SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16155 / May 20, 1999
Securities and Exchange Commission v. Gateway Technologies, Inc., The Cheyenne Holding Corp., Randolph S. Ross and Timothy J. Kavanagh, 99-8378-CIV (USDC S.D. Fla.)
On May 20, 1999, the U.S. Securities and Exchange Commission (the "Commission") obtained a temporary restraining order, including an asset freeze, from the United States District Court for the Southern District of Florida to halt an ongoing telemarketing fraud in which at least $500,000 has been raised from investors. Named as defendants in the Commission's complaint are Gateway Technologies, Inc. ("Gateway"), based in Santa Monica, California, The Cheyenne Holding Corp. ("Cheyenne"), based in Delray Beach, Florida, and Randolph R. Ross and Timothy J.Kavanagh, both residents of Florida and employees of Cheyenne.
Cheyenne, a boiler room operation, has raised at least $500,000 from approximately ten investors nationwide since September 1998 for the avowed purpose of enabling Gateway to establish an Internet long distance telephone system in five western states. The first portion of the Internet telephone system was to be established between Portland, Oregon and Vancouver, Washington.
Gateway has offered and sold "units" and "equity" positions to fund the purchase of computer hardware and software, with investors being guaranteed quarterly returns ranging from 3% to 12%. Investors who remain with Gateway for twelve months have been promised an additional distribution in the amount of 20% of their investment. Equity investors have also been also promised a return equal to 0.5% of the year-end after tax profits of Gateway for every $100,000 invested. Although some investors have received distribution checks, these investors have yet to receive further distributions which were due in March and April 1999. Also, individuals who have requested to withdraw their investment have not received back their principal investment.
The Commissions complaint alleges that the defendants have defrauded investors by misrepresenting that: Gateways Internet telephone system is operational; an Internet service provider has permitted Gateway to use its subscriber base and that Gateway currently has 70,000 subscribers to its Internet telephone system; Gateway will soon be acquired by an Internet service provider and that, as a result, investors will receive ten to twenty times the amount of their investments; and the costs associated with operating an Internet telephone system.
The Commission's complaint charges that the defendants have violated the antifraud provisions of the federal securities laws -- Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission also alleges that Cheyenne, Ross and Kavanagh have violated the broker-dealer registration provisions of the same laws -- Section 15(a) of the Exchange Act.http://www.sec.gov/litigation/litreleases/lr16155.htm