 |
Home | Previous Page | |
|
||
 |
|
|
|
||
 |
|
|
|
|
|||||||||||||||
|
|
|||||||||||||||
|
|
Wayne M. Carlin (WC-2114)
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against Defendants Intracom Corporation ("Intracom"), Hyperbaric Systems, Inc. ("Hyperbaric"), Surgica Corporation ("Surgica"), Alfred Braunberger ("Braunberger"), Harry Masuda ("Masuda"), Louis Matson ("Matson"), Larry Bryant ("Bryant"), Comco, Inc. ("Comco"), and Paul Marotta ("Marotta"), alleges as follows: SUMMARY 1. This action involves fraudulent schemes to offer and sell securities in Intracom, Hyperbaric and Surgica, companies that develop technology for medicine, including medical devices and software for health care professionals. In offerings coordinated through defendant Bryant, an unregistered securities broker, the defendants raised over $13 million in aggregate from approximately 670 investors between 1997 and 2000. These offerings were fraudulent because the defendants used an excessive portion of the offering proceeds to pay commissions to Bryant and telemarketers for soliciting investors. Not only did the defendants fail to disclose these excessive commissions to investors, but they distributed offering materials that affirmatively misrepresented that sales commissions would be considerably less. These offering materials stated that the issuers would use approximately 12% of the offering proceeds to pay sales commissions to brokers and that the remaining funds would be used for corporate purposes. In fact, however, each of the three issuers had agreed to pay Bryant a commission of 25%, thereby substantially reducing the amount of funds available for the corporations' businesses. 2. The three issuers, the amounts raised in each scheme, the period of the offerings, and the number of investors in each issuer are as follows:
3. Defendants Intracom, Braunberger, Hyperbaric, Masuda, Surgica, Matson, Bryant and Comco, have engaged in, 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. § 78(b), and Rule 10b-5, 17 C.F.R. 240.10b-5. Defendant Bryant has engaged in, and unless enjoined, will continue to engage directly or indirectly, in transactions, acts, practices and courses of business which constitute, or would constitute, violations of Section 15(a) of the Exchange Act, 15 U.S.C. § 78o(a). 4. Defendant Marotta knowingly aided and abetted Bryant, Comco, Intracom, Hyperbaric, Surgica, Braunberger, Masuda, and Matson in their violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78(b), and Rule 10b-5, 17 C.F.R. 240.10b-5, 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 and Rule 10b-5. 5. Unless they are permanently enjoined, Intracom, Braunberger, Hyperbaric, Masuda, Surgica, Matson, Bryant, Comco and Marotta, will continue to engage in the transactions, acts, practices and courses of business set forth in this Complaint and in transactions, acts, practices and courses of business of similar type and object. JURISDICTION AND VENUE 6. 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. §78u(d), for a final judgment: (a) permanently enjoining the Defendants from engaging in the transactions, acts, practices and courses of conduct alleged in the Complaint; (b) ordering Defendants Bryant, Braunberger, Masuda, Matson and Marotta to disgorge their ill-gotten gains, plus prejudgment interest; (c) ordering Defendants Bryant, Comco, Braunberger, Masuda, Matson and Marotta to pay civil penalties; (d) barring Braunberger, Masuda and Matson from serving as officers or directors of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, 15 U.S.C. § 781, 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 deems necessary and appropriate. 7. This court has jurisdiction over this action pursuant to Section 20(a) and 22(a) of the Securities Act, 78 U.S.C. §§ 77t(a) and 77v(a), and Sections 21(d) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d) and 78aa. 8. 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. 9. 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. Certain of the transactions, acts, practices, and courses of business alleged in this Complaint took place in the Eastern District of New York, including, but not limited to, the offer and sale of securities to investors residing in this district. DEFENDANTS 10. Intracom was incorporated in Delaware in October 1996 and maintains its principal place of business in Thousand Oaks, California. Intracom is in the business of providing software and internet solutions for medical professionals to improve their communications and information management. 11. Hyperbaric is a California corporation that was incorporated in February 1998 and maintains its principal place of business in Palo Alto, California. Hyperbaric is in the business of developing hyperbaric chambers and solutions to preserve organs and blood plasma. Hyperbaric common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act with its stock quoted on the NASD Over-the-Counter Bulletin Board. 12. Surgica is a Delaware corporation that was incorporated in July 1997 and maintains its principal place of business in El Dorado Hills, California. Surgica is in the business of developing technology to enhance the success of surgical implants such as stents, shunts and valves. 13. Bryant, age 57 and a resident of Costa Mesa, California, holds a Series 22 license, but is not, and was not during the relevant time, registered with the Commission as a broker or dealer. 14. Comco is a Nevada Corporation formed in July 1998 and having its principal place of business in Costa Mesa, California, that is owned and controlled by Bryant. 15. Braunberger, age 48 and a resident of Thousand Oaks, California, was the President and CEO of Intracom during the relevant period. 16. Masuda, age 57 and a resident of Palo Alto, California, is the President and CEO of Hyperbaric. 17. Matson, age 54 and a resident of El Dorado Hills, California, is Surgica's President and Chief Executive Officer. 18. Marotta, age 44 and a resident of Burlingame, California, is an attorney admitted to the California Bar. Marotta was the managing partner of a law firm in Burlingame, California called The Corporate Law Group. THE FRAUDULENT SCHEMES Intracom 19. From May 1997 to October 1999, Intracom conducted three purported private placements ostensibly to raise capital for, among other things, product development and expansion. These three offerings are summarized as follows:
20. Intracom's offerings were not registered with the Commission. 21. The May 1, 1997 offering memorandum for Intracom's first offering stated that the company intended to use the proceeds of the offering for "research and development, purchase of equipment, software development, technical and management salaries, and other general corporate purposes" and disclosed that "the company may pay a commission to selling brokers or finders of up to 12% of the proceeds of the offering." The offering memoranda distributed to investors in connection with Intracom's second and third offerings made substantially similar representations about its planned uses for the proceeds of the offering and, like the first, stated that Intracom would pay selling brokers 12 percent commissions. 22. The offerings were planned and coordinated by Bryant and by Intracom's CEO, Braunberger. Intracom, through Braunberger, agreed to pay Bryant a commission of 25% of the amount of investor proceeds he raised. These payments were made by Intracom to Wes Tec Services ("Wes Tec"), an unincorporated fictitious entity controlled by Bryant, and Comco, which was also controlled by Bryant. 23. Braunberger agreed with Bryant that Bryant would falsely identify himself as an employee of Intracom; otherwise collaborated with Bryant to create the false appearance that Intracom was raising funds without resorting to outside telemarketers; and took steps, including the creation of fictitious invoices, to disguise some of Bryant's commission payments. In truth, Bryant's only function was to solicit investors. 24. Bryant sold securities directly to investors and operated a boiler room where he employed others to solicit investors. Bryant and telemarketers acting under his direction used telephone books, TRW reports, lead lists and other lists to identify potential investors. Bryant and telemarketers acting under his direction cold-called members of the general public to actively solicit them to purchase shares of Intracom stock. Out of over $11,000,000 raised through the Intracom offerings, Intracom paid approximately $3,000,000 in commissions to Bryant. Bryant passed on some of these payments to telemarketers he hired to assist him. 25. The agreements to pay Bryant 25% commissions rendered materially false Intracom's representations about its anticipated uses for investor proceeds and the representations that it would limit commissions to 12%. Defendants Braunberger and Marotta, acting as the chief executive officer and counsel, respectively, of Intracom, prepared the offering materials - including the offering memoranda referred to in paragraph 21 - or caused them to be prepared, and further, caused Intracom to enter into the agreements with Bryant to market the offering to investors. Bryant possessed copies of the offering memoranda, made them available to telemarketers, used the offering memoranda in soliciting investors, and caused copies of the offering memoranda to be sent to investors by directing Intracom to send it to individuals identified on lists of prospective investors. Marotta, among other things, drafted the portions of the offering materials that related to the commissions being paid to brokers or dealers and prepared draft agreements between Bryant and the telemarketers. 26. The misrepresentations set forth in paragraphs 21 to 25 above were and are material. Intracom, Braunberger, Marotta, Bryant and Comco either knew or were or are reckless in not knowing that those misrepresentations were false and misleading. Hyperbaric 27. On or about September 2, 1999, Hyperbaric commenced a purported private placement of 2,000,000 shares of common stock at a price of $1.50 per share ("September 1999 Offering"). For every two shares of stock purchased, the purchaser also received a two-year warrant to purchase an additional share of common stock at an exercise price of $2.50 per share. Beginning on or about February 2, 2000, Hyperbaric conducted a purported private placement of 2,000,000 shares of common stock at $1.50 per share plus warrants ("February 2000 Offering"). Each of these offerings closed on June 15, 2000. Hyperbaric raised the following funds from the offerings:
28. Hyperbaric's offerings were not registered with the Commission. 29. Hyperbaric's September 1, 1999 offering memorandum stated that the offering, if fully subscribed, would result in gross proceeds of $3,000,000 and net proceeds of $2,645,000 (after deducting anticipated commissions of $360,000 and estimated offering costs of $25,000). The memorandum stated on its cover that, "[w]e may pay commissions or finders fees of up to twelve (12) percent to brokers/dealers or finders who introduce investors to the Company." Hyperbaric's February 2, 2000 offering memorandum contained identical disclosures. 30. The representation that commissions would not exceed 12% was false. Pursuant to a written agreement and a secret side letter, Hyperbaric agreed to pay Bryant a commission of 25% by making payments to Wes Tec and Comco. Bryant and the salespeople working for him used telephone books, TRW reports, leads lists and other lists to identify potential investors and cold-called them to solicit them to purchase shares of Hyperbaric. Bryant passed on some of these payments to telemarketers he retained to assist him. Hyperbaric raised approximately $670,000 through the efforts of Bryant, and paid Bryant approximately $199,000 in commissions and other fees, or 29% of the amount he raised. 31. Bryant stopped offering Hyperbaric securities shortly after the February 2000 Offering began. Hyperbaric raised an additional $310,000 independently of Bryant without disclosing that Hyperbaric had previously diverted a substantial portion of the funds raised from investors to Bryant in the form of undisclosed commissions. 32. The agreements to pay Bryant commissions of 25% rendered materially false Hyperbaric's representations about its anticipated uses for investor proceeds and the its representations that it would limit commissions to 12%. Defendants Masuda and Marotta, acting as the chief executive officer and counsel, respectively, of Hyperbaric, prepared the offering materials or caused the offering materials to be prepared, and further, caused Hyperbaric to enter into the agreements with Bryant to market the offering to investors. Bryant possessed copies of the offering memoranda, used the offering memoranda in soliciting investors, handed them to telemarketers for their use when soliciting investors, directed Hyperbaric to send the offering memoranda to prospective investors, and otherwise caused copies of the offering memoranda to be sent to investors . 33. The misrepresentations set forth in paragraphs 29 to 32 above were and are material. Hyperbaric, Masuda, Marotta, Bryant and Comco either knew or were or are reckless in not knowing that those misrepresentations were false and misleading. Surgica 34. From approximately August 1999 through approximately May 2000, Surgica conducted two purported private placement offerings ostensibly to raise capital to develop its medical device business:
35. Surgica's offerings were not registered with the Commission. 36. Surgica's July 15, 1999 and December 15, 1999 offering memoranda each stated that Surgica would use the offering proceeds for purposes such as research and development, test studies of the product, marketing, legal fees, equipment, and general corporate expenses. Both documents specifically represented that the company "may pay commission to selling broker dealers of up to twelve percent (12%) of the proceeds of the offering." 37. These statements were false. Surgica, through its president Matson, and Bryant had agreed that Bryant would sell stock to investors and would receive a commission of 30% payable as follows: (1) 12% payable to Wes Tec, (2) 13% payable to Comco for "consulting fees," and (3) 5% payable in Surgica stock. 38. Bryant and persons acting under his direction used telephone books, TRW reports, leads lists and other lists to identify potential investors and cold-called them to solicit them to purchase shares of Surgica. Bryant had copies of the offering memoranda, and he and the telemarketers acting under his direction used the offering memoranda in soliciting investments and caused copies of the offering memoranda to be sent to investors. 39. Surgica raised almost $1.2 million, and paid commissions of over $354,000 to Bryant. Bryant paid a portion of his commission to telemarketers he retained to assist him. 40. The agreements to pay Bryant commissions of 30% rendered materially false Surgica's representations about its anticipated uses for investor proceeds and the representations that it would limit commissions to 12%. Defendants Matson and Marotta, acting as the chief executive officer and counsel, respectively, of Surgica, prepared the offering materials, and further, caused Surgica to enter into the agreements with Bryant to market the offering to investors. 41. The misrepresentations set forth in paragraphs 36 to 40 above were and are material. Surgica, Matson, Marotta, Bryant and Comco either knew or were or are reckless in not knowing that those misrepresentations 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) 42. The Commission repeats and re-alleges the allegations contained in paragraphs 1 through 41 as if fully set forth herein. 43. Intracom, Hyperbaric, Surgica, Braunberger, Masuda, Matson, Bryant and Comco directly or indirectly, singly or in concert, by use of the means or instruments of transportation or communication in, or the means or instrumentalities of, interstate commerce, or by the use of the mails, in the offer or sale and in connection with the purchase or sale, of securities: (a) employed devices, schemes or artifices to defraud; (b) obtained money by means of, and otherwise made, untrue statements of material fact, and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices and courses of business, which operated as a fraud or deceit upon purchasers of securities and other persons. 44. As part of, and in furtherance of this fraudulent conduct, the defendants, directly or indirectly, singly or in concert, made the misrepresentations and omitted to state the facts alleged in paragraphs 21 through 25, 29 through 32 and 36 through 40, above. 45. The misrepresentations and omissions made by defendants, more fully described in paragraphs 21 through 25, 29 through 32 and 36 through 40 above, were material. 46. The defendants knew, or were reckless in not knowing, that the material misrepresentations and omissions, more fully described in paragraphs 21 through 25, 29 through 32 and 36 through 40 above, were false or misleading. 47. By reason of the foregoing, the defendants have violated, are about to violate, and, unless restrained and enjoined, will continue to violate Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), and 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) 48. The Commission repeats and re-alleges the allegations contained in paragraphs 1 through 47 as if fully set forth herein. 49. Intracom, Braunberger, Hyperbaric, Masuda, Surgica, Matson, Bryant, and Comco, 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 of a prospectus or otherwise, or carried securities or caused such securities to be carried through the mails or in interstate commerce, by any means or instruments of transportation, for the purpose of sale, or delivery after sale, and (b) have made use of the means 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. 50. As part of and in furtherance of this fraudulent offering scheme, defendants 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. There were no registration exemptions available for any of the offerings. 51. By reason of the foregoing, Intracom, Braunberger, Hyperbaric, Masuda, Surgica, Matson, Bryant and Comco, violated, and unless restrained and enjoined, will again violate Sections 5(a) and 5(c) of the Securities 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) 52. The Commission repeats and re-alleges the allegations contained in paragraphs 1 through 51 as if fully set forth herein. 53. Defendant Bryant directly and indirectly, made use of the mails, or any means or instrumentality of interstate commerce, to effect transactions in, or to induce, or attempt to induce, the purchase or sale of Intracom, Hyperbaric and Surgica securities, without being registered with the Commission as a broker or dealer. 54. By reason of the foregoing, Bryant violated and, unless restrained and enjoined, will again violate, Section 15(a) of the Exchange Act, 15 U.S.C. § 78 (o)(a). FOURTH CLAIM FOR RELEIF Aiding and Abetting Violations of Section 10(b)
55. The Commission repeats and re-alleges the allegations contained in paragraphs 1 through 54 as if fully set forth herein. 56. Marotta assisted in the drafting of the Hyperbaric, Surgica and Intracom PPMs, including the provisions in the offering memoranda that detailed the use of the proceeds of the offerings and the payment of commissions. 57. Marotta knew, or was reckless in not knowing, that the written offering memoranda contained materially false statements and omitted to state material facts necessary to render the documents not misleading as described more fully in paragraphs 21 through 25, 29 through 32 and 36 through 40 above. 58. By reason of the foregoing and as provided by Sections 20(e) of Exchange Act, 5 U.S.C. §§ 78t(e), Marotta aided and abetted Intracom, Hyperbaric, Surgica, Braunberger, Masuda, Matson, Bryant and Comco in their violations of Section 10(b) of the Exchange Act and Rule 10b-5, 15 U.S.C. § 78j(b) and 17 CFR 240.10b-5, and unless restrained and enjoined, will again violate Section 10(b) of the Securities Act and Rule 10b-5, 15 U.S.C. § 78j(b) and 17 CFR 240.10b-5. PRAYER FOR RELIEF WHEREFORE, plaintiff Commission respectfully requests that this Court enter a Final Judgment: A. Permanently enjoining Intracom, Hyperbaric, Surgica, Braunberger, Matson, Masuda, Bryant and Comco, 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 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, 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 defendant Bryant, and all persons in active concert or participation with him 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 Bryant, Braunberger, Masuda, Matson and Marotta to disgorge their unjust enrichment from the fraudulent conduct alleged in this Complaint and to pay prejudgment interest thereon. E. Ordering Defendants Bryant, Comco, Braunberger, Masuda, Matson, and Marotta 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 Braunberger, Masuda and Matson 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
Edwin H. Nordlinger
Of Counsel http://www.sec.gov/litigation/complaints/comp17659.htm
|