Litigation Release No. 19465 / November 16, 2005, Inc., Ronald Durando, PacketPort, Inc., Microphase Corp., Robert H. Jaffe, Gustave Dotoli, IP Equity, Inc., M. Christopher Agarwal, Theodore Kunzog, and William Coons, III, Civil Action No. 3:05cv1747 (JCH) (D. Conn.)

SEC Charges Individuals and Companies with Executing a Fraudulent Pump and Dump of Stock

The Securities and Exchange Commission filed an enforcement action on November 15, 2005, charging six individuals and four companies with securities fraud and other violations in connection with a scheme to pump and dump the stock of, a company based in Norwalk, Connecticut. The SEC alleges that three officials and two stock touters, aided and abetted by a registered representative, executed the pump and dump, which obtained more than $9 million in illicit proceeds.

The Complaint alleges that Ronald Durando, a 48-year-old resident of Nutley, New Jersey, privately acquired a majority stake in an insolvent public company, then called Linkon. His stake in Linkon consisted of restricted shares. With the help of his colleagues, Gustave Dotoli, a 70-year-old resident of Nutley, New Jersey, and attorney Robert H. Jaffe, a 69-year-old resident of Mountainside, New Jersey, Durando took control of Linkon and changed its name to Durando became president and CEO, and Jaffe and Dotoli became directors. Durando, Jaffe, and Dotoli laundered restrictive legends from Durando's share certificates so that the restricted shares could be passed off to the public as "free trading." Durando then paid IP Equity, Inc., a private California corporation that operated an Internet-based stock newsletter, and its principals, M. Christopher Agarwal and Theodore Kunzog, to publish false publicity and bogus recommendations about in order to pump up the stock price. The share price more than quadrupled following the false publicity, rising from about $4.75 to a high of about $19.50.

The Complaint alleges that Durando, Dotoli, Jaffe, and IP Equity dumped shares into the pumped-up market in an unregistered distribution, obtaining more than $9 million in illicit proceeds. Registered representative William Coons III was Durando's and IP Equity's broker and was the principal outlet for the fraudulent sales.

The Complaint alleges that Durando, Dotoli, and Jaffe concealed the fraud and their short swing profits by, among other acts, failing to make required disclosures and selling through nominees. They failed to file required forms reflecting changes in ownership, including forms that would have revealed their short-swing profits. They also caused to file quarterly and annual reports that contained false financial information and that failed to report the insiders' beneficial ownership or past failures to report beneficial ownership.

The Complaint also names as defendants two corporations that Durando controlled and used in executing the fraud. Durando used his wholly-owned company, PacketPort, Inc. to acquire stock and transfer shares to other defendants. Durando used Microphase, Inc., of which he is COO, as his nominee in the illegal sales. By selling through Microphase, Durando concealed the fact that he, PacketPort's CEO and majority shareholder, was dumping stock.

The Complaint alleges that all defendants violated the registration provisions of Section 5 of the Securities Act of 1993 ("Securities Act"); that all defendants except Coons directly violated the antifraud provisions of Securities Act Section 17(a) and Section 10(b) and Rule 10b-5 of the Securities Exchange Act ("Exchange Act"); that Durando, Jaffe, Dotoli, Agarwal, Kunzog, and Coons aided and abetted direct violations of the Exchange Act antifraud provisions; that Agarwal, Kunzog, and IP Equity violated the antitouting provision of Section 17(b) of the Securities Act; that Durando, Jaffe, Dotoli, and PacketPort, Inc. violated the disclosure provisions of Securities Act Section 16(a) and Rule 16a-3; and that Durando, Jaffe, Dotoli,, and PacketPort, Inc. violated and/or aided and abetted the violations of various reporting, disclosure, and books and records provisions of Securities Act Section 13 and associated rules.

*SEC Complaint in this matter