UNITED STATES DISTRICT COURT
Plaintiff, United States Securities and Exchange Commission ("Commission"), for its Complaint alleges as follows:
1. This action involves violations of the securities registration provisions, which were caused by the Defendant, Art H. Beroff ("Beroff"). Promoter, an acquaintance of Beroff, arranged for Amalgamated Explorations, Inc. ("AXPL"), an oil, gas and gold exploration company, to issue 500,000 shares of stock to Beroff's parents which, unbeknownst to the issuer, Promoter himself had paid for. Later, Beroff, at the direction of the Promoter, arranged for his parents to send 470,000 shares to the Promoter which the Promoter then sold as part of an illegal unregistered distribution of AXPL stock from January through April 1997. Beroff had his father retain 30,000 of 500,000 AXPL shares and then later, these shares were sold in his father's account in violation of the registration provisions of the securities laws.
2. By engaging in such conduct, Beroff was a cause of the Promoter's and his father's violations of Section 5 of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §77e].
JURISDICTION AND VENUE
3. The Commission brings this action pursuant to the authority conferred upon it by Section 20(d)(1) of the Securities Act [15 U.S.C. § 77t(d)(1)] to obtain a civil money penalty from defendant Beroff.
4. This Court has jurisdiction over this action pursuant to Sections 20 and 22(a) of the Securities Act [15 U.S.C. §§ 77t and 77v(a)]. Venue lies in this Court pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)].
5. The defendant, directly and indirectly, has made use of the means or instruments of transportation or communication in interstate commerce, or of the mails in connection with the acts, practices and transactions alleged herein.
6. Art H. Beroff, age 42, is a resident of Queens, New York. Beroff is a financial consultant and investment banker.
Beroff was a Cause of the Promoter's and His Father's
Violations of Section 5 of the Securities Act
7. Paragraphs 1 through 6 above are re-alleged and incorporated herein by reference.
A. The AXPL Regulation D Offering
8. The Promoter advised AXPL to raise capital through an offering of common stock pursuant to Rule 504 of Regulation D [17 C.F.R. § 230.504]. On March 1, 1996, AXPL authorized 500,000 shares of stock to be issued to raise $50,000. Beroff spoke with the Promoter about his parents investing in AXPL. The Promoter then informed AXPL that he found New York investors, Beroff's parents, to purchase the shares. In May and June 1996, AXPL received bank and brokerage firm checks totaling $49,750 as payment for the 500,000 AXPL shares to be issued pursuant to the Regulation D offering. Based on statements the Promoter made to the issuer, the issuer believed Beroff's parents had purchased the stock. In mid-August 1996, 500,000 shares of AXPL stock were mailed to Beroff's parents.
9. The Promoter provided Beroff with subscription agreements and investment letters that Beroff's parents signed. Shortly thereafter, the Promoter contacted Beroff and asked for the shares back. Beroff had his parents return 470,000 shares of AXPL by having them execute blank stock powers and Beroff sent the 470,000 shares of AXPL, along with the executed blank stock powers, to the Promoter. Beroff had his father retain 30,000 AXPL shares.
10. On January 23 and January 24, 1997, 26,400 AXPL shares were sold in Beroff's father's account for approximately $246,000. From January 1997 through April 1997, the Promoter and his affiliates sold approximately 220,000 of the AXPL shares the Promoter had obtained from Beroff's parents. The Promoter and his affiliates realized approximately $2.3 million in proceeds on the sale of these shares.
B. The Promoter and Beroff's Father Violated Section 5 of the Securities Act
11. The Promoter, directly or indirectly, sold 220,000 AXPL stock while no registration statement was in effect and without a valid exemption or safe harbor and, as a result violated Section 5 of the Securities Act [15 U.S.C. § 77e]. AXPL's Rule 504 Regulation D offering, in effect, was a private sale of stock by the issuer to the Promoter pursuant to Section 4(2) of the Securities Act [15 U.S.C. § 77d(2)]. The Promoter provided AXPL with the funds to purchase the shares and used Beroff's parents as nominees to hide his purchase. Accordingly, the Promoter acquired restricted AXPL stock directly from the issuer and was required to meet the one-year holding period for the resale of restricted securities in accordance with Rule 144 [17 C.F.R. § 230.144], which he failed to do. In addition, Section 4(1) of the Securities Act [15 U.S.C. § 77d(1)], which exempts from registration transactions "by any person other than an issuer, underwriter or dealer," does not apply to the Promoter's resales because the Promoter, and those to whom he gave restricted stock, were "underwriters" under Section 2(a)(11) of the Securities Act [15 U.S.C. § 77b(a)(11)].
12. On January 23 and January 24, 1997, Beroff's father's account sold 26,400 shares of restricted AXPL stock that Beroff had his father retain. These sales resulted in profits to Beroff's father of more than $264,000. These restricted shares were not held one year in accordance with the provisions of Rule 144 [17 CFR § 230.144]. Beroff's father, therefore, violated Section 5 of the Securities Act [15 U.S.C. § 77e] because there was no registration statement in effect for the AXPL offering and Beroff's father cannot rely on the Rule 144 [17 C.F.R. § 230.144] safe-harbor, or the Section 4(1) [15 U.S.C. § 77d(1)] exemption, for his resales.
C. Beroff was a Cause of the Promoter's and His Father's Violations of
13. Beroff was a cause of the Promoter's violations of Section 5 of the Securities Act [15 U.S.C. § 77e]. Beroff's parents received 500,000 AXPL shares that they had not paid for. Beroff had his parents complete subscription agreements and investment letters the Promoter had given to him. Within weeks, at the direction of the Promoter, Beroff had his parents return 470,000 shares of AXPL by having them execute blank stock powers and Beroff mailed the 470,000 shares of AXPL, along with the executed blank stock powers, to the Promoter. Beroff had his father retain 30,000 AXPL shares. Beroff's participation in this transaction enabled the Promoter to acquire inexpensive shares of AXPL that the Promoter and his affiliates later sold in violation of Section 5 of the Securities Act [15 U.S.C. § 77e].
14. Beroff also was a cause of his father's violations of Section 5 of the Securities Act. Beroff secured for his father 30,000 restricted shares of AXPL which later were sold in Beroff's father's account.
15. Sections 5(a) and 5 (c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)] prohibit any person, directly or indirectly, from making use of any means or instrument of transportation or communication in interstate commerce or of the mails to offer to sell, or to sell a security unless a registration statement is in effect or has been filed as to such security, or an exemption from registration is available.
16. By virtue of the conduct described in paragraphs 7 through 16 above, Beroff was a cause of the Promoter's and his father's violations of Section 5 of the Securities Act.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that this Court:
Enter an order requiring defendant Beroff to pay a civil money penalty pursuant to the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)];
Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and
decrees that may be entered, or to entertain any suitable application or motion for additional relief within the jurisdiction of the Court; and
Grant such other relief as the Court deems just and appropriate.