IN THE UNITED STATES DISTRICT COURT
SECURITIES AND EXCHANGE COMMISSION
JOHN F. TURANT, JR.,
Plaintiff Securities and Exchange Commission (the "Commission") alleges for its Complaint the following:
1. From July 1999 until March 2003, defendants John F. Turant, Jr. ("Turant") and Russ R. Luciano ("Luciano") engaged in a scheme to defraud over 100 investors of approximately $4.5 million. Turant and Luciano, acting by and through defendants JTI Group Fund, LP ("JTI LP"), J.T. Investment Group, Inc. ("JTIG"), Evergreen Investment Group, LP ("Evergreen"), and New Resource Investment Group, Inc. ("New Resource"), made false and misleading statements to investors in order to obtain their funds and to convert them for their personal use.
2. Turant and Luciano solicited funds by falsely promising prospective investors that they would invest their money in one of two purported hedge funds (JTI LP and Evergreen) for the purpose of day-trading securities, and that these funds made annual returns from 20% to 120%, and then they concealed their scheme by creating and distributing fictitious monthly account statements and other documents which reported false balances and false profits.
3. Contrary to their representations, Turant and Luciano only deposited a small portion of investor funds into the trading accounts - which accounts never were profitable at all - and misappropriated the vast majority of the money raised for their own personal use and/or to repay existing investors, thereby conducting aPonzi scheme. Of the $4.5 million in investor funds, Turant and Luciano invested only $1.5 million in the two trading accounts, of which $685,800 was lost through trading.
4. Defendants Turant, Luciano, JTIG, JTI LP, Evergreen and New Resource have engaged, and unless restrained and enjoined by this Court, will continue to engage in acts, transactions, practices, and courses of business which violate Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77e(a), 77e(c) and 77q(a); and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule
10b-5, 17 C.F.R. § 240.10b-5, thereunder. In addition, defendants JTI LP and Evergreen have violated Section 7(a) of the Investment Company Act of 1940 ("Investment Company Act"), 15 U.S.C. § 80a-7.
5. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act, 15 U.S.C. § 77t(b); Sections 21(d) and (e) of the Exchange Act, 15 U.S.C. §§ 78u(d) and (e); and Sections 42(d) and (e) of the Investment Company Act, 15 U.S.C. § 80a-41(d) and (e), to enjoin such acts, transactions, practices and courses of business, and for other appropriate relief.
6. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a); Section 27 of the Exchange Act, 15 U.S.C. § 78aa; and Section 44 of the Investment Company Act, 15 U.S.C. § 80a-43.
7. Certain of the acts, transactions, practices and courses of business constituting the violations alleged herein occurred within the Middle District of Pennsylvania and elsewhere, and were effected, directly or indirectly, by making use of the means and instruments of transportation and communication in interstate commerce, or the means and instrumentalities of interstate commerce, or the mails, or the facilities of a national securities exchange.
8. John F. Turant, Jr., age 38, resides in Wapwallopen, Pennsylvania.
9. Russ R. Luciano, age 45, resides in Duryea, Pennsylvania.
10. JTI Group Fund, LP is a Nevada limited partnership established by Turant in May 1999, and operated by Turant and Luciano out of Wilkes-Barre, Pennsylvania. JTI LP is an unregistered purported hedge fund that never had a class of securities registered with the Commission, nor were any offerings of its securities the subject of a registration statement filed or in effect with the Commission. A hedge fund is a pool of investor money invested in financialinstruments in an effort to earn a positive return. In order to avoid registration with the Commission and the associated reporting requirements, hedge funds historically have been restricted to small numbers of wealthy investors.
11. J.T. Investment Group is a Nevada corporation established by Turant in February 1999. At all times relevant to the Complaint, JTIG was the general partner of JTI LP. JTIG has never been registered with the Commission in any capacity.
12. Evergreen Investment Group is a Nevada limited partnership established by Turant in June 1999, and operated by Turant and Luciano out of Wilkes-Barre, Pennsylvania. Evergreen is an unregistered purported hedge fund that never had a class of securities registered with the Commission, nor were any offerings of its securities the subject of a registration statement filed or in effect with the Commission.
13. New Resource Investment Group is a Nevada corporation established by Turant in June 1999. At all relevant times, New Resource was the general partner of Evergreen. New Resource has never been registered with the Commission in any capacity.
14. At all times material hereto, defendants JTIG, JTI LP, Evergreen and New Resource acted by and through defendants Turant and Luciano.
15. In February 1999, Turant established JTIG for the purpose of day-trading securities using pooled investor funds. Luciano became associated with JTIG in early 1999, and together Turant and Luciano sold shares of JTIG to investors through cold-calling and other means.
16. Beginning in approximately July 1999, Luciano and Turant embarked on a deliberate and intentional scheme to defraud investors. As a result of this fraudulent scheme, Turant and Luciano raised approximately $4.5 million from more than 100 investors.
17. In July 1999, the Pennsylvania Securities Commission charged JTIG, Turant and another individual working with Turant with selling unregistered shares of JTIG. During the pendency of this investigation, Turant changed the names and structures of the investment vehicles to create JTI LP and Evergreen, which he described as "hedge funds."
18. JTI LP and Evergreen were created and used by Turant and Luciano as vehicles to commit the fraud.
19. Turant and Luciano initially solicited funds by contacting investors from their previous JTIG offering. These original investors referred other individuals. Turant and Luciano also established and used Quality Teleservices, Inc. ("Quality"), a telemarketing firm owned and controlled by Turant and Luciano, to contact individuals whose names appeared on purchased investor lists.
20. Turant and Luciano sent potential investors a packet of material including a private placement memorandum, subscription agreement and limited partnership agreement. These documents contained numerous material misrepresentations and omissions.
21. According to the private placement memoranda for JTI LP and Evergreen that Turant and Luciano provided to investors, the investment objective of the partnerships was "capital appreciation," and each fund would pool investor money for the purpose of day-trading exchange-traded and over-the-counter securities. Supposedly, each investor would receive a limited partnership interest based on his or her pro rata investment in the total pool of funds.
22. Both JTI LP and Evergreen charged investors a 5% front-end sales charge, a 5% back-end sales charge and a 6% annual "expense reimbursement" paid to the general partner. In addition, the general partner of each fund was to receive a "Preferred Profit Participation" equal to 20% of the profit created by the trading of investor funds.
23. Despite the representations made in offering documents and orally that funds would be used to day-trade securities, the vast majority of the funds was never invested in securities.
24. In addition, the JTI LP private placement memorandum represented that Turant "currently" held licenses necessary to sell securities, and was president of JTIG, which was described as a Pennsylvania financial planning and advisory firm. In fact, Turant never had one of the promised licenses, his other licenses were expired, and the description of JTIG was false. The JTI LP private placement memorandum also failed to disclose the action by the Pennsylvania Securities Commission.
25. Similarly, the Evergreen private placement memorandum stated that the president of New Resource would manage the partnership's investment portfolio and make all decisions with respect to the operations, management and investments. In truth, only Turant made the trading decisions related to Evergreen.
26. The Evergreen private placement memorandum also stated that the president had a varied background in financial services. In fact, the president's work primarily consisted of maintenance work, cutting hedges and ordering office supplies.
27. Turant and Luciano first offered Evergreen to investors beginning in approximately July 1999. In approximately March 2000, new investors were placed in JTI LP. In late 2002, JTI LP claimed to have ceased operations, and offered investors the option of withdrawing their funds, plus purported profits, or moving their investments into Evergreen.
28. Between approximately July 1999 and March 2003, Turant and Luciano raised approximately $4.1 million from approximately 75 investors through Evergreen. Between approximately March 2000 and late 2002, Turant and Luciano raised approximately $400,000 from approximately 38 investors through JTI LP.
29. In both oral solicitations and conversations with investors after they had invested, Turant and Luciano told investors that neither fund had ever experienced a losing month, and that based on past performance, investors could expect annual returns of anywhere from 20% to 120%, thereby implying that investors could not lose money given the successful history of the funds.
30. In reality, neither fund ever had positive returns, and both funds lost significant amounts of money. Evergreen's account lost money in the first month of trading and every month thereafter. Of the $4.1 million raised purportedly for investment in that fund, only $1.36 million was deposited into the fund's trading account, and approximately $552,200 was lost in trading. The balance was used by Turant and Luciano for purposes which were unauthorized and undisclosed to investors.
31. Similarly, the JTI LP trading account experienced significant losses, despite representations to the contrary. Of the $400,000 raised purportedly for investment in that fund, only $143,000 was deposited into the fund's trading account, and $133,600 of that amount was lost in trading. The balance was used by Turant and Luciano for purposes which were unauthorized and undisclosed to investors.
32. To hide the losses and misappropriations, and to lull investors into maintaining their accounts and increasing their investments with defendants, Turant and Luciano made ongoing false representations to investors and then forged and falsified documents that they sent to investors.
33. Every month, Luciano and Turant called or spoke with investors and orally reported to them false profits earned by the funds for the prior month.
34. Then, each month, Turant and Luciano created fictitious monthly account statements and reports showing fictitious profits for both funds. These reports showed the funds growing at the rate of approximately 2% to 3% per month, when in fact, the investors' principal investments were either lost through trading or used for improper purposes, such as to pay other investors, or for the personal benefit of Turant and Luciano.
35. Turant and Luciano also created and provided to investors fictitious "semi-annual reports" for both funds. These reports included cover letters in which each fund falsely announced its "financial status" for the first half of a fiscal year, and falsely touted gains of more than 20%. These reports also included a document that purported to show a total account value for the fund, which also was false.
36. For example, in the semi-annual report for JTI LP for the period January 2001 to June 30, 2001, Turant and Luciano reported to investors that the total account value was $352,105, even though they knew at that time that the total account value was less than $12,000. Turant and Luciano also created and included a false account statement for June 2001 that falsely claimed that the value of the account had grown from $238,823 in January 2001 to $352,105 by June 2001, a gain of approximately 47%.
37. Turant and Luciano enhanced the credibility of these reports by including fictitious brokerage account statements. Turant and Luciano took the actual brokerage account statements for the funds, altered the portfolio values to support their false claims, and then scanned them into a computer.
38. By creating and disseminating these fictitious documents with false profit numbers, Turant and Luciano were able to raise funds continually from investors despite the actual losses that had occurred since the origination of the funds in 1999. Between 2000 and the end of 2002, Turant and Luciano raised more than $3.2 million through their false claims of success.
39. Whenever investors sought to withdraw some or part of their funds, Turant and Luciano paid them by using new investor funds.
This had the desired effect of lulling investors by assuring them that the representations to them were true.
40. Turant and Luciano, using JTIG, JTI LP, Evergreen, and New Resource, induced investors by misrepresenting and omitting material facts concerning, among other things, the return on the investment, how their funds would be used and the identity and experience of those who would be making the trading decisions. They continued to represent to investors that the funds were growing by at least 2% and 3% per month while both funds were losing money. Turant and Luciano misappropriated investor funds without ever depositing them in the trading accounts and failed to tell investors that their funds were lost, or that they would be used to pay other investors or Turant and Luciano.
41. Of the approximately $4.5 million raised from investors for investment in Evergreen and JTI LP, only $1.5 million was ever deposited into the trading accounts for those funds, and approximately $685,800 of that $1.5 million was lost through trading. The balance of the $1.5 million was taken by Turant and Luciano for their own personal use and benefit.
42. Indeed, Turant and Luciano used more than $3.8 million primarily for purposes which were unauthorized and undisclosed to investors, including paying approximately $2.2 million to existing investors as a part of the Ponzi scheme.
43. In addition, Turant took at least $340,000 and Luciano at least $255,000 for a total of $595,000 directly from investor deposits.
44. In addition, defendants caused $49,000 to be paid from investor funds to two horse racing-related entities controlled by Turant, and $299,000 to be paid from investor funds to Quality (Turant and Luciano's telemarketing company). Of the money paid to Quality, Turant received $87,160 and Luciano received $82,776.
45. In sum, nearly $1 million of the $4.5 million went to Turant and Luciano, either directly or through entities in which they had an interest.
46. Paragraphs 1 through 45 are realleged and incorporated herein by reference.
47. From at least July 1999 and continuing through March 2003, defendants Turant, Luciano, JTIG, JTI LP, Evergreen and New Resource, in connection with the offer, purchase or sale of securities, directly or indirectly, by use of the means or instruments of transportation or communication in interstate commerce, or the means or instrumentalities of interstate commerce, or the mails, or the facilities of a national securities exchange:
employed devices, schemes or artifices to defraud;
obtained money or property by means of, or made, untrue statements of material fact, or 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
engaged in acts, transactions, practices, or courses of business which operated as a fraud or deceit upon offerees, purchasers and prospective purchasers of securities.
48. By reason of the foregoing, defendants Turant, Luciano, JTIG, JTI LP, Evergreen and New Resource violated Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a); and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b); and Rule 10b-5, 17 C.F.R.§ 240.10b5 thereunder.
49. Paragraphs 1 through 48 are realleged and incorporated herein by reference.
50. From at least July 1999 and continuing until March 2003, defendants Turant, Luciano, JTIG, JTI LP, Evergreen and New Resource, and each of them, directly and indirectly, have made use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer and sell securities through the use or medium of any prospectus or otherwise when no registration statement has been filed or was in effect as to such securities and when no exemption from registration was available.
51. By reason of the foregoing, defendants Turant, Luciano, JTIG, JTI LP, Evergreen and New Resource violated Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. § 77e(a) and (c).
52. Paragraphs 1 through 51 are realleged and incorporated herein by reference.
53. Defendants JTI LP and Evergreen are issuers who hold themselves out as being engaged primarily, or propose to be engaged primarily, in the business of investing, reinvesting, or trading in securities, and are therefore investment companies pursuant to Section 3 of the Investment Company Act, 15 U.S.C. § 80a-3.
54. From July 1999 until March 2003, defendants JTI LP and Evergreen, either directly or indirectly, offered for sale, sold, or delivered after sale, purchased, redeemed, retired or otherwise acquired or attempted to acquire, by the use of the mails or a means or instrumentality of interstate commerce, securities or interests in a security.
55. JTI LP and Evergreen never registered with the Commission as investment companies.
56. By reason of the foregoing, defendants JTI LP and Evergreen violated Section 7(a) of the Investment Company Act, 15 U.S.C. § 80a-7(a).
WHEREFORE, the Commission respectfully requests that this Court:
Permanently restrain and enjoin defendants, and their agents, officers, servants, employees, and those persons in active concert or participation with them, directly or indirectly, singly or in concert, from violating Sections 5(a), 5(c) and 17(a) of the Securities Act, 15 U.S.C. § 77e(a), 77e(c) and 77q(a); and 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.
Permanently restrain and enjoin defendants JTI LP and Evergreen, and their agents, officers, servants, employees, and those persons in active concert or participation with them, directly or indirectly, singly or in concert, from violating Section 7(a) of the Investment Company Act, 15 U.S.C. § 80a-7(a).
Order defendants to disgorge any and all ill-gotten gains, together with prejudgment interest, derived from the activities set forth in this Complaint, in accordance with a plan of disgorgement acceptable to the Court and to the Commission.
Order defendants to pay civil penalties 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) in an amount to be determined by the Court.
Grant such other and further relief as this Court may deem just and appropriate.
Attorneys for Plaintiff:
Dated: September 15, 2003
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