original offering memorandum, distributed to investors from approximately June 1999 to November 1999, sought to raise $990,000. This offering memorandum contained the following representations concerning the use of proceeds of the offering and Out of the Black's intent to pay sales commissions: "an amount equal to 30% of the offering will go to pay development, pre-production and syndication costs [which] include but are not limited to: office, legal, marketing, printing, phones, postage, travel, and sales commissions" and "[t]he remaining 70% of the gross offering proceeds will be allocated for the production, principal photography, post-production, distribution and marketing of the motion picture." The offering materials sent to investors also contained a "budget" reflecting that sales commissions would be 10% of the offering proceeds, or $99,000. 90. On or about November 29, 1999, Kozak sent a letter to Out of the Black investors asking them to authorize an increase in the number of LLC units issued by Out of the Black from 99 to 250 so that it could increase the amount of funds raised from $990,000 to $2.5 million. 91. After November 29, 1999, Out of the Black distributed a revised offering memorandum to investors that stated: "[a]n amount equal to approximately 30 percent of the offering proceeds will be utilized to pay development, preproduction and syndication costs [which] include, but are not limited to: office, legal, marketing, printing, phones, postage, travel and placement fees" but did not disclose any commissions. This offering memorandum also stated that 70 percent of the offering proceeds would "be allocated for the production, principal photography, post production, distribution and marketing of the motion picture." 92. On or about October 25, 2000, Kozak sent a letter to Out of the Black's investors asking them to authorize an increase in the number of LLC units by 60 units so that Out of the Black could raise an additional $600,000 to provide additional capital for postproduction editing and marketing. 93. After October 25, 2000, Out of the Black distributed a revised offering memorandum to investors that contained a chart setting forth the percentage of the offering proceeds to be allocated to various purposes, which stated that 15% of the offering proceeds would be used for sales commissions. 94. Gonzales and Kozak recruited the Out of the Black ISOs to sell the Out of the Black offering and agreed that Out of the Black would pay them commissions ranging from 30% to 45% of the amount of investor funds they raised. 95. Each of the Out of the Black ISOs received a copy of the Out of the Black offering materials, knew the representations made in these offering materials about the use of proceeds and sales commissions, made unsolicited telephone calls to members of the general public to induce them to purchase Out of the Black securities, did not disclose their commission arrangements to actual and prospective investors, and sent, or caused Out of the Black and Kozak to send, copies of the written offering materials to investors who indicated an interest in an investment in Out of the Black. 96. The agreements to pay the Out of the Black ISOs 30% to 45% of the offering proceeds rendered the statements concerning the use of proceeds in the three Out of the Black offering memoranda materially false. In truth, from June 1999 to February 2001, Out of the Black raised approximately $31 million from investors, but paid Gonzales over $115,000 and the Out of the Black ISOs at least $1,044,000, approximately 38% of the funds raised. 97. The following Out of the Black ISOs received at least the following commissions for offering and selling securities in Out of the Black:
98. Gonzalez and the Out of the Black ISOs were not registered with the Commission as a broker or dealer during the time of the offering. 99. The misrepresentations set forth in paragraphs 89 through 97 above were and are material. Out of the Black, Kozak, Gonzales, and the Out of the Black ISOs either knew or were reckless in not knowing that the representations in paragraphs 89 through 97 were false and misleading. FIRST CLAIM FOR RELIEF Violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (Securities Fraud) 100. The Commission repeats and realleges each and every allegation contained in paragraphs 1 through 99, as if fully set forth herein. 101. Little Giant, Heritage Film, Out of the Black, Kozak, Alex, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo, directly or indirectly, singly or in concert, by use of the means of instruments of transportation or communication in interstate commerce, or of the mails, in the offer or sale, and in connection with the purchase or sale, of securities, have knowingly and recklessly: (a) employed devices, schemes and artifices to defraud; (b) obtained money or property by means of, and otherwise have made, untrue statements of material fact, and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices, transactions or courses of business which operated or would operate as a fraud or deceit upon the purchasers of securities and upon other persons. 102. As part of, and in furtherance of, the violative conduct, the defendants, directly or indirectly, singly or in concert, made the misrepresentations and omitted to state the facts alleged in paragraphs 66 through 72, 76 through 84, and 89 through 97 above. 103. The misrepresentations and omissions made by the defendants, more fully described in paragraphs 66 through 72, 76 through 84, and 89 through 97 above, were and are material. 104. The defendants knew, or were reckless in not knowing, that the material misrepresentations and omissions, more fully described in paragraphs 66 through 72, 76 through 84, and 89 through 97 above, were false or misleading. 105. By reason of the foregoing, defendants violated, and unless enjoined will continue to violate, Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. SECOND CLAIM FOR RELIEF Violations of Sections 5(a) and 5(c) of the Securities Act,
(Unregistered Offer and Sale of Securities) 106. The Commission repeats and realleges each and every allegation contained in paragraphs 1 to 105, as if fully set forth herein. 107. Little Giant, Heritage Film, Out of the Black, Kozak, Alex, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo, directly or indirectly, singly or in concert: (a) have made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell securities through the use or medium or a prospectus or otherwise, or carried securities or caused securities to be carried through the mails or in interstate commerce, by the means or instruments of transportation, for the purpose of sale or for delivery after sale, and (b) have made use of the mails and instruments of transportation or communication in interstate commerce or of the mails to offer to sell, or offer to buy, through the use or medium of any prospectus, or otherwise, securities, when no registration statement has been filed or was in effect as to such securities and when no exemption or safe-harbor from registration was available. 108. As part of and in furtherance of this fraudulent offering scheme, Little Giant, Heritage Film, Out of the Black, Kozak, Alex, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo offered and sold securities to the public through telephone and mail solicitations when there was no registration statement filed or in effect as to those securities offerings nor were there any registration exemptions available for any of the offerings. 109. By reason of the foregoing, Little Giant, Heritage Film, Out of the Black, Kozak, Alex, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo directly or indirectly, violated and unless enjoined, will continue to violate, Sections 5(a) and 5(c) of the Securities Exchange Act, 15 U.S.C. §§ 77e(a) and 77e(c). THIRD CLAIM FOR RELIEF Violations of Section 15(a) of the Exchange Act, 15 U.S.C. § 78o(a) (Offer and Sale of Securities by Unregistered Broker or Dealer) 110. The Commission repeats and realleges each and every allegation contained in paragraphs 1 to 109, as if fully set forth herein. 111. American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo, directly or indirectly, made use of the mails or any means or instrumentality of interstate commerce to effect transactions in, or induced or attempted to induce the purchase or sale of, Little Giant, Heritage Film, or Out of the Black securities without being registered as a broker with the Commission. 112. By reason of the foregoing, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo violated and unless enjoined, will continue to violate, Section 15(a) of the Exchange Act, 15 U.S.C. 78o(a). FOURTH CLAIM FOR RELIEF Aiding and Abetting Violations of Section 10(b) of the Exchange Act,
113. The Commission repeats and realleges each and every allegation contained in paragraphs 1 to 112, as if fully set forth herein. 114. Leonard assisted in the drafting of the Little Giant and Heritage Film offering materials, including the "Risk Disclosure" sections thereof, which detailed the used of the offering proceeds and the payment of sales commissions. 115. Leonard knew, or was reckless in not knowing, that the Little Giant and Heritage Film offering materials contained materially false statements and omitted to state material facts necessary to render the documents not misleading as described more fully in paragraphs 65 through 86 above. 116. By reason of the foregoing and as provided by Sections 20(e) of the Exchange Act, 15 U.S.C. § 78t(e), Leonard aided and abetted Little Giant, Double Eagle and Finnegan's violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. §240.10b-5, and unless enjoined, will continue to violate Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. 240.10b-5. PRAYER FOR RELIEF WHEREFORE, plaintiff Commission respectfully requests that this Court enter a Final Judgment: A. Permanently enjoining Defendants Little Giant, Heritage Film, Out of the Black, Alex, Kozak, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo, their officers, agents, servents, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c), and 77q(a). B. Permanently enjoining Defendants Little Giant, Heritage Film, Out of the Black, Alex, Kozak, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Leonard, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo, their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. C. Permanently enjoining Defendants American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo, and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 15(a) of the Exchange Act, 15 U.S.C. § 78(o)(a). D. Ordering Defendants Alex, Kozak, Leonard, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo to disgorge their unjust enrichment from the fraudulent conduct alleged in this Complaint and to pay prejudgment interest thereon. E. Ordering Defendants Alex, Kozak, Leonard, American Capital, American Cinema, American Film, Associated Technology, Atlantic Capital, Benchmark, Executive Services, Double Eagle, Four Starz, Lakshmi, One Trade, Southeast Research, Stark Entertainment, TTYE, Trilink, Vanguard, Bowsky, Cavarra, Daniels, Dickau, Emrich, Ferreiras, Finnegan, Frankfurth, Gonzales, H. Goodman, M. Goodman, Hahn, Ingenito, Jenkins, Kranz, Liggio, Manzione, Newsom, Niksic, O'Grady, Penberg, Rossi, Silver, Silverstein, Stark, Tedder, Thom, Valensky, and Zolo to pay civil penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d), for the violations alleged herein. F. Barring Defendants Alex and Kozak from serving as an officer or director of any issuer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, 15 U.S.C. § 78l, or that is required to file reports pursuant to section 15(d) of the Exchange Act, 15 U.S.C. § 78o(d) pursuant to Section 20(e) of the Securities Act, 15 U.S.C. 77t(e) and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d). G. Granting such other and further relief as the Court may deem just and proper. Dated: New York, New York August 5, 2002
Edwin H. Nordlinger
Of Counsel http://www.sec.gov/litigation/complaints/comp17658.htm
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