UNITED STATES DISTRICT COURT
Case No. 02 CV 60255 (WDF)
COMPLAINT FOR TEMPORARY RESTRAINING ORDER,
I. PRELIMINARY STATEMENT
Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against Defendants Make It Reel Productions, Inc. ("MIR"), Joseph Rubbo ("Rubbo"), and Peter D. Ragofsky ("Ragofsky") (the "Defendants") alleges and states as follows:
1. The Commission commences this action to stop the fraudulent offer and sale of unregistered preferred stock in a purported media company, MIR, by Rubbo, MIR's Chairman and CEO, and Ragofsky, an unregistered broker employed by MIR. From at least June 2001 to the present, MIR and Rubbo have maintained an Internet web-site which solicits investors to purchase "Class A Preferred Stock" in MIR at $100 per share. According to the web-site, MIR is attempting to raise $90 million through this offering in order to fund several independent film projects, including a film entitled "New Horizons." MIR's Offering Memorandum, which is available on its web-site, falsely represents that MIR has entered into an agreement that will entitle it to 50% of the anticipated $320 million in profits from New Horizons. It also falsely states that New Horizons will star major film actors Tom Cruise and Catherine Zeta-Jones. In fact, MIR has no agreement to receive profits from New Horizons and Tom Cruise and Catherine Zeta-Jones have never even been approached about such a film.
2. MIR has solicited prospective investors both over the telephone and through the Internet. Cold-callers associated with MIR have contacted at least two investors concerning MIR's offering. In addition, individuals who call the telephone number listed on MIR's web-site are directed to "salespersons" who solicit investors to participate in MIR's offering. On February 6, 2002, Ragofsky, a MIR salesperson, actively solicited an undercover agent from the Ohio Attorney General's Office ("Ohio AG"), who was posing as an investor who had seen MIR's web-site, to purchase preferred shares in MIR. Ragofsky baselessly claimed that the agent would likely earn returns of five times his initial investment amount and that MIR had already raised close to $15 million. Ragofsky also touted his previous "Wall Street" experience, but failed to disclose the fact that the National Association of Securities Dealers ("NASD") has barred him from associating with any member firm.
3. MIR's "Class A Preferred Stock" offering was not registered with the Commission and did not qualify for any exemption from the registration requirements of the Securities Act of 1933 ("Securities Act").
4. The Defendants directly or indirectly, have engaged, are engaging and are about to engage in transactions, acts, practices and courses of business that constitute or would constitute violations of Sections 5(c) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(c), 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 thereunder [17 C.F.R. § 240.10b-5].
5. Unless they are temporarily restrained and preliminarily and permanently enjoined, Defendants will continue to engage in the transactions, acts, practices and courses of business set forth in this Complaint and in transactions, acts, practices and courses of business of similar type and object. By this action the Commission seeks temporary, preliminary, and permanent injunctive relief, disgorgement, and civil money penalties.
6. MIR was incorporated in the State of Florida on March 13, 2001 and maintains offices in Fort Lauderdale, Florida. MIR purports to be a film and media company with rights to various film and television projects.
7. Rubbo, age 40, resides in Deerfield Beach, Florida. Rubbo is identified in the Offering Memorandum as the Chairman and CEO of MIR.
8. Ragofsky, age 37, resides in Florida. Ragofsky was employed as a broker for several firms between 1990 and 1999. During this period, Ragofsky was the subject of numerous customer complaints and disciplinary proceedings by state securities regulators and the NASD. In January 2001, the NASD barred Ragofsky from associating with any member firm.
III. JURISDICTION AND VENUE
9. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d), 77v(a)]; and Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), 78aa].
10. The Southern District of Florida is a proper venue for this action. Certain actions and transactions alleged and stated herein constitute violations of the Securities Act and the Exchange Act and have occurred, and are occurring, within the Southern District of Florida. MIR maintains offices in Fort Lauderdale, Florida from which shares were and are being offered and sold to U.S. investors by Ragofsky and others. In addition, Ragofsky instructed one individual to wire money to an MIR bank account located in Fort Lauderdale, Florida. Defendant Rubbo also maintains his residence within the Southern District of Florida.
11. The Defendants directly and indirectly, have made, and continue to make use of the means or instruments of transportation or communication in, and the means or instrumentalities of, interstate commerce, or of the mails, in connection with the transactions, acts, practices and courses of business alleged herein.
IV. THE FRAUDULENT SCHEME
A. THE OFFERING
12. From at least June 2001 to the present, the Defendants have been offering and selling preferred stock of MIR through a purported private placement pursuant to Rule 506 of Regulation D of the Securities Act. Through the offering, the Defendants are selling up to 900,000 shares of common stock at a purchase price of $100 per share, to raise a total of $90 million.
13. The Defendants are soliciting investors through two principal means. First, Defendants have placed MIR's Offering Memorandum on the web-site www.makeitreelproductions.com, which may be viewed by any member of the general public with access to the Internet. Second, Ragofsky and other MIR employees have solicited investors through oral and written communications including communications over the telephone and through the mail.
B. MIR'S OFFERING MATERIALS
14. MIR's Offering Memorandum states that MIR "is engaged in the business of identifying and obtaining rights and ownership of various independent motion pictures, TV productions, DVD's, CD's, video games and other entertainment sources." As set forth in greater detail below, the Offering Memorandum represents that MIR has entered into agreements with several entities that provide MIR with rights to a percentage of the profits that will be generated from various film and television projects. Rubbo participated in the preparation of the Offering Memorandum.
1. The "New Horizons" Project
15. The Offering Memorandum represents that MIR plans to use $75 million in proceeds from its preferred stock offering to fund the production of "New Horizons," a film written by Tony Tarantino (the father of celebrity director Quentin Tarantino). The Offering Memorandum states that:
[MIR] has entered into an agreement with Tarantino Productions to provide funds for the production of "New Horizons", a feature film written for Tom Cruise and Catherine Zeta-Jones. In exchange for the funds, Tarantino Productions has agreed to distribute 50% of the net profits from the film and all ancillary revenues to [MIR]. The Preferred shareholders will receive a distribution equal to 50% of the profits received by [MIR] from the film and its ancillary revenues.
These statements are false. Tony Tarantino, the sole principal of Tarantino Productions, has not entered into any agreements with MIR and MIR is not entitled to any of the profits from the New Horizons project.
16. "New Horizons" is described in the Offering Memorandum as a film "starring Tom Cruise and Catherine Zeta-Jones" and MIR's web-site contains a "Target Cast" list that includes several other well known stars such as Al Pacino and Paul Newman. These statements are false and misleading because none of these actors has even been formally approached about New Horizons, let alone agreed to star in the project.
17. The Offering Memorandum states that the "[m]usic for `New Horizons' alone is expected to be a hit." It states that "Jerry Cupit who has received 82 gold records . . . has written the soundtrack for `New Horizons' available on a promotional CD." These statement are false and misleading because Jerry Cupit has only written two gold records. Although Jerry Cupit has written a soundtrack for New Horizons, the only recording that has been made consists of a small sampling of his "New Horizons" compositions that was prepared for Tony Tarantino.
18. The Offering Memorandum states that "[i]ncredible special and visual effects with some unbelievable stunts will be coordinated by SFX expert John Mesa (the 6th Day [sic], Water world [sic], Deep Blue Sea)." These statements are false and misleading because John Mesa has not agreed to work on New Horizons and had nothing to do with The Sixth Day or Water World.
19. The Offering Memorandum touts the future success of New Horizons, stating that "[b]ased on research of recent genre-related films, `New Horizons' is expected to yield worldwide box office revenues of $320,000,000.00." It goes on to state that "Mission Impossible, another Tom Cruise driven action film, yielded $450,000,000.00 on it first release; Mission Impossible 2 yielded $575,000,000.00." These statements are false and misleading because the Offering Memorandum does not disclose the fact that, unlike the Mission Impossible movies, Tom Cruise has not agreed to star in New Horizons.
2. Righteous Man Productions
20. The Offering Memorandum states that MIR has entered into an agreement with Righteous Man Productions, a Florida-based production company that has completed several films, one of which is titled "Betty Blue Eyes." The Offering Memorandum states that MIR will own 75% of the profits from "Betty Blue Eyes" and that the movie is "completed and `in the can.'" These statements are false and misleading because Betty Blue Eyes is not a completed movie, and is nothing more than a script. Furthermore, neither Righteous Man Productions nor MIR owns any rights to the script.
3. "Cruisin TV"
21. The Offering Memorandum states that MIR has entered into an agreement with "`Cruisin TV', a syndicated television show filmed in various nightclubs and restaurants, and currently appearing on WAMI Television." This statement is false and misleading because Cruisin TV is not currently appearing on WAMI Television and there are no plans for Cruisin TV to be aired on WAMI Television in the future. Furthermore, WAMI Television began broadcasting under the name Telefutura and changed to an all Spanish-speaking program format in early January 2002.
C. DIRECT INVESTOR SOLICITATIONS
22. At least two individuals were solicited to invest in MIR between June and November 2001. These individuals were contacted by employees of MIR by both mail and the telephone. The MIR employees described MIR as a production company that was working on several independent films. One individual was provided a compact disc that touted MIR as an investment opportunity and contained the Internet address for MIR's web-site.
23. On February 6, 2002, an agent from the Ohio AG, posing as an investor, recorded several telephone conversations with MIR employees. During these conversations, Ragofsky actively solicited the agent to purchase preferred shares in MIR at $100 per share. Ragofsky promised that the agent would double his money, even if the New Horizons project were only to "break even." Ragofsky also claimed that the agent would likely earn a return of five times his initial investment amount within approximately six months and touted his prior experience on "Wall Street" as he discussed the benefits of investing in MIR. These claims were false and misleading because Ragofsky's predictions on the rate of return of the investment is completely baseless. Ragofsky also failed to disclose that the NASD barred him from associating with any member firm.
24. Ragofsky encouraged the agent to refer other individuals who might also be interested in investing in MIR by offering the agent additional shares of preferred stock for doing so. Ragofksy claimed that MIR had already raised nearly $15 million from investors. Ragofsky represented that MIR would sometimes receive "seven wires for fifty grand" in single day from investors seeking to purchase preferred shares. When the agent agreed to invest $50,000 in MIR, Ragofsky responded by providing him with wire transfer instructions for an account at Bank of America in Fort Lauderdale, Florida, in the name of Cine Star, Inc. Ragofsky followed up by mailing the agent a package of materials that included the Offering Memorandum, a subscription agreement, and written wire instructions for the Cine Star, Inc. account.
(OFFER OF UNREGISTERED SECURITIES IN VIOLATION OF
SECTION 5(c) OF THE SECURITIES ACT)
25. The Commission realleges and incorporates paragraphs 1 through 24 by reference as if fully set forth herein.
26. From at least June 2001, the Defendants, directly and indirectly, singly and in concert, have made use of the means or instruments of transportation or communication in interstate commerce, or of the mails, to offer securities through the use or medium of a 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.
27. As part of and in furtherance of this fraudulent conduct, Defendants offered unregistered securities to the public through the Internet, and telephone and mail solicitations. There were no registration exemptions available for this offering.
28. By reason of the foregoing, the Defendants have violated, are about to violate, and unless restrained and enjoined, will continue to violate, Section 5(c) of the Securities Act [15 U.S.C. § 77e(c)].
(FRAUD IN VIOLATION OF
SECTION 17(a) OF THE SECURTIES ACT )
29. The Commission realleges and incorporates paragraphs 1 through 28 by reference as if fully set forth herein.
30. Defendants, directly and indirectly, singly and in concert, knowingly or recklessly, by the use of the means or instruments of transportation or communication in, and the means or instrumentalities of, interstate commerce, or by the use of the mails, in the offer or sale of securities, have: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of, or otherwise made untrue statements of material fact, or omitted to state material facts necessary to make the statements, in light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices and courses of business which operated or would operate as a fraud or deceit upon purchasers of securities.
31. As part of and in furtherance of this violative conduct, Defendants, as more fully described above, directly or indirectly, made materially false statements and omitted to state material facts. These transactions, acts, practices, and courses of business operated, or would operate, as a fraud or deceit on investors in the offer or sale of MIR securities.
32. By reason of the foregoing acts, omissions, practices, and courses of business set forth in this Complaint, the Defendants have violated, are about to violate, and, unless restrained and enjoined, will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
(FRAUD IN VIOLATION OF SECTION 10(b) OF THE
EXCHANGE ACT AND RULE 10b-5 THEREUNDER)
33. The Commission realleges and incorporates paragraphs 1 through 32 by reference as if fully set forth herein.
34. Defendants, directly and indirectly, by the use of the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange in connection with the purchase and sale of securities, knowingly or recklessly, have: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts or omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon any person.
35. As part of and in furtherance of this violative conduct, Defendants, as more fully described above, directly or indirectly, made material false statements and omitted to state material facts. These transactions, acts, practices, and courses of business operated, or would operate, as a fraud or deceit on investors in connection with the purchase or sale of MIR securities.
36. By reason of the foregoing, the Defendants have violated, are about to violate, and, unless restrained and enjoined, will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
WHEREFORE, Plaintiff Commission respectfully requests that the Court:
A. Grant an Order temporarily and preliminarily, and a Final Judgment permanently, enjoining the Defendants, their agents, servants, employees, attorneys in-fact, and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Sections 5(c) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(c), 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
B. Grant an Order directing MIR to file with this Court and serve upon the Commission, within five business days, or within such extension of time as the Commission agrees in writing or as otherwise ordered by the Court, verified written accountings, signed by an authorized representative of MIR under penalty of perjury, of:
1. All assets, liabilities and property currently held directly or indirectly by or for the benefit of MIR, and each of them, 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, and its current location and amount;
2. All money, property, assets, and other income received by MIR, and each of them, or for their direct or indirect benefit, in or at any time from January 1, 2001 to the date of the accounting, describing the source, amount, disposition and current location of each of the items listed;
3. The names and last known addresses of all bailees, debtors, and other persons and entities which are currently holding the assets, funds or property of MIR; and
4. All assets, funds, securities, real or personal property received by MIR, or any other person controlled by MIR, from persons who provided money to MIR in connection with the offer, purchase or sale of investments of any kind, and the disposition of such assets, funds, investments, and real or personal property.
C. Grant a Final Judgment directing the Defendants to disgorge their ill-gotten gains from the violative conduct alleged in this Complaint, and to pay prejudgment interest thereon.
D. Grant a Final Judgment assessing civil penalties against the Defendants 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)] for the violations alleged herein.
E. Grant an Order directing that MIR, and its officers, agents, servants, employees, attorneys-in-fact, and all persons in active concert or participation with each of them, who receive actual notice of such Order by personal service, facsimile service, or otherwise, and each of them, hold and retain within their control, and otherwise prevent any withdrawal, transfer, pledge, encumbrance, assignment, dissipation, concealment, or other disposal of any assets, funds, or other properties (including money, real or personal property, securities, choses in action or property of any kind whatsoever) of MIR currently held by MIR or under MIR's control, whether held in MIR's name or for MIR's direct or indirect beneficial interest wherever situated, and directing each of the financial or brokerage institutions, debtors, and bailees, or any other person or entity holding such assets, funds, or other properties of MIR, and each of them, to hold or retain within its control and prohibit the withdrawal, removal, transfer, or other disposal of any such assets, funds, or other properties.
F. Grant an Order enjoining and restraining the Defendants or any person or entity acting at their direction or on their behalf from destroying, altering, concealing or otherwise interfering with the access of the Commission to any and all documents, books and records which are in the possession, custody or control of Defendants, their agents, employees, servants, accountants, financial or brokerage institutions, and attorneys that refer, reflect or relate to the allegations of the Complaint, including, but not limited to, documents, books and records referring, reflecting or relating to MIR's business operations, and its offer or sale of securities and the use of proceeds therefrom.
G. Grant an Order permitting expedited discovery.
H. Grant such other and further relief as the Court deems just and proper.