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IN THE UNITED STATES DISTRICT COURT
COMPLAINT FOR INJUNCTIVE RELIEF It appears to Plaintiff, Securities and Exchange Commission ("Commission"), and it alleges, that: OVERVIEW 1. This matter involves fraudulent conduct by J. Scott Eskind ("Eskind"), an Atlanta based promoter, Capital Management Fund, Limited Partnership ("Capital") and Lorus Investments, Inc. ("Lorus"). Capital and Lorus are controlled by Eskind. 2. Eskind is a recidivist violator who was preliminarily enjoined in June 1997 and permanently enjoined on January 12, 1998 from violating the antifraud provisions. SEC v. Eskind, Civil Action No. 1:97-CV-1790-CAM (N.D. Ga.). That case was based upon fraudulent conduct by Eskind which included misappropriating investors' funds, failing to disclose that Eskind had been suspended by the New York Stock Exchange ("NYSE") in 1991, and inducing at least five investors to invest at least $500,000 in what was falsely represented to the investors to be the limited partnership from which Eskind had been terminated after his thefts were discovered. Eskind misappropriated those funds. On February 2, 2000, Eskind was barred by the Commission from association with any investment adviser. 3. Despite being enjoined, continuing until the present, Eskind has continued to raise money fraudulently. Eskind has raised at least $3 million through sales of limited partnership units in Capital. Capital purportedly does business by trading in securities through initial or secondary public offerings. The Lorus sales materials misrepresent to investors Eskind's broker-dealer experience, and do not disclose his 1991 NYSE suspension, the Commission's 1997 civil action or the Commission's 2000 order barring him from association with an investment adviser. Eskind has also told investors that IRA accounts had been opened for them at a trust company, Delaware Charter Guarantee and Trust Consultants ("Delaware") which serves as an IRA custodian and investors have received statements from Lorus indicating their funds in those accounts. In fact, no such accounts have been opened. Lorus sales materials falsely state that a major law firm provides legal representation for Lorus. Finally, Lorus is an investment adviser and Eskind's continuing association with Lorus is a violation of the Commission's 2000 order. VIOLATIONS 4. Defendants Eskind, Lorus and Capital have engaged, and unless restrained and enjoined by this Court, will continue to engage in acts and practices that constitute and will constitute violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. 77q(a)], Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 240.10b-5], and defendant Lorus has violated, and Eskind has aided and abetted violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act")[15 U.S.C. 80b-6(1) and(2)]. JURISDICTION AND VENUE 5. The Commission brings this action pursuant to Sections 20 and 22 of the Securities Act [15 U.S.C. 77t and 77v], Sections 21(d), 21(e) and 21A of the Exchange Act [15 U.S.C. 78u(d), 78u(e) and 78u-1], and Sections 209 and 214 of the Advisers Act [15 U.S.C. 80b-9, 80b-14], to enjoin the defendant from engaging in the transactions, acts, practices, and courses of business alleged in this complaint, and transactions, acts, practices, and courses of business of similar purport and object, for civil penalties and for other equitable relief. 6. This Court has jurisdiction over this action pursuant to Section 22 of the Securities Act [15 U.S.C. 77v], Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa] and Section 214 of the Advisers Act [15 U.S.C. 80b-14]. 7. Defendants Eskind, Lorus and Capital, directly and indirectly, made use of the mails, the means and instruments of transportation and communication in interstate commerce and the means and instrumentalities of interstate commerce in connection with the transactions, acts, practices, and courses of business alleged in this complaint that constituted violations of the Securities Act, the Exchange Act and the Advisers Act. 8. Certain of the transactions, acts, practices, and courses of business constituting violations of the Securities Act, Exchange Act and Advisers Act occurred in the Northern District of Georgia. In addition, Defendant Eskind resides in the Northern District of Georgia. Defendants Lorus and Capital maintain offices in the Northern District of Georgia. 9. Defendants Eskind, Lorus and Capital, unless restrained and enjoined by this Court, will continue to engage in the transactions, acts, practices, and courses of business alleged in this complaint, and in transactions, acts, practices, and courses of business of similar purport and object. THE DEFENDANTS 10. J. Scott Eskind, approximately 41 years of age, is a resident of Atlanta, Georgia. Eskind worked for various brokerage firms between 1983 and 1991. On August 22, 1991, Eskind was censured and suspended for fifteen months by the NYSE for, among other things, effecting unauthorized trades in customer accounts, making misrepresentations to customers, and forging customer signatures. He has not been associated with an Exchange member since that time. Eskind has been the president of Lorus since its formation. 11. Lorus Investments, Inc., is a Georgia corporation owned and controlled by Eskind. Lorus purports to be in the business of offering investments in limited partnerships and serving as an investment manager to those partnerships. 12. Capital Management Fund, Limited Partnership, is a Georgia limited partnership formed in 1996. Lorus is the general partner. Prior Violations 13. Between November 1994 and April 1996, Eskind was the secretary and treasurer of Tower Asset Management, Inc. ("Tower"), the general partner of The Asset Management Fund, L.P. ("Asset Management"), a limited partnership formed for the purpose of investing in securities. Tower also served as the investment adviser or investment manager for Asset Management. 14. Between November 1994 and April 1996, Asset Management attracted $4,150,000 in investments from eight investors. 15. The Asset Management private placement memorandum ("PPM") stated that Eskind worked for a brokerage firm for seven years beginning in 1983. In fact, Eskind worked for that firm for less than one year, and subsequently worked for a series of brokerage firms as a registered representative until he was suspended by the NYSE in 1991. 16. Eskind's suspension was not disclosed to investors. Tower was not advised of Eskind's disciplinary history. 17. In April 1996, Tower determined that Eskind had misappropriated approximately $246,000 from Asset Management. Eskind had previously concealed the misappropriation by falsifying the books of the limited partnership. Eskind was dismissed. 18. Subsequent to his dismissal from Tower, Eskind embarked on a new fraudulent scheme. In December 1996, Eskind induced an investor to invest $500,000 in what was represented to the investor to be Asset Management. Eskind provided the investor with a copy of the Asset Management PPM. 19. Eskind did not disclose that he was no longer affiliated with Asset Management or that he had been terminated for misappropriating investor funds. Eskind also provided the investor with a forged Asset Management tax return. 20. Eskind induced the investor to wire the $500,000 directly to Eskind's account. The investor subsequently discovered that Eskind was not affiliated with Asset Management and after repeated requests, induced Eskind to return all but $5,000. The returned funds were obtained from other defrauded investors. 21. On May 3, 1997, a third individual was induced by Eskind to invest $150,000 in what was purported to be Asset Management. On June 12, 1997, Eskind repaid the investor. In total, subsequent to his dismissal, Eskind raised approximately $1.5 million from six investors. Eskind's net gain was approximately $500,000. Eskind used the remaining funds to repay those investors who threatened legal action. The Prior Commission Actions 22. On June 20, 1997, the Commission filed an emergency civil action against Eskind in the United States District Court for the Northern District of Georgia, alleging violations of the antifraud provisions of the federal securities laws. 23. On January 23, 1997, the court entered a preliminary injunction and asset freeze against Eskind. On January 12, 1998, a judgment of permanent injunction was entered against Eskind enjoining him from violating the antifraud provisions. SEC v. Eskind, Civil Action No. 1:97-CV-1790-CAM. 24. On September 30, 1999, the Commission instituted public administrative proceedings against Eskind pursuant to Section 203(f) of the Advisers Act. Eskind subsequently consented to, and on February 2, 2000, the Commission entered, an order barring him from association with any investment adviser. Eskind's Conduct Subsequent to
25. Beginning in or about October 1997, and continuing through August 2002, Eskind and Lorus have been selling Capital limited partnership interests. Eskind and Lorus have raised at least $3 million from at least 12 investors. 26. Lorus is listed in the partnership materials as the general partner and investment manager. The general partner has sole control of the operations of the partnership. 27. Eskind has been representing represents to investors that Capital will invest in initial and secondary offerings of securities. 28. Eskind claims that investors' funds are never at risk because he reduces the positions to cash at the end of every business day. 29. Eskind represents to investors that the partnership returns 20-25 percent annually after deduction of the management fee. The general partner's fee is described as ten percent of the net profits annually. 30. The offering materials provided to prospective investors by describe Eskind as having 11 or 17 years experience (11 in the PPM, 17 in a Lorus brochure) in the securities industry and as having worked for a particular brokerage firm for seven years. In fact, Eskind worked for that firm for less than one year, and subsequently worked for a series of brokerage firms as a registered representative until he was suspended by the NYSE in 1991 for, among other things, effecting unauthorized trades, making misrepresentations to customers and forging customer signatures. Eskind's suspension has not been disclosed to investors. 31. The Capital partnership sales materials fail to disclose the Commission's 1997 civil action, the 1997 preliminary injunction and 1998 permanent injunction entered against Eskind, and the 1999 administrative proceeding and 2000 Commission order barring Eskind from association with any investment adviser. 32. When one investor learned of the Commission's action through an independent source, Eskind advised him that it was a misunderstanding due to the actions of another party, had been cleared up, and that the Commission had not made any "dictates." Those statements were false. 33. Eskind has been providing his current investors with account statements on Lorus letterhead reflecting successful trading by Capital and profit to their accounts. At least some of the statements are fictitious. Some of the investors transferred IRA accounts to make the investments. Eskind represented that those investments were placed with Delaware Charter Guarantee and Trust Consultants ("Delaware"), a firm which does business as an IRA custodian. 34. The investors with accounts purportedly at Delaware received quarterly statements from Lorus, sent by Eskind, listing the status of those accounts at Delaware, and showing profits. At least some of those investors do not have accounts at Delaware. 35. Lorus sales materials state that "representation for legal affairs is handled by Skadden, Arps, NY...." In fact, Skadden, Arps (Skadden, Arps, Slate, Meagher & Flom) has never done any legal work for Eskind, Capital or Lorus. 36. The limited partnership interests sold by Lorus, Eskind and Capital, as described above, are securities, as that term is defined in the Securities Act, the Exchange Act and the Advisers Act. 37. Lorus has been an investment adviser, as that term is defined in the Exchange Act from at least October 1997 through August 2002. Eskind's continued association with Lorus has been in violation of the Order imposed by the Commission in February 2000 as to Eskind. COUNT I-FRAUD Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)] 38. Paragraphs 1 through 37 are hereby realleged and are incorporated herein by reference. 39. From in or about October 1997 through August 2002, defendants Eskind, Lorus and Capital, in the offer and sale of the securities described herein, by the use of means and instruments of transportation and communication in interstate commerce and by use of the mails, directly and indirectly, employed devices, schemes and artifices to defraud purchasers of such securities, all as more particularly described above. 40. Eskind, Lorus and Capital knowingly, intentionally, and/or recklessly engaged in the aforementioned devices, schemes and artifices to defraud. 41. While engaging in the course of conduct described above, the defendants acted with scienter, that is, with an intent to deceive, manipulate or defraud or with a severe reckless disregard for the truth. 42. By reason of the foregoing, the defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)]. COUNT II-FRAUD Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act[15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)] 43. Paragraphs 1 through 37 are hereby realleged and are incorporated herein by reference. 44. From in or about October 1997 through August 2002, defendants Eskind, Lorus and Capital, in the offer and sale of the securities described herein, by use of means and instruments of transportation and communication in interstate commerce and by use of the mails, directly and indirectly:
45. By reason of the foregoing, the defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)]. COUNT III-FRAUD Violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] 46. Paragraphs 1 through 37 are hereby realleged and are incorporated herein by reference. 47. From in or about October 1997 through August 2002, defendants Eskind, Lorus and Capital, in connection with the purchase and sale of securities described herein, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly:
48. The defendants knowingly, intentionally, and/or recklessly engaged in the aforementioned devices, schemes and artifices to defraud, made untrue statements of material facts and omitted to state material facts, and engaged in fraudulent acts, practices and courses of business. In engaging in such conduct, the defendants acted with scienter, that is, with an intent to deceive, manipulate or defraud or with a severe reckless disregard for the truth. 49. By reason of the foregoing, the defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. COUNT IV-FRAUD Violations of Section 206(1) of the Advisers Act [15 U.S.C. § 80b-6(1)] 50. Paragraphs 1 through 37 are hereby realleged and are incorporated herein by reference. 51. From in or about October 1997 through August 2002, defendant Lorus, acting as an investment adviser, aided and abetted by Eskind, by the use of the mails and the means and instrumentalities of interstate commerce, directly and indirectly, employed devices, schemes and artifices to defraud one or more advisory clients and/or prospective clients. 52. Defendants Lorus and Eskind knowingly, intentionally, and/or recklessly engaged in the aforementioned devices, schemes and artifices to defraud. In engaging in such conduct, defendants Lorus and Eskind acted with scienter, that is, with an intent to deceive, manipulate or defraud or with a severe reckless disregard for the truth. 53. By reason of the foregoing, defendant Lorus, directly and indirectly, has violated, and defendant Eskind has aided and abetted violations and, unless enjoined, Lorus and Eskind will continue to violate and aid and abet violations of Section 206(1) of the Advisers Act [15 U.S.C. § 80b-6(1)]. COUNT V-FRAUD Violations of Section 206(2) of the Advisers Act [15 U.S.C. § 80b-6(2)] 53. Paragraphs 1 through 37 are hereby realleged and are incorporated herein by reference. 54. From in or about October 1997 through August 2002, defendant Lorus, acting as an investment adviser, aided and abetted by defendant Eskind, by the use of the mails and the means and instrumentalities of interstate commerce, directly and indirectly, engaged in transactions, practices, and courses of business which would and did operate as a fraud and deceit on one or more advisory clients and/or prospective clients. 55. By reason of the foregoing, defendant Lorus, aided and abetted by defendant Eskind,, directly and indirectly, has violated and, unless enjoined, Lorus and Eskind will continue to violate and aid and abet violations of Section 206(2) of the Advisers Act [15 U.S.C. § 80b-6(2)]. PRAYER FOR RELIEF WHEREFORE, Plaintiff Commission respectfully prays for: I. Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure, finding that the defendants named herein committed the violations alleged herein. II. Permanent injunctions enjoining the defendants, their officers, agents, servants, employees, and attorneys, and those persons in active concert or participation with them who receive actual notice of the order of injunction, by personal service or otherwise, and each of them, whether as principals or as aiders and abettors, from violating, directly or indirectly, 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] promulgated thereunder, and Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. 80b-6(1) and 80b-6(2)]. III. An order requiring an accounting by defendants of the use of proceeds of the sales of the securities described in this Complaint and the disgorgement of all ill-gotten gains or unjust enrichment with prejudgment interest, to effect the remedial purposes of the federal securities laws, and an order freezing the assets of the defendants, to preserve the status quo. IV. An order pursuant to Section 20(d) of the Securities Act [15 U.S.C. 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. 78u(d)(3)] imposing civil penalties against defendants, and an order pursuant to Section 209(e) of the Advisers Act [15 U.S.C. 80b-9(e)] imposing civil penalties against defendants Lorus and Eskind. V. An Order pursuant to Section 209(d) of the Advisers Act [15 U.S.C. 80b-9(d)] requiring Eskind to comply with the Order of the Commission issued on February 2, 2000, barring him from association with any investment adviser. VI. Such other and further relief as this Court may deem just, equitable, and appropriate in connection with the enforcement of the federal securities laws and for the protection of investors. Dated this _____ day of ______, 2002.
http://www.sec.gov/litigation/complaints/comp17725.htm
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