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UNITED STATES DISTRICT COURT
AMENDED COMPLAINT Plaintiff Securities and Exchange Commission ("SEC") alleges: NATURE OF THE ACTION 1. This case involves fraudulent accounting and reporting practices by Madera International, Inc. ("Madera"), a timber distributor, and certain of its former executive officers. During the period from its inception in February 1994 until 2000, Madera recorded as assets various purported timber producing properties for which it did not have legal title or could not establish clear title; assigned and recorded arbitrary values for those timber producing properties; recorded revenues from phony sales transactions; failed to disclose significant related party transactions; and caused false sales invoices, shipping documents, cash receipts records and audit confirmations to be furnished to Madera's independent auditors. Madera also issued false press releases concerning, among other things, the company's operations and profit forecasts. 2. By January 2001, Madera no longer had any revenue-generating operations. Nevertheless, from April until September 19, 2001, when this enforcement action was filed, a senior officer of Madera posted numerous false messages on an Internet message board for Madera claiming that its operations were returning to normal and its assets were intact. The purpose of these messages was to stimulate renewed investor interest in Madera. During this same period, the senior officer sold millions of shares of Madera stock on the open market. 3. These practices were carried out by, at the direction of, or with substantial assistance from, defendants Daniel S. Lezak ("Lezak"), Ramiro M. Fernandez-Moris ("Fernandez-Moris"), and Ramiro Rafael ("Ray") Fernandez ("Ray Fernandez"). Lezak was Madera's Chief Executive Officer and Chairman of its Board of Directors from February 1994 until March 1996, and thereafter was a consultant to the company. Fernandez-Moris was a Director of Madera and its President from August 1994 until March 1996. In March 1996, Fernandez-Moris replaced Lezak as Chief Executive Officer and Chairman of Madera's Board of Directors. Fernandez-Moris resigned as CEO of Madera on November 7, 2000, but thereafter remained a Director. Ray Fernandez, the eldest son of Fernandez-Moris, was Madera's Executive Vice President in charge of sales and marketing from March 1996 until November 2000. In December 1998, Ray Fernandez additionally became a Director and was elected Chairman of Madera's Board of Directors, replacing his father. In November 2000, Ray Fernandez became Madera's CEO, again replacing his father. It was Ray Fernandez who sought to generate renewed investor interest in Madera during 2001. 4. On June 4, 2002, this Court entered a Final Judgment of Permanent Injunction by default against Madera -- one of the original defendants in this action -- enjoining it from violating the antifraud, reporting, books and records, and internal controls provisions of the Securities Exchange Act of 1934 ("Exchange Act") (Sections 10(b), 13(a) and 13(b)(2)(A) and (B), and Rules 10b-5, 12b-20, 13a-1, and 13a-13 [15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A) and (B); 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13]). JURISDICTION 5. The SEC brings this action pursuant to Section 21(d ) and (e) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d) and (e)]. This Court has jurisdiction over this action pursuant Sections 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(e) and 78aa]. 6. Each of the defendants, directly or indirectly, made use of the means or instrumentalities of interstate commerce, or of the mails, in connection with the transactions, acts, practices, and courses of business alleged herein. 7. By their conduct, each of the defendants violated one or more of the antifraud, reporting, books and records, and internal controls provisions of the Exchange Act. Unless enjoined by order of this Court, defendants Lezak, Fernandez-Moris, and Ray Fernandez are likely to commit such violations in the future. The SEC seeks a judgment permanently enjoining defendants from future violations, disgorgement of illegally derived funds together with prejudgment interest (and, as to Ray Fernandez, an accounting of those funds), an award of civil penalties pursuant to Section 21(d)(3) of the Exchange Act, and an order pursuant to Section 21(d)(2) of the Exchange Act permanently and unconditionally barring them from serving as officers or directors of a public company. DEFENDANTS 8. Lezak, age 69, resides in Incline Village, Nevada and Westlake Village, California. He was Chairman of the Board of Directors and Chief Executive Officer of Madera from its inception in February 1994 until March 1996. Lezak additionally served as Madera's President from February 1994 until August 1994. Lezak remained a Director of Madera from March 1996 until May 1996, and thereafter was a consultant to Madera. Lezak, a certified public accountant, was responsible for preparing Madera's financial statements throughout the relevant period. 9. Fernandez-Moris, age 73, resides in Surfside, Florida. Fernandez-Moris was a Director of Madera and its President from August 1994 until March 1996. In March 1996, Fernandez-Moris replaced Lezak as Chief Executive Officer and Chairman of Madera's Board of Directors. Ray Fernandez replaced Fernandez-Moris as Chairman of Madera's Board of Directors in December 1998. Fernandez-Moris resigned as CEO of Madera on November 7, 2000, but thereafter remained a Director. 10. Ray Fernandez, age 48, resides in Miami Beach, Florida. He is the eldest son of Fernandez-Moris. Ray Fernandez became Madera's Executive Vice President in charge of sales and marketing in March 1996. He was also the Chief Executive Officer of Madera International Environmental, Inc., a wholly-owned subsidiary of Madera. In December 1998, Ray Fernandez additionally was elected a Director and Chairman of the Board of Directors of Madera, replacing his father. In November 2000, Ray Fernandez also became Madera's CEO, again replacing his father. OTHER RELEVANT ENTITIES 11. Madera was a Nevada corporation headquartered from its inception in February 1994 until May 1996 in Calabasas, California, and thereafter in Coral Gables, Florida. Its charter has been revoked by the State of Nevada. During the relevant period, Madera's stock was registered with the SEC pursuant to Section 12(g) of the Exchange Act, and it traded in the over-the-counter market on the Bulletin Board using the symbol "WOOD." 12. Madera International Environmental, Inc. ("MIE") was a Nevada corporation and wholly-owned subsidiary of Madera formed on December 20, 1996. Ray Fernandez was the CEO of MIE. MIE purported to be in the business of preserving the Amazon rain forest in Brazil through its "OWN-A-TREE," "REPLANT-A-TREE," and "REPLANT-A-TREE FOR KIDS" programs pursuant to which individuals allegedly could purchase plots consisting of 200 square meters of the Amazon rain forest in Brazil or replant trees there for fees ranging from $150 to $10. MIE's charter has been revoked by the State of Nevada. FACTS The Nicaraguan Property Transaction 13. On or about January 16, 1994, Madera, through Lezak, entered into a "contract of sale" with Importaciones Y Exportaciones, Sociedad Anonima ("Imexsa"), a Nicaragua corporation, for the purchase of 988,400 acres of timberland in Nicaragua ("Nicaraguan Property") for a purchase price of $5 million in the form of a convertible note issued by Madera to Imexsa. On or about January 20, 1994, the note was converted into 10,200,000 shares of Madera common stock. 14. On or about January 16, 1994, the Nicaraguan Property was recorded on Madera's books as an investment in timber producing property at the contract price of $5 million. 15. In connection with the preparation of Madera's March 31, 1994 financial statements, Lezak increased the value of the Nicaraguan Property on Madera's books to $12 million purportedly based upon "a study made of the property by an authority in Nicaragua" and "the trading value of the Company's stock." However, Madera's stock did not start trading until May 12, 1994, and there was no available trading value for Madera's stock on January 16, 1994, the date of the transaction. 16. Generally Accepted Accounting Principles ("GAAP") do not permit a long-lived asset to be written-up in value above its original cost. Even if it were proper to increase the carrying value of the Nicaraguan Property above its cost, the trading value of Madera's stock after the transaction would be irrelevant to such a revaluation. 17. Madera had no reasonable basis for recording this transaction as a $12 million investment in timber producing property. At the time Madera recorded the Nicaraguan Property as an asset, Madera was unable to show that the seller of the Nicaraguan Property, Imexsa, possessed clear title to the property. In fact, the Nicaraguan government had at most conveyed to Imexsa a permit for exploration and development of the property. On or about July 29, 1994, the Nicaraguan government withdrew the extraction rights to the property. 18. On or about October 10, 1994, Madera cancelled the stock that had been issued to Imexsa because the Nicaraguan Property had "now proven of questionable value as a result of government action in Nicaragua." Nevertheless, Lezak continued to include the Nicaraguan Property at a value of $12 million in Madera's September 30, 1994 quarterly report, filed on November 14, 1994, and Madera's December 31, 1994 quarterly report. Madera did not write-off its purported $12 million investment in the Nicaraguan Property until February 1995. 19. Lezak knew, or was reckless in not knowing, that Madera should not have recorded or continued to carry the Nicaraguan Property as an asset under GAAP. Lezak also knew, or was reckless in not knowing, that recording and carrying the Nicaraguan Property as an asset rendered materially false and misleading Madera's financial statements contained in its March 31, 1994 annual report on Form 10-K and its June 30, 1994, September 30, 1994, and December 31, 1994 quarterly reports on Form 10-Q filed with the SEC. Lezak signed this annual report on Form 10-K and these quarterly reports on Form 10-Q. The Venezuelan Timber Concession 20. In or about February 1994, Lezak arranged for Madera to purchase a 50% ownership interest in a Venezuelan timber concession purportedly owned by Inselinca, a Venezuelan company. Madera purchased the 50% interest for one million shares of convertible preferred stock with a face value of $3 per share that it issued to Iselinca. 21. In or about February 1994, these Madera shares had no market value. 22. Madera's purported interest in the Venezuelan concession was recorded in Madera's books as a $3 million asset. This valuation was based solely on Inselinca's unsupported representations concerning the value of the concession. 23. Madera included its 50% interest in the concession at a value of $3 million in its March 31, 1994 annual report on Form 10-K and its June 30, 1994 quarterly report on Form 10-Q filed with the SEC. 24. At the time of recording the Venezuelan concession as an asset, Madera had no reasonable basis for recording it as a $3 million asset and could not establish whether Inselinca owned the concession or that the concession had the value ascribed to it. 25. Madera wrote-off its $3 million interest in the concession at its quarter ended September 30, 1994 because, according to Lezak, "[t]he Inselinca group could not demonstrate the value previously warranted to [Madera]." 26. Lezak knew, or was reckless in not knowing, that Madera should not have recorded or continued to carry the Venezuelan concession as an asset in its financial statements. Lezak also knew, or was reckless in not knowing, that recording and carrying the Venezuelan concession as an asset rendered materially false and misleading Madera's financial statements contained in its annual report on Form 10-K for its fiscal year ended March 31, 1994, and its June 30, 1994 quarterly report on Form 10-Q filed with the SEC. Lezak signed this annual report on Form 10-K and this quarterly report on Form 10-Q. 27. Lezak falsely represented to Madera's auditors in connection with their audit of the company's fiscal year 1994 financial statements that Madera owned a 50% interest in the Venezuelan concession valued at $3 million. The First Brazilian Rain Forest Property Transaction 28. In July 1994, Madera, through Lezak, entered into an agreement to acquire certain assets that it valued at $30,230,000 in exchange for ten million shares of Madera convertible preferred stock. The seller was Forest & Environmental Resources of the Amazon, Inc. ("FEROA"), a Florida corporation controlled by Fernandez-Moris. FEROA allegedly had purchased the assets from Fernandez-Moris individually in July 1993. The primary asset purportedly acquired consisted of 478,000 acres of timber producing property located in the Brazilian rain forest that Madera valued at $27 million. In addition, Madera purportedly acquired a sawmill valued at $2.6 million and an inventory of cut timber that it valued at $630,000. Collectively, these purported assets are hereinafter referred to as the "Brazilian Properties." 29. Madera recorded the total transaction in its books at $30,230,000 based primarily upon representations by Fernandez-Moris concerning the value of the Brazilian Properties and FEROA's ownership rights in the assets. 30. Madera included the Brazilian Properties at a value of $30,230,000 in its financial statements contained in Madera's quarterly and annual reports filed with the SEC on Forms 10-Q and 10-K beginning with the quarter ended September 30, 1994 through its filing for the quarter ended December 31, 1999. 31. Lezak failed to take adequate steps to determine whether Madera, FEROA or Fernandez-Moris ever had valid legal title to the Brazilian Properties, or whether the $30 million valuation of the properties represented by Fernandez-Moris was valid. Lezak did not ascertain when the Brazilian Properties were originally acquired by Fernandez-Moris, nor did he determine their original cost. 32. In fact, Madera had no reasonable basis for recording the Brazilian Properties as assets. Under Brazilian law, a foreign corporation such as Madera may not acquire rural real estate in Brazil unless it is appropriately authorized to operate in Brazil by the Ministry of Agriculture or the Ministry of Industry and Trade. Madera was never authorized to operate in Brazil. Moreover, under Brazilian law, the acquisition by a foreign natural person or corporation (such as Madera) of real estate located in an area considered indispensable for national security purposes requires consent by the General Secretariat Office of the Council for National Security. Brazil considers all areas within 150 kilometers of its borders to be indispensable for national security. Madera's Brazilian Properties were located within border areas, and no consent was ever obtained from the Council for National Security. Consequently, Madera never acquired valid legal title to any of the Brazilian Properties. 33. Madera also was not able legally to harvest timber from the Brazilian Properties. Under Brazilian law, Madera was required to have a Forest Management Plan approved by the Brazilian Federal Forest Service ("IBAMA") before it legally could harvest any timber from the Brazilian Properties. Madera never had an IBAMA-approved Forest Management Plan with respect to the Brazilian Properties during the period 1994-1999. 34. By 1995, Lezak knew that no significant amounts of timber had been harvested from the Brazilian Properties, and had been told by Fernandez-Moris that it was not economical to do so. Lezak knew that Fernandez-Moris was instead purchasing timber for resale from third parties. Despite knowing that it was not economical to harvest timber from the Brazilian Properties, Lezak and Fernandez-Moris nevertheless continued to value the 478,000 acres of timber producing property in the Brazilian rain forest at $27 million and the sawmill at $2.6 million in Madera's financial statements filed with the SEC. 35. The sawmill that Fernandez-Moris represented in July 1994 was valued at $2.6 million was originally acquired by Fernandez-Moris for approximately $38,000. In June 2001, Ray Fernandez made a sworn statement that the land and equipment at the sawmill's location was worth no more than $100,000, and that the sawmill was subject to a $38,000 mortgage. 36. In 1997, an appraisal prepared for Madera in Brazil on the basis of the amount of future potential income that would be earned if all the timber on the 478,000 acres of Brazilian rain forest property was harvested and sold did not support the $27 million valuation placed on the unexploited land by Madera. 37. Lezak and Fernandez-Moris took no steps to write off or write down the value of the Brazilian Properties even though they knew, or were reckless in not knowing, that Madera lacked valid legal title and little or no potential income would be derived from them. 38. Lezak and Fernandez-Moris caused Madera's news releases and filings with the SEC to falsely state that Madera was harvesting timber from its Brazilian Properties. 39. Fernandez-Moris and Lezak knew, or were reckless in not knowing, that Madera should not have recorded or reported the Brazilian Properties as assets because Madera lacked valid legal title to the properties and the valuations for the properties were arbitrarily established. Fernandez-Moris and Lezak also knew, or were reckless in not knowing, that recording and reporting the Brazilian Properties as assets rendered materially false and misleading Madera's financial statements contained in its quarterly and annual reports filed with the SEC on Forms 10-Q and 10-K beginning with the quarter ended September 30, 1994 through its filing for the quarter ended December 31, 1999. Lezak signed Madera's quarterly and annual reports on Forms 10-Q and 10-K beginning with the quarter ended September 30, 1994 through its Form 10-K filing for its fiscal year ended March 31, 1996. Fernandez-Moris signed Madera's annual reports on Form 10-K for its fiscal year ended March 31, 1995 through its fiscal year ended March 31, 1999, and quarterly reports on Form 10-Q beginning with the quarters ended June 30, 1996 through the quarter ended December 31, 1999. 40. Fernandez-Moris and Lezak falsely represented to Madera's auditors in connection with their audits of the company's financial statements for its fiscal years 1995, 1996, 1997, 1998 and 1999 that Madera owned the Brazilian Properties and that the value of the 478,000 acres was $27 million. The Second Brazilian Rain Forest Property Transaction 41. On or about January 10, 1995, Madera entered into a transaction with Ralph Financial Corporation ("Ralph Financial"), a company controlled by Roy Skluth ("Skluth"), whereby Madera purportedly acquired 400,000 hectares (988,400 acres) of timber producing property in Brazil ("Second Brazilian Property"). Lezak negotiated the transaction with Skluth while Skluth was in prison for securities fraud. 42. Madera issued 12 million shares of convertible preferred stock with a stated value of $1.00 per share but no ascertainable market value to Skluth in exchange for the Second Brazilian Property, which was recorded in Madera's books as a $12 million asset. This valuation was based upon the arbitrarily stated value of the preferred stock. 43. Madera included the Second Brazilian Property at a value of $12 million in its financial statements contained in its March 31, 1995 annual report on Form 10-K and its quarterly reports on Form 10-Q for the quarters ended June 30, 1995 and September 30, 1995. 44. Madera had no evidence that Ralph Financial had ever owned the Second Brazilian Property or that legal title to the property had been conveyed to Madera. The Second Brazilian Property was written off as an asset by Madera at the quarter ended December 31, 1995 because, according to Lezak, Skluth was unable to demonstrate that he had actually owned the property and could not transfer proper title to Madera. 45. Lezak and Fernandez-Moris knew, or were reckless in not knowing, that Madera should not have recorded or reported the Second Brazilian Property as an asset because Madera lacked clear title to the property and the valuation for the property was arbitrarily established. Lezak and Fernandez-Moris also knew, or were reckless in not knowing, that recording and reporting the Second Brazilian Property as an asset rendered materially false and misleading Madera's financial statements contained in its annual report for its fiscal year ended March 31, 1995 as filed with the SEC on Form 10-K, and its quarterly reports for the fiscal quarters ended June 30, 1995 and September 30, 1995, as filed with the SEC on Form 10-Q. Lezak and Fernandez-Moris each signed Madera's annual report on Form 10-K for its fiscal year ended March 31, 1995, and Lezak signed Madera's quarterly reports on Form 10-Q for the quarters ended June 30, 1995 and September 30, 1995. 46. Lezak and Fernandez-Moris falsely represented to Madera's auditors in connection with their audit of the company's fiscal 1995 financial statements that Madera owned the Second Brazilian Property valued at $12 million. The Third Brazilian Rain Forest Property Transaction 47. Madera also claimed that, in May 1997, it purchased "an additional 251,000 acres of prime timberland close to its freely owned property in Brazil" from Fernandez-Moris. This purported asset is referred to hereinafter as the "Environmental Property." Madera paid Fernandez-Moris $441,000 for the Environmental Property in the form of 2,000,000 shares of Madera common stock valued at $200,000 and a $241,000 promissory note payable within one year with 9% interest. 48. In its quarterly and annual reports filed with the SEC on Forms 10-Q and 10-K beginning with the quarter ended June 30, 1997 through its filing for the fiscal year ended March 31, 1999, and in numerous press releases, Madera identified the Environmental Property as the heart of the environmental programs of MIE. Through its public filings, press releases, mailings, and a website it operated at http://www.ownatree.com, Madera touted MIE's environmental programs as a way for investors and others to preserve the Amazon rain forest. 49. MIE's "OWN-A-TREE" program offered consumers the opportunity to purchase 200 square meters of "virgin rainforest" and to receive "a Property Ownership Title signed and legalized by the Brazilian Consulate General, as well as a site inventory" for $150. MIE's "REPLANT-A-TREE" program offered consumers the opportunity to have a small tree or sapling planted in their name in its natural rain forest habitat for $50. MIE's "REPLANT A TREE FOR CHILDREN" program offered consumers the opportunity, for $10, to have a seedling planted at one of MIE's plantation sites in the name of their school age or younger children. MIE's efforts to promote its environmental programs were successful and MIE received monies from the participants in those programs. 50. In fact, MIE's environmental programs were bogus. For the same reasons alleged previously in paragraph 32, Madera never had valid legal title to the Environmental Property. Neither Madera nor MIE could convey valid legal title to the rain forest plots as promised to consumers by MIE's "OWN-A-TREE" program. Moreover, neither Madera nor MIE ever planted trees, saplings or seedlings on behalf of the participants in MIE's environmental programs. Neither Madera nor MIE ever operated any tree nurseries in Brazil. 51. Ray Fernandez, as CEO of MIE and as Madera's Executive Vice President in charge of sales and marketing, was the architect of MIE's environmental programs. Ray Fernandez was also directly involved in the purported acquisition by Madera of the Environmental Property. 52. Ray Fernandez and Fernandez-Moris knew, or were reckless in not knowing, that Madera lacked valid legal title to the Environmental Property and that MIE's purported environmental programs were bogus. Fernandez-Moris signed Madera's quarterly and annual reports filed with the SEC on Forms 10-Q and 10-K beginning with the quarter ended June 30, 1997 through its filing for the fiscal year ended March 31, 1999. Ray Fernandez signed Madera's annual report on Form 10-K for the fiscal year ended March 31, 1999. Fernandez-Moris and Ray Fernandez each caused Madera to issue press releases falsely describing MIE's environmental programs and the Environmental Property. The Fiscal Year 1998 Phony Sales 53. During Madera's fiscal year ended March 31, 1998, Madera reported in its financial statements filed with the SEC on Form 10-K phony sales totaling $2,654,934. These sales purportedly were made to Great American Lumber Company ("Great American"), Investco, Ltd. ("Investco"), and Signal Resources, Inc. ("Signal Resources"). Fernandez-Moris caused phony sales invoices to be prepared and recorded in Madera's books and furnished to Madera's auditors. In addition, phony confirmations of the resultant accounts receivable were sent to Madera's auditors. 54. On March 31, 1998, the last day of its fiscal year, Madera booked an invoice to Great American for $1,419,579 for a purported shipment of lumber. In connection with its fiscal year 1998 audit, Madera's auditors received a confirmation, purportedly signed by the president of Great American, confirming a $1,419,579 balance due to Madera. However, the purported president of Great American had never actually received nor signed the confirmation. 55. On or about March 23, 1998, Madera booked an invoice to Investco at 3130 Harmony Place, La Crescenta, California for a purported sale of lumber in the amount of $861,773. In addition, Madera prepared an auditor's confirmation request to be sent to Investco at that address. But the sale of lumber to Investco never actually took place. 56. Investco never was located at 3130 Harmony Place, La Crescenta, California. Nobody at that address ever received the invoice or the confirmation request. Nobody at that address has ever been affiliated with Investco or has any knowledge of Investco. 57. On or about June 15, 1997, Madera invoiced Signal Resources for a timber shipment on June 15, 1997 in the amount of $282,518. On or about September 12, 1997, Madera invoiced Signal Resources for a timber shipment in the amount of $91,064. Both of the invoices and an auditor's confirmation request that Madera prepared to confirm the invoices were addressed to Signal Resources at 2222 Foothill Blvd., La Canada, California. 58. Signal Resources is not, however, located at that address. That address is for a post office box belonging to a petroleum engineer who has done consulting work for Signal Resources. The petroleum engineer never received the invoices or the confirmation request addressed to his post office box. He did not sign the confirmation reply, although Madera's auditors received the confirmation reply form with a signature purporting to be that of the secretary of Signal Resources. Signal Resources never actually did business with Madera. 59. As a result of recording these phony sales, Madera's reported sales of $4,494,803 for fiscal year 1998 in its financial statements filed with the SEC on Form 10-K were overstated by $2,654,934. Had it not been for the phony sales, Madera would have reported a pre-tax loss of $1,489,264 for fiscal 1998 rather than the $1,165,670 pre-tax profit that was reported. 60. Fernandez-Moris knew, or was reckless in not knowing, that Madera's recognition of revenue from fictitious transactions rendered materially false and misleading its fiscal year 1998 quarterly reports on Form 10-Q and fiscal year 1998 annual report on Form 10-K filed with the SEC. Fernandez-Moris signed each of these quarterly and annual reports. 61. Fernandez-Moris made misrepresentations and caused phony sales invoices to be furnished to Madera's auditors concerning Madera's recognition of revenue from these fictitious transactions in connection with their audit of the company's fiscal year 1998 financial statements. The Fiscal Year 1999 Phony Sales 62. During its fiscal year 1999, Madera recorded and reported phony sales to Great American and Signal Resources totaling $1,759,947. For the first quarter of fiscal year 1999, Madera reported in its quarterly report on Form 10-Q filed with the SEC, timber sales of $1,819,350 that included a phony sale to Great American in the amount of $401,030. 63. Had it not been for these phony sales, Madera would have reported a pre-tax loss of $185,336 rather than the pre-tax profit of $215,694 that was reported for its quarter ended June 30, 1998. 64. For the fourth quarter of fiscal year 1999, Fernandez-Moris caused Madera to book and report phony sales totaling $1,358,917 to Great American and Signal Resources. These phony sales were reported in a Madera press release dated May 4, 1999 that announced record revenues and profits for the year and "the complete turnaround afforded the company at the hands of present management." 65. Fernandez-Moris caused the booking and reporting of the phony sales. He was responsible for attempting to deceive Madera's auditors by causing them to be furnished with phony invoices, shipping documents and cash receipts records. 66. Fernandez-Moris knew, or was reckless in not knowing, that Madera's recognition of revenue from fictitious transactions rendered materially false and misleading its May 4, 1999 press release and it June 30, 1998 quarterly report on Form 10-Q filed with the SEC. Fernandez-Moris signed Madera's quarterly report on Form 10-Q for the quarter ended June 30, 1998. 67. Fernandez-Moris made misrepresentations concerning Madera's recognition of revenue from these fictitious transactions to Madera's auditors in connection with their audit of the company's fiscal year 1999 financial statements. Undisclosed Related Party Transactions 68. Beginning in February 1994, Lezak and Fernandez-Moris caused Madera to enter into various "consulting agreements" with themselves, companies controlled by them, and companies controlled by other Fernandez-Moris family members who served as officers and directors of Madera. Madera paid compensation for the consulting services purportedly rendered pursuant to these agreements with its common stock and cash. 69. Three entities controlled by Lezak -- CD Management Inc., CD Financial, Inc., and Gateway Industries, Inc. -- entered into "consulting agreements" with Madera dated February 15, 1994 for unspecified "management services." The agreements each described the pertinent entities as "independent contractor[s]" despite the fact that Lezak controlled them at a time when he was also the Chairman of the Board, President and Chief Executive Officer of Madera. The agreements provided for compensation by the issuance of Madera common stock registered on Form S-8 under the Securities Act of 1933. Lezak received compensation pursuant to the consulting agreements from the issuance of (i) one million shares of Madera common stock to CD Financial, Inc. on February 6, 1996, (ii) 200,000 shares of Madera common stock to CD Management Inc. on March 19, 1996, and (iii) one million shares of Madera common stock to Gateway Industries, Inc. on or about May 15, 1996. 70. None of these Lezak-related transactions was disclosed in Madera's periodic reports filed with the SEC. 71. During the period March 1996 to September 1999 Madera issued approximately 7.8 million shares of its common stock to Timber Management, Inc., a company controlled by Fernandez-Moris, who was also the Chairman of the Board, President and Chief Executive Officer of Madera at that time. According to the minutes of Madera's board of directors' meetings, the stock was issued pursuant to "Regulation S-8" for "fee and expenses," but no registration statement on Form S-8 under the Securities Act of 1933 was ever filed with the SEC. 72. These Fernandez-Moris-related transactions were not disclosed in Madera's periodic reports filed with the SEC. 73. On or about January 1, 1997, Madera entered into a "consulting agreement" with Amazon Timber Consultants, Inc. ("Amazon"). Its President, Ray Fernandez, signed the consulting agreement for Amazon. Pursuant to the consulting agreement, Amazon was to provide marketing and sales services to Madera for a fee of $8,655 per month, payable in cash or common stock. During the period February 1997 to September 1999, approximately 3.2 million shares of Madera common stock were issued to Amazon under the consulting agreement. 74. This related party transaction was not disclosed in Madera's periodic reports filed with the SEC at any time prior to the year 2000. 75. Regina Fernandez, a daughter of Fernandez-Moris, was Secretary and Treasurer of Madera from March 1996 to March 1999. On or about January 1, 1997, Madera entered into a consulting agreement with Friends of the Rainforest, Inc., an entity controlled by Regina Fernandez. The agreement called for Friends of the Rainforest to provide financial and administrative services to Madera for a fee of $5,000 per month, payable in cash or Madera common stock. During the period February 1997 to September 1999, Madera issued approximately 1.9 million shares of common stock to Friends of the Rainforest. 76. This related party transaction was not disclosed in Madera's periodic reports filed with the SEC at any time prior to the year 2000. 77. During the period March 1996 through early 2001, Madera also paid thousands of dollars in undisclosed cash consulting fees to Fernandez-Moris family members including: Minet Fernandez, Ray Fernandez's daughter; Ramiro Fernandez-Moris V, Ray Fernandez's son; Giovanna Fernandez, Ray Fernandez's wife; Raul C. Fernandez, Regina Fernandez's husband; and Raquel Kalmbach, Fernandez-Moris' daughter. 78. These related party transactions were not disclosed in Madera's periodic reports filed with the SEC. 79. Fernandez-Moris and Lezak knew, or were reckless in not knowing, that Madera's public disclosures were rendered materially false and misleading by its failure to disclose these related party transactions. Lezak and Fernandez-Moris Enrich Themselves Through Sales of Madera Stock 80. During the period they inflated the share price of Madera common stock through fraudulent public disclosures about Madera's assets and revenues, Lezak and Fernandez-Moris sold personal holdings of Madera common stock. 81. Lezak and entities controlled by him sold at least 2.9 million shares of Madera stock between November 1994 and January 1999 and obtained proceeds of at least $663,000. 82. Fernandez-Moris and entities controlled by him sold at least 7.1 million shares of Madera stock between June 1998 and October 1999 and realized profits of at least $696,000. Ray Fernandez Signs Madera's Fiscal Year 1999 Form 10-K 83. Ray Fernandez signed Madera's fiscal year 1999 annual report on Form 10-K filed with the SEC in his capacities as Director and Chairman of the Board. Madera's fiscal year 1999 Form 10-K falsely stated that: (1) Madera owned approximately 800,000 acres of prime timber property in the State of Amazonas, Brazil; (2) Madera was harvesting timber from its properties; (3) Madera had an extensive reforestation program pursuant to which it planted more new trees than harvested; and (4) the 478,000 acres of Brazilian rain forest property purchased in July 1994 was "freely owned" by Madera. In addition, the financial statements contained in Madera's fiscal year 1999 Form 10-K continued to value the original 478,000 acres of Brazilian rain forest property at $27 million, and Madera's sawmill at $2.6 million. Ray Fernandez knew, or was reckless in not knowing, that these statements were false. 84. Ray Fernandez knew, or was reckless in not knowing, that Madera never had valid legal title to the Brazilian Properties or the Environmental Property, and that it was not harvesting timber from its properties. Ray Fernandez knew that Madera did not maintain tree nurseries or plant trees, saplings or seedlings on behalf of the participants in MIE's environmental programs or otherwise. Ray Fernandez also knew that Madera's sawmill was not worth more than approximately $100,000, and that it was subject to a $38,000 mortgage. 85. Ray Fernandez also knew, or was reckless in not knowing, that Madera had reported and recorded phony sales during its 1999 fiscal year. Ray Fernandez knew, as Madera's Executive Vice President in charge of sales, that Madera's publicly reported sales figures were inconsistent with the Company's actual sales. Ray Fernandez nevertheless signed Madera's fiscal year 1999 annual report on Form 10-K filed with the SEC. 86. Phony sales were recorded by Madera in the first and fourth quarters of fiscal year 1999. The total for the year was approximately $1.8 million, of which $1.4 million was recorded in the fourth quarter and reversed, at the insistence of Madera's outside auditors, without being reported in the Company's 1999 Form 10-K. The $400,000 recorded in the first quarter and not reversed, however, was material to the year-end results; it improperly decreased the Company's loss from $1.6 million to the $1.2 million reported. Ray Fernandez Posts False Messages About Madera on an Internet Message Board 87. By January 2001, Madera no longer had any revenue-generating operations. Nevertheless, during the period April through September 2001, Ray Fernandez posted or caused to be posted numerous messages on an Internet message board for Madera located at http://ragingbull.lycos.com ("Raging Bull"). Ray Fernandez's purpose in posting these messages was to revive trading in Madera stock by generating stockholder interest in the Company. 88. In his Raging Bull posts, Fernandez made numerous false statements, including: (1) "Madera's operations are slowly bouncing back to normal;" (2) an independent appraisal of the Brazilian rain forest properties will be completed by mid-May 2001; (3) the Brazilian government was contacted by the SEC about Madera's land values and "responded positively including a copy of the new law that places a minimum value on these remote timberland properties which is much higher than the figures in our books;" (4) an independent appraisal certified Madera's ownership and "clear title" concerning eleven of seventeen parcels comprising the Brazilian rain forest properties; (5) Madera is estimating that the independent appraisal will place a value on the properties between $78 million and $85 million; and (6) none of the Fernandez-Moris family members owns any Madera common stock. Ray Fernandez knew, or was reckless in not knowing, that each of these statements was false. 89. During the period April through July, 2001, at the same time he was posting false messages on the Raging Bull message board about Madera, Ray Fernandez sold 1,923,000 shares of Madera common stock and obtained proceeds of $11,074.56. Ray Fernandez Enriches Himself Through Sales of Madera Stock 90. During the period that he inflated the share price of Madera through fraudulent public disclosures about Madera's assets, operations, and revenues, Ray Fernandez sold personal holdings of Madera common stock. 91. From May 2000 through July 2001, Ray Fernandez sold at least 7,939,200 shares of Madera common stock and obtained proceeds of at least $68,791.65. FIRST CLAIM 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] (Against Defendants Fernandez-Moris, Lezak, and Ray Fernandez) 92. Paragraphs 1 through 91 are realleged and incorporated by reference. 93. By reason of the foregoing, Fernandez-Moris, Lezak, and Ray Fernandez each violated 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]. SECOND CLAIM Aiding and Abetting Violations of Section 13(a) of the >Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1 and 13a-13 [17 C.F.R. §§ 240.12b-20, 13a-1, and 13a-13] (Against Defendants Fernandez-Moris and Lezak) 94. Paragraphs 1 through 91 are realleged and incorporated by reference. 95. Madera filed with the SEC annual reports on Form 10-K for its fiscal years ended March 31, 1994 through March 31, 1999 and quarterly reports on Form 10-Q for the period June 30, 1994 through December 31, 1999 that contained untrue statements of material fact or omitted to state material facts required to be stated therein or necessary to make the statements made not misleading, concerning, among other things, Madera's revenues and net income. 96. By reason of the foregoing, Madera violated Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R §§ 240.12b-20, 240.13a-1, and 240.13a-13]. 97. By causing Madera to file with the SEC the foregoing false and misleading reports, Lezak and Fernandez-Moris each aided and abetted Madera's violations of Section 13(a) Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R §§ 240.12b-20, 240.13a-1, and 240.13a-13]. THIRD CLAIM Aiding and Abetting Violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, and 13a-1 [17 C.F.R. §§ 240.12b-20, and 13a-1] (Against Defendant Ray Fernandez) 98. Paragraphs 1 through 91 are realleged and incorporated by reference. 99. Madera filed with the SEC an annual report on Form 10-K for its fiscal year ended March 31, 1999 that contained untrue statements of material fact or omitted to state material facts required to be stated therein or necessary to make the statements made not misleading, concerning, among other things, Madera's revenues and net income. 100. By reason of the foregoing, Madera violated Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, and 13a-1 thereunder [17 C.F.R §§ 240.12b-20, and 240.13a-1]. 101. By causing Madera to file with the SEC the foregoing false and misleading report, Ray Fernandez aided and abetted Madera's violation of Section 13(a) Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, and 13a-1 thereunder [17 C.F.R §§ 240.12b-20, and 240.13a-1]. FOURTH CLAIM Violations of Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)] (Against Defendants Fernandez-Moris and Lezak) 102. Paragraphs 1 through 91 are realleged and incorporated by reference. 103. By reason of the foregoing, Fernandez-Moris and Lezak each violated Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)]. FIFTH CLAIM Aiding and Abetting Violations of Section 13(b)(2)(A) and (B)of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)&(B)] (Against Defendants Fernandez-Moris and Lezak)
104. Paragraphs 1 through 91 are realleged and incorporated by reference. 105. Madera violated Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)] by maintaining false and misleading books and records that, among other things, materially overstated Madera's assets during its fiscal years 1994 through 1999, and materially overstated Madera's revenue and net income during the its fiscal years 1998 and 1999. 106. Madera violated Section 13(b)(2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B)] by failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that its transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP. 107. By causing Madera to maintain false and misleading books and records and to fail to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that its transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP, Lezak and Fernandez-Moris each aided and abetted Madera's violations of Section 13(b)(2)(A) and (B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)&(B)]. SIXTH CLAIM Violations of Exchange Act Rule 13b2-1 [17 C.F.R. § 240.13b2-1] (Against Defendants Fernandez-Moris and Lezak) 108. Paragraphs 1 through 91 are realleged and incorporated by reference. 109. Fernandez-Moris and Lezak, directly or indirectly, falsified or caused to be falsified, Madera's books, records or accounts subject to Section 13(b)(2)(A) of the Exchange Act. 110. By reason of the foregoing, Fernandez-Moris and Lezak each violated Exchange Act Rule 13b2-1 [17 C.F.R. § 240.13b2-1]. SEVENTH CLAIM Violations of Exchange Act Rule 13b2-2 [17 C.F.R. § 240.13b2-2] (Against Defendants Fernandez-Moris and Lezak) 111. Paragraphs 1 through 91 are realleged and incorporated by reference. 112. Fernandez-Moris and Lezak as officers and directors of Madera, and Lezak as someone who routinely performed functions corresponding with those of an officer, directly or indirectly, made materially false or misleading statements, or omitted to state, or caused another person to omit to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading to Madera's accountants in connection with their audits of Madera's financial statements for fiscal years 1994 through 1999. 113. By reason of the foregoing, Fernandez-Moris and Lezak each violated Exchange Act Rule 13b2-2 [17 C.F.R. § 240.13b2-2]. NOTICE OF INTENT TO RAISE AN ISSUE OF FOREIGN LAW Pursuant to Rule 44.1 of the Federal Rules of Civil Procedure, the SEC gives notice of its intent to raise an issue concerning the law of Brazil. PRAYER FOR RELIEF WHEREFORE, the SEC respectfully requests that this Court enter a judgment: (a) permanently enjoining Fernandez-Moris and Lezak from violating Sections 10(b), and 13(b)(5) of the Exchange Act [15 U.S.C. §§ 78j(b), and 78m(b) (5)] and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2 [17 C.F.R. §§ 240.10b-5, 13b2-1, and 13b2-2] and aiding and abetting violations of Section 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B),] and Exchange Act Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 13a-1, and 13a-13]; (b) permanently enjoining Ray Fernandez from violating Section 10(b) of the Exchange Act [15 U.S.C. §§ 78j(b)] and Exchange Act Rule 10b-5, and aiding and abetting violations of Section 13(a) of the Exchange Act [15 U.S.C. §§ 78m(a)] and Exchange Act Rules 12b-20, and 13a-1]; (c) ordering Fernandez-Moris, Lezak, and Ray Fernandez to disgorge all ill-gotten gains from the conduct alleged herein, together with prejudgment interest; (d) ordering Ray Fernandez to account for the proceeds of all of his sales of Madera common stock, directly and through Amazon; (e) ordering Fernandez-Moris and Lezak to pay civil monetary penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] in respect of their violations committed after September 1996 and ordering Ray Fernandez to pay civil monetary penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] in respect of his violations committed after January 1998; (f) permanently and unconditionally barring Fernandez-Moris, Lezak, and Ray Fernandez each from serving as an officer or director of a public company pursuant to Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)]; and (g) granting such other relief as this Court may deem just and appropriate. Dated: December 19, 2002
Respectfully submitted, s/ Kenneth L. Miller __________________________
Of Counsel: Thomas C. Newkirk
http://www.sec.gov/litigation/complaints/comp17916.htm
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