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UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission alleges: SUMMARY 1. Von C. Cummings and his co-defendants induced dozens of trusting investors to place more than $15 million in a classic Ponzi scheme (i.e., no legitimate investments are made; rather, new investor money is used to repay prior investors, and the operators steal a portion for themselves). By masquerading as an investment adviser and the manager of a supposed Ohio-based "hedge fund," Cummings lured investors from all walks of life, including business people, professional athletes and religious charities. 2. The fraudulent scheme masterminded by Cummings followed a typical progression:
3. As part of this scheme, Ryan conducted his own mini-Ponzi scheme. He received nearly $1 million of investor funds directly into his personal bank account during 2001, then misappropriated or diverted those funds to pay personal expenses and earlier investors. Ryan also misappropriated another $500,000 that he induced an investor to provide to him in October 2000. 4. Both the main Paramount Ponzi scheme and Ryan's mini-Ponzi scheme essentially collapsed in the spring of 2001, when Paramount, Cummings and Ryan were unable to raise enough new money to repay earlier investors. Paramount then began holding out to clients the prospect of certain "deals" that had supposedly been delayed or supposed new third-party transactions that would generate funds to repay investors. Cummings used these illusory promises to induce clients to invest additional funds. That activity continues and Paramount's doors remain open. Earlier this year, Paramount and Cummings raised at least $85,000 from two different investors, money that Paramount and Cummings quickly used to pay personal and business expenses. 5. Paramount, Cummings and Ryan continue to hold out to victims the prospect of repayment of overdue principal and profits once deals are consummated; as such they pose an on-going threat to existing victims and to potential new investors who have not yet been lured into the scheme. 6. Cummings, Paramount Financial Partners, L.P., Paramount Capital Management LLC, Ryan, Grandy and Conley directly or indirectly have engaged, are engaging in or will engage in transactions, acts, practices and courses of business which constitute violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)]; Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78j(b)]; and Exchange Act Rule 10b-5 [17 C.F.R. §§ 240.10b-5]. 7. Paramount Financial Partners, L.P. and Paramount Capital Management L.L.C. directly or indirectly have engaged, are engaging in or will engage in transactions, acts, practices and courses of business which constitute violations of Section 206(1) and (2) of the Investment Advisers Act of 1940 ("Advisers Act") [15 U.S.C. §§ 80b-6(1)-(2)]. Additionally, Cummings, Ryan, Grandy and Conley directly or indirectly aided and abetted those violations of the Advisers Act. 8. The Commission brings this action to restrain and enjoin such transactions, acts, practices and courses of conduct pursuant to Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], Sections 21(d) and 21(e) of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e)] and Section 209(d) of the Advisers Act [15 U.S.C. § 80b-9(d)]. There is a reasonable likelihood that the defendants will, unless enjoined, continue to engage in the transactions, acts, practices and courses of business set forth in this complaint, and transactions, acts, practices and courses of business of similar conduct unless enjoined. 9. Relief defendants U.S. African Corp., Gordon Lending Corp., (formerly Paramount Investment Corp.), Gordon L. Yocom (who directs the activities of Gordon Lending Corp.) and Patrick Susemihl received investor funds that were misappropriated or otherwise diverted by Paramount or its agents; the relief defendants did not give value for these payments and hold such monies in constructive trust for the benefit of defrauded investors. JURISDICTION AND VENUE 10. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)], Section 27 of the Exchange Act [15 U.S.C. §§ 78u, 78aa] and Section 214 of the Advisers Act [15 U.S.C. § 80b-14]. 11. This Court has venue under 28 U.S.C. § 1391(b) because a substantial part of the events or omissions giving rise to the Commission's claims occurred in this District. 12. The defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange, in connection with the acts, practices, and courses of business alleged herein. DEFENDANTS 13. Von Christopher Cummings, age 32, of Dublin, Ohio, manages and controls Paramount Financial Partners L.P. and Paramount Capital Management, LLC. Cummings has only a Series 6 securities license from the National Association of Securities Dealers (NASD). 14. Paramount Financial Partners, L.P., is a Delaware limited partnership and a purported hedge fund based in the Columbus, Ohio area. 15. Paramount Capital Management, L.L.C. is a Delaware limited liability company and the corporate general partner and alleged investment adviser for Paramount Financial Partners. It is also based in the Columbus, Ohio area. 16. John A. Ryan, age 40, of San Francisco, California was one of Paramount's chief marketers. Ryan initially entered into a "finders fee" arrangement with Paramount in late 2000, pursuant to which he would receive cash or stock for producing clients for Paramount. Ryan later became a full-time Paramount employee, effective January 1, 2001, and thereafter held himself out as Paramount's "President/Private Client Group, Western Region." Ryan solicited and induced friends, relatives and others to invest a total of at least $3.7 million with Paramount, including approximately $1.5 million that was deposited directly into his personal account. Ryan has never been licensed in the securities industry. 17. Kevin L. Grandy, age 32, of Columbus, Ohio, was another of Paramount's chief marketers. Grandy solicited prospective clients as Paramount's "Senior Marketing Director," beginning about the fall of 2000. Grandy solicited and induced clients to invest at least $3 million with Paramount. Grandy has never been licensed in the securities industry. 18. James Curtis "Curt" Conley, age 31, of Columbus, Ohio, was a Paramount employee from July 1999 through at least August 2001. Conley opened and conducted transactions in various bank accounts as part of the Ponzi scheme. Conley also falsely claimed to be president of a New York broker-dealer in connection with one of Paramount's fraudulent schemes. Conley had series 7 and 24 securities licenses. RELIEF DEFENDANTS 19. U.S. African Corp. is a purported diamond mining business incorporated in Ohio and run by members of Cummings' family. The operations of U.S. African are reportedly located in Conakry, Guinea. U.S. African Corp. received at least $1.65 million from Paramount from May 2000 to March 2001 ($1.5 million of which was wired to a prior investor) that is traceable to investor funds. These transfers were made without investor knowledge or authorization. 20. Gordon Lending Corp., formerly Paramount Investment Corp., is a Dublin, Ohio mortgage business owned and operated by Gordon L. Yocom. Paramount Investment Corp. received at least $125,000 from Paramount Financial that is traceable to investor funds. These transfers were made without investor knowledge or authorization. 21. Gordon L. Yocom, age 33, of Powell, Ohio, owns and operates Gordon Lending Corp. and is a former business associate of Paramount and Cummings. Yocom received at least $63,000 from Paramount that is traceable to investor funds. These transfers were made without investor knowledge or authorization. 22. Patrick Susemihl, age 32, is a business associate of Ryan and resides in the San Francisco Bay area. Susemihl was not a Paramount investor, but he nevertheless received $250,000 directly from Paramount that is traceable to investor funds. Additionally, Ryan paid Susemihl at least $88,000 as "finders fees" for referring investors to Paramount. These payments were made without investor knowledge or authorization. THE FRAUDULENT SCHEMES I. The Defendants' Materially False and Misleading Statements and
23. Paramount, through Cummings, Ryan, Grandy and others, falsely represented to investors that it was a hedge fund that generated large returns for clients through the mid-to-late 1990s. Cummings and Grandy generated and disseminated a marketing brochure that touted Paramount's supposed employment of "technical strategies" and "fundamental analysis" to achieve "high rates of returns for our clients by moderately raising the beta of their portfolios." The brochure included graphs that reflected supposed yearly returns of more than 40 percent in 1995 and 1996, 86 percent in 1998, and 99.13 percent in 1999. In a letter to investors, Ryan falsely claimed that Paramount had rendered advice in "more than $1 billion in transactions." 24. Paramount, through Cumming, Grandy and others, represented to investors that Cummings managed millions of dollars through the supposed hedge fund. Cummings provided prospective investors with computer-generated reports, purportedly from Bear Stearns & Co., which said Paramount had amassed a stock position in late 2000 valued at approximately $12 million. The defendants also orally represented to investors that Cummings managed anywhere from $10 million to $30 million in the hedge fund. 25. These representations were false. In fact, Paramount was not a hedge fund, and neither Paramount nor Cummings bought and sold securities for clients' accounts. 26. Beginning in at least May 2000, Cummings represented to investors that Paramount could purchase and sell specific stocks through the hedge fund and generate large profits. In one instance, Cummings told investors of an opportunity to purchase restricted stock in a public company, Commerce One, at a significant discount from its market price. In reliance on Cummings' representations, at least two investors jointly borrowed $625,000 in May 2000 to purchase Commerce One stock. Instead of investing that money, Paramount used these funds to pay Cummings' personal and business expenses, including payments to a previous investor. To cover up the fraud, Cummings provided the supposed Commerce One investors with bogus account statements. Paramount later repaid these investors with funds raised from other clients. The InforMax Stock Fraud 27. By the fall of 2000, Cummings enlisted various marketers, including defendants Ryan and Grandy, to solicit funds for Paramount. At that same time, Paramount began offering prospective investors a supposed opportunity to buy stock in a public company, InforMax, Inc., at prices far below its market price. Through Cummings, Ryan, Grandy and others, Paramount represented to investors that they could purchase InforMax stock that was left unsold from its initial public offering in October 2000. Paramount further represented that clients could purchase shares at prices ranging from $10 to $16 per share, then immediately resell the stock on the open market at significantly higher prices. 28. Paramount, through Cummings, Ryan and others, represented to some investors that the InforMax deal was separate from the Paramount hedge fund, and that their principal and resulting profits would be maintained in separate "sub-accounts" that Paramount would open for these clients at Bear Stearns. Cummings and Ryan provided those investors with forms to open Bear Stearns accounts. 29. No such Bear Stearns accounts were opened. Instead, Paramount and Ryan deposited and commingled investor funds in Paramount bank and brokerage accounts, and in Ryan's personal bank account. 30. After receiving investors' funds, Cummings, Ryan, Grandy and others represented to clients that their InforMax investments had been successfully completed, with Paramount purchasing the stock for their accounts and quickly selling it at substantial profits. Paramount and Ryan generated and provided investors with false Paramount account statements and/or trade confirmations that purported to reflect these trades. 31. No such stock trades occurred. Paramount, Cummings and Ryan diverted their clients' principal to repay earlier investors, or misappropriated the money to pay personal or business expenses. Paramount conducted the scheme and concealed the fraud from investors by requiring them to keep their principal and profits in their supposed accounts for a set period, ranging from several weeks to several months, explaining to some clients that their funds needed to "season" in the hedge fund. The time lags prevented investors from immediately seeking payment, and enabled Paramount to raise new client funds to repay earlier investors. Grandy and Cummings Solicit a Christian Youth Association,
32. Cummings and Grandy solicited and induced a Christian youth association, the National Association of Christian Athletes ("NACA") and many of its supporters, to collectively invest approximately $3 million, at least some of which was earmarked for the InforMax stock deal. Grandy, a NACA Board member, knew that NACA was having difficulty raising funds as part of a campaign to build a new gymnasium. In October 2000, Grandy contacted Mike Crain, the minister who founded NACA and oversaw its operations, described himself as a Paramount employee, and touted Paramount as a good investment opportunity for NACA. Grandy represented that Cummings bought discounted stock in companies, then entered into arrangements that enabled Paramount to sell the stock at large, guaranteed profits. Grandy also provided NACA with a Paramount promotional brochure that said, among other things, that Paramount had generated investment returns of more than 90 percent in 1999. 33. The following month, in November 2000, Grandy told Crain about the InforMax opportunity, representing that: Paramount had previously purchased $200,000 worth of InforMax stock at $16 per share; that the stock was trading in the mid-$20s; and that NACA could purchase the entire $200,000 block and immediately sell it at the market price. Grandy also said that NACA needed to maintain its principal and profits with Paramount for approximately six months as a requirement to participating in the deal. 34. In reliance on Grandy's representations, NACA, Crain and other NACA officers initially invested a total of $160,000. Days later, Paramount and Grandy provided oral and written assurances that Paramount had sold the stock for $27 per share, generating net proceeds of approximately $137,000. Later in November 2000, Cummings convinced Crain to entrust another $260,000 of NACA funds to Paramount, representing that Paramount could generate 30 percent profits by investing the funds in "something like a money market account." Additionally, Cummings and Grandy convinced Crain to mention Paramount to friends and various NACA supporters. Consequently, approximately 25 persons collectively invested another approximately $460,000 with Paramount. Grandy personally solicited some of those investors. Grandy also spoke with still additional NACA supporters, who consequently entrusted another more than $2 million to Paramount. 35. Following the supposed success of the InforMax trades, Paramount raised still additional cash from satisfied customers. In December 2000, Cummings represented to investors that Paramount was soliciting clients to purchase an additional block of 100,000 shares of InforMax stock that an unidentified individual needed to sell as soon as possible. In reliance on these and similar representations, at least two previous investors entrusted an additional $700,000 to Paramount. Again, Paramount misappropriated or diverted those funds. Paramount also exploited the supposed success of the InforMax investment to induce clients to invest in another fraudulent scheme, concerning a Florida-based company called FAMCO Holdings, L.L.C. ("FAMCO"). The FAMCO Stock Fraud 36. Beginning in late 2000 and continuing into 2001, Paramount, through Cummings, Ryan and others, solicited and induced existing and new Paramount clients to invest in a purported transaction involving FAMCO. These defendants represented that FAMCO was planning to go public by merging with a publicly-traded shell. They further represented that Paramount clients could purchase FAMCO stock at large discounts, then sell those shares at the closing price following the first day of public trading. To make the deal even more attractive, Paramount produced a supposed buyer for the FAMCO stock. Cummings and Ryan provided clients with a letter purportedly from Carnegie Investor Services, Inc., a New York broker-dealer, that said Carnegie was "willing and able to purchase" Paramount's entire inventory of FAMCO stock. The letter was a sham, signed by defendant Conley as the purported "President" of Carnegie. 37. Cummings, Ryan and others also represented to investors that the FAMCO deal would generate large returns. For example, Cummings and Ryan disseminated a supposed "analysis" and "financial summary" of the FAMCO transaction that said investors could purchase the stock at an estimated 40 percent discount from its anticipated closing price after the first day of trading. Also, in a February 2001 letter, Ryan said Paramount will "provide a 35% (Thirty Five Percent) return on your investment," which Ryan said would be "secured" by the assets of FAMCO's subsidiaries. 38. Cummings, Ryan and others also exploited the supposed success of the InforMax deal in soliciting and inducing InforMax investors to invest in FAMCO. For example, Cummings provided a letter to InforMax investors in January 2001 saying they could earn 50 percent on any funds they reinvested in FAMCO and 73 percent on new money they invested. Ryan also solicited and induced clients to invest in a "special" opportunity, in which clients who invested $100,000 in InforMax would receive an immediate net profit of 28 percent - if they agreed to reinvest their $100,000 principal into FAMCO. 39. Cummings also used the prospect of the supposed FAMCO deal to induce some existing clients to "loan" additional funds to Paramount. Paramount represented to prospective investors that Paramount had taken control or custody of a FAMCO asset, a valuable jade collection, to conduct a related transaction that would benefit Paramount's clients. Cummings claimed to lack funds necessary to insure the jade during transport and convinced at least two investors to provide $450,000 to Paramount, supposedly to pay for insurance coverage. 40. Paramount failed to invest its clients' funds in FAMCO, and instead misappropriated investor funds for personal or business expenses or diverted the money to pay previous investors. II. The Misappropriation and Diversion of Client Funds 41. Investors paid at least $14.2 million total directly to Paramount, from at least May 2000 through approximately the spring of 2001. Beginning in May 2000, at Cummings' direction, those funds were primarily deposited in several bank and brokerage accounts in Paramount's name, including accounts at Bear Stearns and Bank One. At Cummings' direction, the vast majority of those funds were used to repay previous Paramount investors. Additionally, at least $2 million was paid to Cummings or used to pay his personal and business expenses. 42. Cummings personally controlled Paramount's account at Bear Stearns. At Cummings' direction, Conley opened most of the Paramount bank accounts that received client funds, including two accounts at Bank One. In opening some of these accounts, Conley falsely identified himself on bank documents as Paramount's "Treasurer" or "Secretary"; he held neither position. At Cummings' direction, and to further the fraudulent scheme, Conley personally conducted most of the activity in Paramount's bank accounts, including making deposits and all disbursements in the Bank One accounts. In depositing client funds into these accounts and then paying out those same funds to previous investors, to Cummings, and to pay Cummings' expenses, Conley knew, or recklessly failed to know, that Paramount was conducting a massive scheme. Later, when investors pressed Cummings for funds that Paramount did not have, Conley wrote various checks to investors that he knew, or recklessly failed to know, would fail to clear due to insufficient funds in the Bank One accounts. 43. Additionally, Ryan conducted a scheme out of his own bank account. From January through at least March 2001, Ryan directed certain investors he solicited to send their investment principal, totaling approximately $980,000, directly into his personal bank account at Bank of America. Ryan falsely represented to those investors that he would transfer their funds to Paramount, or that he had already advanced money to Paramount for their investments and would keep their money as reimbursement. Instead, Ryan misappropriated approximately $600,000 of those funds for his own personal and business expenses, and paid the balance of approximately $370,000 to earlier Paramount investors he solicited, as principal and/or profits on their purported investments. In addition, in October 2000, Ryan misappropriated $500,000 that he received from an investor, Lawrence Chazen, and forwarded the funds to Paramount as his own investment. Ryan created false documents to conceal the true nature of Chazen's $500,000 payment. 44. In addition to receiving funds that investors paid directly into his personal bank account, Ryan received at least approximately $740,000 from Paramount's Bank One and Bear Stearns accounts that are traceable to investor funds. Payments to Relief Defendants 45. U.S. African Corp. received at least $1.65 million into domestic and offshore bank accounts from Paramount from May 2000 to March 2001 that is traceable to investor funds. U.S. African Corp. did not give value in exchange for receiving these payments from Paramount. 46. Paramount Financial Corp. (now known as Gordon Lending Corp.) received at least $125,000 from Paramount in November 2000 that is traceable to investor funds. Paramount Financial Corp. did not give value in exchange for receiving these payments from Paramount. 47. Gordon Yocom received a total of at least $63,000 from Paramount in March and April 2000 that is traceable to investor funds. Yocom did not give value in exchange for receiving these payments from Paramount. 48. Patrick Susemihl received a $250,000 wire transfer from Paramount in December 2000 that is traceable to investor funds. Susemihl also received at least $88,000 from Ryan in October 2000, in the form of "finders fees." Susemihl was not a Paramount investor and did not give value in exchange for receiving these payments from Paramount or Ryan. III. The Scheme Unravels 49. When InforMax and FAMCO investors began requesting their profits and return of principal beginning in early 2001, Cummings, Ryan, Grandy and other marketers falsely said their funds were inaccessible. Paramount told some clients that the supposed FAMCO merger was temporarily delayed due to declining stock market conditions, but that investors' funds were being held in an escrow account until the deal could be completed. Paramount later paid some clients (using other investors' funds), but provided checks to still other clients that were returned for insufficient funds. 50. Ryan had full knowledge in January and February 2001 that Paramount did not make timely payments to investors and later bounced checks. Nevertheless, Ryan continued to solicit new investors for FAMCO in March and again in July 2001, failing to inform them of Paramount's obvious financial difficulties. 51. When investors continued to press for payment, Paramount began new delaying tactics. Cummings and Ryan began holding out a litany of new purported third-party transactions from which they would supposedly obtain millions of dollars to repay clients. Paramount, Cummings and Ryan variously represented that: (1) Paramount would deposit FAMCO's valuable jade collection in a "top twenty five Western European bank" to generate money to repay investors, thus eliminating the need for the FAMCO merger; (2) Paramount was negotiating a deal with a Florida financial firm that would generate sufficient cash to repay investors; (3) Ryan himself would obtain an "irrevocable letter of credit" and borrow money to repay the investors he solicited; and (4) that Paramount was discussing deals involving a high-yield bank note trading program conducted by two Spanish businessmen. In late 2001, Cummings told clients that the September 11 terrorist attack on the World Trade Center had delayed another supposed deal. Despite these and various other claims, Paramount failed to repay investors. 52. Meanwhile, Cummings directed Conley to open a new checking account at Huntington National Bank in the name of defendant Paramount Capital Management in May 2001. At Cummings' direction, Conley funded the account with a small amount of new investor money and with two stolen checks. In July and August 2001, Cummings also tried to defraud UBS Paine Webber by attempting to: (i) deposit bonds that had already been called by the issuer; and (ii) deposit a ten-year old, third-party, $131 million check purportedly issued by the Federal Government of Nigeria. IV. Recent Activity 53. Paramount is in desperate need of funds to repay clients, and poses a continued threat to new and existing clients. Cummings and Ryan have continued to hold out to clients the prospect of supposed third-party "deals" from which Paramount will pay investors their overdue principal and profits. To bolster these supposed claims, Cummings provided clients in early 2002 with a supposed "voucher" that said Paramount would soon receive funds into a Swiss bank account to repay investors. 54. Cummings has also used the prospect of consummating these supposed third-party transactions to raise additional funds from existing investors. At least one existing client invested another $70,000 with Paramount in early 2002. At Cummings' direction, those funds were deposited in Conley's personal bank account, which Conley allowed to be used as a nominee account for Paramount. At Cummings' instructions, Conley did not invest those funds, but instead used the money to pay Cummings' and Paramount's personal and business expenses, including payments to Cummings' mother. A second investor gave another $15,000 to Paramount during this same time period. FIRST CLAIM Violations of the Antifraud Provisions of the Exchange Act
[Paramount Financial Partners, L.P., Paramount Capital Management L.L.C.,
55. The Commission re-alleges and incorporates by reference the allegations contained in paragraphs 1 through 54 above. 56. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit persons from using devices, schemes or artifices to defraud, making materially false or misleading statements or omissions, and any acts, practices, or courses of business that operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security, by use of interstate commerce, the mail, or facilities of a national securities exchange. 57. Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley knew, or were reckless in not knowing, of the activities described above. 58. By reason of the forgoing, Paramount Financial Partners, L.P., Paramount Capital Management LLC, Cummings, Ryan, Grandy and Conley have, directly or indirectly, violated Section 10(b) of the Exchange Act [15 U.S.C. §§ 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5], and, unless restrained and enjoined, will continue to do so. SECOND CLAIM Violations of the Antifraud Provisions of the Securities Act
[Paramount Financial Partners, L.P., Paramount Capital Management L.L.C.,
59. The Commission re-alleges and incorporates by reference the allegations contained in paragraphs 1 through 58 above. 60 Section 17(a) of the Securities Act prohibits persons from employing any device, scheme or artifice to defraud, obtaining money or property by means of materially false statements of by failing to state material facts necessary to make statements made not misleading, and engaging in any transaction that operates as a fraud or deceit by the purchaser, in the offer or sale of securities, by use of interstate commerce or the mails. 61. The allegations in the First Claim also constitute violations of Section 17(a) of the Securities Act. 62. By reason of the forgoing, Paramount Financial Partners, L.P., Paramount Capital Management LLC, Cummings, Ryan, Grandy and Conley have, directly or indirectly, violated Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], and unless restrained and enjoined, will continue to do so. THIRD CLAIM Violations of the Antifraud Provisions of the Advisers Act
[Paramount Financial Partners, L.P. and Paramount Capital Management L.L.C.] 63. Paragraphs 1 through 62 are realleged and incorporated herein by reference. 64. Paramount Financial Partners, L.P. and Paramount Capital Management L.L.C. acted as investment advisers to clients because they rendered advice to clients to invest in securities, were in the business of rendering such advice, and were compensated for rendering such advice. 65. As investment advisers, Paramount Financial Partners, L.P. and Paramount Capital Management L.L.C. owed a fiduciary duty to their advisory clients and were required to exercise the utmost care and honesty in dealing with those clients, to disclose all material facts, and to employ reasonable care to avoid misleading their advisory clients. 66. As set forth more above, Paramount Financial Partners, L.P. and Paramount Capital Management LLC breached their fiduciary duties to their advisory clients. 67. By reason of the foregoing, Paramount Financial Partners, L.P. and Paramount Capital Management L.L.C. violated Section 206(1) and (2) of the Advisers Act [15 U.S.C. §§ 80b-6(1)-(2)]; unless restrained and enjoined, they will continue to do so. FOURTH CLAIM Violations of the Antifraud Provisions of the Advisers Act
68. Paragraphs 1 through 67 are realleged and incorporated herein by reference. 69. As set forth more fully above, Cummings, Ryan, Grandy and Conley knowingly provided substantial assistance to violations of the antifraud provisions of the Advisers Act by Paramount Financial Partners, L.P., and Paramount Capital Management L.L.C. 70. By reason of the foregoing, Cummings, Ryan, Grandy and Conley violated Section 206(1) and (2) of the Advisers Act [15 U.S.C. § 80b-6(1)-(2)]; unless restrained and enjoined, they will continue to do so. FIFTH CLAIM U.S. African Corp. Received Proceeds of Paramount's Fraudulent Conduct and is Liable for the Return of Those Funds 71. The Commission re-alleges and incorporates by reference the allegations contained in paragraphs 1 through 72 above. 72. U.S African Corp. received investor funds that were the direct result of fraudulent conduct by Paramount Financial Partners, L.P., Paramount Capital Management LLC, Cummings, Ryan, Grandy and Conley. 73. U.S. African Corp. did not give value in exchange for these funds. 74. U.S. African Corp. holds such funds in constructive trust for the benefit of Paramount Financial Partners' clients and is liable for the return of those funds. SIXTH CLAIM Gordon Lending Corp. Received Proceeds of Paramount's Fraudulent Conduct and is Liable for the Return of Those Funds 75. The Commission re-alleges and incorporates by reference the allegations contained in paragraphs 1 through 74 above. 76. Paramount Investment Corp., now known as Gordon Lending Corp., received investor funds that were the direct result of fraudulent conduct by Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley. 77. Gordon Lending Corp. did not give value in exchange for these funds. 78. Accordingly, Gordon Lending Corp. holds such funds in constructive trust for the benefit of Paramount Financial Partners' clients and is liable for the return of those funds. SEVENTH CLAIM Gordon L. Yocom Received Proceeds of Paramount's Fraudulent Conduct and is Liable for the Return of Those Funds 79. The Commission re-alleges and incorporates by reference the allegations contained in paragraphs 1 through 78 above. 80. Gordon L. Yocom received investor funds that were the direct result of fraudulent conduct by Paramount Financial Partners, L.P., Paramount Capital Management LLC, Cummings, Ryan, Grandy and Conley. 81. Yocom did not give value in exchange for these funds. 82. Accordingly, Yocom holds such funds in constructive trust for the benefit of Paramount Financial Partners' clients and is liable for the return of those funds. EIGHTH CLAIM Patrick Susemihl Received Proceeds of Paramount's Fraudulent Conduct and is Liable for the Return of Those Funds 83. The Commission re-alleges and incorporates by reference the allegations contained in paragraphs 1 through 82 above. 84. Patrick Susemihl received investor funds that were the direct result of fraudulent conduct by Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley. 85. Susemihl did not give value in exchange for these funds. 86. Accordingly, Susemihl holds such funds in constructive trust for the benefit of Paramount Financial Partners' clients and is liable for the return of those funds. RELIEF REQUESTED Wherefore the Commission respectfully requests that this Court: I. Issue an Order temporarily and permanently enjoining Defendants Paramount Financial Partners, L.P., Paramount Capital Management LLC, Cummings, Ryan, Grandy and Conley from violating, or aiding and abetting violations of, Section 10(b) of the Exchange Act [15 U.S.C. §§ 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. §240.10b-5]; Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; and Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. § 80b-6(1), 80b-6(2)]. II. Issue an Order temporarily and permanently prohibiting Defendants Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley from soliciting or receiving any investor funds, and offering or selling any securities related to the allegations set forth herein;
III.
Issue an Order requiring Defendants Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley to repatriate any funds or assets, except for real property, located outside the territory of the United States and deposit such funds or assets into registry of this Court;
IV.
Issue an Order requiring Defendants Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley to submit a verified, sworn accounting that identifies, since January 1, 1999, their assets and liabilities, all bank and securities brokerage accounts maintained in their name or for their benefit, and all funds they received from investors or for investment purposes;
V.
Issue an Order requiring Relief Defendants U.S. African Corp., Gordon Lending Corp., Yocom and Susemihl to submit a verified, sworn accounting that identifies all funds transferred to them by defendants and the location of such funds;
VI.
Issue an Order prohibiting Defendants Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley, and Relief Defendants U.S. African Corp., Gordon Lending Corp., Yocom and Susemihl from destroying, concealing, altering or disposing of any document referring or relating to matters described in this Complaint;
VII.
Issue an Order prohibiting Defendants Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley, and Relief Defendants U.S. African Corp., Gordon Lending Corp., Yocom and Susemihl from filing a voluntary or involuntary petition in bankruptcy or any proceeding seeking liquidation, without first seeking leave from this Court and giving the Commission at least 24 hours notice;
VIII.
Enter a final judgment directing Defendants Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley to pay disgorgement, civil penalties, and prejudgment interest;
IX.
Enter a final judgment that Defendants Paramount Financial Partners, L.P., Paramount Capital Management L.L.C., Cummings, Ryan, Grandy and Conley violated Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. §§ 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. §240.10b-5];
X.
Enter a final judgment that Defendants Paramount Financial Partners, L.P. and Paramount Capital Management L.L.C. violated Section 206(1) and (2) of the Advisers Act [15 U.S.C. § 80b-6(1)-(2)] and Defendants Cummings, Ryan, Grandy and Conley aided and abetted these violations of Sections 206(1) and (2) of the Advisers Act [15 U.S.C. § 80b-6(1)-(2)].
XI.
Enter a final judgment directing Relief Defendants U.S. African Corp., Gordon Lending Corp., Yocom and Susemihl to disgorge all proceeds they have received as a result of the illegal conduct described herein, together with prejudgment interest; and
XII.
Grant such further relief as this Court may determine to be just, equitable and necessary.
Respectfully submitted,
United States Securities and Exchange Commission
Dated: June 24, 2002
______________________________
Local Counsel:
Mark T. D'Alessandro (Ohio bar no. 0019877)
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