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UNITED STATES DISTRICT COURT
Case No.
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF INTRODUCTION Plaintiff, Securities and Exchange Commission ("SEC" or "Commission"), alleges: 1. The Commission brings this action to restrain and enjoin the Defendants from continuing to violate the federal securities laws through their unregistered, fraudulent offering of securities issued by Nutrition Superstores.com, Inc ("NSS") and Advanced Wound Care, Inc. ("AWC"). Between 1998 and 2001, Defendants raised at least $10.5 million from over 770 investors nationwide who purchased stock in NSS and AWC sold through a group of unlicensed sales agents affiliated with Franchise Direct, Inc. ("Franchise Direct") a South Florida boiler room operation. Using scripts and employing hard pressure sales tactics, the sales agents - given bogus "vice president" titles by the issuer de jour (NSS or AWC) - made egregious misrepresentations and omissions concerning, among other things, the companies' holdings and business operations, projected revenues, their impending "hot" Initial Public Offerings ("IPO"), use of investor proceeds, a "guaranteed" rate of return on their investment and celebrity endorsements. Defendants did not disclose, moreover, that Franchise Direct and its sales agents received up to 25% of all investor proceeds as commissions. Unless permanently enjoined, the Defendants will continue to violate the federal securities laws in the future. DEFENDANTS 2. Defendant NSS is a Florida corporation incorporated in May 1997, with its principal office located at 420 U.S. Highway 1, Suite 15-C, North Palm Beach, Florida. NSS is purportedly in the business of distributing health and nutritional products through its own retail stores, health clubs, shopping malls, and the Internet. 3. Defendant AWC is a Florida corporation incorporated in December 2000, with its principal office located at 400 Scotia Drive, #201, Hypoluxo, Florida. AWC is purportedly in the business of marketing and distributing wound care medical products to international retail consumer and medical markets. 4. Defendant Franchise Direct is a Florida corporation incorporated in March 1999, with its principal office previously located in West Palm Beach, Florida. Franchise Direct was the off-site boiler room operation that used unlicensed sales agents in connection with the respective securities offerings of NSS and AWC. Franchise Direct has never been registered with the Commission as a broker-dealer or in any other capacity. 5. Defendant Anthony F. Musso, Jr. ("Musso"), age 52, resides in Jupiter, Florida. Between March 1998 and December 2000, Musso served in various capacities at NSS, including, chairman, president, and/or chief operating officer ("COO"). Between December 2000 and September 2001, he was the chief executive officer ("CEO") of AWC. 6. Defendant Jeffery Gill ("Gill"), age 52, resides in Jupiter, Florida. Gill has served as president, CEO and director of NSS since April 1999. Since its inception, Gill has also served as the president and CEO of Physicians Nutraceuticals Laboratories ("PNLabs"), a subsidiary of NSS that was "spun off" in December 2000 to NSS shareholders. 7. Defendant Wayne Santini, age 45, resides in Hypoluxo, Florida. Santini has served as CEO and director of AWC since September 2001, and was AWC's chief marketing officer. 8. Defendant Andrew W. Doney ("Doney"), age 64, resides in North Palm Beach, Florida. Doney was Franchise Direct's most prolific sales agent in connection with NSS and AWC's securities offerings. Doney has never been registered with the Commission in any capacity. JURISDICTION AND VENUE 9. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b), 77t(d) and 77v(a), and Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d), 78u(e) and 78aa. These provisions authorize the Commission to seek injunctive relief from the federal district courts and the imposition of civil money penalties for violations of the federal securities laws. 10. Venue is appropriate in the Southern District of Florida. Certain of the acts and transactions constituting violations of the Securities Act and the Exchange Act have occurred within the Southern District of Florida. The principal offices of Defendants are located in the Southern District of Florida, and the individual Defendants all reside in the Southern District of Florida. Defendants have engaged in the acts, transactions, and practices complained of herein within the Southern District of Florida. 11. Defendants, directly and indirectly, have made use of the means and instrumentalities of interstate commerce, the means and instruments of transportation and communication in interstate commerce, and the mails, in connection with the acts, practices, and courses of business complained of herein. OVERVIEW OF THE FRAUDULENT SCHEME 12. From 1998 through 2001, Defendants orchestrated an elaborate scheme to sell unregistered securities in NSS and, later, AWC, through a widespread sales campaign to medical doctors throughout the nation. At the direction of the scheme's chief architect, Musso, NSS began sending letters to physicians in early 1998 inviting them to join NSS' medical or scientific "advisory board" to evaluate the company's products. In return, the doctors were to receive 100 shares of free stock in NSS. 13. In fact, the solicitation of "advisory board" members was merely a ruse to create a list of physicians that could later be contacted for a "hard sell" by unlicensed sales agents employed by Franchise Direct. The sales agents were provided with the call lists and offering materials by Musso, Gill and Santini, but worked "off site" at the office of Franchise Direct. 14. Moreover, to hide the fact that NSS and AWC paid sales agents undisclosed commissions of up to 25%, the sales agents had sham titles of vice-president of either NSS or AWC (depending on which issuer's security was being pitched at the time) even though their duties were solely limited to raising funds from investors. Sales agents were paid nominal "salaries" from NSS, and later AWC, to maintain the ruse. 15. As further discussed below, Franchise Direct sales agents used scripts and high-pressure sales tactics in connection with their sales of NSS and AWC securities, and made egregious misrepresentations and omissions, comparing investments in both companies to investments in successful Internet companies such as AOL, eBay and Amazon.com. Sales agents also created a sense of urgency, leading investors to believe that they had to invest quickly or risk missing out on the ground floor opportunity to earn millions. During the course of the NSS and AWC offerings, Defendants raised over $10.5 million from approximately 770 investors nationwide. THE NSS OFFERINGS A. Background and Terms of the NSS Offerings 16. In March 1998, NSS commenced a private placement to sell approximately 2.3 million shares of its common stock at a price of $3 per share, for a total offering of $7 million. NSS, at Musso's direction, sent prospective investors a package of offering materials, including a Private Placement Memorandum, a business plan, and a subscription agreement. NSS sold approximately 500,000 shares of common stock to about 180 investors nationwide and raised about $1.5 million from this offering. 17. In February 1999, NSS commenced a second private placement to sell 1,250 "units" consisting of 800 shares of preferred stock. Each unit was priced at $12,000 for a total offering of $15 million. NSS, at the direction of Musso and Gill, sent prospective investors a package of offering materials, including a Private Placement Memorandum, a business plan, a subscription agreement, and a document describing how investors would be "guaranteed" a 200% return on their investment in the event of an initial public offering ("IPO"). 18. In connection with the second NSS offering, prospective investors also received NSS's newsletter, NutraNews, press releases, and letters authored by Musso and Gill that provided updates and information about the company. Many existing investors also received a "Pre-IPO.com newsletter" in which NSS compared itself to other so-called "similarly situated" companies such as AOL and Amazon.com, and projected that NSS shareholders would realize returns as high as 400% in the event of an IPO. NSS raised roughly $7 million from approximately 520 investors nationwide through this offering. 19. No registration statement has been filed or is in effect with the Commission in connection with the securities issued by NSS under either of these two offerings. B. Misrepresentations and Omissions in Connection with the NSS Offerings 20. The NSS offering materials sent to prospective investors contained material misrepresentations and omissions concerning, among other things, the company's projected income and revenue, the uses of investor proceeds, the likelihood of an IPO, and the sale of NSS' subsidiary, Nutrition Clubstores. The company's sales agents, including Doney, at the direction of Franchise Direct, Musso and Gill, reiterated and expanded upon these misrepresentations when soliciting prospective investors. 21. Each of the following misrepresentations and omissions concern statements of material fact and have been made with the knowledge or at the direction of defendants NSS, Musso, Gill, Franchise Direct and Doney. (i) Projected Revenues and Profits 22. NSS' business plan, attached as an exhibit to its March 1998 and February 1999 Private Placement Memorandums and distributed throughout the offerings, contained grossly misleading and baseless financial projections. In its business plan, NSS projected income of $2.1 million on revenues of over $25 million in its first year of operations, income of $7 million on revenues of $84 million in its second year, and income of nearly $18 million on revenues of $175 million in its third year. Sales agents reiterated these projections to investors by phone, and moreover, represented that these enormous profits were virtually guaranteed. 23. NSS, Musso and Gill further lulled existing investors (and encouraged additional investments) by making additional baseless pronouncements to investors about NSS' future and profitability in a series of letters and "company updates" sent to investors. In April 1999 and July 1999, Musso sent a letter to investors stating that NSS would "rapidly become a billion dollar a year company." In the July 1999 issue of "NutraNews" - the NSS newsletter provided to investors - Gill boasted: "this is one of the simplest and most compelling business models I have seen. Great cash flow, minimal overhead, no receivables and a captive customer base ... we estimate that we will have one million members [of the Internet internet community web site] twelve months from now." 24. NSS, Gill and Musso knew, or were severely reckless in not knowing, that the income and revenue projections in NSS' business plan were grossly misleading and without basis in fact, and that the positive financial information distributed in their letters was false. NSS was a start up company with no operating history, significant recurring losses, and little or no assets. 25. NSS' un-audited financial statements further reveal that the company had revenues of just over $1 million and a loss of nearly $4.2 million for the year ending December 31, 1999. For the nine-month period ending September 30, 2000, NSS' revenues actually declined to just $51,500, and the company posted a loss of an additional $2.5 million. These numbers are far below the revenues of $84 million and income of $7 million that the company projected in its business plan which was mailed to investors for its second year of operations. 26. As shown below, NSS' misleading projections were based, in large part, on the extraordinary growth that NSS projected for its two wholly-owned subsidiaries Nutrition Clubstores and PNLabs, which projections were also without any basis in fact and were extremely misleading. (ii) The "Nutrition Clubstores" 27. Central to the NSS business plan was the Nutrition Clubstore subsidiary, a business that focused on the installation of mini kiosk-styled stores that sold nutritional products located in gyms and health clubs, including Gold's Gyms. The three-year projections specific to the kiosk operation in connection with Gold's Gyms projected a gross profit of $6 million the first year, $26 million the second year, and $56 million by the third year. 28. Musso and Gill further reinforced the success and profitability of the Nutrition Clubstore concept. In July 1999, Tony Musso sent a letter to investors stating that Gold's Gym and World Gym International had agreed to serve as "preferred vendors" and allow NSS to install "clubstore" kiosks in their health clubs. Musso stressed to investors that Gold's Gym and World Gym International operated a total of 850 health clubs throughout the U.S. and led investors to believe that Nutrition Superstores' products would be sold at all of these locations. In October 1999, Gill sent a letter to investors stating that demand for kiosks was high and acquiring locations was not likely to be a problem. 29. In connection with their statements about the profitability and demand of the clubstores, however, NSS, Musso and Gill failed to disclose material information that plainly undermined their otherwise rosy predictions. They did not disclose that, notwithstanding any global agreement with Gold's Gym and World Gym International, NSS would have to enter into a separate agreement with each franchisee. Nor did they disclose that for each kiosk, NSS would have to bear thousands of dollars for the cost of leasing space from each gym, constructing, stocking, and managing each kiosk, and an additional 25-35% royalty fee. 30. In March 2000, when NSS spun off its "clubstore" subsidiary, it revealed that it had opened just six "clubstore" kiosks, less than 1% of the 850 locations with whom investors were led to believe NSS had obtained agreements. In addition, the April 1, 1999 balance sheet of Nutrition Clubstores showed that the company's only asset was $25,000 in cash. (iii) PNLabs' Projections 31. In its business plan, NSS projected gross revenues for its second subsidiary, PNLabs, of $3 million by the end of its first year of operations, over $23 million by the end of its second year, and over $46 million by the end of its third year. PNLabs was purportedly in the business of marketing vitamin and nutritional supplements. 32. Musso and Gill further reinforced these positive predictions of PNLabs' success. In July 2000, Jeff Gill sent a letter to investors stating that PNLabs projected $7 million dollars of revenue over the course of the next year. 33. These projections were without basis in fact, and NSS, Musso and Gill knew, or were reckless in not knowing, that the projections were false and misleading when made. PNLab's un-audited balance sheet for the period ending September 30, 2000, revealed revenues of just over $50,000 and a net loss of over $2 million. By December 2000, PNLabs was a separate company that was "spun off" to NSS investors. Neverthless, sales agents, with Musso and Gill's knowledge, continued to send out baseless and outdated projections in NSS' business plan. (iv) NSS' "Imminent" IPO 34. At the direction of Defendants, the sales agents misled investors into believing that NSS was actively preparing to conduct an IPO, representing that the IPO was "imminent" and that it was going to be "the hottest IPO of the year." Sales agents told investors that the "big underwriters" were very excited and that NSS was "already 3 to 4 times larger than Amazon.com." 35. Sales representatives fraudulently represented to investors that once NSS went public, investors could convert their NSS preferred stock to common stock and realize a 200% return. This "guarantee" was touted by NSS' sales force and was prominently featured in NSS' February 24, 1999 Private Placement Memorandum, as well as in a document sent to all potential investors entitled "Stock Conversion-Pre IPO." Both documents were sent to investors with Musso's and Gill's knowledge and approval. 36. NSS, Musso and Gill further reinforced the representations that NSS had the ability and was on the verge of an IPO in a series of letters and company "updates" mailed to investors and potential investors:
37. Subsequently, in October 2000, sales agents - using a script provided by Gill -assured a concerned investor that, "the following facts will be occurring in the very near future: filing with the SEC for an IPO before year's end." 38. These representations were patently false. NSS never met with investment bankers, performed the necessary audits, or made the necessary filings with the Commission to conduct an IPO. Moreover, NSS, a developmental stage company with recurring losses and little or no assets, lacked the financial wherewithal to effectuate a public offering. (v) NSS' Sale of Nutrition Clubstores to TrimFast 39. Nutrition Clubstores, NSS' wholly-owned subsidiary, was the cornerstone of NSS' business plan and the core component of its operations. In March 2000, Gill and Musso signed an agreement authorizing the sale of Nutrition Clubstores to TrimFast, an unrelated entity. According to the sales agreement, NSS was to receive $150,000 in cash and 570,000 common shares, or 10% of TrimFast's outstanding stock. 40. After selling Nutrition Clubstores, however, the sales agents - with the knowledge of Musso and Gill, and at the direction of Franchise Direct - continued to pitch the "clubstore" concept to potential investors, leading them to believe that NSS still owned Nutrition Clubstores. Indeed, as late as August 2000, sales agents continued to mail promotional materials containing information and projections relating to Nutrition Clubstores, thereby continuing to mislead investors about NSS' ownership of Nutrition Clubstores. 41. When Gill finally informed investors - and Franchise Direct's sales agents - that NSS had been sold to TrimFast, Gill presented the sale as an extremely positive development and stated that NSS' stake in TrimFast meant that NSS still had an interest in the success of the "clubstores" concept. 42. Gill did not disclose to investors or prospective investors, however, that NSS' accountant had expressed serious concerns to him regarding TrimFast's financial condition and recommended against the sale. Nor were investors told that TrimFast (as of at least December 1999) was the subject of a going concern opinion, had recurring losses of over $7 million, and had material contingent liabilities due to outstanding litigation. In fact, in November 2000, a mere eight months after NSS sold Nutrition Clubstores to Trimfast, TrimFast filed for bankruptcy. (vi) Use of Investor Proceeds 43. NSS' offering materials represented that virtually all of the funds received from investors would be used to operate and expand the business nationwide, to acquire retail stores, develop and maintain Nutrition Superstores' website, and open new clubstore kiosks. In fact, at least 40% of the funds raised from investors were used to pay expenses associated with the offering. 44. Defendants also failed to disclose the amount of commissions paid by NSS to its crew of unlicensed sales agents. NSS' February 1999 Private Placement Memorandum stated that NSS "may" pay commissions to a placement agent but did not specify an amount. The March 1998 Private Placement Memorandum represented that NSS "may" pay commissions of up to 6.4% to a registered broker dealer. Contrary to these representations, however, NSS was actually paying sales commissions of up to 25%. THE ADVANCED WOUND CARE OFFERING A. Background and Terms of the Offering 45. In April 2001, as investor interest in NSS started to wane, Musso, with the help of Santini and Doney, began promoting AWC. Created in December 2000, AWC purported to market and distribute wound care products to international retail consumer and medical markets. AWC's primary producst, hyCURE SMART GEL and hyMED SMART POWDER, were developed by Applied Nutritionals, LLC, which granted AWC a license to distribute the products under the trade name RepariRX for the consumer markets, and CellerateRX for the medical markets. 46. Unlicensed sales agents working for Franchise Direct, many of whom had previously sold NSS stock, were instructed to call NSS' advisory board members under the guise of educating them about new products. Once they had the doctors' attention, the sales agent would inform him or her about a "great opportunity" to invest in "another Musso company." Sales agents, at the direction of Franchise Direct, Musso and later Santini, told investors that AWC's gels and powders would "revolutionize the wound care industry just as antibiotics did for medicine and Viagra did for urology." 47. The AWC offering consisted of 100 units made up of 10,000 shares of common stock at a price of $25,000 per unit for a total offering of $2.5 million. Prospective investors received a package of offering materials, including a Private Placement Memorandum, payment instructions, and a set of subscription documents. Prospects also received a corporate overview, prepared by Musso and Santini, samples of AWC's products, and occasional business updates. AWC raised nearly $2 million from over 70 investors nationwide through this offering which ceased in December 2001. 48. No registration statement has been filed or is in effect with the Commission in connection with the securities issued by AWC. B. Misrepresentations and Omissions in Connection with the AWC Offering 49. As Musso's focus shifted from NSS to AWC, Musso, with the help of Santini, disseminated false and misleading information to sales agents engaged in the AWC unregistered offering concerning, among other things, pending mergers and acquisitions, the existence of lucrative sales contracts, and celebrity endorsements. Sales agents, including Doney, reiterated this false and misleading information when speaking to prospective investors. 50. Each of the following misrepresentations and omissions concern statements of material fact and have been made with the knowledge or at the direction of defendants AWC, Musso, Santini, Franchise Direct and Doney. (i) "Acquisition" by Johnson & Johnson and "Merger" With Ortec 51. Sales agents told prospective investors that Johnson & Johnson, Inc. ("J&J") had made bids ranging from $20 million to $900 million to acquire AWC, and that their investments would quadruple after the sale was finalized. This information was patently false. J&J had never made any overtures, much less bids, for the acquisition of AWC. 52. When the J&J merger failed to materialize, sales agents were directed by Franchise Direct, Musso and Santini to tell investors that AWC was in serious merger discussions with New York-based Ortec International, Inc. ("Ortec"), a development stage company involved in clinical trials of its own wound care products. Contrary to these representations, Ortec had met once with representatives from AWC and, thereafter, did not express an interest in acquiring AWC. (ii) Contracts with the DoD and Major Pharmaceutical Chains 53. Sales agents told prospective investors that AWC was in negotiations with the U.S. Department of Defense ("DoD"), and was close to completing a contract that would "put a tube of Advanced Wound Care's product in every soldier's pocket." However, AWC never entered into contract negotiations with the DoD. 54. In addition, sales agents told prospective investors that AWC had entered into very lucrative contracts with Walgreen's and Wal-Mart. No such contracts exist. (iii) Celebrity Endorsements 55. Sales agents also told prospective investors that actress Mary Tyler Moore used AWC's products and had agreed to serve as AWC's spokesperson starting mid-November, 2001. That representation was false as Ms. Moore never even heard of AWC or its products. (iv) The Success of AWC's Distributorship Program 56. AWC also made grossly exaggerated claims to investors regarding the success of its distributorship program. In the Summer of 2001, investors were told by Santini that AWC had 40 domestic and 30 international active distributorships. In its September 2001 "Business Update," written by Santini, AWC projected $6 million in sales for its independent distributor network, and anticipated selling between 10 and 20 new distributorships a month. 57. These representations were patently false and the projections were completely baseless. As of December 2001, AWC had, at most, only nine active domestic distributorships. Of those nine, at least two were in danger of default because the distributor had been unable to meet AWC's minimum purchase requirements. With regard to their international distributorship program, AWC had not obtained the necessary regulatory approval from a single country to import any of its products. (v) AWC's "Imminent" IPO 58. As with NSS, sales agents were directed by Franchise Direct, Musso and Santini to tell investors that AWC was actively preparing to conduct an IPO. At least one investor was told by Doney that the IPO would occur in January or February of 2002, and would be "bigger than Martha Stewart." 59. These representations were false. AWC had not taken any steps to conduct an IPO, including performing necessary audits or making the necessary filings with the Commission. Moreover, AWC lacked the financial wherewithal to effectuate a public offering. (vi) The Safety and Profitability of an Investment in AWC 60. Sales agents also misled investors regarding the risk of an investment in AWC, or failed to discuss risk at all. Although the offering materials for AWC disclosed that investing involved a significant degree of risk, sales agents, including Doney, contradicted those disclosures by telling prospects that AWC was a sure thing. 61. Additionally, sales agents repeatedly told investors that AWC was expanding rapidly and that its stock would at least quadruple in value by the end of 2001. In reality, AWC was almost entirely dependent on the sale of securities to keep its business solvent. The company's unaudited (and undistributed) financial statements from inception to September 30, 2001 stated that AWC had total revenues of only $94,000 and a net loss of over $1.2 million. Moreover, as of mid-December 2001, AWC had only a few thousand dollars in its bank account. (vii) AWC's License to Sell Products 62. Sales agents were directed to tell prospective investors misleading information about the scope of the license it purchased from Applied Nutritionals, LLC to sell its products. Sales agents told investors that AWC had the exclusive rights to market its products to physician's offices, hospitals, and independent pharmacies. In fact, AWC's license was not exclusive and other companies are also allowed to sell products to these outlets. ROLE OF INDIVIDUAL DEFENDANTS Musso 63. Musso has served, at various times, as the chairman, president and COO of NSS, and as the CEO of AWC. Musso orchestrated both schemes and disseminated false and misleading information to Franchise Direct's sales agents to use when soliciting and selling stock. Musso attended sales meetings with Franchise Direct's sales agents in an effort to motivate them. In addition, he set up the scheme to launder money through Franchise Direct to obscure the fact that NSS, and later AWC, was paying commissions to unlicensed sales agents. 64. During various periods of time from March 1998 through September 2001, Musso was actively involved in the day-to-day operations of NSS and, later, AWC. Musso had power to control both companies' corporate actions and policies in all areas, and routinely exercised this power. Gill 65. Gill, while president and CEO of NSS, authored and disseminated numerous letters to investors that contained false and misleading information regarding NSS' business operations. Gill reiterated this information to investors by telephone. He also provided information about NSS to Franchise Direct for sales agents to use when soliciting and selling stock, and he met regularly with sales agents to update them on NSS, specifically regarding the false information regarding an upcoming IPO, the 200% investment returns promised, and the purported success of NSS franchises and clubstores. 66. Moreover, Gill reviewed the Private Placement Memorandum, business plan and projections, and helped prepare updates that were provided to prospective investors. Gill knew or was reckless in not knowing that NSS was making materially false and misleading statements and projections. 67. From April 1999 through December 2000, Gill was actively involved in the day-to-day operations of NSS. Gill had power to control NSS' corporate actions and policies in all areas, and routinely exercised this power. Santini 68. Santini, while CEO of AWC, was instrumental in perpetuating the fraudulent scheme, started by Musso. He authored and disseminated false and misleading information to investors regarding AWC financial condition and business operations. Santini was actively involved in the day-to-day operations of AWC. Santini had power to control AWC's corporate actions and policies in all areas, and routinely exercised this power. Doney 69. Doney was an unlicensed sales agent associated with Franchise Direct. He was the most prolific sales agent and made numerous material misrepresentations in connection with the offerings of both NSS and AWC. He served as a role model for the rest of the Franchise Direct sales force. COUNT I SALES UNREGISTERED SECURITIES IN VIOLATION OF
(Against All Defendants) 70. The Commission repeats and realleges paragraphs 1 through 69 of this Complaint. 71. No registration statement was filed or in effect with the Commission pursuant to the Securities Act and no exemption from registration exists with respect to the securities and transactions described herein. 72. Since a date unknown but since at least March 1998 through December 2001, Defendants NSS, AWC, Franchise Direct, Musso, Gill, Doney, and Santini, directly and indirectly, have: (a) made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell securities as described herein, through the use or medium of a prospectus or otherwise; (b) carried securities or caused such securities, as described herein, 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/or (c) made use of the means or 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, as described herein, without a registration statement having been filed or being in effect with the Commission as to such securities. 73. By reason of the foregoing, Defendants NSS, AWC, Franchise Direct, Musso, Gill, Santini and Doney have violated and unless enjoined will continue to violate Sections 5 (a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c). COUNT II FRAUD IN VIOLATION OF
(Against All Defendants) 74. The Commission repeats and realleges paragraphs 1 through 69 of this Complaint. 75. Since a date unknown but since at least March 1998 through December 2001, Defendants NSS, AWC, Franchise Direct, Musso, Gill, Santini and Doney, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce or by use of the mails, in the offer or sale of securities, as described herein, have knowingly or recklessly employed devices, schemes or artifices to defraud. 76. By reason of the foregoing, Defendants NSS, AWC, Franchise Direct, Musso, Gill, Santini and Doney 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 III FRAUD IN VIOLATION OF SECTION 10(b) OF THE EXCHANGE ACT
(Against All Defendants) 77. The Commission repeats and realleges paragraphs 1 through 69 of its Complaint. 78. Since a date unknown but since at least March 1998 through December 2001, Defendants NSS, AWC, Franchise Direct, Musso, Gill, Santini and Doney, directly or indirectly, by use of the means or instrumentalities of interstate commerce or of the mails, in connection with the purchase or sale of securities have knowingly or recklessly: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts 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/or (c) engaged in acts, practices and courses of business which have operated, are now operating and will operate as a fraud upon the purchasers of such securities. 79. By reason of the foregoing, Defendants NSS, Awc, Franchise Direct, Musso, Gill, Santini and Doney 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, 17 C.F.R. § 240. 10b-5, thereunder. COUNT IV FRAUD IN VIOLATION OF SECTIONS
(Against All Defendants) 80. The Commission repeats and realleges paragraphs 1 through 69 of its Complaint. 81. Since a date unknown but since at least March 1998 through December 2001, Defendants NSS, AWC, Franchise Direct, Musso, Gill, Santini and Doney, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails, in the offer or sale of securities, as described herein, have: (a) obtained money or property by means of untrue statements of material facts and omissions to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (b) engaged in transactions, practices and courses of business which are now operating and will operate as a fraud or deceit upon purchasers and prospective purchasers of such securities. 82. By reason of the foregoing, Defendants Nutrition Superstores, Advanced Wound Care, Franchise Direct, Musso, Gill, Santini and Doney 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. §§ 77(q)(a)(2) and 77(q)(a)(3). COUNT V UNREGISTERED BROKER-DEALER IN VIOLATION OF
(Against Defendants Franchise Direct And Doney) 83. The Commission repeats and realleges paragraphs 1 through 69 of its Complaint. 84. Since a date unknown but since at least March 1998 through December 2001, Defendants Franchise Direct and Doney, directly and indirectly, by use of the mails or any means or instrumentality of interstate commerce, while acting as a broker or dealer engaged in the business of effecting transactions in securities for the accounts of others, effected transactions in securities, or induced or attempted to induce the purchase or sale of securities, without registering as a broker-dealer in accordance with Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b). 85. By reason of the foregoing, Defendants Franchise Direct and Doney, directly and indirectly, has violated and, unless enjoined, will continue to violate Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1). COUNT VI SECTION 20(a) -- CONTROL PERSON -- LIABILITY FOR NSS' AND AWC's VIOLATIONS OF SECTIONS 5(a), 5(c), AND 17(a) OF THE SECURITIES ACT AND SECTION 10(b)OF THE EXCHANGE ACT AND RULE 10b-5 THEREUNDER (Against Defendants Musso And Gill) 86. The Commission repeats and realleges paragraphs 1 through 69 of the Complaint. 87. From March 1998 through December 2000, Defendant Musso was, directly or indirectly a control person of Defendant NSS for purposes of Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). 88. From December 2000 through September 2001, Defendant Musso was, directly or indirectly a control person of Defendant AWC for purposes of Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). 89. From April 1999 through the present, Defendant Gill was, directly or indirectly a control person of Defendant NSS for purposes of Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). 90. Since a date unknown but since at least March 1998 through December 2001, Defendant NSS and Defendant AWC violated Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 91. As control persons of NSS, Defendants Musso and Gill are jointly and severally liable with and to the same extent as NSS for its violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder during this time period. 92. As a control persons of AWC, Defendant Musso is jointly and severally liable with and to the same extent as AWC for its violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder during this time period. RELIEF REQUESTED WHEREFORE, the Commission respectfully requests that the Court: I. Declaratory Relief Declare, determine and find that Defendants NSS, AWC, Franchise Direct, Musso, Gill, Santini and Doney committed the violations of the federal securities laws alleged herein. II. Permanent Injunctive Relief Issue a Permanent Injunction, restraining and enjoining: Defendants NSS, AWC, Franchise Direct, Musso, Gill, Santini and Doney, their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them, from violating: (a) Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c); (b) Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a); (c) Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, thereunder; and (d) Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and 77(q)(a)(3); and Defendants Franchise Direct and Doney, their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them from violating Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1). III. Disgorgement Issue an Order requiring Defendants NSS, AWC, Franchise Direct, Musso, Gill, Santini and Doney, jointly and severally to disgorge all ill-gotten profits or proceeds that they have received as a result of the acts and/or courses of conduct complained of herein, with prejudgment interest. IV. Penalties Issue an Order directing Defendants Franchise Direct, Musso, Gill, Santini and Doney to pay civil money 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. § 78(d)(3). V. Officer and Director Bars Issue Orders barring Defendants Musso, Gill, and Santini from serving as officers or directors of any public company pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. §78(d)(2). VI. Further Relief Grant such other and further relief as may be necessary and appropriate. VII. Retention of Jurisdiction Further, the Commission respectfully requests that the Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may hereby be entered, or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court. Dated: December 10, 2002 Respectfully submitted, http://www.sec.gov/litigation/complaints/comp17888.htm
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