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Wayne M. Carlin (WC-2114)
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission") for its Amended Complaint against Defendants Sharon Harosh, Americo Robert Gallo, Oren Fachler, Ralph DiFalco, and Steven Bocchino (collectively, "Individual Defendants"), Goldman Lender & Co. Holdings, Blackwell Co., and Traderz Associates Holding Inc. (collectively with Individual Defendants, "Defendants"), alleges as follows: PRELIMINARY STATEMENT 1. From May 1997 through approximately August 1998, Defendants Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, and Bocchino fraudulently raised approximately $2.1 million through six fraudulent offerings of securities. In various combinations, Defendants created phony private placements of stock of six issuers -- Traderz, Niki Taylor, R.H. Roberts Holding Corp., Beverly Glenn Interactive, Goldman Lender, and Blackwell -- and sold the stock through a series of boiler rooms. Directly or though unregistered salespeople acting at their direction, Defendants used high pressure sales tactics and false and misleading representations to induce investors to buy the stock. 2. In each of the offerings, the primary selling point was the promise of an imminent initial public offering ("IPO") that would allow investors to quickly reap significant profits from their investment in the purported private placements. In addition, in the Traderz, R.H. Roberts, Goldman Lender, and Blackwell offerings, some investors were sent offering memoranda that contained material misrepresentations about the issuer's financial condition, the experience of its officers and directors, and the use of the offering proceeds. Among other things, those offering memoranda included fabricated independent auditor's reports which purported to show that an independent auditor had opined that the issuer's balance sheet fairly presented its financial condition in conformity with generally accepted accounting principles ("GAAP"). 3. Contrary to their representations to investors, Defendants took no steps to effect the promised IPOs, and most of the money raised went to the Individual Defendants and salespeople selling the fraudulent offerings. Indeed, with the exception of Traderz, each of the issuers was either a sham company that existed on paper only, or did not exist at all. Although Traderzconducted some other business, the bulk of its operations consisted of selling the fraudulent offerings that are the subject of this Amended Complaint. In reality, the six issuers were nothing more than vehicles through which the Defendants stole investors' funds. 4. In all the offerings, the salespeople misled investors and prospective investors as to the issuers' true locations. To further this deceit, the Defendants used mail drops and telephone forwarding services so that investors and prospective investors would not know their actual location. Further, the Individual Defendants and salespeople acting at their direction used aliases when speaking to investors and prospective investors in order to conceal their true identities. 5. As a result of Defendants' fraudulent conduct, from May 1997 through approximately August 1998, approximately 190 investors invested a total of approximately $2.1 million in the six offerings. Except for a few investors in the Goldman Lender offering, none of the investors received back any of the funds they invested. 6. In addition to the above-described violations, in July 1998, several investors who had previously invested in the Goldman Lender offering were fraudulently induced to buy shares of Ramtron International Corp ("Ramtron"), a stock quoted on the NASDAQ National Market System. These investors were told that they could purchase shares of Ramtron at approximately $2 per share and sell the shares later that same day through Goldman Lender at approximately double the price. On the basis of these representations, at least two investors agreed to buy Ramtron stock and entrusted at least $37,500 to Goldman Lender for that purpose. These investors never received any Ramtron shares, never received any confirmation of their purchases of Ramtron shares, and never received back any of the funds they entrusted to Goldman Lender for the purchase of Ramtron stock. 7. The Defendants have engaged in transactions, acts, practices, and courses of business which constitute violations of Section 17(a) of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §77q(a), Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §78j(b), and Rule 10b-5 thereunder, 17 C.F.R. §240.10b-5. In addition, the Individual Defendants engaged in transactions, acts, practices, and courses of business which constitute violations of Section 15(a) of the Exchange Act, 15 U.S.C. §78o(a). 8. Unless permanently restrained and enjoined, the Defendants will continue to engage in the transactions, acts, practices, and courses of business described herein, and in similar transactions, acts, practices, and courses of business. JURISDICTION 9. 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), and Section 21(d) of the Exchange Act, 15 U.S.C. §78u(d). This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. §77v(a), and Sections 21(e) and 27 of the Exchange Act, 15 U.S.C. §§78u(e) and 78aa. The Commission seeks to permanently enjoin Defendants from future violations of the Securities Act and Exchange Act and to obtain other equitable relief, including an order directing Defendants to give an accounting of their assets and an order directing Defendants to disgorge the amount of their ill-gotten gains, plus prejudgment interest. The Commission also seeks civil penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. §77t(d), and Section 21(d) of the Exchange Act, 15 U.S.C. §78u(d). 10. Each of the Defendants, directly or indirectly, made use of the means or instruments of transportation and communication in, and the means or instrumentalities of, interstate commerce,or of the mails, or of the facilities of a national securities exchange, in connection with the transactions, acts, practices and courses of business alleged herein. Many of the transactions, acts, practices and courses of business alleged herein took place in the Southern District of New York, including, but not limited to, misrepresentations made by use of telephones located within the Southern District of New York. DEFENDANTS 11. Goldman Lender was incorporated in Delaware in May of 1998. During the relevant period, Goldman Lender maintained an office at 31 Bay Ridge Avenue in Brooklyn, New York. Goldman Lender also purportedly maintained an office at 67 Wall Street in New York City, but that address was only a mail drop. Goldman Lender has never been registered with the Commission as a broker. 12. Blackwell is a sole proprietorship established by Harosh in June of 1998. Blackwell falsely represented itself to be a New York corporation. During the relevant period, Blackwell had offices at 110 Wall Street in New York City and 8510 Bay 16th Street in Brooklyn, New York. Blackwell has never been registered with the Commission as a broker. 13. Traderz was incorporated in Delaware in March of 1997. During the relevant period, Traderz operated out of an office at 80 Broad Street in Manhattan. Traderz purportedly maintained its principal place of business at 67 Wall Street, Suite 2411 in New York City, but that address was only a mail drop. Traderz has never been registered with the Commission as a broker. 14. Harosh, age 27, was president and secretary of Goldman Lender and the sole proprietor of Blackwell. At all relevant times, Harosh was a resident of Brooklyn, New York. 15. Gallo, age 34, was, for part of the relevant period, president of Traderz. During the relevant period, Gallo was a resident of Brooklyn, New York, and was a registered representative of Montrose Capital Management Ltd., West America Securities Corp., and Meridian Equities Co. 16. Fachler, age 26, was, for part of the relevant period, the president, treasurer, and CEO of Traderz. During the relevant period, Fachler resided in Brooklyn, New York, and was a registered representative of Meridian Equities Co., Carlin Equities Corp., Clearing Services of America, Inc., and Montrose Capital Management Ltd.. 17. DiFalco, age 26, was an officer of Traderz and president and chairman of the board of directors of R.H. Roberts. During the relevant period, DiFalco resided in Brooklyn, New York. 18. Bocchino, age 30, resides in East Stroudsburg, Pennsylvania. During the relevant period, Bocchino resided in Brooklyn, New York, and was a registered representative of M.A. Gillespie Investment Corp., and E.C. Capital, Ltd. THE FRAUDULENT OFFERINGS The Traderz Offering: Gallo, Fachler, DiFalco, and Bocchino 19. From approximately May 1997 through approximately July 1998, Defendants Traderz, Gallo, Fachler, DiFalco, and Bocchino, directly and through others, conducted a fraudulent offering of Traderz stock. These Defendants sold the Traderz stock in a purported private placement that, together with the sale of Niki Taylor stock, raised approximately $808,875 from approximately 68 investors. 20. Fachler, Traderz' purported president, treasurer, and CEO, incorporated Traderz in March 1997 and subsequently arranged for a mail drop and answering service for Traderz at 67 Wall Street. In April 1997, Fachler established a bank account for Traderz over which he alone hadsignatory authority. After Fachler established Traderz, Gallo joined Fachler in the enterprise and managed Traderz' operations. Gallo hired the salespeople at Traderz' 80 Broad Street office, including DiFalco and Bocchino, and monitored and directed their sale of Traderz' stock. In addition, at Fachler's direction and with his assistance, Gallo opened a second bank account for Traderz over which he (Gallo) had signatory authority. 21. The Traderz offering was sold from Traderz' office at 80 Broad Street, which was a boiler room. In typical boiler room fashion, the sales were conducted by salespeople - many of whom were not registered - who used high pressure sales tactics and fraudulent representations to induce investors to buy Traderz stock. In addition, the salespeople used aliases and misrepresented the location from which they were calling. Gallo directed the salespeople, including DiFalco and Bocchino, to sell Traderz' stock, provided them with false information concerning Traderz, and instructed them to relay this false information to investors. Gallo also directly solicited investors to purchase Traderz stock. 22. During telephone solicitations, Gallo, and salespeople acting at his direction, including DiFalco and Bocchino, made false and misleading representations to investors concerning the risk and expected return of Traderz stock. Gallo, DiFalco, Bocchino, and other salespeople told investors that Traderz stock was a risk-free investment and that investors would earn a return of several times their investment when the company conducted an IPO in the near future. Gallo, DiFalco, Bocchino, and other salespeople told investors that the purported private placement stock they were being solicited to buy at $2 per share could be sold a few months later at a price not less than $5 per share. In addition, they told investors that if they invested in Traderz, they might be permitted to participate in future IPOs. 23. The representations Gallo, DiFalco, Bocchino, and other salespeople made to investors concerning Traderz stock were false and without any basis in fact. There was no basis for the representations that the investment was risk-free or for the predicted rise in the stock price. Traderz never conducted a public offering, never filed a registration statement with the Commission for a public offering of securities, and never took any other substantial steps toward the commencement of a public offering. 24. Traderz, through Gallo and salespeople acting at his direction, including DiFalco and Bocchino, also sent some prospective investors an offering memorandum (the "Traderz Memorandum"), which contained numerous material misrepresentations. Gallo and Fachler helped prepare the Traderz Memorandum. 25. According to the Traderz Memorandum, of which several versions were disseminated to prospective investors, $250,000 of the $1 million proceeds of the offering would be used to acquire a securities broker-dealer, and the balance of the offering proceeds would be used as net capital and working capital, and to pay for office space, supplies, and legal and other fees. In fact, the funds raised in the Traderz offering were not used for the purposes set forth in the Traderz Memorandum. Instead, the funds raised were deposited into bank accounts controlled by Gallo and Fachler, and were used by them to enrich themselves, pay commissions to salespersons, including DiFalco and Bocchino, and otherwise defray the expenses of the fraudulent offerings discussed in this Amended Complaint. Of the approximately $808,875 deposited in the Traderz' bank accounts (which included proceeds of the Niki Taylor offering), at least $505,000 went to Gallo, Fachler, DiFalco, Bocchino, and other salespeople. 26. The Traderz Memorandum included a purported "Independent Auditor's Report" by a public accounting firm which stated that the accounting firm had audited Traderz' most recent balance sheet and opined that the balance sheet fairly presented the financial position of Traderz in conformity with GAAP as of the date of the balance sheet. In fact, the audit report included in the Traderz Memorandum was a fabrication. The accounting firm never audited Traderz' balance sheet, and never issued an audit report with respect to Traderz' balance sheet. The Niki Taylor Offering: Gallo, DiFalco, and Bocchino 27. At the same time they were raising funds through the Traderz offering, salespeople under the direction of Gallo, including DiFalco and Bocchino, fraudulently sold stock of an entity called Niki Taylor. (This purported entity is hereafter referred to as "Niki Taylor.") Beginning in approximately May 1997 and continuing through approximately July 1998, individuals operating out of Traderz' 80 Broad Street office, and using the same boiler room tactics, solicited investors to purchase stock of Niki Taylor. Gallo directed the salespeople, including DiFalco and Bocchino, to sell Niki Taylor stock, provided them with false information concerning Niki Taylor, and instructed them to relay this false information to investors. 28. At Gallo's direction, the salespeople, including DiFalco and Bocchino, told investors that Niki Taylor was a subsidiary of Traderz that was going to use the fashion model Niki Taylor's name and likeness to sell merchandise on an Internet website. As with the Traderz scheme, salespeople told investors that they could purchase Niki Taylor stock in a purported private placement at a price of $2 per share and would be able to sell the stock for approximately $5 per share when the company conducted an IPO in the next few months. 29. The representations by DiFalco, Bocchino, and other salespeople about Niki Taylor stock were false and without any basis in fact. Traderz never entered into any contract, agreement, or arrangement regarding the use of fashion model Niki Taylor's name or likeness. Niki Taylor never conducted a public offering, never filed a registration statement with the Commission for a public offering of securities, and never took any other substantial steps to prepare for such an offering. In short, Niki Taylor conducted no business and had no assets. Thus, there was no basis for the representations concerning the risk-free nature of the investment or the predictions concerning the future price of Niki Taylor stock. 30. The funds raised from the sale of Niki Taylor stock were deposited into the Traderz and R.H. Roberts bank accounts. Gallo used the funds to enrich himself, pay commissions to salespersons, including DiFalco and Bocchino, and otherwise defray the expenses of the fraudulent offerings discussed in this Amended Complaint. The R.H. Roberts Offering: DiFalco 31. From approximately October 1997 through approximately May 1998, DiFalco conducted a purported private placement of stock of R.H. Roberts that, together with the sale of the stock of Beverly Glenn, discussed below, raised approximately $556,300 from approximately 55 investors. 32. The R.H. Roberts offering was sold from Traderz' office at 80 Broad Street, and from R.H. Roberts' office at 110 Wall Street in Manhattan, which was also a boiler room, using the same boiler room tactics. DiFalco directed the salespeople to sell R.H. Roberts stock, provided them with false information concerning R.H. Roberts, and instructed them to relay this false information to investors. 33. From approximately October 1997 through May 1998, at the direction of DiFalco, various salespeople telephoned investors and made numerous misrepresentations to induce investors to purchase R.H. Roberts stock. For example, salespeople told investors that the purported R.H. Roberts stock they were being solicited to buy at $2 per share could be sold at a price not less than $5 per share when the company later conducted an IPO. Salespeople told investors the IPO would occur within ninety days of their initial investment. In addition, salespeople told investors that if R.H. Roberts did not conduct a public offering within a specified time after the investment in the private placement, the investors would receive a full refund of their investment. 34. The representations salespeople made to investors about R.H. Roberts stock were false and without any basis in fact. R.H. Roberts never conducted a public offering, never filed a registration statement with the Commission for a public offering of securities, and never took any other substantial steps toward the commencement of a public offering. R. H. Roberts had no legitimate business operations or assets. Thus, there was no basis for the representations that the investment was risk-free or for the predicted rise in the price of the stock. 35. Salespeople, at DiFalco's direction, also sent some prospective investors an R.H. Roberts offering memorandum ("R.H. Roberts Memorandum") that contained numerous material misrepresentations. The R.H. Roberts Memorandum described the company as "a development stage holding firm for Real Estate properties, various corporate investments and an Internet gaming firm, Beverly Glenn Interactive." In fact, none of the funds raised in the R.H. Roberts offering were invested in either commercial or residential real estate or in any Internet-related businesses. Instead, the funds raised were deposited into bank accounts controlled by DiFalco, and were usedby DiFalco to enrich himself, pay commissions to salespersons, and otherwise defray the expenses of the fraudulent offerings described in this Amended Complaint. Of the approximately $556,300 deposited in R.H. Roberts' bank account (which also included proceeds of the Niki Taylor and Beverly Glenn offerings), DiFalco wired approximately $300,000 to overseas bank accounts, transferred approximately $9,000 to accounts he controlled at a Canadian broker-dealer, and distributed approximately $190,000 to himself and to R.H. Roberts salespeople. 36. The R.H. Roberts Memorandum included a purported "Independent Auditor's Report" by a public accounting firm which stated that the accounting firm had audited R.H. Roberts' most recent balance sheet and opined that the balance sheet fairly presented the financial position of R.H. Roberts in conformity with GAAP as of the date of the balance sheet. In fact, the accounting firm was never retained by R.H. Roberts, never audited R.H. Roberts' balance sheet, and never issued an audit report with respect to R.H. Roberts' balance sheet. The audit report included in the R.H. Roberts Memorandum was a fabrication. 37. DiFalco directed the R.H. Roberts fraud. DiFalco incorporated R.H. Roberts and was the company's purported president and chairman of the board. DiFalco arranged for a mail- drop, answering service, and office space for R.H. Roberts. DiFalco established a bank account in the name of R.H. Roberts over which he had sole control. In addition, DiFalco was primarily responsible for the preparation of the R.H. Roberts Memorandum. The Beverly Glenn Offering: DiFalco 38. From approximately March 1998 through July 1998, at the direction of DiFalco, salespeople solicited investors to purchase stock in an entity called Beverly Glenn Interactive. The Beverly Glenn offering was sold from Traderz' office at 80 Broad Street, and from R.H. Roberts'office at 110 Wall Street, using the same boiler room tactics. DiFalco directed the salespeople to sell Beverly Glenn stock, provided them with false information concerning Beverly Glenn, and instructed them to relay this false information to investors. 39. The salespeople, acting at DiFalco's direction, told investors that the purported Beverly Glenn stock they were being solicited to buy at $2 per share could be sold at a price not less than $5 per share when the company later conducted an IPO in the next few months. In some instances, investors were told that in return for investing in the purported private placement they would receive a similar quantity of Beverly Glenn warrants, valued at ten cents per share, for free. These investors were told that the warrants would be worth 75 cents per share following Beverly Glenn's upcoming IPO. Investors in Beverly Glenn were told, both orally and in writing, that if the company did not conduct a public offering within a specified time after the investment in the purported private placement, they would receive a full refund of their investment and would not be charged a commission. In addition, some investors were told that if the public offering did not take place, they would receive interest in addition to the return of their original investment. 40. Salespeople, at the direction of DiFalco, also sent some prospective Beverly Glenn investors a copy of the R.H. Roberts Memorandum, which contained numerous material misrepresentations. The R.H. Roberts Memorandum described Beverly Glenn as a partially-owned subsidiary of R.H. Roberts that would operate Beverly Glenn Casino, an Internet-based casino R.H. Roberts planned to establish. 41. The representations to investors concerning Beverly Glenn stock were false and without any basis in fact. Beverly Glenn never conducted a public offering, never filed a registration statement with the Commission for a public offering of securities, and never took anyother substantial steps toward the commencement of a public offering. Beverly Glenn conducted no business and had no assets. Thus, there was no basis for the representations concerning the risk-free nature of the investment or the predictions concerning the future price of Beverly Glenn stock. The representations regarding R.H. Roberts, purportedly a part-owner of Beverly Glenn, in the R.H. Roberts Memorandum were also false, as set forth above. 42. The funds raised from the sale of Beverly Glenn stock were deposited in R.H. Roberts' bank account and were used by DiFalco to enrich himself, pay sales commissions, and defray the expenses of the fraudulent offerings discussed in this Amended Complaint. 43. DiFalco directed the Beverly Glenn fraud. DiFalco was an officer and director of R.H. Roberts, the purported part-owner of Beverly Glenn. DiFalco controlled the disposition of the funds in R.H. Roberts' bank account, which included the proceeds of the Beverly Glenn offering. DiFalco helped prepare the R.H. Roberts Memorandum which described Beverly Glenn and the Beverly Glenn Casino, and DiFalco paid sales commissions to salespeople who sold stock in the fraudulent Beverly Glenn offering. The Goldman Lender Offering: Harosh and Fachler 44. From approximately June 1998 through August 1998, Goldman Lender, Harosh, and Fachler, directly and through others, conducted a fraudulent offering of stock of Goldman Lender. These Defendants, and salesmen acting at their direction, sold Goldman Lender stock to approximately 40 investors in a purported private placement that raised approximately $394,871. The funds raised in the Goldman Lender offering were deposited into bank accounts controlled by Harosh and Fachler, and were used by Harosh and Fachler to enrich themselves and to defray the costs of soliciting investors in the fraudulent offerings described in this Amended Complaint. 45. The Goldman Lender offering was sold from Goldman Lender's office at 31 Bay Ridge Avenue in Brooklyn, which was a boiler room. In typical boiler room fashion, the sales were conducted by salespeople - some or all of whom were not registered - who used high pressure sales tactics and fraudulent representations to induce investors to buy Goldman Lender stock. In addition, the salespeople used aliases and misrepresented the location from which they were calling. Harosh and Fachler directed the salespeople to sell Goldman Lender stock, provided them with false information concerning Goldman Lender, and instructed them to relay this false information to investors. 46. From approximately June 1998 to August 1998, acting at the direction of Fachler and Harosh, salespeople telephoned investors and offered to sell them Goldman Lender units in a purported private placement at $2 per unit. The units purportedly consisted of one share of Goldman Lender common stock and one warrant to purchase one share of Goldman Lender common stock. The salespeople told investors, both orally and in writing, that the components of the Goldman Lender units were being registered with the Commission and would be sold to the public in September 1998 at $5 per share and $1 per warrant. In addition, the salespeople told investors that all funds received by Goldman Lender in the purported private placement would be put into escrow with an escrow agent. The salespeople told investors that if Goldman Lender was unable to register its common stock and warrants with the Commission for sale to the public, the funds invested in the purported private placement would be returned to investors, with interest. Thus, investors were led to believe that if they purchased Goldman Lender units in June or July of 1998 and held them until the public offering, they would purportedly triple their money in a few months, and would be protected against the risk that the company would not go public. 47. The representations that salespeople made to investors concerning Goldman Lender units were false and without any basis in fact. Goldman Lender never conducted a public offering, never filed a registration statement with the Commission for a public offering of securities, and never took any other substantial steps toward the commencement of a public offering. Goldman Lender had no legitimate business operations or assets. Thus, there was no basis for the representations that the investment was risk-free or for the predicted rise in the stock price. 48. Harosh and Fachler, directly or through salespeople they controlled, also sent some prospective investors an offering memorandum (the "Goldman Lender Memorandum") that contained numerous misrepresentations, including the following: a. The Goldman Lender Memorandum stated that an escrow account for the first $50,000 raised from investors had been established at a New York bank and would be managed by a New York law firm. The Goldman Lender Memorandum stated that in the event the minimum was not reached, investors' money would be refunded. In fact, no escrow account was ever established for Goldman Lender investor funds. b. The Goldman Lender Memorandum stated that the company planned to buy an existing securities broker-dealer and would act as a holding company for that broker-dealer. According to the Goldman Lender Memorandum, Goldman Lender planned to use Bear Stearns & Co. Inc. as the clearing broker for the broker-dealer Goldman Lender planned to purchase. The Memorandum stated that $150,000 of the $1 million proceeds of the offering would be used to acquire a broker-dealer, with the balance of the offering proceeds to be used as capital and to pay for officespace, supplies, and legal and other fees. These representations were false. There was no contract, agreement, or arrangement between Goldman Lender and Bear Stearns for Bear Stearns to provide clearing services to Goldman Lender or any affiliated broker-dealer. Moreover, the funds raised from investors in the Goldman Lender offering were not used for the purposes set forth in the Goldman Memorandum. Instead, investor funds were deposited into bank accounts controlled by Harosh and Fachler and were used by them to enrich themselves, pay commissions to salespeople, and defray the expenses of the fraudulent offerings described in this Amended Complaint. Harosh, at Fachler's direction and with his assistance, deposited investor funds into bank accounts which the two controlled, transferred approximately $220,500 of those funds to overseas bank accounts, and wrote checks to himself totaling approximately $37,000. c. The Goldman Lender Memorandum included a purported "Independent Auditor's Report" by a public accounting firm which stated that the accounting firm had audited Goldman Lender's most recent balance sheet and opined that the balance sheet fairly presented the financial position of Goldman Lender in conformity with GAAP as of the date of the balance sheet. In fact, the audit report included in the Goldman Lender Memorandum was a fabrication. The accounting firm was never retained by Goldman Lender, did not audit Goldman Lender's balance sheet, and did not issue an audit report with respect to Goldman Lender's balance sheet. d. The Goldman Lender Memorandum described two individuals named Sherman Goldman and Joseph Lender as Goldman Lender's primary officers and directors. The Goldman Lender Memorandum stated that Sherman Goldman and Joseph Lender had extensive experience in the securities industry, were registered with the NASD and held various NASD licenses. In fact, no such persons as Sherman Goldman or Joseph Lender were ever registered with the NASD or held the NASD licenses described in the Goldman Lender Memorandum. Sherman Goldman and Joseph Lender appear to be wholly fictitious. 49. Harosh and Fachler directed the Goldman Lender offering. At Fachler's direction and with his assistance, Harosh incorporated Goldman Lender, caused himself to be appointed Goldman Lender's president and secretary, established a mail drop for Goldman Lender, and established a bank account for Goldman Lender for which Harosh was signatory and which Harosh and Fachler controlled. Fachler also helped prepare the fraudulent Goldman Lender Memorandum, including the fabricated audit report. The Blackwell Offering: Harosh and Fachler 50. From approximately July 1998 through August 1998, Defendants Blackwell, Harosh, and Fachler, directly and through others, conducted a fraudulent offering of Blackwell stock. These Defendants, and salesmen acting at their direction, sold Blackwell stock to approximately 28 investors in a purported private placement that raised approximately $380,500. The funds raised in the Blackwell offering were deposited into bank accounts controlled by Harosh and Fachler, and were used by Harosh and Fachler to enrich themselves and to defray the costs of soliciting investors in the fraudulent offerings described in this Amended Complaint. 51. The Blackwell offering was sold from Blackwell's office at 8510 Bay 16th Street in Brooklyn, which was a boiler room. In typical boiler room fashion, the sales were conducted bysalespeople - some or all of whom were not registered - who used high pressure sales tactics and fraudulent representations to induce investors to buy Blackwell stock. In addition, the salespeople used aliases and misrepresented the location from which they were calling. Harosh and Fachler directed the salespeople to sell Blackwell stock, provided them with false information concerning Blackwell, and instructed them to relay this false information to investors. 52. From approximately July 1998 to August 1998, acting at the direction of Harosh and Fachler, salespeople telephoned investors and offered to sell them Blackwell units in a purported private placement at $2 per unit. The Blackwell units purportedly consisted of one share of Blackwell common stock and one warrant to buy one share of Blackwell common stock. Salespeople told the investors that Blackwell units would be sold to the public soon after the purported private placement for $4 per unit. Thus, investors were led to believe that if they purchased Blackwell units and held them until the public offering, they would double their money in a few months. 53. The representations that salespeople made to investors concerning Blackwell units were false and without any basis in fact. Blackwell never conducted a public offering, never filed a registration statement with the Commission for a public offering of securities, and never took any other substantial steps toward the commencement of a public offering. Further, Blackwell had no legitimate business operations or assets. Thus, there was no basis for the representations regarding the planned IPO or the predicted rise in the stock price. 54. Harosh and Fachler, directly or through salespeople they controlled, also sent some prospective investors an offering memorandum (the "Blackwell Memorandum") that contained numerous misrepresentations and omissions, including the following; a. The Blackwell Memorandum stated that an escrow account for the first $50,000 raised from investors in the Blackwell offering had been established at a New York bank and would be managed by a New York law firm. The Blackwell Memorandum stated that, in the event the minimum was not reached, investors' money would be refunded. In fact, no escrow account was ever established for Blackwell investor funds. b. The Blackwell Memorandum stated that Blackwell planned to buy an existing securities broker-dealer, and would act as a holding company for that broker-dealer. The Blackwell Memorandum stated that $1.5 million of the $5 million proceeds of the offering would be used to acquire a broker-dealer, and the balance of the offering proceeds would be used as capital and to pay for office space, supplies, and legal and other fees. These representations were false. The funds raised from investors in the Blackwell offering were not used for the purposes set forth in the Blackwell Memorandum. Instead, investor funds were deposited into bank accounts controlled by Harosh and Fachler and were used by them to enrich themselves, pay commissions to salespeople, and defray the expenses of the fraudulent offerings discussed in this Amended Complaint. Harosh, at Fachler's direction and with his assistance, deposited investor funds into bank accounts which the two controlled, transferred approximately $264,000 of those funds to overseas bank accounts, and wrote checks to himself totaling approximately $41,000. c. The Blackwell Memorandum included a purported "Independent Auditor's Report" from a public accounting firm, which stated that the accounting firm had auditedBlackwell's most recent balance and opined that the balance sheet fairly presented the financial position of Blackwell in conformity with GAAP as of the date of the balance sheet. In fact, the independent audit report included in the Blackwell Memorandum was a fabrication. The accounting firm was never retained by Blackwell, did not audit Blackwell's balance sheet, and did not issue an audit report regarding Blackwell's balance sheet. d. The Blackwell Memorandum described two individuals named William Blackwell, of 125 Central Park South, New York City, and Charles Blaire, of 404 West End Avenue, New York City, as Blackwell's primary officers and directors. The Blackwell Memorandum stated that William Blackwell and Charles Blaire had extensive experience in the securities industry, were registered with the NASD, and held various NASD licenses. In fact, no such persons as William Blackwell or Charles Blaire were ever registered with the NASD or held the NASD licenses described in the Blackwell Memorandum. William Blackwell and Charles Blaire appear to be wholly fictitious. 55. Harosh and Fachler directed the Blackwell offering. At Fachler's direction and with his assistance, Harosh established Blackwell as a sole proprietorship, obtained a business certificate from the State of New York for Blackwell, established at least two bank accounts in Blackwell's name over which Harosh had signatory authority and which Harosh and Fachler controlled, rented office space for Blackwell, and arranged for telephone and express courier service. Fachler helped prepare the fraudulent Blackwell Memoranda, including the fabricated audit report. The Sale of Ramtron Stock: Harosh 56. In approximately July 1998, Harosh defrauded investors in connection with the purported sale of Ramtron stock, which traded on the National Association of Securities Dealers Automated Quotation System. Salespeople, acting at Harosh's direction, telephoned investors who had previously purchased Goldman units and offered to sell them Ramtron common stock. The salespeople, who used aliases, told investors that Goldman Lender owned shares of Ramtron stock and that, although Ramtron shares were then trading on the market at approximately $4 per share, investors could purchase Ramtron shares from Goldman Lender at $2 per share. The salespeople suggested that investors buy Ramtron stock from Goldman Lender and simultaneously instruct Goldman Lender to sell the stock the same day in the open market, so that the investor would reap a quick, large and riskless profit. At least two investors were induced by these fraudulent representations to buy Ramtron stock and entrusted over $37,000 to Goldman Lender to pay for their shares. 57. The offers to sell Ramtron stock were a sham. No Ramtron stock was held during the relevant time period by Goldman Lender, Harosh, or by anyone affiliated with Goldman Lender. The investors who agreed to buy (and sell) Ramtron stock never received any securities nor did they receive any confirmation that such purchases or sales were made on their behalf. None of the funds investors entrusted to Goldman Lender for the purchase of Ramtron stock were returned. CLAIMS FOR RELIEF First Claim for Relief [Against Defendants Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, and Bocchino] Violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act
58. The Commission realleges and incorporates by reference the allegations contained in paragraphs 1 through 57 above. 59. Defendants, directly or indirectly, in the offer or sale, or in connection with the purchase or sale, of securities by use of the means or instruments of transportation or communication in, or the means or instrumentalities of, interstate commerce, or of the mails, or the facilities of a national securities exchange: (a) employed devices, schemes and artifices to defraud; (b) obtained money or property by means of, or otherwise made, untrue statements of material fact or omissions to state material facts necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices, and courses of business that operated as a fraud or deceit upon purchasers of securities and other persons. 60. As part of and in furtherance of this violative conduct, Traderz, Gallo, Fachler, DiFalco, and Bocchino, directly or indirectly, made the misrepresentations and omissions alleged above, in connection with the offer, purchase, and sale of Traderz securities. The misrepresentations and omissions by Traderz, Gallo, Fachler, DiFalco, and Bocchino, more fully described above, were material, and Traderz, Gallo, Fachler, DiFalco, and Bocchino knew, or were reckless in not knowing, that the statements described above were false and misleading. 61. As part of and in furtherance of this violative conduct, Gallo, DiFalco, and Bocchino, directly or indirectly, made the misrepresentations and omissions alleged above, in connection with the offer, purchase, and sale of Niki Taylor securities. The misrepresentations and omissions by Gallo, DiFalco, and Bocchino, more fully described above, were material, and Gallo, DiFalco, and Bocchino, knew, or were reckless in not knowing, that the statements described above were false and misleading. 62. As part of and in furtherance of this violative conduct, DiFalco, directly or indirectly, made the misrepresentations and omissions alleged above, in connection with the offer, purchase, and sale of R.H. Roberts and Beverly Glenn securities. The misrepresentations and omissions by DiFalco, more fully described above, were material, and DiFalco knew, or was reckless in not knowing, that the statements described above were false and misleading. 63. As part of and in furtherance of this violative conduct, Goldman Lender, Harosh, and Fachler, directly or indirectly, made the misrepresentations and omissions alleged above, in connection with the offer, purchase and sale of Goldman Lender securities. The misrepresentations and omissions by Goldman Lender, Harosh, and Fachler, more fully described above, were material, and Goldman Lender Harosh, and Fachler knew, or were reckless in not knowing, that the statements described above were false and misleading. 64. As part of and in furtherance of this violative conduct, Blackwell, Harosh, and Fachler, directly or indirectly, made the misrepresentations and omissions alleged above, in connection with the offer, purchase and sale of Blackwell securities. The misrepresentations and omissions by Blackwell, Harosh, and Fachler, more fully described above, were material, andBlackwell, Harosh, and Fachler knew, or were reckless in not knowing, that the statements described above were false and misleading. 65. As part of and in furtherance of this violative conduct, Harosh, directly or indirectly, made the misrepresentations and omissions alleged above, in connection with the sale of Ramtron securities. The misrepresentations and omissions by Harosh, more fully described above, were material, and Harosh knew, or was reckless in not knowing, that the statements described above were false and misleading. 66. By reason of the foregoing, Defendants Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, and Bocchino violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and unless enjoined and restrained, will continue to violate those provisions by engaging in the same or similar acts, practices, and courses of business. Second Claim for Relief [Against Harosh, Gallo, Fachler, DiFalco, and Bocchino] Violations of Section 15(a) of the Exchange Act 67. The Commission realleges and incorporates by reference the allegations contained in paragraphs 1 through 66, above. 68. None of the sales of the securities discussed in paragraphs 1 through 66, above, were effected through any of the registered broker-dealers with which Defendants Gallo, Fachler, and Bocchino were associated at the relevant time. 69. For portions of the period from approximately May1997 through approximately August 1998, Defendants Harosh, Gallo, Fachler, DiFalco, and Bocchino, by use of the mails andthe means or instrumentalities of interstate commerce, while acting as brokers and while engaged in the business of effecting transactions in securities for the accounts of others otherwise than through a national securities exchange, effected transactions in, or induced or attempted to induce the purchase or sale of securities (other than an exempted security or commercial paper, banker's acceptances, or commercial bills) without registering as a broker or dealer in accordance with Section 15(b) of the Exchange Act, 15 U.S.C. § 78o(b), including, but not limited to, the transactions alleged in paragraphs 1 through 66, above. 70. As part of and in furtherance of this violative conduct, Defendants Harosh, Gallo, Fachler, DiFalco, and Bocchino actively solicited investors, directly or through salespeople they controlled, to purchase stock of Traderz, Niki Taylor, R.H. Roberts, Beverly Glenn, Goldman Lender, and Blackwell, in the purported private placement offerings described in more detail in paragraphs 1 through 66, above. In addition, Harosh actively solicited investors, directly or through salespeople he controlled, to purchase Ramtron stock. Each of the Individual Defendants received commissions or other remuneration based upon transactions in securities for effecting or inducing or attempting to induce such transactions. 71. By reason of the foregoing, Harosh, Gallo, Fachler, DiFalco, and Bocchino violated, and, unless restrained and enjoined, will again violate Section 15(a) of the Exchange Act, 15 U.S.C. § 78o(a) PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that this Court enter a final judgment: A. Permanently restraining and enjoining Defendants Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, and Bocchino, their officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them, and each of them, from violating, directly or indirectly, Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. B. Permanently restraining and enjoining Defendants Harosh, Gallo, Fachler, DiFalco, Bocchino, and their officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them, and each of them, from violating, directly or indirectly, Section 15(a) of the Exchange Act. C. Ordering Defendants Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, and Bocchino to file with this Court and serve upon plaintiff Commission a verified written accounting, signed by the Defendants under penalty of perjury, listing and describing: (a) all assets, liabilities and property currently held directly or indirectly by or for the benefit of Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, Bocchino, and R.H. Roberts, including, but not limited to, bank accounts, brokerage accounts, investments, business interests, loans, lines of credit, and real and personal property wherever situated, describing each asset and liability, its current location and amount; (b) all money, property, assets, and other income received by Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, Bocchino, and R.H. Roberts, or for their direct or indirect benefit, in or at any time from March 1, 1997, to the date ofthe accounting, describing the source, amount, disposition and current location of each item listed; (c) all money, property or assets transferred to Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, Bocchino, and R.H. Roberts by investors from March 1, 1997, to the date of the accounting, and the disposition of such money, property or assets; and (d) the names and last known addresses of all bailees, debtors, or other persons or entities currently holding any assets, funds or property of Goldman Lender, Blackwell, Traderz, Harosh, Gallo, Fachler, DiFalco, Bocchino, and R.H. Roberts. D. Ordering the Defendants, jointly and severally, to disgorge the amount of their ill-gotten gains from their unlawful conduct, plus prejudgment interest. E. Ordering the Defendants to pay civil money 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). F. Ordering that all previous orders issued by the Court in this action be maintained in full force and effect. H. Granting such other relief as this Court may deem just or appropriate.
http://www.sec.gov/litigation/complaints/complr17239.htm
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