HELANE L. MORRISON (Cal. Bar No. 127752)
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission (the "Commission") alleges:
SUMMARY OF THE ACTION
1. Beginning in approximately May 2000, defendants Ronald N. Pellett ("Pellett") and Penny A. Sperry ("Sperry," formerly Penny Pellett) initiated a scheme to distribute unregistered stock of defendant Victor Industries, Inc. ("Victor" or the "Company") to the public. Pellett, a former stockbroker who controls Victor along with his ex-wife, defendant Sperry, obtained control of nearly 20 million shares of unregistered Victor stock by conducting a sham private placement offering.
2. Victor purports to be a development stage company based in Missoula, Montana. Between July 2001 and November 2001, Pellet and Sperry caused Victor to issue a series of press releases announcing that it was bringing a "revolutionary" new fertilizer product to market. The press releases drove Victor's stock price from $0.01 in July to a high of $0.26 in November on record volume.
3. Pellett and Sperry took advantage of the heightened investor interest in the Company to sell over a million shares of unregistered Victor stock to the public. They also transferred millions of additional shares of Victor stock offshore or to various third parties who, in turn, sold the stock into the market. Most of the sales and transfers occurred through defendant Xion, Inc. ("Xion"), an entity controlled by Pellett and Sperry. Proceeds from the sales have been deposited in Sperry's bank account. Because of Pellett's and Sperry's affiliation with Victor, all of these sales violated the registration provisions of Section 5 of the Securities Act of 1933 ("Securities Act").
4. As a result of the violations alleged, the Commission seeks permanent injunctive relief, civil penalties, an asset freeze and other appropriate relief against all defendants, and an accounting and disgorgement of ill-gotten gains against defendants Victor, Pellett, Sperry and Xion.
AUTHORITY TO BRING THIS ACTION
5. The Commission brings this action pursuant to Sections 20(b) and 20(d) of the Securities Act.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this action pursuant to Sections 20(d)(1) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d)(1) and 77v(a)]. Defendants, directly or indirectly, have made use of the means and instrumentalities of interstate commerce or of the mails in connection with the acts, practices and courses of business alleged in this Complaint.
7. Venue in this District is proper pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)]. Certain of the transactions, acts, practices, and courses of business alleged herein occurred within this District and all of the defendants reside and/or transact business in this district.
8. Assignment to the Missoula Division is appropriate under Local Rule 105 of this Court because a substantial part of the misconduct occurred in Missoula and because defendants reside and/or conduct business there.
9. Victor is a corporation organized and existing under Idaho law with its principal place of business in Missoula, Montana. The Company operated as an inactive shell entity until December 1999, when defendants Pellett and Sperry took control of the company. Victor's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act, and during the relevant period has been quoted under the symbol "VICI" on the Over-The-Counter Bulletin Board Service ("OTCBB") operated by The NASDAQ Stock Market, Inc. Victor purports to be engaged in the business of mining and marketing a mineral known as zeolite and to be a development stage manufacturer of a "revolutionary" new zeolite-based fertilizer. The Company has not commenced production of the fertilizer or any other product nor derived any material revenue from operations.
10. Pellett, 51, has primary responsibility for conducting Victor's business and has been listed on Victor's press releases as the Company's investor contact. Pellett resides in Missoula, Montana. He is a former stockbroker whose registration was revoked by the National Association of Securities Dealers in May 1999.
11. Sperry, 49, is Victor's nominal Chief Executive Officer, President and Treasurer and also serves as a director. Sperry resides in Missoula, Montana. Her home address and telephone number are the same as Victor's business address and telephone number. Sperry is Pellett's ex-wife.
12. Xion purports to be a corporation organized and existing under the law of the State of New York with its principal place of business in Missoula, Montana. Pellett is Xion's Secretary and sole director. Both Pellett and Sperry have trading authority over certain of Xion's brokerage accounts. Xion has no known operations, acting primarily or exclusively as the conduit through which Pellett and Sperry have distributed unregistered Victor securities to the public.
DEFENDANTS' OFFERING AND SALES OF UNREGISTERED SECURITIES
13. In or about May and June 2000, Victor purported to conduct a $950,000 private placement of convertible notes. Documents prepared in connection with the offering gave the appearance that approximately 16 subscribers invested around $65,000 each in the private placement. Victor represented in Commission filings that the subscribers converted their notes into a total of approximately 20 million shares of common stock.
14. In fact, the offering was a sham designed to give Pellett and Sperry control over Victor stock. Few, if any, of the private placement subscribers invested a single penny in the Company, and none received the millions of shares purportedly purchased in the private placement other than token amounts. Instead, the private placement subscribers were led to believe that they would be receiving several thousand shares of Victor stock as gifts.
15. Unbeknownst to the subscribers, Pellett and Sperry thereafter directed Victor's transfer agent to issue approximately 1.3 million shares of Victor stock in the name of each of the private placement subscribers.
16. At various times beginning immediately after the private placement and continuing through November 2001, Pellett and Sperry directed Victor's transfer agent to transfer millions of shares of Victor stock held in the name of the private placement subscribers to Xion (as well as to other third parties). Xion also received at least 1.2 million shares directly from Victor as part of the sham private placement.
17. Beginning in or about March 2001 and continuing at least through November 2001, Pellett and Sperry commenced selling Victor stock to the public through various brokerage accounts maintained in Xion's name. Pellett and/or Sperry had trading authority over each of the brokerage accounts. Pellett and Sperry sold over a million shares of Victor stock from the Xion accounts to the public, grossing over $135,000 in trading proceeds.
18. In addition, Pellet and Sperry directed the transfer agent to transfer millions of shares of Victor stock from Xion to various third parties, primarily stock promoters. These persons in turn sold substantial amounts of Victor stock to the public.
19. Most of the Victor stock sales occurred between July 2001 and November 2001, when Pellett and Sperry caused Victor to issue a series of upbeat press releases hyping the "revolutionary" new fertilizer product. Each of Victor's announcements was followed by a significant increase in the trading volume. Victor's stock price rose from $0.01 in July 2001 to a high of $0.26 in November 2001.
20. The publicity campaign waged by Pellett and Sperry served the purpose of generating investor interest in Victor, allowing the defendants and the stock promoters they had retained to unload their stock at substantial personal profit without disclosing to the public their control over the outstanding shares of Victor securities.
21. No registration statement was filed with the Commission or was in effect in connection with the offers or sales of the Victor securities described above.
FIRST CLAIM FOR RELIEF
Violations of Section 5(a) and 5(c) of the Securities Act
(Against all Defendants)
22. Paragraphs 1 through 21 are incorporated by this reference.
23. From approximately May 2000 to November 2001, defendants, directly or indirectly, 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 a prospectus or otherwise when no registration statement had been filed or was in effect as to such securities and no exemption from registration was available.
24. While engaged in or participating in the unlawful distribution of Victor's common stock, and by virtue of their relationship of control or affiliation with Victor, defendants Pellett, Sperry and Xion were underwriters within the meaning of section 2(11) of the Securities Act.
25. By reason of the foregoing, defendants, directly or indirectly, violated, and, unless enjoined, will continue to violate, Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)], which prohibit the sale and offer for sale of unregistered securities.
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
a. Enjoin each of the defendants from future conduct that violates the provisions of Sections 5(a) or 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)].
b. Order defendants to pay civil money penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)].
c. Order defendants to account for and disgorge an amount equal to their unjust enrichment as a result of their conduct alleged herein, plus prejudgment interest thereon;
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 this Court; and
e. Grant such other and further relief as this Court may deem appropriate.