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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS
COMPLAINT FOR INJUNCTIVE AND OTHER EQUITABLE RELIEF Plaintiff Securities and Exchange Commission (the "Commission") for its Complaint for Injunctive and Other Equitable Relief, states as follows: NATURE OF THE ACTION 1. This case concerns an ongoing scheme to violate the registration, antifraud and reporting provisions of the federal securities laws. Defendant Frank J. Custable, Jr. ("Custable"), a recidivist securities law violator, has orchestrated the multi-faceted scheme from its inception in 2001 until the present. Custable's scheme has involved the securities of at least seven small public companies and has generated more than $4 million in ill-gotten gains. 2. Custable's scheme involves illegally obtaining large positions in penny stock issuers and then using nominees to engage in unregistered offerings of the stock, while fraudulently concealing Custable's interest in the stock. To carry out his scheme, Custable has used Defendant Suburban Capital Corporation ("Suburban Capital"), a company controlled by Custable that purports to provide financing and consulting services to small public companies, as well as Defendants Sara Wetzel ("Wetzel"), and Francis Scott Widen ("Widen"), two individuals who work for Custable at Suburban Capital. Custable has also used various other individuals as nominees to obtain stock for his benefit without disclosing his interest in the stock. Acting at Custable's direction, Suburban Capital, Wetzel, Widen and other nominees have repeatedly obtained large amounts of stock from penny stock issuers and then promptly sold the stock to the investing public in violation of the registration provisions. 3. A significant amount of the stock that Suburban Capital, Wetzel, Widen and others have obtained for Custable's benefit was fraudulently obtained. The fraud involved includes sham Commission Form S-8 registration statements, forged stock authorization forms, and at least one bogus attorney opinion letter arranged by Custable. 4. Custable, through various "straw men" consultants, has obtained stock by Commission Form S-8 registration statements, which state that the issuer may only issue S-8 securities to consultants in exchange for bona fide consulting services and not in connection with a capital-raising transaction. In the case of stock that Custable's straw men obtained from Defendants Wasatch Pharmaceutical, Inc. ("Wasatch"), Gateway Distributors, Inc. ("Gateway"), Pacel Corporation ("Pacel"), and ThermoElastic Technologies, Inc. ("ThermoElastic"), as well as from Sharecom, Inc. ("Sharecom"), the issuers either obtained little or no bona fide services in exchange for the stock, or issued the stock in connection with a capital-raising transaction. The Commission has named as defendants in this action certain officers of the issuers involved in the sham S-8 registration statements. The officer defendants are: 1) Gary Heesch ("Heesch"), and David Giles ("Giles") of Wasatch, 2) David Calkins ("Calkins") of Pacel, and 3) Richard Bailey ("Bailey") of Gateway. 5. In the case of Blagman Media International, Inc. ("BMII"), Custable, Suburban Capital and Wetzel engineered a scheme in which they forged share issuance authorizations so that they could obtain and liquidate approximately 5.4 billion counterfeit shares of BMII. 6. In the case of Sharecom, Custable arranged for a significant amount of restricted Sharecom stock to become unrestricted and freely tradable through an attorney opinion letter premised on the fiction that the stock was owed for work performed more than two years before. 7. In carrying out this scheme, Custable has meticulously avoided using his name wherever possible. Custable has concealed his interest in the penny stocks involved in this action by using Wetzel, Widen, Suburban Capital and various straw men to effect stock transactions on his behalf. Custable has done so because he is rightly concerned that shareholders would be suspicious of any company in which Custable, a recidivist violator of the securities laws, had a substantial interest. In going to such lengths to conceal his interest in the penny stocks, he has fraudulently evaded the reporting requirements of the federal securities laws, which require reporting by anyone with an interest in more than 5% of the outstanding stock of a public company. 8. Custable has consistently dumped on the unsuspecting investing public the shares that he has obtained through his confederates and other straw men. In order to liquidate the large stock positions accumulated on his behalf, Custable has enlisted the assistance of individuals and entities to send, by e-mail and fax, huge volumes of unsolicited stock newsletters to the investing public. The stock newsletters have touted the stock that Custable has accumulated and stimulated market demand for the stock that Custable has then dumped on the market. Custable has generally paid for this "spamming" of potential investors with stock that he has acquired-legitimately or illegitimately-from the various small issuers enmeshed in his scheme. 9. Custable has tightly controlled the ill-gotten gains from his scheme. He controls Suburban Capital's bank accounts, which is where Wetzel, Widen and the straw men that Custable has used generally direct proceeds from their stock sales. Custable has also directed at least $235,000 in proceeds from his scheme to offshore accounts and entities. Custable has also set up an entity in the offshore jurisdiction of Nevis, to shield his assets from recovery. Since at least June 2002, Pine Services, Ltd. ("Pine Services"), the relief defendant, has facilitated Custable's attempts to move assets beyond the reach of U.S. law enforcement by directing stocks and cash to bank accounts in Costa Rica. 10. By the above conduct, Custable has violated Sections 5(a), 5(c), 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(d) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13d-1 and 13d-2 thereunder. Suburban Capital and Wetzel have violated Sections 5(a), 5(c), 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Widen has violated Sections 5(a) and 5(c) of the Securities Act. 11. The Commission is requesting emergency injunctive and other equitable relief against Custable, Suburban Capital, Wetzel and Widen. The Commission requests that the Court issue a temporary restraining order and preliminary injunction against them enjoining further violations of the federal securities laws. Given the continuous nature of their illegal conduct, emergency injunctive relief is appropriate. The Commission further requests that the Court grant other emergency equitable relief against them, including an order requiring them to provide accountings, freezing their assets, prohibiting them from destroying or concealing documents and requiring them to repatriate assets to the U.S. The Commission further requests that the Court impose a temporary, preliminary and permanent penny stock bar against Custable and Suburban Capital, and bar them from further trading of securities during the pendency of this action. The Commission requests this equitable relief based on Custable's orchestration of a long-running and brazen scheme to violate the federal securities laws. The Commission also requests that the Court impose a permanent penny stock bar against Wetzel and Widen. The Commission further requests permanent injunctive relief, disgorgement, civil penalties and penny stock bars against Custable, Suburban Capital, Wetzel and Widen based on their conduct in this scheme. 12. The Commission requests disgorgement from relief defendant, Pine Services because it has been unjustly enriched through its receipt of ill-gotten gains from the scheme. The Commission further requests emergency equitable relief against Pine Services, including an asset freeze and repatriation order, as well as an order requiring a detailed accounting from Pine Services of its assets and for the transactions that are the subject of this action, and an order prohibiting Pine Services from destroying or concealing documents that are relevant to this action. 13. By the above conduct, Wasatch, Heesch and Giles have violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act. The Commission requests that the Court permanently enjoin Wasatch, Heesch and Giles from further violations, order them to pay disgorgement and civil penalties and enter an officer and director bar against Heesch and Giles. The Commission further requests that the Court impose a permanent penny stock bar against Heesch and Giles. As part of the requested temporary restraining order, the Commission seeks to have the Court require Wasatch, Heesch and Giles to provide an accounting of their assets and for the transactions that are the subject of this action and to be prohibited from destroying or concealing documents relevant to this action. 14. By the above conduct, Pacel, Calkins, Gateway and Bailey have violated Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act. The Commission requests that the Court permanently enjoin Pacel, Calkins, Gateway and Bailey from further violations, order them to pay disgorgement and civil penalties and enter a officer and director bar against Calkins and Bailey. As part of the requested temporary restraining order, the Commission seeks to have the Court require Pacel, Calkins, Gateway and Bailey to provide an accounting of their assets and for the transactions that are the subject of this action and to be prohibited from destroying or concealing documents relevant to this action. JURISDICTION 15. The Court has jurisdiction over this action pursuant to Sections 20 [15 U.S.C. §77t] and 22 of the Securities Act [15 U.S.C. §77v] and Sections 21(d)[15 U.S.C. §78u(d)] and 27 of the Exchange Act [15 U.S.C. §78aa]. 16. The defendants have, directly and indirectly, made, and are making, use of the mails, and of the means and instrumentalities of interstate commerce, in connection with the transactions, acts, practices and courses of business alleged in this Complaint. 17. There is a reasonable likelihood that the defendants will, unless enjoined, continue to engage in the transactions, acts, practices and courses of business set forth in this Complaint, and transactions, acts, practices and courses of business of similar purport and object. THE DEFENDANTS 18. Suburban Capital Corporation, is a Delaware corporation headquartered in Addison, Illinois. Suburban Capital purports to provide financing and consulting services to small public companies. Custable runs the operations of Suburban Capital. Many of the nominees used to accumulate stock for Custable's benefit were either employed by Suburban Capital or did consulting work for Suburban Capital. Throughout the scheme alleged in this action, Suburban Capital accumulated stock for Custable's benefit and took control of the ill-gotten gains generated by the scheme. 19. Frank J. Custable, Jr. is a resident of Glendale Heights, Illinois. Custable is the president of Suburban Capital and has also identified himself as its secretary. Custable was a registered representative with various broker-dealer firms until February 1992. Custable has a significant disciplinary history in the securities industry. In 1994, as part of a Commission action, Custable and F.C. Financial Corp. ("F.C. Financial"), an entity that he operated and controlled, were permanently enjoined from violating the antifraud provisions of the Securities Act and the Exchange Act and ordered to pay disgorgement of $324,970 and a civil penalty of $60,000. The prior Commission action resulted from a fraudulent offering involving mortgage-backed promissory notes. In 1994, as a result of the Commission enforcement action, the State of Illinois entered an order permanently prohibiting Custable and F.C. Financial from offering or selling any securities in Illinois and fined him $10,000. In 1992, the NASD censured Custable, barred him from association with any member firm, and fined him $20,000 as a result of his execution of unauthorized trades in customers' accounts and guaranteeing a return on the investments he sold to customers. In 1991, the State of Indiana ordered Custable to cease and desist from committing violations of the Indiana Securities Act and ordered him to pay a $15,000 civil penalty and $11,000 in restitution for fraud and other misconduct related his sales of investments. In 1992, the State of Wisconsin entered a Summary Order of Prohibition and Revocation of Exemptions against Custable for his failure to disclose his disciplinary history and other misrepresentations related to his sale of mortgage-related investments. 20. Sara Wetzel ("Wetzel") is a resident of Glenview, Illinois. Wetzel, like Custable, has identified herself as the president and secretary of Suburban Capital. At times relevant to this action, Wetzel was Custable's primary assistant at Suburban Capital and supervises its administrative staff. According to S-8 registration statements filed with the Commission, Wetzel has supposedly provided consulting services to Sharecom, Wasatch, and Pacel in exchange for S-8 stock. 21. Francis Scott Widen ("Widen") is a resident of Buffalo Grove, Illinois. At times relevant to this action, Widen was the head of Suburban Capital's "mergers and acquisitions department" and supervises the consultants who work for Suburban Capital. According to S-8 registration statements filed with the Commission, Widen has supposedly provided consulting services to Sharecom and Pacel in exchange for S-8 stock. 22. Wasatch Pharmaceutical, Inc. ("Wasatch") is a Utah corporation headquartered in Murray, Utah. The securities of Wasatch are registered with the Commission pursuant to Section 12(g) of the Exchange Act and are quoted on the OTC Electronic Bulletin Board, under the symbol WSCH. Wasatch purports to be engaged in designing, manufacturing, and marketing pharmaceutical and dermatological products. 23. Gary Heesch ("Heesch") is the Chief Executive Officer and a director of Wasatch and a resident of Utah. 24. David Giles ("Giles") is the Chief Financial Officer and secretary of Wasatch and a resident of Utah. 25. Pacel Corporation ("Pacel") is a Virginia corporation headquartered in Manassas, Virginia. The securities of Pacel are registered with the Commission pursuant to Section 12(g) of the Exchange Act and are quoted on the OTC Electronic Bulletin Board, under the symbol PCEL. Pacel purports to be a software development and systems integration company. 26. David Calkins ("Calkins") is a resident of Amissville, Virginia and is the president and a director of Pacel. 27. Gateway Distributors, Ltd. ("Gateway") is a Nevada corporation headquartered in Las Vegas, Nevada. The securities of Gateway are registered with the Commission pursuant to Section 12(g) of the Exchange Act and are quoted on the OTC Electronic Bulletin Board under the symbol GTWY. Gateway purports to market and distribute nutritional and health supplements. 28. Richard Bailey ("Bailey") is a resident of Las Vegas, Nevada and is the president, Chief Financial Officer, and a director of Gateway. 29. ThermoElastic Technologies, Inc. ("ThermoElastic") is a Colorado corporation headquartered in Fox Island, Washington. The securities of ThermoElastic are registered with the Commission pursuant to Section 12(g) of the Exchange Act and are quoted on the OTC Electronic Bulletin Board under the symbol TMRO. ThermoElastic purports to market and distribute dental care and other oral hygiene products. FACTS Custable and Suburban Capital's Relationship with the Issuers 30. From at least November 2001 to the present, Custable, through Suburban Capital, an entity that he controls, has been engaged in providing small public companies with financing and consulting services. The companies that have worked with Suburban Capital are very small public companies, typically with market capitalizations under $10 million. During the pendency of Custable's scheme, the stock of these companies generally traded at prices under $.10 per share, and frequently traded for less than $.01 per share. The stocks involved in this scheme are considered penny stocks. The stock of the companies involved in this scheme is quoted on the OTC Electronic Bulletin Board, which is a quotation service provided by the NASD. 31. Suburban Capital holds itself out to small public companies as a "one stop shop," capable of providing these companies with assistance in raising capital and other consulting services required by the small public companies. Although Custable controls Suburban Capital, he delegates various significant tasks to Wetzel and Widen. At times relevant to this action, Wetzel has served as Custable's primary assistant at Suburban Capital and acts as Suburban Capital's office manager. At times relevant to this action, Widen has served as the head of Suburban Capital's "mergers and acquisition department". In addition to Wetzel and Widen, Suburban Capital employed other consultants, including Robert Romine ("Romine"), James Carroll ("Carroll") and Paul Munnich ("Munnich"), to allegedly provide consulting services to the issuers identified in this Complaint. Where Custable has retained an individual to obtain stock on his behalf, such as Munnich, Carroll and Romine, the individual is referred to herein as a "straw man". 32. Through this relationship, Custable and Suburban Capital have obtained significant amounts of stock in the issuers identified in this Complaint. 33. One way that Custable has accumulated large positions in the penny stocks is through stock issued pursuant to a Form S-8 registration statement filed with the Commission by the issuer. Form S-8 registration is available to issuers who compensate their consultants in the form of securities, rather than cash. Small public companies use S-8 securities to fund their operations because they frequently do not have sufficient cash to do so. The instructions to Commission Form S-8 state that Form S-8 is available to register securities offered and sold to the issuer's consultants and employees "only if (i) they are natural persons; (ii) they provide bona fide services to the registrant; and (iii) the services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market for the registrant's securities..." Custable accumulated significant positions in the issuers by having individuals acting on his behalf, such as Wetzel and Widen, identified on Form S-8 registration statements as consultants to the issuers. Wetzel, Widen and Custable's straw men thus have received S-8 stock from the issuers and, at Custable's direction, they have either sold such stock or transferred it to Suburban Capital or to another entity or individual. 34. Another way that Custable has provided capital to issuers is through secured loans made by Suburban Capital to the issuers. Such loans have been secured by shares of the issuer's restricted stock, which are shares owned by one or more of the officers, directors or other persons affiliated with the issuer. Stock issued by a public company without the filing of a registration statement, and stock issued to the officers, directors, or other affiliates of a public company, is considered restricted stock at the time of its issuance. Restricted stock is restricted from resale or transfer pursuant to the federal securities laws. Restricted stock may be sold or transferred by the owner only upon the fulfillment of certain conditions, including a minimum time period for which the owner must hold the stock and limitations on the amount of restricted stock that can be sold during a certain time period. Certificates of restricted stock bear a restrictive legend that can only be lifted by the stock transfer agent. Transfer agents requested to lift the restrictive legend on restricted stock are required to assure themselves that it is appropriate to do so under the federal securities laws. Transfer agents generally do so by requiring an attorney opinion letter reflecting a legal opinion that it is appropriate to lift the restrictive legend. Custable has accumulated significant positions in the penny stocks involved in this scheme by foreclosing on the restricted stock pledged as collateral for loans made by Suburban Capital to the issuers. When Custable obtains restricted stock, he generally arranges for an attorney to provide to the issuer's transfer agent an opinion letter stating that it is appropriate to remove the restrictive legend from the stock certificates. Once the restrictive legend is removed, shares of stock may then be traded on the secondary market. Custable has used such stock as currency to fund his illegal enterprise. Custable's Accumulation and Liquidation of S-8 Stock The Accumulation of S-8 Stock 35. Between November 2001 to the present, Wetzel, Widen and the straw men, as well as entities controlled by Custable, including Suburban Capital, North Coast Investments, Inc., and Metropolitan Ventures, have obtained S-8 stock in Sharecom, Wasatch, Pacel, Premier Axium, Gateway, BMII and ThermoElastic. 36. Wetzel, Widen and the straw men received this stock purportedly in exchange for providing consulting services to the issuers. Wetzel, Widen and the straw men would execute consulting agreements with the issuers, under which they were supposed to provide the issuers with strategic and marketing consulting services. 37. Pursuant to these consulting agreements, the issuers would file Form S-8 registration statements with the Commission. The issuers would then issue the S-8 stock, or options to purchase S-8 stock, to Wetzel, Widen and the straw men. In the event that Wetzel, Widen or the straw men received options to purchase the issuer's S-8 stock, Custable and Suburban Capital would pay to exercise the option. 38. The issuer's S-8 stock issued to Wetzel, Widen and the straw men often represented approximately 10 to 30 percent of the issuers' issued and outstanding stock at the time of issuance. The Sham Form S-8 Registrations 39. Custable, Suburban Capital, Pacel, Calkins, Wasatch, Giles, Heesch, Gateway, Bailey, and ThermoElastic engaged in a scheme to issue S-8 stock to the straw men for services of little or no value or in exchange for financing. 40. Between April and July 2002, Munnich acted as a straw man with respect to Form S-8 registrations for Wasatch, Gateway and ThermoElastic. During this time period, Munnich was employed by Suburban Capital in its "mergers and acquisitions" department. Custable decided to hire Munnich after interviewing him. Munnich is a high-school graduate who had experience working for a travel agency before going to work for Suburban Capital. At Suburban Capital, Munnich primarily made "cold calls" to private companies on behalf of Suburban Capital's public company clients. The purpose of these calls was to see if a private company was willing to be acquired by the public company in exchange for stock in the public company. When he worked for Suburban Capital, Munnich reported to Widen and Custable. Munnich quit working for Suburban Capital in July 2002, having never closed a merger or acquisition. He was paid approximately $10,000 in cash for his work at Suburban Capital. 41. Between April and July 2002, Munnich received approximately 380 million shares of Wasatch S-8 stock, 3.5 billion shares of Gateway S-8 stock, and 40 million shares of ThermoElastic S-8 stock. At the time the stock was issued, the Wasatch, Gateway, and ThermoElastic stock had a value of approximately $1.52 million, $4.25 million, and $1.76 million, respectively. The stock that Munnich received represented a significant amount of the issued and outstanding stock of Wasatch, Gateway and Thermo Elastic, as detailed in Exhibit 1. Under the consulting agreements with Wasatch, Gateway and ThermoElastic, Munnich was supposed to assist the issuers with short and long range strategic planning, help develop and implement a marketing program, assist in recruiting of marketing and sales personnel, and identify, evaluate, structure, negotiate, and close strategic alliances. Munnich was unqualified to perform most of these services. 42. The Form S-8 registration statements for which Munnich was identified as a consultant were shams. Munnich never provided any services to ThermoElastic. Thermo Elastic had previously agreed with Custable that it would issue the stock that it registered on Form S-8 in the name of Munnich in exchange for financing from Suburban Capital in the form of a restricted stock purchase agreement. In addition, Munnich worked approximately 5 hours under the two consulting agreements with Wasatch, and approximately 40 to 80 hours under his consulting agreement with Gateway. The little work that Munnich did for Wasatch and Gateway consisted of cold calling private businesses and inquiring whether they would be interested in being acquired by Gateway or Wasatch. Defendants Heesch and Giles signed the Form S-8 registration statements under which Munnich received Wasatch stock. Defendant Bailey signed the registration form under which Munnich received Gateway stock. In so doing, Heesch, Giles and Bailey falsely represented that Munnich was receiving securities for bona fide services and not in connection with a capital-raising transaction. Bailey, Heesch and Giles, as executive officers of small public companies, either knew at the time of the Form S-8 registrations, or were reckless in not knowing, that these representations were false. 43. Rather than provide ThermoElastic, Wasatch and Gateway with valuable services, Munnich acted as a straw man for Custable. Custable and Wetzel directed Munnich to transfer the stock that he received from ThermoElastic, Wasatch and Gateway to Suburban Capital and to individuals and entities associated with Custable and Suburban Capital. As a result, Munnich was merely a nominal consultant to the issuers and a nominal owner of the issuers' stock. Custable, through Suburban Capital, was the one with the real interest in the Thermo Elastic, Wasatch and Gateway stock issued in Munnich's name. For the most part, this stock was subsequently sold out of Suburban Capital's brokerage accounts. 44. Custable and Wasatch expressly agreed that the S-8 stock issued to Munnich was issued in exchange for financing. Specifically, the 380 million shares of Wasatch S-8 stock issued to Munnich was expressly in exchange for a $100,000 loan from Custable and Suburban Capital. In a letter from Giles to Custable on May 13, 2002, Giles described the $100,000 loan and the 380 million share S-8 issuance to Munnich as "one transaction." 45. Custable also engaged in a scheme to conduct a sham S-8 offering with Sharecom. Beginning in approximately October 2001, Custable offered to have Suburban Capital provide financing to Sharecom in exchange for options to purchase at least 165 million shares of S-8 stock. Custable informed Sharecom's former president, Brad Nordling ("Nordling"), that although Sharecom could not sell S-8 stock to Custable, Sharecom could obtain money from Custable by issuing options to purchase S-8 stock to individuals whom Custable would designate. 46. The capital raising arrangement agreed to by Custable and Nordling required Sharecom to issue options to purchase its S-8 stock to Wetzel, Widen, and another Suburban Capital consultant, Carroll, pursuant to three separate consulting agreements. On November 21, 2001, Sharecom issued to Wetzel and Widen an option to purchase 130 million shares of Sharecom's S-8 stock. Under the consulting agreements with Wetzel and Widen, the options to purchase 65 million shares of Sharecom stock had an exercise price of $.000923 per share. On January 4, 2002, Sharecom entered into a consulting agreement with Carroll. Under this consulting agreement, Sharecom issued to Carroll an option to purchase 35 million shares of its S-8 stock. Under the consulting agreement with Carroll, the option to purchase 35 million shares of Sharecom stock had an exercise price of $.003 per share. All of the options provided for in the consulting agreements with Wetzel, Widen and Carroll were immediately exercised, with Suburban Capital paying the exercise price. Custable also entered into a similar arrangement with Wasatch. Under this arrangement, Wasatch issued warrants to purchase its S-8 stock to Romine, Wetzel and Carroll in approximately January or February 2002. These warrants were exercised and the exercise price was received, directly or indirectly, from Custable and Suburban Capital. 47. Although Sharecom received some consulting services in exchange for the S-8 stock issued to Wetzel, Widen and Carroll, the primary purpose of the consulting agreements was to raise capital to maintain Sharecom's business operations. If Sharecom had not received financing in the form of the option exercise price, it would not have issued the options to Wetzel, Widen, and Carroll. Between November 2001 and April 2002, Sharecom received at least $212,995 directly or indirectly from Suburban Capital. 48. Custable also used Romine as a straw man for at least one S-8 registration statements. Romine is an independent contractor who has worked for Suburban Capital and its clients. In or about January or February 2002, Wetzel requested that Romine open up a brokerage account in which he could receive stock. In or about January or February 2002, Romine opened up the brokerage account as Wetzel requested and signed paperwork giving Wetzel the authority to sell and transfer stock out of his account. 49. Pursuant to a Form S-8 registration statement dated February 29, 2002, Romine obtained 33 million shares of Pacel. Romine did not provide any consulting services in exchange for the Pacel stock and was unaware that the Pacel stock was issued in his name until October 2002. This stock was sold out of Romine's brokerage account without his knowledge and the proceeds transferred into a bank account controlled by Custable. Calkins signed the Form S-8 registration statement on behalf of Pacel and thereby falsely represented that the Pacel stock was issued to Romine in exchange for bona fide consulting services and not in connection with a capital-raising transaction. Calkins knew, or was reckless in not knowing, that he made misrepresentations in connection with the Form S-8 registration involving Romine. Custable Arranges for Spam Stock Newsletters to Create
50. After accumulating large positions in the issuers' stock, Custable took steps to create market demand for the sales he intended to make. Custable primarily created market demand by hiring several individuals ("spammers") to prepare and widely disseminate e-mail and fax newsletters to the investing public. The newsletters touted the stock of the companies as good investments. Many of these newsletters appear to have had a significant market effect, generally corresponding to a significant increase in trading volume and, at times, a price increase. 51. Custable arranged for the spammers to be compensated in unrestricted stock and cash for preparing the newsletters. In many cases, the stock paid as compensation for the stock newsletters was originally issued to third parties as restricted stock, allegedly for services rendered over two years in the past. Without receiving anything directly in return, these third parties then transferred the restricted stock to the spammer, at the direction of Custable. 52. After directing the transfer of restricted stock to the spammers, Custable retained attorneys to prepare opinion letters stating that because the stock was issued for services rendered over two years in the past, the restrictive legend on the stock should be removed. The stock was then reissued in the name of the spammer, without a restrictive legend. The spammers then sold the stock. 53. In or about November or December 2001, Custable arranged for the restrictive legend on certain shares of Sharecom to be lifted based on a bogus attorney letter. In or about November or December 2001, Custable agreed with Nordling that Sharecom would issue 15 million shares of its stock to a so-called "friendly party", Thomas Wetzel (who is not related to Defendant Sara Wetzel). Because the stock Custable anticipated that Sharecom would issue to Thomas Wetzel would not be registered on Form S-8, Sharecom would be required to issue it as restricted stock. Custable, however, had devised a plan to instantaneously lift the restriction on the Sharecom stock to be issued to Thomas Wetzel, so that it could be sold in the secondary market. Under Custable's plan, Nordling had to fabricate a compensation dispute with Thomas Wetzel in which Thomas Wetzel demanded compensation for services that he provided to Sharecom more than two years earlier, for which he had not been compensated. 54. Thomas Wetzel had performed work for Sharecom in the past, but he was paid for the work that he had performed at or about the time that he performed the work. At the time that Thomas Wetzel demanded that Sharecom pay him stock for services that he had performed in the past, Sharecom did not owe Thomas Wetzel any stock, or any other form of compensation. Although Nordling told Custable these facts, Custable devised the fiction that Thomas Wetzel was owed this stock for work performed more than two years earlier. Custable then directed Nordling to prepare paperwork documenting Thomas Wetzel's demand for payment in stock for services previously rendered to Sharecom. Custable reviewed Nordling's paperwork documenting Thomas Wetzel's false demand at the time that the paperwork was prepared. After Nordling prepared the paperwork to Custable's satisfaction, Custable arranged for an attorney opinion letter to be prepared so that Sharecom's transfer agent would allow the Thomas Wetzel stock to be issued without a restrictive legend. Sharecom's transfer agent did issue 15 million shares of unrestricted stock to Thomas Wetzel. 55. At or about the time that Sharecom issued 15 million shares of unrestricted stock to Thomas Wetzel, Thomas Wetzel directed the transfer agent to transfer the stock to various individuals involved in producing spam newsletters for Custable's benefit. Thomas Wetzel requested that the stock issued to him be immediately transferred based on Custable's request, which was communicated to Thomas Wetzel through Nordling. Wetzel, Widen and the Straw Men Liquidate S-8 Stock for Custable's Benefit in Unregistered Offerings 56. After accumulating large positions in the issuers' stock and arranging for spam newsletters, Custable would then used Wetzel, Widen and the straw men to liquidate the stock through massive selling to the investing public. Between November 2001 and the present, Suburban Capital, Wetzel, and Widen engaged in unregistered offerings of the stock of Wasatch, Gateway, Pacel, Thermo Elastic, BMII, Premier Axium and Sharecom. The unregistered offerings are detailed in a summary schedule, which is attached to Glaser's Declaration as Exhibit 1 and incorporated herein by reference. They did so by selling the issuer's stock they had accumulated for Custable's benefit almost immediately after receiving it from the issuers. These stock sales by Suburban Capital, Wetzel and Widen show that they acquired the stock from the issuers with a view to distributing it to the investing public. 57. Custable, Suburban Capital, Wetzel, Widen and the straw men did not file a registration statement with the Commission for the sales of stock detailed in Exhibit 1, even though many of the sales accounted for a significant amount of the issuer's outstanding stock at the time of the sales. 58. The sales made during the unregistered offerings were done through myriad brokerage accounts in order to conceal Custable's beneficial interest in the stock. In some instances, sales were made out of brokerage accounts in the name of Suburban Capital, Wetzel, Widen or one of the straw men used by Custable. In such instances, most of the proceeds from the stock sales were then transferred to a Suburban Capital bank account that Custable controlled. In other instances, Custable directed Wetzel, Widen and the straw men to transfer stock issued in their name to Suburban Capital. This stock would then be sold out of Suburban Capital's brokerage account. No matter which method was employed, the vast majority of the proceeds from the unregistered offerings were directed to Suburban Capital's bank account, which is an account controlled exclusively by Custable. Between November 2001 to the present, Suburban Capital, Wetzel, Widen and the straw men transferred at least $4.3 million in proceeds from the unregistered offerings of stock into Suburban Capital's bank account. Custable then directed a small portion of these proceeds to Wetzel, Widen and the straw men. Custable's Concealment of Beneficial Ownership 59. As a result of the issuances of stock described in this action, at various times between November 2001 and the present, Custable beneficially owned more than 5% of the issued and outstanding stock in Wasatch, Pacel, Gateway, ThermoElastic, Sharecom, and Premier Axium. 60. The federal securities laws require individuals and entities who accumulate a position of 5% or more of the issued and outstanding stock of an issuer to file a Schedule 13D disclosing their interest. A Schedule 13D discloses, among other things, the filer's beneficial ownership of stock in the issuer, the purpose of the stock acquisition and all material changes in beneficial ownership of the stock disclosed. 61. With the exception of two recently filed Schedules 13D disclosing his ownership in Wasatch and Gateway, Custable never filed a Schedule 13D, or any other documents, disclosing his personal beneficial ownership of any of these securities. Further, Custable did not file any statements or supplemental Schedules 13D disclosing the sales of stock in the issuers for his benefit. 62. Custable intentionally concealed his beneficial ownership of stock by not filing Schedules 13D. He did so because he knew that the investing public would be suspicious of investing in stock associated with Custable, a recidivist securities law violator. Issuance and Sale of Counterfeit BMII Stock 63. Suburban Capital, Custable, and Wetzel also engaged in a fraudulent scheme to issue counterfeit shares of BMII to use for their own benefit. BMII is a bulletin board company that specializes in direct marketing. In Spring 2001, Custable approached Robert Blagman ("Blagman"), the chief executive officer of BMII, about providing BMII with financing and consulting services through Suburban Capital. Blagman agreed and thereafter Custable arranged for Suburban Capital and others to loan Blagman and BMII more than $1 million, with Blagman's restricted stock of BMII pledged as collateral. When Blagman and BMII failed to repay these loans, Custable foreclosed on the BMII stock pledged as collateral. 64. The relationship between Custable and Blagman began to break down around March 2002 when Custable failed to come through with additional financing that he had promised BMII. Custable requested that Blagman provide him with more BMII stock and Blagman refused. Thereafter, Custable, Suburban Capital and Wetzel executed a scheme to issue counterfeit BMII stock for their own benefit. 65. Between at least April 12 and May 22, 2002, Custable, through Suburban Capital and Wetzel, sent to BMII's transfer agent, the entity responsible for issuing physical certificates of BMII stock, numerous BMII share issuance authorizations purportedly from BMII and signed by Blagman. These share issuance authorizations resulted in the issuance of approximately 5.4 billion shares of BMII stock. 66. This stock was issued without the authorization of Blagman or BMII. The share issuance authorizations used to obtain the counterfeit BMII stock were forgeries. Blagman's signature and handwriting were forged on the share issuance authorization forms. Blagman has identified some of the handwriting used to forge the share issuance authorization forms as Wetzel's handwriting. The federal criminal authorities seized many of the original share issuance resolutions used to obtain the unauthorized BMII stock when they executed a search warrant at Suburban Capital's office in Addison, Illinois. 67. In addition to forged issuance authorization forms, Custable, Suburban Capital and Wetzel also fabricated consulting agreements to make it appear to BMII's transfer agent that the share issuances were pursuant to Form S-8 registration statements. They did so by forging Blagman's signature on the consulting agreements. The consulting agreements supposedly justifying the issuance of the counterfeit BMII stock were never agreed to by BMII. The federal criminal authorities seized some of the forged consulting agreements during their execution of the search warrant on Suburban Capital's offices. 68. Based on the forged issuance authorization forms, the transfer agent delivered the unauthorized BMII stock directly to Suburban Capital's offices. As of May 22, 2002, the counterfeit BMII stock accounted for approximately half of BMII's issued and outstanding stock. 69. Custable, Suburban Capital and Wetzel controlled the counterfeit stock after its issuance. Wetzel sold at least 240 million shares of the counterfeit BMII stock, out of two separate accounts, generating proceeds of at least $242,000, which she transferred to Suburban Capital's bank account. Other shares of the counterfeit BMII stock were transferred to individuals and entities that are involved in disseminating spam stock newsletters. Expatriation of Assets 70. Since at least 2002, Custable has taken steps to direct his ill-gotten gains beyond the reach of U.S. law enforcement. In the summer of 2002, Custable set up an entity in Nevis, an offshore jurisdiction, to protect his assets from any potential civil or criminal judgment. Further, since June 2002, Custable and Suburban Capital have transferred over $110,000 into an account at a Costa Rican bank for the eventual credit of Pine Services, or Suburban Capital. Pine Services is a Costa Rican entity located in San Juan. The business operations of Pine Services, outside of its affiliation with Custable and Suburban Capital, are unknown. 71. As recently as February 14, 2003, Gateway issued Custable shares of its S-8 stock in exchange for purported consulting services. In most cases, Custable has immediately transferred this stock to Pine Services. Pine Services then transfers this stock into a brokerage account and sells the Gateway stock. Pine Services then transfers these sales proceeds into an account at Banco Nacional de Costa Rica. 72. Neither Pine Services, nor Custable, has ever filed a registration statement for these sales of Gateway stock. COUNT I Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. §77q(a)(1)] 73. Paragraphs 1 through 72 are hereby realleged and incorporated by reference herein. 74. From at least November 2001 through the present, Custable, Wetzel, Suburban Capital, Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, have employed and are employing devices, schemes and artifices to defraud. 75. Custable, Wetzel, Suburban Capital, Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic knew or were reckless in not knowing the facts and circumstances described in Paragraphs 1 through 74 above. 76. By reason of the foregoing, Custable, Wetzel, Suburban Capital, Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic have violated and are violating Section 17(a)(1) of the Securities Act. COUNT II Violations of Section 17(a)(2) and 17(a)(3)
77. Paragraphs 1 through 76 are hereby realleged and incorporated by reference herein. 78. From at least November 2001 through the present, Custable, Wetzel, Suburban Capital, Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic, in the offer and sale of securities, by the use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, directly and indirectly, have obtained and are obtaining money and property by means of untrue statements of material fact and have omitted and are omitting 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 have engaged and are engaging in transactions, practices and courses of business which operated and will operate as a fraud and deceit upon purchasers and prospective purchasers of stock in the issuers. 79. By reason of foregoing, Custable, Wetzel, Suburban Capital, Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic have violated and are violating Sections 17(a)(2) and 17(a)(3) of the Securities Act. COUNT III Violations of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)]
80. Paragraphs 1 through 79 are hereby realleged and incorporated by reference herein. 81. From at least November 2001 through the present, Custable, Wetzel, Suburban Capital, Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic, in the offer and sale of securities, by the use of the means and instrumentalities of interstate commerce and of the mails, directly and indirectly, have employed and are employing devices, schemes and artifices to defraud; have made and are making untrue statements of material fact and have omitted and are omitting 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 have engaged and are engaging in acts, practices and courses of business which operated and will operate as a fraud and deceit upon purchasers and sellers of such securities. 82. Custable, Wetzel, Suburban Capital, Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic, knew or were reckless in not knowing of the activities described in Paragraphs 1 through 81 above. 83. By reason of foregoing, Custable, Wetzel, Suburban Capital, Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic, have violated and are violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. COUNT IV Violations of Section 5(a) and (c) of the Securities Act [15 U.S.C. § 77e(a) and (c)] 84. Paragraphs 1 through 83 above are realleged and incorporated herein by reference. 85. From at least November 2001 to the present, Custable, Suburban Capital, Wetzel, Widen, Wasatch, Heesch and Giles directly and indirectly, and notwithstanding that there was no applicable exemption: (i) made use of means or instruments of transportation or communication in interstate commerce or of the mails to sell, through the use or medium of a prospectus or otherwise, securities as to which no registration statement was in effect; (ii) for the purpose of sale or delivery after sale, carried and/or caused to be carried through the mails or in interstate commerce, by means or instruments of transportation, securities as to which no registration statement was in effect; and (iii) made use of means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell, through the use or medium of a prospectus or otherwise, securities as to which no registration statement had been filed. 86. No valid registration statement was filed with the Commission in connection with Custable, Suburban Capital, Wetzel, Widen, Wasatch, Heesch and Giles' sales of, and offers to sell, securities in the issuers identified in this complaint. 87. By reason of the foregoing, Custable, Suburban Capital, Wetzel, and Widen have violated and are violating Sections 5(a) and (c) of the Securities Act [15 U.S.C. § 77e(a) and (c)]. COUNT V Violations of Section 13(d) of the Exchange Act [15 U.S.C. § 78m(d)], and Rule 13d-1 and 13d-2 thereunder [17 CFR 240.13d-1, 13d-2] 88. Paragraphs 1 through 87 above are realleged and incorporated herein by reference. 89. Section 13(d) of the Exchange Act and Rule 13d-1 thereunder require that any person that acquires more than 5% of a company's class of stock registered under Section 12 of the Exchange Act must notify the issuer and the Commission within 10 days of the acquisition. Exchange Act Rule 13d-2 requires that the person notify the issuer and the Commission of any material increases or decreases in the percentage of beneficial ownership. 90. From at least November 2001 to the present, Defendant Custable 1) beneficially owned more than 5% of the issued and outstanding stock of Sharecom, Wasatch, Pacel, Premier Axium, Gateway, and ThermoElastic; and 2) failed to file a Schedule 13D, or any other report or schedule, disclosing his beneficial ownership interest in Sharecom, Wasatch, Pacel, Premier Axium, Gateway, and ThermoElastic. 91. By reason of foregoing, Custable violated and, unless enjoined, will continue to violate Section 13(d) of the Exchange Act [15 U.S.C. §78m(d)] and Rules 13d-1 and 13d-2 thereunder [17 C.F.R. 240.13d-1, 13d-2]. RELIEF REQUESTED WHEREFORE, the Commission respectfully requests that the Court: A. Grant a Temporary Restraining Order, Order of Preliminary Injunction, and Order of Permanent Injunction, in forms consistent with Rule 65(d) of the Federal Rules of Civil Procedure, restraining and enjoining: (1) Custable, Suburban Capital, Wetzel, and Widen from violating Sections 5(a) and (c) of the Securities Act [15 U.S.C. § 77e(a) and (c)]; (2) Custable, Suburban Capital and Wetzel, their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice of the Temporary Restraining Order, Order of Preliminary Injunction, and Order of Permanent Injunction by personal service or otherwise from directly or indirectly engaging in acts practices or courses of business described above, or in conduct of a similar purport and object, in violation of Section 17(a)(1), (2), and (3) of the Securities Act [15 U.S.C. § 77q(a)]; (3) Custable, Suburban Capital and Wetzel, their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice of the Temporary Restraining Order, Order of Preliminary Injunction, and Order of Permanent Injunction by personal service or otherwise from directly or indirectly engaging in acts, practices or courses of business described above, or in conduct of a similar purport and object, in violation 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], thereunder; and (4) Custable, his officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice of the Temporary Restraining Order, Order of Preliminary Injunction, and Order of Permanent Injunction by personal service or otherwise from directly or indirectly engaging in acts, practices or courses of business described above, or in conduct of a similar purport and object, in violation of Section 13(d) of the Exchange Act [15 U.S.C § 78m(d)] and Rules 13d-1 and 13d-2 thereunder [17 CFR 240.13d-1, 13d-2]. B. Grant an Order of Permanent Injunction, in forms consistent with Rule 65(d) of the Federal Rules of Civil Procedure, restraining and enjoining: (1) Wasatch, Heesch and Giles their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice of the Order of Permanent Injunction by personal service or otherwise from directly or indirectly engaging in acts practices or courses of business described above, or in conduct of a similar purport and object, in violation of Sections 5(a) and (c) of the Securities Act [15 U.S.C. § 77e(a) and (c)]; (2) Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice of the Order of Permanent Injunction by personal service or otherwise from directly or indirectly engaging in acts practices or courses of business described above, or in conduct of a similar purport and object, in violation of Section 17(a)(1), (2), and (3) of the Securities Act [15 U.S.C. § 77q(a)]. (3) Wasatch, Heesch, Giles, Pacel, Calkins, Gateway, Bailey, and ThermoElastic, their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice of the Order of Permanent Injunction by personal service or otherwise from directly or indirectly engaging in acts practices or courses of business described above, or in conduct of a similar purport and object, in violation 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], thereunder. B. Order Custable, Suburban Capital, Wetzel, Widen, Wasatch, Giles, Heesch, Pacel, Calkins, Gateway, Bailey and ThermoElastic to disgorge any and all ill-gotten gains, plus prejudgment interest and an order requiring Pine Services to disgorge any ill-gotten gains. C. Impose civil penalties against Custable, Suburban Capital, Wetzel, Widen, Wasatch, Giles, Heesch, Pacel, Calkins, Gateway, Bailey and ThermoElastic pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. D. Issue orders (a) freezing the assets of Custable, Suburban Capital, Wetzel, Widen and Pine Services, their officers, agents, servants, employees, attorneys and those persons in active concert with them who receive actual notice of the asset freeze by personal service or otherwise, (b) requiring all the defendants and relief defendant Pine Services to identify assets and to provide an accounting; and (c) prohibiting all of the defendants and relief defendant Pine Services from destroying documents; E. Issue an order temporarily, preliminarily, and permanently prohibiting Custable and Suburban Capital from participating in any offering of penny stock pursuant to Section 20 of the Securities Act [15 U.S.C. § 77t] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. F. Issue an order permanently prohibiting Wetzel, Widen, Heesch and Giles from participating in any offering of penny stock pursuant to Section 20 of the Securities Act [15 U.S.C. § 77t] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. G. Issue an order imposing interim equitable relief, including (1) an order temporarily and preliminarily barring Custable and Suburban Capital from trading, directly or indirectly, in securities, and (2) an order temporarily and preliminarily requiring Custable and Suburban Capital to report any securities transaction after the filing of this action in which they have any direct, indirect, or beneficial interest. H. Issue an order requiring Custable, Suburban Capital, Wetzel, Widen and Pine Services to repatriate to U.S. financial institutions all assets in which they have a direct, indirect or beneficial interest. I. Issue an order permanently barring Heesch, Giles, Bailey and Calkins from serving as an officer or director of any public company pursuant to Section 20 of the Securities Act [15 U.S.C. § 77t] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. J. Issue an order appointing a receiver for Suburban Capital. K. Grant such other and further relief as may be necessary and appropriate. L. Retain jurisdiction over this action 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: March 27, 2003 _____________________________ http://www.sec.gov/litigation/complaints/comp18057.htm
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