IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF

This matter involves violations of the offering registration, antifraud, and broker-dealer registration provisions of the federal securities laws by Leonard L. Zanello, Sr. ("Zanello"), Ihor A. "Gary" Humesky ("Humesky"), Steven B. Rodd ("Rodd"), and Robert F. Broege, Jr. ("Broege"), for fraudulently selling securities on behalf of LinkTel Communications, Inc. ("LinkTel"). LinkTel offered investments comprised of pay phones, leaseback agreements, and LinkTel's offer to "buy back" the pay phones at the end of the lease. The agreements obligated LinkTel to manage the pay phones, pay annual returns of 12% to 14%, and then repurchase the phones. Between November 1998 and December 1, 2000, when a federal judge enjoined LinkTel at the request of the Commission (with the defendants' consent), LinkTel raised more than $6.4 million from over 270 investors. LinkTel's investment program was a Ponzi scheme.

The Commission brings this action seeking injunctive and other equitable relief, disgorgement plus prejudgment interest and civil penalties. In support, the Commission alleges as follows:

THE DEFENDANTS

1. Leonard L. Zanello, Sr., age 51, resides in Coral Springs, Florida. In 1972, he began selling insurance, and in 1991, he began specializing in selling long-term care policies to senior citizens. He is a certified estate planner and has licenses to sell life and health insurance and fixed annuities in Florida. Between 1982 and 1993, he held a Series 6 (Investment Company Products/Variable Contracts) securities license. He continues to sell long-term care policies.
    
2. Ihor A. "Gary" Humesky, age 44, resides in Tampa, Florida. He began selling insurance in Michigan in 1985 and moved to Florida in 1993, where he has licenses to sell health and life insurance and fixed annuities. He has also sold viatical settlements. Humesky's current occupation is selling "insurance products."
    
3. Steven B. Rodd, age 36, resides in the Tampa, Florida area. He began selling insurance in 1989 and has licenses to sell health and life insurance and fixed annuities in Florida. He also sells viatical settlements. Rodd's current occupation is selling "insurance products."
    
4. Robert F. Broege, age 59, resides in Pinellas County, Florida. From 1990 to 1997, he sold health and life insurance in Florida. In 1997 he allowed his licenses to expire and began selling "alternative investments," including viatical settlements. Broege's current occupation is selling "insurance products."

JURISDICTION AND VENUE

5. This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and 1337 and Sections 20(b) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b) and 77v] and Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
    
6. Venue is proper in this district pursuant to 28 U.S.C. § 1391(b)(1) and (2) and N.D. Ga. Local Rule 3.1 B(3). A substantial part of the transactions, acts, practices, and courses of business constituting violations of the Securities Act and Exchange Act occurred in the Northern District of Georgia, and LinkTel was located in the Northern District of Georgia.

THE LINKTEL SCHEME

7. Between November 1998 and December 2000, LinkTel and T.P.C. Communications, Inc. ("TPC") raised over $6.4 million from over 270 investors through unregistered offers and sales of securities to the general public.
    
8. Jeffrey Altman ("Altman") owned TPC and one-half of LinkTel. Altman created TPC for the purpose of selling pay phones to investors who then leased them back to LinkTel. Altman operated the two companies from the same office space, and used the same computer system and filing cabinets to maintain records for each entity.
    
9. LinkTel offered its investments in units that included a coin-operated pay telephone, a lease agreement, and a buy-back agreement.
    
10. Investors invested money by purchasing pay phones from TPC and then leasing them to LinkTel. Although investors were purportedly buying pay phones from TPC, they often made their checks payable to LinkTel.
     
11. In exchange, LinkTel promised to manage the operation of the pay phones and to pay a fixed return to the investors without regard to the location or profitability of the pay phone.
     
12. Although LinkTel offered investors the option to manage the pay phones themselves or choose another company to manage the pay phones, virtually all of the investors chose to enter into 60-month lease agreements with LinkTel, the option that LinkTel and its agents strongly encouraged.
     
13. Under the lease program, investors had no involvement whatsoever in the operations of the pay phones. In fact, investors never took possession of the pay phones they purportedly purchased.
     
14. LinkTel sold the units at prices ranging from $2,500 to $5,000 and, for those investors selecting the lease option, promised rates of return between 12% and 14% per year.
     
15. Because the fixed returns were not tied to the money earned by a particular pay phone, LinkTel's ability to pay these returns depended on the profitability of the entire pool of pay phones sold by LinkTel.
     
16. After 60 months, investors could either renew the lease or sell the pay phones back to LinkTel for the full purchase price.
     
17. LinkTel investors expected profits on their investment.
     
18. LinkTel was not profitable. It only installed approximately 1,000 of the 1,800 pay phones it sold, and the monthly revenues from those phones amounted to approximately $45,000, which was less than one-half of its $95,000 in monthly lease obligation and other expenses.
     
19. Thus, LinkTel functioned as a Ponzi scheme in that LinkTel relied on money from new investors each month to pay the returns it owed investors from previous months.
     
20. Eventually, in November 2000, LinkTel was unable to pay investors their promised returns.
     
21. LinkTel and its agents did not disclose the 20% to 22% commissions it paid sales agents. Instead, the example in its offering materials, which illustrated LinkTel's purported profitability, suggested that LinkTel salesmen received commissions equal to only 15% of the purchase price paid by the investor.
     
22. LinkTel's offering materials claimed that the investments were safe because National Reliance Insurance Company ("NRIC"), a Turks and Caicos Islands insurance company, insured LinkTel's ability to repurchase the pay phones from investors.
     
23. In a pamphlet included in sales materials distributed to investors, LinkTel stated that NRIC was a "niche insurer formed solely" to insure LinkTel investors and that the "extremely high" insurance premium rate of 15% insured "profitability" for NRIC and "safety for the client."
     
24. In fact, LinkTel did not have sufficient insurance to fully protect investors from losses. The policy through NRIC, which was essentially a self-insurance policy, only accumulated approximately $900,000 in premiums. Because NRIC had no other source of funding and Altman caused NRIC to loan $220,000 to LinkTel, NRIC had less than $700,000 to distribute to investors in the event of insolvency. However, LinkTel investors had collectively invested more than $6.4 million when LinkTel failed.
     
25. LinkTel used a network of sales agents to market its investments.
     
26. Zanello, Humesky, Rodd, and Broege were sales agents for LinkTel.

THE DEFENDANTS MISREPRESENTED AND OMITTED
MATERIAL INFORMATION IN CONNECTION WITH THE
OFFERS AND SALES OF LINKTEL SECURITIES
 
ZANELLO

27. Zanello specializes in selling long-term care insurance policies to senior citizens in south Florida.
     
28. After Altman recruited Zanello in 2000, Zanello marketed LinkTel investments as a source of steady income that investors could use to pay the expensive premiums on long-term care policies.
     
29. Zanello received commissions of 20% to 22%, and he earned commissions totaling approximately $75,000 for selling LinkTel investments.
     
30. Zanello marketed LinkTel's investment in a variety of ways. He ran newspaper advertisements that invited senior citizens to free luncheons. During these luncheons, Zanello promoted long-term care policies and LinkTel investments. Zanello also promoted LinkTel and its guaranteed high rate of return in a 15-minute infomercial that ran before the main feature in a theater near his office. He further promoted LinkTel and long-term care policies during his weekly radio show, which aired during the "winter season" and lasted 45 minutes.
     
31. Zanello assured investors that he had investigated LinkTel and that it was profitable.
     
32. In fact, Zanello never reviewed LinkTel's financial statements or examined revenue figures from LinkTel pay phones, including ones assigned to his clients.
     
33. Zanello also did not verify that LinkTel actually installed pay phones.
     
34. Zanello distributed the LinkTel sales materials that misrepresented the salesmen's commission rate, and he did not tell the investors that he actually received 20% to 22% in commissions.
     
35. Moreover, Zanello did not inform investors that the high commissions, among other factors, severely hindered LinkTel's ability to be profitable.
     
36. Zanello also told investors that their investments were "very safe" and "100% sure" because they were fully insured, but Zanello did not conduct a reasonable investigation into NRIC.
     
37. Furthermore, Zanello did not tell investors that if LinkTel became unable to pay its obligations and all investors sought a return of their investment, the investors would receive no more than 15% of their initial investment because NRIC did not have funds to cover all potential claims by investors.

HUMESKY AND RODD

38. Humesky and Rodd shared an office suite and sold health and life insurance, fixed annuities, viatical settlements, and pay phones for ETS Payphones, Inc. ("ETS").
     
39. Humesky called Altman in August 1999 in response to an advertisement recruiting agents to market pay phones for LinkTel.
     
40. After visiting Altman at LinkTel's office, Humesky and Rodd decided that they could earn good commissions by selling LinkTel phones because they were less expensive than the phones that ETS Payphones offered.
     
41. In November 1999, Humesky began marketing LinkTel pay phones, and Rodd started soon thereafter.
     
42. Humesky and Rodd signed separate agreements with LinkTel in which they agreed to market LinkTel investments in return for commissions of 20% to 22%.
     
43. Humesky and Rodd recruited seven subagents to work under them and formed S&G Communications, Inc. ("S&G"), which they used to process and split their shares of every commission their subagents earned. After a subagent made a sale, S&G received the 20% to 22% commission, and S&G then paid the subagent a 15% to 17% commission, leaving Humesky and Rodd with the remaining 3% to 7%.
     
44. Humesky earned commissions totaling approximately $470,000 from selling LinkTel investments, net of payments to subagents.
     
45. Rodd earned commissions totaling approximately $101,000 from selling LinkTel investments, net of payments to subagents.
     
46. Humesky and Rodd worked both independently of one another and together, predominantly marketing LinkTel to senior citizens in central Florida.
     
47. Humesky and Rodd placed advertisements promising 12% and 14% returns in newspapers and magazines circulated in Orlando and Tampa, Florida and Detroit, Michigan, and on placemats in a Tampa area restaurant.
     
48. When a potential investor responded to an ad, Humesky, Rodd, or both discussed the pay phone investment and provided the investor with the LinkTel sales materials. Humesky or Rodd waited a few days, called the investor back, and answered questions. If the investor had serious interest, Humesky or Rodd invited the investor to their office or visited the investor at his or her residence.
     
49. On one occasion, Rodd paid $5,000 of a $6,000 penalty an elderly couple incurred by withdrawing $100,000 from an annuity to purchase LinkTel pay phones.
     
50. Humesky and Rodd told investors that they had visited LinkTel, fully investigated the company, and spent so much time in LinkTel's office that they felt "at home" there and knew them well.
     
51. Rodd represented that LinkTel had a "long history of good profits."
     
52. Humesky told investors that LinkTel pay phones were profitable.
     
53. Humesky also told an elderly couple that they could make "millions" in five or six years if they used their monthly income from LinkTel to buy more phones.
     
54. Humesky and Rodd failed to investigate whether LinkTel was in fact profitable. They did not review LinkTel financial statements and did not examine revenue figures from any LinkTel pay phones, including ones assigned to their clients.
     
55. Humesky and Rodd also did not verify that LinkTel actually installed phones sold to their clients.
     
56. Humesky and Rodd distributed the LinkTel sales materials that misrepresented the commission rate for LinkTel salesmen and they did not tell the investors that they in fact received 20% to 22% commissions.
     
57. Humesky and Rodd did not inform the investors that the high commissions, among other factors, severely hindered LinkTel's ability to be profitable.
     
58. Humesky and Rodd also told investors that LinkTel was the "soundest investment" that they could recommend and that their investments were fully insured.
     
59. Rodd told an elderly couple who chose to invest their IRA funds in LinkTel that they "absolutely could not lose money" and that an investment with LinkTel was "much better" than keeping the money in their conservative annuity. In fact, LinkTel was insolvent.
     
60. Humesky and Rodd did not reasonably investigate NRIC and did not tell investors that if LinkTel became unable to pay its obligations and all investors sought a return of their investment, the investors would receive no more than 15% of their investment because NRIC did not have funds to cover all potential claims.

BROEGE

61. Broege sold health and life insurance in Florida between 1990 and 1997 and viatical settlements after he allowed his licenses to expire.
     
62. Broege began marketing LinkTel in the fall of 1999 when Humesky and Rodd recruited him to be one of their subagents.
     
63. Broege earned commissions totaling approximately $72,000 from selling investments in LinkTel.
     
64. Broege marketed LinkTel to senior citizens in Florida, Michigan, and South Carolina by placing advertisements promising 12% annual returns with no risk in local newspapers. He leased an office from Humesky and Rodd in Clearwater, Florida and also maintained an office in Gross Pointe, Michigan, which he used to market LinkTel to Michigan residents.
     
65. Typically, after investors responded to one of his advertisements, Broege met them in their homes or at his office and presented them with LinkTel's sales literature. He discussed the content on each page of the sales materials.
     
66. Broege represented that he had investigated LinkTel and that it was a profitable company.
     
67. In fact, LinkTel was consistently losing money and was insolvent. Broege did not review LinkTel financial statements or examine revenue figures from LinkTel pay phones, including ones assigned to his clients.
     
68. Broege did not verify that LinkTel actually installed pay phones.
     
69. Broege even told one investor that he had visited LinkTel in Atlanta when, in fact, he had not.
     
70. Broege distributed the LinkTel sales materials that misrepresented the salesmen's commission rate, and he did not tell the investors that he received a 17% commission rate or that Humesky and Rodd received an additional 3% to 5% commission.
     
71. Moreover, Broege did not inform the investors that the high commissions, among other factors, severely hindered LinkTel's ability to be profitable.
     
72. Broege also told investors that their investments were fully insured, and he described LinkTel as "safe" and "risk-free."
     
73. Broege, however, did not conduct a reasonable investigation into NRIC, and he did not tell investors that if LinkTel became unable to pay its obligations and all sought a return of their investment, they would receive no more than 15% of their original investment because NRIC did not have funds to cover all potential claims.
     
74. By virtue of the conduct described above, Defendants Zanello, Humesky, Rodd, and Broege engaged in business as broker-dealers and induced and attempted to induce the purchase and sale of securities. Zanello, Humesky, Rodd, and Broege were not registered with the Commission as brokers or dealers, and were not associated with any registered broker or dealer.
     
75. The businesses of Zanello, Humesky, Rodd, and Broege were not exclusively intrastate.

COUNT I - UNREGISTERED OFFERING OF SECURITIES
 
Violations of Sections 5(a) and 5(c) of the
Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)]

76. Paragraphs 1 through 75 are hereby realleged and are incorporated herein by reference.
     
77. Defendants Zanello, Humesky, Rodd, and Broege:
     
1. made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell the securities described herein, through the use or medium of any prospectus or otherwise;
    
2. carried securities or caused such securities, as described herein, to be carried through the mails or in interstate commerce, by means or instruments of transportation, for the purpose of sale or for delivery after sale; and
    
3. made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell through the use or medium of any prospectus or otherwise the securities described herein, without a registration statement having been filed or being in effect with the Commission;
    
78. By reason of the foregoing, Defendants Zanello, Humesky, Rodd, and Broege violated, and, unless restrained and enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and (c)]

COUNT II - FRAUD
 
Violations of Section 17(a)(1)
of the Securities Act [15 U.S.C. § 77q(a)(1)]

79. Paragraphs 1 through 78 are hereby realleged and are incorporated herein by reference.
     
80. Defendants Zanello, Humesky, Rodd, and Broege, in the offer or sale of securities, directly or indirectly, employed devices, schemes, or artifices to defraud purchasers of such securities, all as more particularly described above.
     
81. Defendants Zanello, Humesky, Rodd, and Broege knowingly, intentionally and/or recklessly engaged in the aforementioned devices, schemes and artifices to defraud.
     
82. While engaging in the courses of conduct described above, Defendants Zanello, Humesky, Rodd, and Broege, directly or indirectly, made use of the mails, or means or instruments of transportation or communication in interstate commerce, or means or instrumentalities of interstate commerce.
     
83. By reason of the foregoing, Defendants Zanello, Humesky, Rodd, and Broege violated, and, unless restrained and enjoined, will continue to violate Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)].

COUNT III - FRAUD
 
Violations of Sections 17(a)(2) and 17(a)(3)
of the Securities Act [15 U.S.C. § 77q(a)(2) and (a)(3)]

84. Paragraphs 1 through 83 are hereby realleged and are incorporated herein by reference.
     
85. Defendants Zanello, Humesky, Rodd, and Broege, in the offer or sale of securities, directly or indirectly, obtained money or property by means of untrue statements of material facts or omissions of material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading and/or engaged in transactions, practices, or courses of business which operated as a fraud or deceit upon the purchasers of securities, all as more particularly described above.
     
86. While engaging in the courses of conduct described above, Defendants Zanello, Humesky, Rodd, and Broege, directly or indirectly, made use of the mails, or means or instruments of transportation or communication in interstate commerce, or means or instrumentalities of interstate commerce.
     
87. By reason of the foregoing, Defendants Zanello, Humesky, Rodd, and Broege violated, and, unless restrained and 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 (3)].

COUNT IV - FRAUD
 
Violations of Section 10(b) of the Securities Act [15 U.S.C.
§ 78 j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]

88. Paragraphs 1 through 87 are hereby realleged and are incorporated herein by reference.
     
89. As described above, Defendants Zanello, Humesky, Rodd, and Broege, in connection with the purchase or sale of securities, directly or indirectly employed devices, schemes, or artifices to defraud; made untrue statements of material facts or 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; or engaged in acts, practices, or courses of business which operated as a fraud or deceit.
     
90. Defendants Zanello, Humesky, Rodd, and Broege knowingly, intentionally and/or recklessly engaged in the conduct described above.
     
91. While engaging in the above courses of conduct, Defendants Zanello, Humesky, Rodd, and Broege, directly or indirectly, made use of the mails, or means or instruments of transportation or communication in interstate commerce, or means or instrumentalities of interstate commerce.
     
92. By reason of the foregoing, Zanello, Humesky, Rodd, and Broege violated, and unless restrained and enjoined, will continue to violate Section 10(b) the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].

COUNT IV- BROKER-DEALER REGISTRATION
 
Violations of Section 15(a) of the
Exchange Act [15 U.S.C. § 15 78o(a)

93. Paragraphs 1 through 92 are hereby realleged and are incorporated herein by reference.
     
94. By virtue of the conduct described above, Defendants Zanello, Humesky, Rodd, and Broege, while engaged in business as broker-dealers, induced and attempted to induce the purchase and sale of securities. Zanello, Humesky, Rodd, and Broege were not registered with the Commission as brokers or dealers, and were not associated with any registered broker or dealer.
     
95. As described above, Defendants Zanello, Humesky, Rodd, and Broege used the mails and the means and instrumentalities of interstate commerce, to effect transactions in, or to induce or attempt to induce the purchase or sale of securities.
     
96. By reason of the foregoing, Defendants Zanello, Humesky, Rodd, and Broege violated, and unless restrained and enjoined, will continue to violate Section 15(a) of the Exchange Act [15 U.S.C. § 15 78o(a)].

PRAYER FOR RELIEF

WHEREFORE, Plaintiff Securities and Exchange 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 Defendants Zanello, Humesky, Rodd, and Broege committed the violations alleged herein.

II.

A permanent injunction enjoining defendants, their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise, and each of them, from violating 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 thereunder [17 C.F.R. §§ 240.10b-5].

III.

An order requiring accountings by the defendants of the fees collected by the defendants and ordering the disgorgement of all ill-gotten gains from their illegal conduct with prejudgment interest.

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 the defendants.

V.

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. Further, the Securities and Exchange Commission respectfully prays that the Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that are entered or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.