U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 15826 / July 30, 1998 SECURITIES AND EXCHANGE COMMISSION v. SAM D. SCHWARTZ, BROAD CAPITAL ASSOCIATES, INC., MURRAY A. HUBERFELD, AND DAVID B. BODNER, Civil Action No. CV 98-6142 DDP (MCx)(C.D. Cal.) On July 30, 1998, the Commission announced that it filed various legal proceedings against Incomnet, Inc., a publicly held corporation headquartered in Woodland Hills, California, and three of its former officers and directors for their roles in a series of fraudulent schemes in violation of the federal securities laws. The Commission also charged Broad Capital Associates, Inc. and Broad Capital's owners with violations of the securities registration and reporting provisions of the federal securities laws. The proceedings brought by the Commission include a lawsuit filed in federal court in Los Angeles against Sam D. Schwartz, Incomnet's former President and Chairman of the Board, Broad Capital, and Broad Capital's owners, Murray A. Huberfeld and David B. Bodner. Schwartz, who is 58 years old and a resident of Encino, California, is charged with securities fraud for causing Incomnet to file false forms with the Commission and issue false press releases. Schwartz is also charged with using a nominee account to personally trade in Incomnet securities and for failing to disclose this trading as required by the federal securities laws. Specifically, the Complaint alleges that on August 28, 1995, Schwartz caused Incomnet to file a Form 8-K with the Commission which falsely stated that Schwartz had received prior written approval and consent from Incomnet's Board of Directors to establish a personal account to trade in Incomnet's stock. The Complaint further alleges that Schwartz caused Incomnet to issue a false press release in September 1995 that repeated some of the false statements in the Form 8-K and to file a Form 10-Q with the Commission in November 1995 that referenced the false Form 8-K. Finally, the Complaint alleges that in January 1995, Schwartz caused Incomnet to issue two press releases falsely denying the existence of the Commission's then-ongoing investigation of Incomnet, even though Schwartz knew at that time of the Commission's investigation. The Complaint also alleges that from June 1994 through July 1995, Schwartz purchased, through a nominee account, approximately 1,100,000 shares of Incomnet stock and sold approximately 900,000 shares of Incomnet stock without timely disclosing these transactions. The Complaint seeks to permanently enjoin Schwartz from future violations of Sections 10(b), 13(a), 13(d), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-11, 13a-13, and 16a-3 thereunder. The Complaint also seeks a civil monetary penalty from Schwartz. The Complaint also charges Broad Capital, a private investment firm based in New York City which acted as a consultant to Incomnet, Huberfeld, age 37, and Bodner, age 41, both residents of New York, with receiving over 513,000 shares of restricted Incomnet stock from Joel W. Greenberg, a former director of Incomnet, and immediately reselling these shares for a profit of approximately $3,700,000 in violation of the securities registration provisions of the federal securities laws. Additionally, the Complaint alleges that Broad Capital never disclosed that it held over 5% of Incomnet's outstanding securities, as required by the reporting provisions of the federal securities laws. Broad Capital, Huberfeld, and Bodner agreed to settle this matter by consenting to a judgment, without admitting or denying the allegations in the Commission's Complaint, that enjoins them from committing future violations of the securities registration and reporting provisions of the federal securities laws. The judgment also orders Broad Capital, Huberfeld, and Bodner, to disgorge their profits plus interest, for a total of $4,694,125. Finally, the judgment orders Broad Capital to pay a civil penalty of $50,000 and Huberfeld and Bodner each to pay a civil penalty of $15,000. The Commission also brought a cease-and-desist proceeding against Incomnet, Greenberg, and Stephen A. Caswell, a former officer and director of Incomnet. In this proceeding, the Commission found that Incomnet violated the antifraud and reporting provisions of the federal securities laws by filing materially false forms with the Commission and by issuing several false press releases, and that Greenberg and Caswell caused Incomnet's violations of these provisions. The Commission also found that Greenberg failed to disclose a loan arrangement he entered into in January 1995 with Broad Capital in which he used 513,167 shares of Incomnet stock as collateral. Incomnet, Greenberg, and Caswell all consented, without admitting or denying the Commission's findings, to the entry of a cease-and- desist order from violating or causing violations of the antifraud and reporting provisions of the federal securities laws. IN THE MATTER OF INCOMNET, INC., JOEL W. GREENBERG, AND STEPHEN A. CASWELL, Exchange Act Rel. No. 34-40281; Administrative Proceeding File No. 3-9661.