UNITED STATES DISTRICT COURT
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF
Plaintiff Securities and Exchange Commission ("Commission") alleges:
1. The Commission brings this action to restrain and enjoin Defendants from continuing to violate the federal securities laws in connection with their ongoing, fraudulent, unregistered offer and sale of securities in the form of preferred stock with warrants ("preferred stock"). From a date unknown, but from at least January 2001, The Gaming Factory, Inc., a Panamanian corporation, The Gaming Factory, Inc., a Florida corporation, Richard Onorato and Victor Selenow (collectively "Defendants") have been involved in a scheme to dupe innocent investors out of their hard-earned money by offering and selling unregistered stock in "The Gaming Factory, Inc.," a purported offshore internet casino. Defendants are offering and selling "The Gaming Factory, Inc." unregistered securities through a boiler room and have deceived, and are continuing to deceive, investors by making numerous false representations including, among others, that "The Gaming Factory, Inc." was granted a Panamanian gambling license. Unless immediately restrained and enjoined, Defendants will continue to defraud the investing public and place investor funds at serious risk of diversion and theft.
2. Defendant The Gaming Factory, Inc., is a Panamanian corporation registered at the Panamanian public registry since March 2001, with offices located at Del Nuevo Banco Popular, San Pedro 50Mts Al Esta, Altos Ferreteria Del Mar, Costa Rica, and 1601 Forum Place, Suite 203, West Palm Beach, Florida 33401 ("TGF Panama").
3. Defendant The Gaming Factory, Inc., is a Florida corporation incorporated in January 2001, with its principal offices located at 1601 Forum Place, Suite 203, West Palm Beach, Florida 33401 ("TGF Florida").
4. Defendant Richard Onorato ("Onorato") is twenty-seven years old and TGF Panama's offering materials state that he is its president, chairman, chief executive officer ("CEO") and majority shareholder. Onorato is also the president of TGF Florida. He resides in Lake Worth, Florida.
5. Defendant Victor Selenow ("Selenow") is forty years old and was, and upon information and belief is, a sales representative of TGF Panama and/or TGF Florida. He resides in Delray Beach, Florida.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b), 77t(d) and 77v(a), and Sections 21(d), 21(e), and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d), 78u(e) and 78aa.
7. Certain of the acts and transactions constituting violations of the Securities Act and the Exchange Act have occurred within the Southern District of Florida. The offices of Defendant TGF Panama and Defendant TGF Florida are located within the Southern District of Florida. Defendants Onorato and Selenow reside in the Southern District of Florida. Defendants have engaged in many of the acts and practices complained of herein within the Southern District of Florida.
8. Defendants, directly and indirectly, have made use of the means and instrumentalities of interstate commerce, the means and instruments of transportation and communication in interstate commerce, and the mails, in connection with the acts, practices, and courses of business complained of herein.
THE FRAUDULENT SCHEME
9. TGF Panama and TGF Florida (hereinafter collectively referred to as "TGF" or "the company") purportedly operate an Internet website that offers casino gaming and sports wagering.
10. TGF is controlled and operated through its principal, Onorato.
11. Onorato ignores the corporate form and treats both TGF Panama and TGF Florida as interchangeable entities. Consequently, TGF Florida and TGF Panama are the same issuer of TGF's preferred stock.
12. From a date unknown, but from at least January 2001 to the present, TGF has solicited potential investors through a boiler room operation and has received investor funds.
13. In offering and selling securities, TGF has made numerous material misrepresentations and omissions to prospective and actual investors.
I. TGF's Offering
14. TGF's preferred stock is offered at $2.50 a share in 20,000 share units at a cost of $50,000 per unit. Each unit also includes 20,000 warrants to buy additional shares at $2.50 a share at any time over the next two years. TGF offers and sells fractions of units to investors who wish to invest less than $50,000.
15. TGF operates in a typical boiler room manner by soliciting investors through a group of approximately 5 - 10 in-house sales representatives working from lead lists to "cold call" prospects.
16. During high-pressure solicitations, TGF's sales representatives make, as described in paragraphs 22, 24-26, and 31-32, materially false and misleading statements and omissions to prospective investors.
17. After the sales representative introduces TGF's investment opportunity to the prospect, the company sends (by overnight delivery) certain marketing and offering materials to the potential investor. These materials include, among other things, a Private Placement Memorandum ("PPM"), a letter to investors hand signed by Onorato, a subscription agreement, various articles about the Internet and online gambling, a copy of TGF's most recent newsletter, TGF's return on investment projections, a return FedEx airbill and wiring instructions. All of the materials are sent in a glossy color folder that has a bound information packet created by TGF with overviews of the industry, its casino games, marketing, profit projections and a "question and answer" section. TGF's sales representative thereafter calls the potential investor (sometimes multiple times) to answer any questions about the PPM and tries to close the sale of TGF preferred stock.
18. TGF also uses its websites to solicit investors. TGF's sales representatives refer potential investors to TGF's websites located at www.thegamingfactory.com and www.playersgalaxy.com. Recently, TGF's website at www.thegamingfactory.com was changed to explicitly solicit investors. This website now states "[o]wn your share of the next great success story" and provides links to TGF's PPM and its marketing materials. In addition, this website allows potential investors to provide their name and telephone number so that a TGF sales representative can contact them.
19. TGF's securities are not registered with the U.S. Securities and Exchange Commission and TGF does not require that its sales representatives be licensed.
20. TGF has a business relationship with an offshore bank and maintained, and upon information and belief maintains, bank accounts in Panama, Costa Rica and the Bahamas.
II. Material Misrepresentations and Omissions in Connection with
A. Misrepresentations Regarding TGF's Licenses with the
21. TGF falsely states in its September 2001 newsletter sent to potential investors that it received certain casino gaming licenses. In particular, the company states that in April 2001, Onorato made a trip to Panama and conducted:
22. TGF's sales representatives also orally represent to potential investors that TGF has received a license from Panama to build a land-based casino in the country. These representations are false. TGF does not have any gaming licenses in Panama.
B. Misrepresentations Concerning Undisclosed Commissions
23. In its PPM, TGF claims that the preferred stock is being offered through its officers, directors and certain employees and that "[t]he persons making this offering on behalf of the Company will not receive any commission..." In contrast to this representation, TGF paid, and upon information and belief is currently paying, its sales representatives undisclosed monthly commissions based on a sliding scale, ranging from 13% to 18% of the sales representatives' gross TGF preferred stock sales each month.
C. Misrepresentations Regarding Safety and Return on Investment
24. TGF's sales representatives make false and misleading oral statements to prospective investors concerning the return on, and safety of, investing in the company's securities. TGF's sales staff use a telemarketing script which informs investors that TGF has "extraordinarily strong upside potential" and that quarterly dividends will continue to generate a return on investment "well over 100% annually." The TGF investment is described as a sure thing, and investors are told that the only way they can lose their money is if "people will stop gambling [or] people will stop using the internet." In addition, investors are told to expect their "original investment back within six months," through TGF's operations. Further, investors are told their return on investment would be "astronomical."
25. These representations are materially misleading or false given that TGF is a company with no operating history and involved in a new, highly competitive, speculative and possibly illegal line of business. Moreover, at least two investors who purchased TGF preferred stock eight months to one year ago have received no returns on their investment or dividend payments whatsoever.
D. False Claims About TGF's Current Profitability
26. TGF's sales representatives have told prospective investors, since at least July 2001, that the company's profits are already tremendous; that its profit margin is very high because the company has very little overhead; and that TGF is one of the few companies in the online gaming industry that is profitable. These statements are false because TGF did not have any significant sources of revenue until mid-January 2002 when its online casino became operational.
E. Misrepresentations Regarding Management's Background
27. The PPM misrepresents Onorato's background by doubling the length of his purported business experience. The PPM states that Onorato will provide TGF with his "vast knowledge" of "start up capitalization" and that he is the founder and CEO of Elite Financial Associates, Inc., ("EFA") "...a private venture capital and consulting firm, which has focused on assisting Internet, and Technology companies accomplish their corporate goals." The PPM further states "throughout the last four years with EFA, Mr. Onorato has assisted several I/T companies to acquire a total of US$37,000,000." Although Onorato is the founder and president of EFA, it was incorporated less than two years prior to the date of the PPM.
28. Despite praising Onorato's ability and record concerning capital raising, the PPM neglects to disclose that on March 1, 1999, Onorato and a company he controlled were ordered by the Pennsylvania Securities Commission to cease and desist from acting as unregistered broker-dealers and committing fraud in connection with an unregistered offering of securities.
29. The PPM also misrepresents the background of TGF's purported director of marketing, Shannon Diem ("Diem"). The management section of the PPM states that Diem was the president of Internet Marketing Group, Inc. ("IMG") from approximately May 1997 through November 1999. The PPM also claims that IMG developed online advertising and marketing campaigns for, among others, "Disney," "Ford Motor Company," and "Carnival Cruise Lines." Diem was not the president of IMG and neither he nor IMG ever had any relationship with The Walt Disney Company, Ford Motor Company or Carnival Corporation.
30. The PPM also misrepresents Diem's educational background. The PPM states that Diem was accepted in the Fall of 2000 to the Wharton School of Business at the University of Pennsylvania ("Wharton"). Diem never applied nor was accepted by Wharton for the Fall of 2000 or any other year.
F. Misrepresentations Regarding the Availability of TGF Preferred Stock
31. TGF's sales representatives have used hard-sell techniques that are designed to create a false sense of urgency in the investor by representing that only a few units are left or that the offering is on the verge of closing. TGF continued to sell preferred stock months after sales representatives made these statements, is currently continuing to sell preferred stock and has expanded its solicitation to its website. Therefore, statements about the limited availability of shares or the limited duration of the offering are materially false.
G. Misrepresentations About the Legality of the Operations
32. In telephone solicitations, TGF sales representatives tell prospective investors that the TGF gambling operations are completely legal without any disclosure of any potential legal hazards. In contrast, TGF's PPM discloses that there are significant issues relating to the legality of its online offshore casino operation. Therefore, TGF's sales representatives' oral statements that the company's gambling operations are completely legal are materially false.
H. Misrepresentations Regarding TGF's Officers and Directors
33. TGF also misrepresents the identity of its officers and directors. The PPM represents that TGF Panama's president, chairman of the board and CEO is Onorato and lists Diem as a director. According to Panamanian authorities, however, TGF Panama has three directors and officers, none of whom is Onorato or Diem.
III. Role of Onorato
34. As the majority shareholder, CEO, chairman of the board and president of TGF Panama and president of TGF Florida, Onorato has the ultimate decision making authority in TGF and knowingly or recklessly made, directed or authorized to be made, material misrepresentations and omissions to investors.
35. Upon information and belief, Onorato is the author of, or reviewed and approved, TGF's PPM and knew, or was severely reckless in not knowing, that the PPM, as set forth above in paragraphs 23, 27-30 and 33, contained misrepresentations and omissions relating to: the payment of commissions to sales representatives, and the amounts thereof; the employment experience of both Onorato and TGF's purported marketing director Diem; the educational background of Diem; and the identity of the officers and directors of TGF Panama.
36. Upon information and belief, Onorato is the author of, or reviewed and approved, TGF's September 2001 newsletter and knew, or was severely reckless in not knowing, that the newsletter, as set forth above in paragraph 21, falsely stated that TGF was granted gaming licenses by the Panamanian government.
37. Upon information and belief, Onorato directs or authorizes TGF's sales agents to make materially false and misleading misrepresentations and omissions to investors, or knows or is severely reckless in not knowing, that the sales agents are making fraudulent statements, in the offer and sale of TGF's securities relating to, as set forth above in paragraphs 22, 24-26, 31-32: the Panamanian government's granting of a gaming license to TGF, the safety and return on an investment in TGF; TGF's purported profitability; the availability of TGF's preferred stock and the duration of the offering; and the legality of TGF's operations.
IV. Role of Selenow
38. Selenow is a TGF sales representative who solicits investors to purchase TGF preferred stock. Selenow distributes TGF's PPM to prospective investors which falsely states, as set forth in paragraph 23, that sellers of TGF's stock do not receive commissions. Selenow, as a sales representative is presumably, upon information and belief, paid commissions for the sale of TGF's stock. As a result, Selenow knows, or is severely reckless in not knowing, that TGF's PPM is materially false and misleading.
39. Selenow represented to prospective and/or actual investors that TGF's off-shore online casino operations were completely legal despite the fact that TGF's PPM, which he disseminated, stated that there were issues concerning the legality of TGF's business. Consequently, Selenow knew, or was severely reckless in not knowing, that his oral representations relating to the legality of TGF's off-shore online casino operations were materially false and misleading.
40. Selenow stated to at least one investor that TGF's revenues could easily reach $156 million per year within the first twelve (12) months of launching TGF's websites. Selenow's projections are baseless because the company has a limited operating history and is involved in a new, highly competitive, speculative and possibly illegal line of business. The limited history of TGF and the risks associated with its business were set forth in the company PPM which was readily accessible to Selenow. Therefore, Selenow knew, or was severely reckless in not knowing, that his astronomical projection about TGF's growth was materially false and misleading.
41. Selenow made materially false and misleading statements to prospective investors about the number of remaining TGF units available for purchase and the amount of time left to purchase those units. For example, in October 2001, Selenow stated to an investor that all of the units of TGF's preferred stock had been sold but that ten units were released. Selenow told the same investor that the deadline for purchasing any of the ten "released" units was October 25, 2001. Nonetheless, Selenow continued to offer and sell TGF units after October 25, 2001. Selenow therefore knew, or was severely reckless in not knowing, that his statements about the number of remaining units and the limited duration of the offering were materially false and misleading.
42. Selenow touts his experience in selling investment products when he solicits prospective investors to purchase TGF preferred stock. For example, Selenow stated to one potential investor that he has been "helping people maximize their investment dollars in aggressive situations for many years - almost sixteen years." Selenow omitted to disclose that the National Futures Association ("NFA") found that, in offering silver options, he made false and misleading statements and employed high pressure sales tactics in soliciting a number of individuals. Selenow also failed to disclose that as a result of those findings, the NFA, in October 2000, barred him from associating with any futures broker/dealer for five years and fined him $50,000. Consequently, Selenow knowingly or recklessly made materially false omissions in offering TGF's preferred stock to prospective investors.
SALE OF UNREGISTERED SECURITIES IN VIOLATION OF
43. The Commission repeats and realleges paragraphs 1 through 42 of this Complaint.
44. No registration statement was filed or in effect with the Commission pursuant to the Securities Act and no exemption from registration exists with respect to the securities and transactions described herein.
45. Since a date unknown, but since at least January 2001 through the present, Defendants TGF, Onorato and Selenow, directly and indirectly, have been: (a) making use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell securities as described herein, through the use or medium of a prospectus or otherwise; (b) carrying securities or causing such securities, as described herein, to be carried through the mails or in interstate commerce, by any means or instruments of transportation, for the purpose of sale or delivery after sale; and/or (c) making use of the means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise, as described herein, without a registration statement having been filed or being in effect with the Commission as to such securities.
46. By reason of the foregoing, TGF, Onorato and Selenow, directly and indirectly, have 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).
FRAUD IN VIOLATION OF
47. The Commission repeats and realleges paragraphs 1 through 42 of the Complaint.
48. Since a date unknown, but since at least January 2001 through the present, Defendants TGF, Onorato and Selenow directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce and by use of the mails, in the offer or sale of securities, as described herein, have been, knowingly, willfully or recklessly employing devices, schemes or artifices to defraud.
49. By reason of the foregoing, Defendants TGF, Onorato and Selenow, directly and indirectly, have violated and, unless enjoined, will continue to violate Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(1).
FRAUD IN VIOLATION OF
50. The Commission repeats and realleges paragraphs 1 through 42 of its Complaint.
51. Since a date unknown, but since at least January 2001 through the present, Defendants TGF, Onorato and Selenow, directly and indirectly, by use of the means or instruments of transportation or communication in interstate commerce and by the use of the mails, in the offer or sale of securities, as described herein, have been: (a) obtaining money or property by means of untrue statements of material facts and 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/or (b) engaging in transactions, practices and courses of business which are now operating and will operate as a fraud or deceit upon purchasers and prospective purchasers of such securities.
52. By reason of the foregoing, Defendants TGF, Onorato and Selenow, directly and indirectly, have violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and 77(q)(a)(3).
FRAUD IN VIOLATION OF SECTION 10(b)
53. The Commission repeats and realleges paragraphs 1 through 42 of its Complaint.
54. Since a date unknown, but since at least January 2001 through the present, Defendants TGF, Onorato and Selenow, directly and indirectly, by use of the means and instrumentality of interstate commerce, and of the mails, and of any facility of any national securities exchange, in connection with the purchase or sale of the securities, as described herein, have been, knowingly, willfully or recklessly: (a) employing devices, schemes or artifices to defraud; (b) making untrue statements of material facts and omitting 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/or (c) engaging in acts, practices and courses of business which have operated, are now operating and will operate as a fraud upon the purchasers of such securities.
55. By reason of the foregoing, Defendants TGF, Onorato and Selenow, directly or indirectly, have violated and, unless enjoined, will continue to violate 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.
WHEREFORE, the Commission respectfully requests that the Court:
Declare, determine and find that Defendants TGF, Onorato and Selenow committed the violations of the federal securities laws alleged herein.
Temporary Restraining Order,
Issue a Temporary Restraining Order, a Preliminary Injunction and a Permanent Injunction, restraining and enjoining Defendants TGF, Onorato and Selenow, their officers, agents, servants, employees, attorneys, and all persons in active concert or participation with them, and each of them, from violating: (i) Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c); (ii) Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a); (iii) Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77(q)(a)(2) and (a)(3); and (iv) 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.
Issue an Order requiring Defendants TGF, Onorato and Selenow to disgorge all ill-gotten profits or proceeds that they have received as a result of the acts and/or courses of conduct complained of herein, with prejudgment interest.
Issue an Order directing Onorato and Selenow to pay civil money 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. § 78(d)(3).
Asset Freeze and Accounting
Issue an Order temporarily freezing the assets of Defendants TGF, Onorato and Selenow until further Order of the Court, and requiring accountings by TGF, Onorato and Selenow.
Appointment of Receiver
Issue an Order appointing a Receiver of the assets of TGF to marshal and safeguard all of said assets, and any other duties the Court deems appropriate, and to prepare a report to the Court and the Commission detailing the activities of TGF, Onorato and Selenow and the whereabouts of investor funds.
Records Preservation and Expedited Discovery
Issue an Order requiring Defendants TGF, Onorato and Selenow to preserve any records related to the subject matter of this lawsuit that are in their custody, possession or subject to their control, and to respond to discovery on an expedited basis.
Repatriation of Investor Proceeds
Issue an Order requiring Defendants TGF, Onorato and Selenow to take such steps as are necessary to repatriate to the territory of the United States all funds and assets of investors described in the Commission's Complaint in this action which are held by them or are under their direct or indirect control, jointly or singly, and deposit such funds into the registry of the United States District Court for the Southern District of Florida, and provide the Commission and the Court a written description of the funds and assets so repatriated.
Grant such other and further relief as may be necessary and appropriate.
Retention of Jurisdiction
Further, the Commission respectfully requests that the Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may hereby be entered, or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.
April ____, 2002
Mark A. Graves
Michael J. Rogal
Attorneys for Plaintiff