UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission (the "SEC" or "Commission") alleges and states as follows:
1. The Commission brings this action to restrain and permanently enjoin Defendant Philip R. Gratz ("Gratz") from (a) violating an associational bar that, with his consent, the Commission previously imposed on him, and (b) from violating the broker-dealer registration provisions of the Securities Exchange Act of 1934 ("Exchange Act"). As detailed below, from at least November 1998 until the Commission filed an emergency civil contempt action on March 20, 2003, Gratz, doing business as Phoenix World Wide Enterprises, Inc. ("Phoenix") raised more than $8.9 million from investors by falsely promising that he would invest their funds in the stock market and by falsely promising them fixed annual returns of 25% or higher. Contrary to Gratz's promises, approximately $3.02 million was misappropriated for Gratz's personal use.
2. In connection with his fraudulent misconduct, Gratz received transaction related compensation for providing investment advice and for inducing or attempting to induce the purchase or sales of securities while not registered with the Commission as a broker or dealer. Through his conduct, Gratz violated a 1992 Commission Order that prohibited him from association with any broker, dealer and investment adviser and violated the broker-dealer registration provisions of the Exchange Act.
4. Defendant Gratz, is 38 years old, and resides in Marlton, New Jersey. From at least 1998 through March 2003, Gratz did business and offered and sold securities under the name of Phoenix. Gratz is currently a respondent in a related emergency action brought by the Commission to halt his continuing contempt of a 1992 injunction issued by this Court that prohibited him from, among other things, violating the antifraud provisions of the federal securities laws. SEC v. Delta Rental Systems, Inc., Paul J. Carvajal, Carlos Prado, and Philip J. Gratz, Case No. 91-2136-CIV-DAVIS (civil contempt motion filed March 20, 2003 in the Southern District of Florida).
III. JURISDICTION AND VENUE
5. This Court has jurisdiction over this action pursuant to Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78aa]; and Sections 209 and 214 of the Investment Advisers Act of 1940 ("Advisers Act") [15 U.S.C. §§80b-9 and 80b-14].
6. The Southern District of Florida is the proper venue for this action. Certain actions and transactions alleged and stated herein constitute violations of the Advisers Act and the Exchange Act and have occurred within the Southern District of Florida. In addition, investors of Gratz reside in this district and entered into contracts with Gratz within the Southern District of Florida.
7. Defendant Gratz, directly and indirectly, has made use of the means and instrumentalities of interstate commerce, the means and instruments of transportation and communication in interstate commerce, and the mails, in connection with the acts, practices, and courses of business complained of herein.
IV. GRATZ'S FRAUDULENT OFFERING
A. Gratz's History Of Violating the Federal Securities Laws and His Bar From Association With Any Broker, Dealer and Investment Adviser
8. On September 20, 1992, the Commission filed a complaint against Gratz and others, alleging violations of the federal securities laws, in the Southern District of Florida. SEC v. Delta Rental Systems et al., Case No. 91-2136-CIV-DAVIS. The Commission's complaint alleged that while Gratz was a branch manager and general principal of a broker-dealer registered with the Commission, and while he was responsible for promoting the stock of a publicly traded company, Gratz failed to disclose to investors (a) that he had established nominee accounts to facilitate the trading of the stock by officers of the issuer, (b) that controlling persons of the issuer were selling large blocks of the issuer's stock, (c) that he was the source of many of the shares purchased by his customers, (d) that he opened and controlled his own nominee account to conceal his own trading in the issuer's stock, (e) that he had received monies from an affiliate and shareholders of the issuer, and (f) that he had made loans to officers of the issuer.
9. On April 30, 1992, the United States District Court for the Southern District of Florida Court entered a Permanent Injunction against Gratz, enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-3, thereunder.
10. On September 16, 1992, the Commission instituted public administrative proceedings against Gratz pursuant to Sections 15(b) and 19(h) of the Exchange Act based on the same underlying misconduct as alleged in the Commission's complaint and on the entry of the injunction against Gratz.
11. On December 22, 1992, the Commission accepted Gratz's Offer of Settlement and ordered him barred from association with any broker, dealer, municipal securities dealer, investment adviser or investment company (the "Commission Order").
12. In 1994, Gratz also pled guilty and was convicted of violating the federal securities laws and of mail fraud. Gratz was sentenced to 21 months in federal prison, and ordered to pay $401,500 in restitution. Gratz was released from prison in November 1996.
B. Gratz Again Defrauds Investors
13. Beginning by or before November 1998, Gratz started a new scheme to defraud investors. From at least November 1998 until March 2003, Gratz, doing business as Phoenix, offered and sold more than $8.9 million of securities in the form of promissory notes to eleven investors residing in four states.
14. To effectuate his scheme, prospective investors were referred to Gratz from existing investors. Gratz then personally solicited those prospects to invest with him via the telephone.
15. Gratz represented to investors that he would invest their funds in the stock market and he guaranteed them fixed annual returns ranging from 25 to 50 percent on their investment. Gratz also told investors that their investment would be made through his company, Phoenix, and that the investment would be for a term of one year. Gratz told investors that at the end of the year, they would have an option either to reinvest their principal and accrued interest for another year or to have their principal and interest returned to them. Gratz misled investors into believing that their investment would be safe by falsely telling them that zero coupon bonds backed the investments.
16. Gratz styled his investment opportunity as a "loan" program, and in order to invest with him, Gratz required investors to sign a "loan" agreement with Phoenix. The agreement memorializes the terms of the investment, including the guaranteed rate of return, and repeats the claim that the investment will be secured by zero coupon bonds.
17. Gratz told prospective investors that he had been a stockbroker, but he omitted to disclose to them his extensive disciplinary history.
18. Gratz falsely told investors that he had average annual returns ranging from 60 to 70 percent from his stock-trading program. Gratz also falsely told investors that he would keep as his compensation any trading profits in excess of investor's guaranteed returns.
19. Only approximately $4.1 million of investor funds were actually transferred to Phoenix's brokerage account for trading in the market.
20. Gratz misappropriated at least $3.02 million of investor funds, in part to support his lavish lifestyle. For example, investor funds were used to purchase, among other things, a luxurious house, three Mercedes Benz automobiles, furniture and home improvements, designer clothes, jewelry and artwork. Gratz also misappropriated at least $1,044,500 to family members and to pay interest and/or principal to investors in a Ponzi-like fashion.
21. Gratz failed to disclose to investors that he was operating a Ponzi scheme. Investors suffered an accumulated trading loss of more than $494,000 from Gratz's trading program. Gratz used new investor monies to return principal and pay interest to investors who left the program.
VIOLATION OF A COMMISSION ORDER AND OF SECTION 15(b)
22. The Commission realleges and repeats its allegations set forth at paragraphs 1-21 of this Complaint as if fully restated herein.
23. Since a date unknown, but at least from November 1998 through March 2003, Gratz associated himself with a broker in violation of the Commission Order.
24. By reason of the foregoing, Defendant Gratz violated the Commission Order and Section 15(b)(6)(B) of the Exchange Act, 15 U.S.C. § 78o(b)(6)(B).
VIOLATION OF A COMMISSION ORDER AND OF SECTION 203(f) OF THE ADVISERS ACT
25. The Commission realleges and repeats its allegations set forth at paragraphs 1-21 of this Complaint as if fully restated herein.
26. Since a date unknown, but at least from November 1998 through March 2003, Gratz associated himself with an investment adviser in violation of the Commission Order.
27. By reason of the foregoing, Defendant Gratz violated the Commission Order and Section 203(f) of the Advisers Act, 15 U.S.C. § 80b-3(f).
UNREGISTERED BROKER-DEALER IN VIOLATION OF
28. The Commission repeats and realleges paragraphs 1-21 of its Complaint as if fully restated herein.
29. Since a date unknown, but at least from November 1998 through March 2003, Gratz, directly and indirectly, by use of the mails or any means or instrumentality of interstate commerce, while acting as a broker or dealer engaged in the business of effecting transactions in securities for the accounts of others, effected transactions in securities, or induced or attempted to induce the purchase or sale of securities, without registering as a broker or dealer in accordance with Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b).
30. By reason of the foregoing, Defendant Gratz, directly and indirectly, has violated and, unless enjoined, will continue to violate Section 15(a)(1) of the Exchange Act, 15 U.S.C. § 78o(a)(1).
WHEREFORE, the Commission respectfully requests that the Court:
A. Declaratory Relief
Declare, determine and find that Defendant Gratz committed the violations of the federal securities laws alleged herein.
B. Permanent Injunctive Relief
Issue a Permanent Injunction, restraining and enjoining Defendant Gratz, his officers, agents, servants, employees, attorneys, and all persons in active concert or participation with him, and each of them, from violating: (i) Section 15(b)(6)(B) of the Exchange Act [15 U.S.C. § 78o(b)(6)(B)], (ii) Section 203(f) of the Advisers Act [15 U.S.C. § 80b-3(f)], (iii) the Commission Order, and (iv) Section 15(a)(1) of the Exchange Act [15 U.S.C. § 78o(a)(1)].
Issue an Order directing Defendant Gratz to pay civil fines and/or penalties pursuant to Section 21(d) of the Exchange Act [15 U.S.C. § 78(d)(3)] and Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)].
D. Further Relief
Grant such other and further relief as may be necessary and appropriate.
E. Retention of Jurisdiction
Further, the Commission respectfully requests that the Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may hereby be entered, or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.