Wayne M. Carlin
Regional Director (WMC-2114)

Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
Northeast Regional Office
233 Broadway
New York, New York 10279
(646) 428-1699 (Denver G. Edwards)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

COMPLAINT

Plaintiff Securities and Exchange Commission ("Commission") alleges the following against defendants Emsanet Internet Services, Inc. ("Emsanet" or "Company"), Stefan Abel ("Abel"), Peter Restivo, Inc. d/b/a U.S. Funding ("U.S. Funding"), Peter C. Restivo ("Restivo"), Nicola A. Liantonio, Jr. ("Liantonio"), and Cesare J. Iori, Jr. ("Iori") (collectively, the "Defendants"):

SUMMARY

1. From approximately March 1999 through February 2000, Emsanet, a start-up company purportedly attempting to develop an Internet Service Provider ("ISP"), sold its stock through an unregistered offering and defrauded approximately 492 investors of $3.2 million.

2. Beginning in approximately March 1999, Emsanet and Abel, Emsanet's Chief Executive Officer ("CEO") and President, planned to raise money for Emsanet by selling stock to investors through a purported private placement. Abel hired U.S. Funding, an unregistered broker-dealer, to conduct this offering. Restivo, Liantonio, and Iori managed U.S. Funding's operations, and they personally sold, and hired salespersons to sell, Emsanet's stock to investors.

3. In connection with the sale of Emsanet stock, Abel drafted a Private Placement Memorandum ("PPM"), which was distributed to investors. The PPM contained materially misleading statements. For instance, Abel represented that he had substantial industry experience when, in fact, he did not. Emsanet also predicted that by the end of 2001, its ISP would have 1.7 million subscribers and the Company would generate $254,800,000 in revenues. Emsanet, however, lacked any operational infrastructure, and the Company simply had no reasonable basis in fact to make this projection.

4. To facilitate the sale of Emsanet stock, U.S. Funding, Restivo, Liantonio, and Iori, directly and through the salespersons, made materially misleading statements, and failed to disclose material facts, to investors. For instance, Restivo posted messages on various Internet message boards indicating that Emsanet planned shortly to conduct an initial public offering ("IPO") at a price of $20 per share, and that investors who had purchased stock in the private placement at $3.50 per share would then be able to sell their shares. In fact, Emsanet had not undertaken steps to conduct an IPO. U.S. Funding, Restivo, Liantonio, and Iori also failed to disclose to investors that Emsanet was compensating U.S. Funding with approximately 25% commissions to sell Emsanet stock.

NATURE OF THE PROCEEDINGS AND THE RELIEF SOUGHT

5. The Commission brings this action pursuant to authority conferred upon it by Sections 20(b) and 20(d) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b) and 77t(d), and Section 21(d) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78u(d). The Commission is seeking permanent injunctions, and disgorgement and prejudgment interest from all of the Defendants. The Commission is also seeking civil monetary penalties from Abel, U.S. Funding, Restivo, Liantonio, and Iori. Finally, the Commission is seeking all other necessary and appropriate relief.

STATUTES AND RULES ALLEGED TO HAVE BEEN VIOLATED

6. The Defendants have engaged, and unless enjoined, will continue to engage, directly or indirectly, in acts, practices, or courses of business, that constitute violations of 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 Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.

7. The Defendants have engaged, and unless enjoined, will continue to engage, directly or indirectly, in conduct that constitutes violations of Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).

8. U.S. Funding, Restivo, Liantonio, and Iori have engaged, and unless enjoined, will continue to engage, directly or indirectly, in conduct that constitutes violations of Section 15(a) of the Exchange Act, 15 U.S.C. § 78o(a).

JURISDICTION AND VENUE

9. The 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) and 77v(a), and Sections 21(d), 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d), 78u(e) and 78aa.

10. Venue lies in this Court pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa. Certain of the transactions, acts, practices and courses of business alleged herein occurred within the Eastern District of New York. For instance, U.S. Funding maintained its headquarters in Westbury, New York.

11. Defendants, directly or indirectly, have made use of the means or instrumentalities of interstate commerce, the means or instruments of transportation or communication in interstate commerce, and/or the mails, in connection with the acts, practices and courses of business alleged herein.

DEFENDANTS

12. Emsanet was, at all relevant times, a California corporation with its office at Abel's residence in Cathedral City, California. On June 7, 2000, Emsanet changed its state of incorporation from California to Delaware. Emsanet was purportedly a start-up company that was attempting to provide high-speed, low-cost Internet access.

13. Abel, 41, resides in Cathedral City, California. Since March 5, 1999, when he founded Emsanet, Abel has been Emsanet's President and CEO.

14. U.S. Funding is a New York corporation that maintained offices in Westbury, New York and New York, New York. U.S. Funding purported to be a venture capital firm that matched accredited investors with investment opportunities in non-public companies. U.S. Funding acted as a broker-dealer, whose salespersons solicited investors to purchase various securities, including Emsanet stock.

15. Restivo, 30, resides in Valley Stream, New York. Restivo was President and CEO of U.S. Funding. Restivo managed U.S. Funding's operations with Liantonio and Iori, and shared U.S. Funding's profits with them.

16. Liantonio, 35, resides in Lattingtown, New York. From February 1999 through October 2000, Liantonio managed U.S. Funding's operations with Restivo and Iori, and he shared U.S. Funding's profits with them. Liantonio also worked as a salesperson at U.S. Funding's Westbury, New York office.

17. Iori, 29, resides in Long Beach, New York. From December 1998 through October 2000, Iori worked as a manager and salesperson at U.S. Funding's Westbury, New York office. Iori managed U.S. Funding's operations with Restivo and Liantonio, and he shared U.S. Funding's profits with them.

FACTS

Emsanet and Abel Hired U.S. Funding to Solicit Investors to Purchase Stock

18. In approximately February 1999, Abel contacted Restivo about raising money for his company, Emsanet, which was purportedly attempting to start business as an ISP.

19. Abel subsequently hired U.S. Funding to solicit investors for Emsanet's $3.5 million stock offering. Abel and Restivo agreed that Emsanet would pay U.S. Funding cash commissions in an amount equal to 15 percent of the gross dollar amount of stock U.S. Funding sold to investors. Emsanet also agreed to compensate U.S. Funding by transferring stock in an amount equal to 10 percent of the stock U.S. Funding sold to investors.

Emsanet and Abel Made False and Misleading Statements in the PPM

20. In approximately February and March 1999, Abel drafted Emsanet's PPM and sent copies of the PPM to U.S. Funding.

21. Abel knew that U.S. Funding would distribute the PPM to investors.

22. The Emsanet PPM included materially false and misleading statements and material omissions. For instance, the PPM stated that Abel "has been involved with . . . the Internet since the late [1970's] and has extensive experience and involvement over the years with regional and national Internet Service Providers." In fact, Abel had no experience working with regional or national ISPs.

23. The PPM also stated that Abel "has extensive programming skills and has developed many of the software programs that Emsa Technologies sells and supports." This statement was false. Abel did not have extensive programming skills and he had not developed software programs that had been sold commercially.

24. The PPM stated that "[Emsanet] will have over 1,000,000 subscribers by the end of 2000. The year end net income will be in excess of $50,000,000. The subscriber base will grow to 1,700,000 in 2001. Total revenue for 2001 is forecast to be $254,800,000 with net income of $108,098,550." Abel, however, had no reasonable basis in fact to make these projections regarding Emsanet's subscriber growth and financial performance. Indeed, when Abel made these projections, Emsanet lacked any operational infrastructure to provide ISP services.

25. The PPM did not disclose that Emsanet planned to compensate U.S. Funding for selling Emsanet stock with 15 percent commissions in cash and 10 percent commissions in stock. In fact, between March 1999 and February 2000, Emsanet paid U.S. Funding approximately $465,000 and transferred 100,000 shares of Emsanet stock to U.S. Funding as commissions for U.S. Funding's sales efforts.

U.S. Funding and Restivo Made False and Misleading Statements About the Emsanet Offering on the Internet

26. From approximately March 1999 through the end of 1999, Restivo posted, and directed others to post, information on Internet message boards about the Emsanet offering.

27. For example, on May 27, 1999, Restivo, or someone acting at his direction, touted Emsanet stock on Freerealtime.com as follows:

Emsanet is a new Internet Service Provider. Emsanet should be a profitable investment because; [sic] Emsanet only charges $12 a month for unlimited service, has zero debt, plans to be profitable before they go public. Emsanet is offering 1,000,000 shares of private stock at three dollars and fifty cents a share. This is the private offering price. The company plans to go public in early 2000 at $20 a share, and yes you can sell the first day it trades on the market. . . . This is a commission free transaction, with a minimum investment of $3,500. For more information and an investor package, contact us at 1-888-999-8068 [U.S. Funding's telephone number] or e-mail us at usfunding1@aol.com.

28. The posting described in paragraph 27 above, and other postings like it, contained materially misleading information. Emsanet was not a "new Internet Service Provider," because Emsanet was not operational. Additionally, Restivo had no reasonable basis in fact to predict the timing and price of Emsanet's IPO. In 1999, Emsanet had not retained an underwriter, and it had not prepared a registration statement or prospectus, or taken any other steps to conduct an IPO.

29. Many investors contacted U.S. Funding about investing in Emsanet after reading the postings on the Internet.

Restivo, Liantonio, Iori and U.S. Funding's Salespersons Made False and Misleading Statements About Emsanet

30. Restivo personally solicited, and sold Emsanet stock to, investors.

31. Restivo made materially false statements to investors. For instance, in a letter Restivo sent to one investor, Restivo stated that Emsanet "plans to go public by August of 2000." Restivo also told the investor that the IPO price would be $20 per share. As described above in paragraph 28, Emsanet had not undertaken steps to conduct an IPO, and Restivo lacked any reasonable basis in fact to make these statements.

32. Restivo also made misleading statements about, and failed to disclose, the commissions U.S. Funding was receiving from Emsanet to sell the Company's stock.

33. For instance, Restivo told one investor that U.S. Funding received little compensation for the Emsanet private offering, but would be compensated when the IPO occurred. This was a false statement. U.S. Funding was receiving approximately 25 percent commissions to sell Emsanet stock to investors through the private placement.

34. Restivo also failed to inform other investors that U.S. Funding received approximately 25 percent commissions from Emsanet to sell the Company's stock to investors.

35. Restivo had a duty to disclose the 25% compensation U.S. Funding was receiving to investors.

36. Liantonio also solicited, and sold Emsanet stock to, investors. Liantonio made materially false statements, and failed to disclose material information, to investors. For instance, Liantonio told investors that Emsanet would go public by the end of 1999. Liantonio also told investors that Emsanet would go public at $20 per share. As discussed above in paragraph 28, Emsanet had not undertaken steps to conduct an IPO, and Liantonio lacked any reasonable basis in fact to make these statements.

37. Liantonio failed to inform investors that U.S. Funding received approximately 25 percent commissions from Emsanet to sell the Company's stock.

38. Liantonio had a duty to disclose to investors the 25% compensation that U.S. Funding was receiving.

39. Iori solicitied, and sold Emsanet stock to, investors. Iori made materially false statements, and failed to disclose material information, to investors. For instance, Iori assured one investor that there was "no doubt" that Emsanet's IPO would occur within six months. Iori also told the investor that the IPO price would be $20 per share. As discussed above in paragraph 28, Emsanet had not undertaken steps to conduct an IPO, and Iori lacked any reasonable basis in fact for making these statements.

40. Iori also failed to inform investors that U.S. Funding was receiving approximately 25 percent commissions from Emsanet to sell the Company's stock to investors.

41. Iori had a duty to disclose the 25% compensation that U.S. Funding was receiving to investors.

42. Restivo, Liantonio and Iori also directed other U.S. Funding salespersons to solicit, and sell Emsanet stock to, investors, and to make materially misleading statements, and fail to disclose material information to, these investors.

43. Restivo, Liantonio and Iori directed the salespersons to send Emsanet's PPM, and other documents describing Emsanet and U.S. Funding's investment strategy to investors.

44. The documents that U.S. Funding's salespersons sent to investors contained materially misleading information. For instance, the salespersons sent documents to investors that stated Emsanet planned to go public by a specific date and what the IPO price would be. As described in paragraph 28, Emsanet had not undertaken steps to conduct an IPO, and Restivo, Liantonio, Iori and the salespersons had no reasonable basis in fact to make these representations.

45. The documents also indicated that U.S. Funding had obtained financing for other companies, including Yahoo and Priceline.com. These statements were false. U.S. Funding had not obtained financing for these companies.

46. At the direction of Restivo, Liantonio and Iori, the salespersons also solicited prospective investors on the telephone and made false and misleading statements concerning Emsanet, including:

• U.S. Funding did not get compensation for selling Emsanet stock unless Emsanet went public;
   
• Emsanet would soon conduct an IPO, telling various investors different IPO times and prices; and
   
• U.S. Funding had helped Internet companies such as Yahoo go public.

The Emsanet Offering Was Not Registered

47. From March 1999 through February 2000, Emsanet sold approximately 934,371 shares of stock to approximately 492 investors, raising approximately $3,270,254.

48. Emsanet did not file a registration statement for its sales of stock, and there was no registration statement otherwise in effect for these transactions.

49. U.S. Funding, Restivo, Liantonio, and Iori, directly and through the salespersons, sold approximately 885,715 shares of Emsanet stock to approximately 475 investors, raising approximately $3.1 million.

50. Abel directly sold Emsanet stock to investors. Between March 1999 and February 2000, Abel sold approximately 48,657 shares of Emsanet stock to approximately seventeen investors, raising approximately $170,254.

51. Emsanet, Abel, U.S. Funding, Restivo, Liantonio, and Iori used the mails or interstate means to sell Emsanet stock to investors.

52. U.S. Funding was not registered as a broker or dealer with the Commission, and Restivo, Liantonio and Iori were not otherwise associated with a broker or dealer that was registered with the Commission.

CLAIMS FOR RELIEF

FIRST CLAIM FOR RELIEF

Violation of Section 17(a) Of the Securities Act and Section 10(b) Of the Exchange Act and Rule 10b-5 Thereunder
(against all Defendants)

53. The Commission realleges and incorporates by reference the allegations contained in Paragraphs 1 through 52 above.

54. Emsanet's stock is a "security" under Section 2(1) of the Securities Act, 15 U.S.C. § 77b(1), and Section 3(a)(10) of the Exchange Act, 15 U.S.C. § 78c(a)(10).

55. Emsanet, Abel, U.S. Funding, Restivo, Liantonio and Iori, directly or indirectly, singly or in concert, by use of the means or instruments of transportation or communication in, or the means or instrumentalities of, interstate commerce, or of the mails, in the offer or sale, and in connection with the purchase or sale, of securities, knowingly or recklessly, have: (1) employed devices, schemes, and artifices to defraud; (2) obtained money or property by means of, or otherwise made, untrue statements of material fact, or have omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (3) engaged in acts, transactions, practices, and courses of business that have operated as a fraud or deceit upon purchasers of securities and other persons.

56. As part of, and in furtherance of, this violative conduct, the Defendants made numerous material misrepresentations, and failed to disclose material information, to investors.

57. The misrepresentations and omissions described in paragraphs 20 to 46 were material.

58. Emsanet and Abel knew, or were reckless in not knowing, that the misrepresentations and omissions alleged in paragraph 20 to 25 were false and misleading.

59. U.S. Funding, Restivo, Liantonio, Iori, knew, or were reckless in not knowing, that the misrepresentations and omissions in paragraphs 26 to 46 were false and misleading.

60. By reason of the foregoing, the Defendants have, directly or indirectly, singly or in concert, violated, and, unless permanently enjoined, will continue to violate, 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 Rule 10b-5 thereunder, 17 C.F.R. § 240.10-5.

SECOND CLAIM FOR RELIEF

Violations of Sections 5(a) and 5(c) of the Securities Act
(Against All Defendants)

61. The Commission realleges and incorporates by reference the allegations contained in Paragraphs 1 to 60.

62. Emsanet, Abel, U.S. Funding, Restivo, Liantonio, and Iori, directly and indirectly: (a) made use of the means or instruments of transportation or communication in interstate commerce or of the mails to sell securities through the use or medium of a prospectus or otherwise; or carried securities or caused such securities to be carried through the mails or in interstate commerce, by means or instruments of transportation, for the purpose of sale or for delivery after sale; and (b) made 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, securities without a registration statement having been filed or being in effect with the Commission as to such securities.

63. By reason of the foregoing, Defendants have violated, and, unless permanently enjoined will continue to violate, Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).

THIRD CLAIM FOR RELIEF

Violations of Section 15(a) of the Exchange Act
by U.S. Funding, Restivo, Liantonio, and Iori

64. The Commission realleges and incorporates by reference the allegations contained in Paragraphs 1 to 63.

65. U.S. Funding, Restivo, Liantonio, and Iori, directly and indirectly, by use of the means or instruments of interstate commerce, or of the mails, effected transactions in, or induced, or attempted to induce the purchase or sale of securities, including Emsanet stock, without being registered as a broker with the Commission, or being associated with a broker registered with the Commission.

66. By reason of the foregoing, U.S. Funding, Restivo, Liantonio, and Iori have violated, and, unless permanently enjoined, will continue to violate, Section 15(a) of the Exchange Act, 15 U.S.C. § 78(o)(a).

PRAYER FOR RELIEF

WHEREFORE, Plaintiff Commission respectfully requests that this Court enter a Final Judgment:

I.

A. Permanently enjoining Emsanet, Abel, U.S. Funding, Restivo, Liantonio, and Iori, their officers, 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, directly or indirectly, from violating 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 Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.

B. Permanently enjoining Emsanet, Abel, U.S. Funding, Restivo, Liantonio, and Iori, their officers, 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, directly or indirectly, from violating Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. § 77e(a) and 77e(c).

C. Permanently enjoining U.S. Funding, Restivo, Liantonio, and Iori, their officers, 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, directly or indirectly, from violating, Section 15(a) of the Exchange Act, 15 U.S.C. § 78(o)(a).

II.

Ordering Emsanet, Abel, U.S. Funding, Restivo, Liantonio, and Iori to disgorge all ill-gotten gains, derived directly or indirectly, from their violative conduct, plus prejudgment interest on that amount.

III.

Ordering Abel, U.S. Funding, Restivo, Liantonio, and Iori to pay civil monetary 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. § 78u(d).

IV.

Ordering such other and further relief as the Court deems necessary and appropriate.

http://www.sec.gov/litigation/litreleases/comp17336.htm