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UNITED STATES DISTRICT COURT
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF The plaintiff, Securities and Exchange Commission ("Commission" or the "Plaintiff"), files this complaint (the "Complaint") and alleges the following: SUMMARY 1. Plaintiff brings this action to enjoin violations of the federal securities laws by, and to obtain other relief from, Defendants James L. George ("George"), Paul E. Brodhagen ("Brodhagen"), and Michael J. Wright ("Wright"). 2. This matter involves fraudulent and unregistered offerings and sales of securities by George, Brodhagen, and Wright, essentially acting as sales agents in a securities fraud involving Tri-Star Investment Group, L.L.C. a/k/a Tri-Star Investment Group ("Tri-Star"). 3. Tri-Star is an inactive purported North Carolina limited liability company. Upon information and belief, Tri-Star failed to complete its corporate formation with the North Carolina Secretary of State. Offering materials alternatively describe Tri-Star as a partnership or as a club. 4. From at least March 1998 until September 1999, Tri-Star offered and sold securities in unregistered transactions to more than 900 investors in at least 35 states, and raised over $15 million. 5. The Tri-Star scheme was orchestrated primarily by Tri-Star's self-described general partners, Texas resident Louis M. Lazorwitz ("Lazorwitz") and North Carolina resident J. Charles Reives ("Reives"). 6. In January 2002, the Commission filed a related action in this Court for injunctive and other relief against Tri-Star, Lazorwitz, Reives, and a relief defendant, alleging securities fraud and other violations of the federal securities laws. See SEC v. Louis M. Lazorwitz, J. Charles Reives, and Tri-Star Investment Group, L.L.C. a/k/a Tri-Star Investment Group, Defendants, and Lazor, Ltd., Relief Defendant, Civ. Action File No. 1:02-CV-0112 (N.D. Ga.) (Jan. 15, 2002). 7. Tri-Star, through Lazorwitz and Reives, initially represented that Tri-Star would invest in bank debentures and later claimed that it might invest in other international trade opportunities. 8. Lazorwitz and Reives promoted Tri-Star directly and through the efforts of purported independent agents around the United States known as "Facilitators." 9. Tri-Star had approximately 35 Facilitators residing in approximately 15 states, although not all Facilitators recruited new investors. 10. Lazorwitz, Reives and the Facilitators generally led investors to expect profits of 20% per month in so-called 13-month trading programs, after an initial 90-day waiting period. 11. Tri-Star, however, never made any significant profits and, upon information and belief, most investors have lost money in the scheme. 12. Defendants George, Brodhagen, and Wright were Facilitators who offered and sold Tri-Star securities. George and Brodhagen were among Tri-Star's top sales agents. George served as the Facilitator for at least 130 investors who invested around $3 million. Brodhagen, a former registered representative, served as the Facilitator for at least 65 investors who invested around $1.4 million. Wright, a former registered representative, served as the Facilitator for about 15 investors who invested around $250,000. 13. The Defendants made misrepresentations and omissions of material fact to investors concerning, among other things, the use of investor funds and expected returns. 14. Defendants George, Brodhagen, and Wright, by virtue of their conduct, directly or indirectly, have engaged and, unless enjoined, will engage, in violations of Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a) and 77e(c)], Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Section 15(a)(1) of the Exchange Act [15 U.S.C. § 78o(a)(1)]. JURISDICTION AND VENUE 15. The Commission brings this action pursuant to Sections 20(b), (c) and (d) of the Securities Act [15 U.S.C. §§ 77t(b)-(d)] and Sections 21(d) and 21(e) of the Exchange Act [15 U.S.C. §§ 78u(d)-(e)], to enjoin the Defendants from engaging in the transactions, acts, practices and courses of business alleged in this Complaint, and transactions, acts, practices and courses of business of similar purport and object, for disgorgement of illegally obtained funds and other equitable relief, and for civil money penalties. 16. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d) and 77v(a)], and Sections 21(d), 21(e) and 27 of the Exchange Act [15 U.S.C. 78u(d), 78u(e) and 78aa]. 17. The Defendants, directly and indirectly, have made use of the mails, the means and instruments of transportation and communication in interstate commerce, and the means and instrumentalities of interstate commerce, in connection with the transactions, acts, practices, and courses of business alleged in this Complaint. 18. Venue lies in this Court pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa], because certain of the transactions, acts, practices and courses of business constituting violations of the Securities Act and Exchange Act have occurred within the Northern District of Georgia. Among other things, Tri-Star maintained a principal office in the Northern District of Georgia. Furthermore, investors in the Northern District of Georgia have been solicited to purchase, and have purchased, investments in Tri-Star by or through one or more of the Defendants. THE DEFENDANTS 19. James L. George, age 66, is a resident of New Bern, North Carolina. George is a retired military officer and former insurance agent. During 1998 and 1999, George operated a tax preparation, accounting, and financial services business. Upon information and belief, George has never been registered with the Commission as a broker or dealer or associated with a registered broker or dealer. 20. Paul E. Brodhagen, age 60, is a resident of Lincoln, Nebraska. Upon information and belief, during 1998 and 1999, Brodhagen was licensed to sell insurance in at least the State of Nebraska. In addition, upon information and belief, Brodhagen has been a registered representative with a general securities license at various times from 1972 to at least 1988. 21. Michael J. Wright, age 60, is a resident of St. Simons Island, Georgia. Upon information and belief, Wright was a registered representative associated with five registered broker-dealers at various times from 1986 to 2001. In pertinent part, Wright was associated with a registered broker-dealer (the "Registered Broker-Dealer") from July 15, 1997 until his voluntary termination on February 17, 1999. Wright sold Tri-Star securities during part of 1998 and 1999; however, he failed to disclose these activities to his Registered Broker-Dealer while he was associated with the firm. 22. After Wright ceased his selling activities for Tri-Star, he also became associated with another registered broker-dealer from March 2000 until January 2001. However, in January 2001, the State of Georgia issued a proposed order alleging that in 1997 Wright had unlawfully sold promissory notes in unregistered transactions to Georgia residents. In July 2001, Wright entered into an agreement with the State of Georgia that permanently revoked his Georgia securities registration. FACTS A. The Tri-Star Investment Scheme. (a) Overview. 23. From at least March 1998 through September 1999, Tri-Star raised more than $15 million from over 900 investors in at least 35 states. 24. Tri-Star purportedly operated as a business, and maintained offices and bank accounts in Georgia, North Carolina, and Texas (the residential locations of Tri-Star general partners Lazorwitz and Reives). 25. Tri-Star initially represented that it would invest in bank debenture trades typical of prime bank schemes. These fraudulent schemes commonly involve purported "prime" bank financial instruments. Tri-Star claimed that investors' funds would be used to purchase and trade financial instruments on overseas markets, in order to generate huge returns that the investor will share. 26. By late 1998, Tri-Star also represented that Tri-Star's international trade opportunities included initial public offerings, foreign currencies, commodities, precious metals, stocks, and the pay phone industry. 27. Nevertheless, Tri-Star only purportedly "invested" around $1.5 million of the more than $15 million raised from investors. Tri-Star purportedly invested $1 million in a bank debenture, and approximately $500,000 in pay phones (for which Tri-Star supposedly received nominal rent payments) and stock in privately held Texas companies. Tri-Star never generated significant profits. (b) The Facilitators; Commissions. 28. Tri-Star located investors through the efforts of its general partners, Lazorwitz and Reives, and through so-called "Facilitators." Tri-Star had approximately 35 Facilitators residing in approximately 15 states, although not all Facilitators recruited new investors. 29. Facilitators essentially served as Tri-Star sales agents. 30. Defendants George, Brodhagen, and Wright were Tri-Star Facilitators. 31. Most Facilitators, including the Defendants, were also investors. 32. Tri-Star claimed that it would pay commissions to Facilitators in the amount of 10% of their investors' principal and/or 10% of their investors' alleged profits. 33. Upon information and belief, Tri-Star apparently stopped paying commissions to most if not all Facilitators by around June 1999. 34. Lazorwitz represented to at least one Facilitator that commissions were not paid from investor funds. However, investor funds, and not profits, were in fact used to pay the commissions. (c) The Purported Tri-Star Profits; Bahamian Credit Card Accounts. 35. Tri-Star falsely represented that it had paid, and expected to pay, profits of approximately 20% per month in 13-month trading programs after a 90-day waiting period. However, Tri-Star failed to distribute financial information that identified the source or amount of its profits. 36. Tri-Star instead created false, and often untimely, monthly account statements consistently reflecting investor profits of 20% per month and, in the case of the Facilitators, earned commissions. 37. During at least part of the Tri-Star scheme, the Facilitators, including the Defendants, forwarded the false monthly account statements to their investors. 38. Investors and/or Facilitators usually accessed their profits or commissions by instructing Tri-Star to transfer specified funds as a credit to their individual MasterCard credit card accounts set up in The Bahamas. The investors and/or Facilitators generally would then use their credit cards to make cash withdrawals or retail purchases in the United States. However, Tri-Star often failed to make timely deposits to the Bahamian credit card accounts. 39. Most investors recovered little or none of their principal investment through their Bahamian credit cards, let alone profits of 20% per month. 40. Tri-Star and related entities transferred over $12 million to The Bahamas allegedly for deposit to offshore credit card accounts, but these funds cannot now be accounted for. (d) The Non-Solicitation Agreements. 41. The Facilitators, including the Defendants, required some investors to sign a "Non-Solicitation Agreement" in connection with making their investment in Tri-Star. 42. The Non-Solicitation Agreement contained the investors' purported confirmation that they had not been solicited, and that neither they nor their Facilitators were "licensed brokers or government employees." The Non-Solicitation Agreement also falsely indicated that the "contemplated transaction" did not "involve the sale of securities" and that the "private placement transaction" was "exempt from the Securities Act." (e) The Investor Applications. 43. Most investors signed either an Application for Membership or an Application for Stock Purchase (an "Investor Application") to evidence their investment. 44. The Investor Applications usually contained the only written disclosures about alleged Tri-Star operations that investors received. 45. The Investor Applications required a minimum investment of $10,000. Most Tri-Star investors paid at least $10,000 to Tri-Star. 46. The Application for Membership, used in 1998, stated that investors were buying "Units" in a "Block Fund" and that Tri-Star would pool investor funds. 47. By 1999, investors typically signed a similar document entitled Application for Stock Purchase, although many of the substantive provisions in the Application for Membership remained essentially the same. 48. The Application for Stock Purchase stated that the investors were buying "Units" or "stock." 49. The Application for Membership, but not the Application for Stock Purchase, stated that Tri-Star agreed "to manage and care for my [i.e., the investor's] funds and to widen my financial opportunity by pooling my funds with like-minded individuals and investing them co-operatively." 50. The Facilitator generally gave the Investor Application to his or her applicable investor. The investor and the Facilitator generally signed the Investor Application and forwarded the Investor Application by mail and/or through other means of interstate commerce, along with the investor's payment, to Tri-Star allegedly for acceptance by Tri-Star. 51. Similar to the Non-Solicitation Agreements, the Investor Applications stated that the investors had not been solicited, that they had never been or reported to "a member of any regulatory body," that the "contemplated transactions" did not "involve the sale of securities," and that the transactions were "exempt from the Securities Act." 52. The Investor Applications stated that Tri-Star would seek financial opportunities for investors "afforded by stocks, bonds, asset management private placement programs, certificates of deposit, bank credit instruments, and other securities." 53. The Investor Applications authorized Lazorwitz and Reives to act on behalf of the investors. 54. In a paragraph titled "Security," the Investor Applications falsely stated that accumulated funds in blocks of $1 million would be "collateralized by an insured Bank Certificate of Deposit" issued to Tri-Star. 55. The Investor Applications indicated that net profits and losses would inure to the investors, monthly profits would be distributed to investors proportionately, and exact returns could not be "pre-calculated nor guaranteed." 56. The Investor Applications failed to disclose any commissions payable to the Defendants or any other Facilitators. B. George's Involvement As A Facilitator. 57. George signed a Facilitator's Agreement in May 1998, which appointed him as a Tri-Star Facilitator. The Facilitator's Agreement required that he not divulge information about Tri-Star to anyone affiliated with a state or federal regulatory agency. 58. During 1998 and 1999, George acted as a Facilitator in the offer and sale of approximately $3 million in Tri-Star investments to more than 130 investors residing in at least six states. 59. Upon information and belief, George was Tri-Star's top producer of investor funds. 60. George received commissions from Tri-Star that were deposited into his Bahamian credit card account. 61. George did not fully disclose the existence and amount of his commissions to all of his investors. 62. During 1998 and 1999, George delivered Investor Applications, Non-Solicitation Agreements, and offshore credit card applications to at least some investors, using the mails and/or other means of interstate commerce. 63. During 1998 and 1999, George delivered investor paperwork and investor funds to Tri-Star, using the mails and/or other means of interstate commerce. 64. George signed over 250 Investor Applications as a Facilitator. 65. George forwarded Tri-Star's false monthly account statements to at least some investors. 66. George conducted at least six investor meetings, and he helped arrange a North Carolina presentation by Lazorwitz and Reives for about 250 people. 67. George created and mailed to investors at least 10 updates, which he used to invite investors and guests to meetings and report on Tri-Star meetings and operations. 68. George knowingly or with severe recklessness misrepresented to investors that Tri-Star had paid and expected to pay profits of approximately 20% per month after a 90-day wait. George had no reasonable basis for that claim. 69. George knowingly or with severe recklessness relayed to investors Lazorwitz's claim that offshore profits were tax-free. 70. George knowingly or with severe recklessness misrepresented to investors that Tri-Star had invested the bulk of investor funds in bank debentures, and that Tri-Star was diversifying into other trade opportunities. 71. Although George may have told some investors that they had investment risk, George made presentations at meetings that minimized their risk of loss and he represented in updates to investors that Tri-Star was diversifying its investments to minimize risk. 72. George knowingly or with severe recklessness gave at least one investor a pamphlet falsely stating that there was no risk of losing an investor's principal in bank debenture trading programs and that funds were fully secured by a bank-endorsed guarantee. 73. George expressed to investors his personal confidence in Tri-Star. For example, he advised investors to be patient about delayed account statements and disbursements because "[a]fter 15 months of consistent payouts, you need to have confidence that the funds will be forthcoming." 74. George knowingly or with severe recklessness misrepresented to investors that Tri-Star was taking actions to comply with SEC regulatory requirements and that, by May 1999, North Carolina's investigation of Tri-Star had revealed only one minor discrepancy. 75. George knowingly or with severe recklessness misrepresented to investors that he adequately was investigating Tri-Star. In a 1998 update to investors, he knowingly or with severe recklessness stated that he met with staff of the credit card issuer in The Bahamas "[a]s part of our continuing due diligence on the Tri-Star investment program." He knowingly or with severe recklessness falsely reported that he used his credit card "to make sure our earnings were safe and accessible" and that "everything went very smoothly and some things which appear to be too good to be true . . . actually are true." 76. George has also claimed that he had investigated Tri-Star by looking at Tri-Star account statements, talking to businessmen and investors, reading information about offshore investments, visiting Tri-Star's Georgia office, and meeting with Lazorwitz, Reives, and Tri-Star's office manager. However, upon information and belief, George failed to conduct a reasonable independent investigation of the expertise of Lazorwitz and Reives, or of Tri-Star's operations and profitability. 77. Before George's involvement with Tri-Star, he did not know Lazorwitz, Reives, or Tri-Star's office manager, and he had not invested in a program like Tri-Star, heard of bank debentures, or earned investment profits of 20% per month. Yet George relied on representations of Lazorwitz, Reives, and the office manager regarding their expertise and Tri-Star's profitability. 78. George did not obtain any documents identifying Tri-Star's specific investments. 79. George did not independently investigate Tri-Star's compliance with regulatory requirements or the accuracy of information he obtained about bank debenture programs. 80. George thought Tri-Star's administrative work was shoddy and, as an accountant, he questioned Lazorwitz's claims of tax-free offshore profits, yet he continued to sell Tri-Star investments. 81. Moreover, at some point during the scheme, George apparently learned that Lazorwitz and Reives were involved in a failed program similar to Tri-Star, yet he did not independently investigate the program. C. Brodhagen's Involvement As A Facilitator. 82. In 1998 and 1999, Brodhagen acted as a Facilitator in the offer and sale of approximately $1.4 million in Tri-Star investments to more than 65 investors residing in at least six states. 83. Upon information and belief, Brodhagen was Tri-Star's second top producer of investor funds. 84. Upon information and belief, Brodhagen received commissions from Tri-Star that were deposited into his Bahamian credit card account. 85. Brodhagen did not fully disclose the existence and amount of all of his commissions to all of his investors. 86. During 1998 and 1999, Brodhagen delivered Investor Applications, Non-Solicitation Agreements, and offshore credit card applications to at least some investors, using the mails and/or other means of interstate commerce. 87. Upon information and belief, during 1998 and 1999, Brodhagen delivered investor paperwork and investor funds to Tri-Star, using the mails and/or other means of interstate commerce. 88. Brodhagen signed over 80 Investor Applications as a Facilitator. 89. Brodhagen forwarded Tri-Star's false monthly account statements to at least some investors. 90. Brodhagen invited prospective investors to attend, and upon information and belief assisted in the organization of a local presentation by Lazorwitz and Reives for around 50 people in 1998, and another local presentation by Lazorwitz and Reives in 1999. 91. Upon information and belief, Brodhagen knowingly or with severe recklessness misrepresented to investors that Tri-Star had paid and expected to pay profits of approximately 20% per month after a 90-day wait. Brodhagen had no reasonable basis for that claim. 92. Brodhagen knowingly or with severe recklessness gave at least one investor a Tri-Star document that misrepresented that investors would receive "around 20% per month for each 10 month trade." Brodhagen had no reasonable basis for that claim. 93. Brodhagen knowingly or with severe recklessness misrepresented to at least one investor that Tri-Star used investor funds for offshore investments. Brodhagen had no reasonable basis for that claim. 94. Brodhagen gave some investors a pamphlet describing lucrative bank debenture trading programs, an information sheet describing bank debentures and how banks operate, and a pamphlet titled "Offshore Banking is Not Evil." Although Brodhagen may have told some investors that an investment in Tri-Star had risk, the pamphlet describing bank debenture trading programs falsely stated that there was no risk of losing the investor's principal and that funds were fully secured by a bank-endorsed guarantee. Brodhagen knew or was severely reckless in not knowing that there was risk to the investor funds, since those funds were not secured. 95. Upon information and belief, Brodhagen knowingly or with severe recklessness misrepresented to at least one investor that Tri-Star was legal. 96. Brodhagen gave to at least one investor a biographical profile of Lazorwitz and Reives, which described them as "Professionals to Assist You in International Asset Management" and falsely indicated that Reives was licensed in securities. 97. Upon information and belief, Brodhagen failed to conduct a reasonable independent investigation of the expertise of Lazorwitz and Reives, or of Tri-Star's operations and profitability. D. Wright's Involvement As A Facilitator. 98. In 1998 and 1999, Wright acted as a Facilitator in the offer and sale of approximately $250,000 in Tri-Star investments to around 15 investors residing in three states. 99. Wright raised approximately $122,000 from around six investors while he was associated with his Registered Broker-Dealer in 1998 and until February 17, 1999. 100. Wright failed, however, to disclose to his Registered Broker-Dealer his Tri-Star sales. 101. Upon information and belief, Wright received commissions from Tri-Star that were deposited into his Bahamian credit card account. 102. Wright did not fully disclose the existence and amount of his commissions to all of his investors. 103. During 1998 and 1999, Wright gave Investor Applications, Non-Solicitation Agreements and offshore credit card applications to at least some investors, using the mails and/or other means of interstate commerce. 104. Upon information and belief, during 1998 and 1999, Wright mailed investor paperwork and investor funds to Tri-Star, using the mails and/or other means of interstate commerce. 105. Wright signed over 25 Investor Applications as a Facilitator. 106. Wright knowingly or with severe recklessness forwarded Tri-Star's false monthly account statements to at least some investors. 107. Wright organized a local Tri-Star meeting presented by Lazorwitz and Reives in 1998, and invited investors to attend the meeting. 108. Upon information and belief, Wright knowingly or with severe recklessness misrepresented to investors that Tri-Star had paid and expected to pay profits of approximately 20% per month after a 90-day wait. Wright had no reasonable basis for that claim. 109. Wright knowingly or with severe recklessness misrepresented to investors that Tri-Star used their funds for offshore investments. 110. Although Wright may have told some investors that an investment in Tri-Star had risk, Wright knowingly or with severe recklessness misrepresented to some investors that Tri-Star did not have a substantial risk of investment loss. 111. Wright knowingly or with severe recklessness misrepresented to investors that Lazorwitz and Reives were experienced in foreign investments. At least one of Wright's investors understood from Wright that Lazorwitz and Reives had made money in investments in the past. 112. Upon information and belief, Wright failed to conduct a reasonable independent investigation of the expertise of Lazorwitz and Reives, or of Tri-Star's operations and profitability. E. The Defendants' Misrepresentations and Omissions of Material Fact. 113. The Defendants knowingly or with severe recklessness made misrepresentations and omissions of material fact to Tri-Star investors, including the misrepresentations and omissions set out below. (a) Use of Funds. 114. The Defendants misrepresented that Tri-Star used investor funds for international investments. The Defendants also signed numerous Investor Applications as Facilitators that indicated Tri-Star would seek financial opportunities in "securities." However, Tri-Star invested very little of the investor funds raised, and the Defendants lacked a reasonable basis to represent that Tri-Star actually invested the raised funds. 115. Upon information and belief, the Defendants failed to obtain financial statements or similar documents identifying the purported Tri-Star investments, or conduct a reasonable investigation to identify Tri-Star's actual investments. (b) Projected Profits. 116. The Defendants represented that Tri-Star had paid and expected to pay profits of approximately 20% per month after a 90-day wait. However, Tri-Star never earned any significant profits and, upon information and belief, the Defendants lacked a reasonable basis to project profits of 20% per month. 117. Upon information and belief, the Defendants failed to obtain any financial statements or similar documents showing the actual amount or source of Tri-Star's profits, or conduct a reasonable investigation to identify Tri-Star's actual profits. (c) Investment Risk. 118. The Defendants misrepresented and minimized the risk of investment loss. Upon information and belief, they lacked a reasonable basis to make such representations and knew or were severely reckless in not knowing that such representations were false. 119. The Defendants signed numerous Investor Applications as Facilitators, which stated that Tri-Star would obtain an insured Bank Certificate of Deposit as collateral for accumulated funds of $1 million. However, Tri-Star never obtained the collateral, and, upon information and belief, the Defendants failed to conduct a reasonable investigation regarding the collateral's issuance. 120. In addition, George represented without reasonable investigation that Tri-Star was diversifying its investments to reduce risk, when in fact Tri-Star invested few funds. 121. Furthermore, George and Brodhagen gave some investors a pamphlet that falsely stated that bank debenture programs were secured by a bank-endorsed guarantee with no risk of loss to investor principal, without reasonably investigating Tri-Star's alleged debenture trades. (d) Regulatory Compliance. 122. The Defendants misrepresented Tri-Star's compliance with regulatory requirements. They lacked a reasonable basis to make such representations. 123. The Defendants distributed Non-Solicitation Agreements and Investor Applications to investors, which falsely indicated that the investments were private placement transactions exempt from federal securities laws that did not involve the sale of securities. 124. In addition, George misrepresented to investors that Tri-Star was complying with SEC requirements. 125. Upon information and belief, the Defendants failed to conduct any reasonable investigation of Tri-Star's regulatory compliance. (e) Commissions. 126. The Defendants failed to disclose to all of their investors that they would receive transaction-based commissions in the amount of at least 10% of the customers' invested principal, supposedly paid from profits. 127. Upon information and belief, the Defendants failed reasonably to investigate the source of their commissions. (f) Investigation of Scheme; Qualifications of Promoters. 128. George misrepresented to investors that he conducted adequate "due diligence" of the Tri-Star program and he expressed his personal confidence in Tri-Star and its management. 129. Similarly, Wright misrepresented to some investors that Lazorwitz and Reives were experienced in foreign investments. 130. Brodhagen delivered to at least one investor a profile of Lazorwitz and Reives falsely indicating that they were professionals in international asset management. 131. The Defendants did not conduct a reasonable investigation of Lazorwitz, Reives, or Tri-Star's operations. 132. Upon information and belief, the Defendants lacked a reasonable basis for their representations about their investigation concerning the program and/or the qualifications of Lazorwitz and Reives. UNREGISTERED SECURITIES TRANSACTIONS 133. The Tri-Star investment scheme entails the offer and sale of securities, as that term is defined in Section 2(a)(1) of the Securities Act [15 U.S.C. § 77b(a)(1)] and Section 3(a)(10) of the Exchange Act [15 U.S.C. § 78c(a)(10)]. 134. No registration statement is in effect, nor has a registration statement been filed with the Commission, with respect to the securities sold by the Defendants. COUNT I--FRAUD Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)] 135. Paragraphs 1 through 134 are hereby realleged and are incorporated herein by reference. 136. At various times from at least March 1998 through at least September 1999, Defendants George, Brodhagen, and Wright, in the offer and sale of the securities described herein, by the use of means and instruments of transportation and communication in interstate commerce and by use of the mails, directly and indirectly, employed devices, schemes and artifices to defraud purchasers of such securities, all as more particularly described above. 137. The Defendants knowingly, intentionally, and/or recklessly engaged in the aforementioned devices, schemes and artifices to defraud. 138. In engaging in such conduct, the Defendants acted with scienter, that is, with an intent to deceive, manipulate or defraud or with a severe reckless disregard for the truth. 139. By reason of the foregoing, the Defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)]. COUNT II--FRAUD Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)] 140. Paragraphs 1 through 134 are hereby realleged and are incorporated herein by reference. 141. At various times during the period from at least March 1998 through at least September 1999, Defendants George, Brodhagen, and Wright, in the offer and sale of the securities described herein, by use of means and instruments of transportation and communication in interstate commerce and by use of the mails, directly and indirectly: a) obtained money and property by means of untrue statements of material fact and omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and b) engaged in transactions, practices and courses of business which would and did operate as a fraud and deceit upon the purchasers of such securities, all as more particularly described above.
142. By reason of the foregoing, the Defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)]. COUNT III--FRAUD Violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] 143. Paragraphs 1 through 134 are hereby realleged and are incorporated herein by reference. 144. At various times from at least March 1998 through at least September 1999, Defendants George, Brodhagen, and Wright, in connection with the purchase and sale of securities described herein, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly: a) employed devices, schemes, and 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 light of the circumstances under which they were made, not misleading; and c) engaged in acts, practices, and courses of business which would and did operate as a fraud and deceit upon the purchasers of such securities, all as more particularly described above. 145. The Defendants knowingly, intentionally, and/or recklessly engaged in the aforementioned devices, schemes and artifices to defraud, made untrue statements of material facts and omitted to state material facts, and engaged in fraudulent acts, practices and courses of business. In engaging in such conduct, the Defendants acted with scienter, that is, with an intent to deceive, manipulate or defraud or with a severe reckless disregard for the truth. 146. By reason of the foregoing, the Defendants, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. COUNT IV--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)] 147. Paragraphs 1 through 134 are hereby realleged and are incorporated herein by reference. 148. No registration statement has been filed or is in effect with the Commission pursuant to the Securities Act and no exemption from registration exists with respect to the Tri-Star scheme and transactions in such scheme described herein. 149. At various times from at least March 1998 through at least September 1999, the Defendants, 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 the securities described herein, through the use or medium of any prospectus or otherwise, when a registration statement was not in effect as to such securities; b. 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, when a registration statement was not in effect as to such securities; and 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, the securities described herein, without a registration statement having been filed as to such securities. 150. These acts include, but are not limited to, the activities described in paragraphs 1 through 134 of this Complaint. 151. By reason of the foregoing, Defendants George, Brodhagen, and Wright, directly and indirectly, 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 V--EFFECTING SECURITIES TRANSACTIONS FOR THE ACCOUNT OF OTHERS WITHOUT BEING REGISTERED WITH THE COMMISSION AS A BROKER-DEALER Violations of Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)] 152. Paragraphs 1 through 134 are hereby realleged and are incorporated herein by reference. 153. Defendants George, Brodhagen, and Wright, directly or indirectly: (i) have engaged, are engaging or are about to engage in the business of effecting transactions in securities for the account of others; (ii) are either persons other than a natural person or a natural person not associated with a broker or dealer which is a person other than a natural person (other than such a broker or dealer whose business is exclusively intrastate and who does not make use of any facility of any national securities exchange); and, (iii) have made, are making or are about to make use of the mails or any means or instrumentality of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills) without being registered in accordance with Section 15(b) of the Exchange Act [15 U.S.C. § 78o(b)]. 154. By reason of the transactions, acts, omissions, practices and courses of business set forth herein, Defendants George, Brodhagen, and Wright have violated, are violating or are about to violate Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)]. PRAYER FOR RELIEF WHEREFORE, Plaintiff Commission respectfully prays for: I. Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure, finding that the Defendants named herein committed the violations alleged herein. II. Permanent injunctions enjoining the Defendants, their officers, agents, servants, employees, and attorneys, and those persons in active concert or participation with them who receive actual notice of the order of injunction, by personal service or otherwise, and each of them, whether as principals or as aiders and abettors, from violating, directly or indirectly, Sections 5(a), 5(c) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c), and 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder, and Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)]. III. An order requiring an accounting by the Defendants of the use of proceeds of the sales of the securities described in this Complaint, as well as the disgorgement of all ill-gotten gains or unjust enrichment. An order which directs the Defendants to pay prejudgment interest, to effect the remedial purposes of the federal securities laws. IV. The Commission seeks 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. Dated: _____________, 2002. Respectfully submitted, _________________________
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Counsel for Plaintiff
http://www.sec.gov/litigation/complaints/comp17918.htm
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