SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16303 / September 28, 1999
Accounting and Auditing Enforcement
SECURITIES AND EXCHANGE COMMISSION v. NOAH STEINBERG, ENRIQUEZ REYES CARRION, GERSHON TANNENBAUM, JAY M. VERMONTY AND CARMEN VERMONTY (AS RELIEF DEFENDANT), Civil Action No. 99-Civ. 6050 (E.D.N.Y.) (RJ)(filed September 28, 1999)
SEC SUES SENIOR OFFICERS OF A MICROCAP COMPANY
The Securities and Exchange Commission ("Commission") today announced the filing of a complaint in the United States District Court for the Eastern District of New York against Noah Steinberg, Enriquez Reyes Carrion, Gershon Tannenbaum, Jay M. Vermonty, and relief defendant Carmen Vermonty. The complaint alleges that from 1995 through 1997, the defendants engaged in a fraudulent scheme to falsify and inflate the financial condition of Power Phone Inc., a New York corporation formerly headquartered in Brooklyn, and its successor, TMC Agroworld Corporation. According to the complaint, Steinberg, the president and chief executive officer of Power Phone, and Carrion, the president and chief executive officer of TMC Agroworld, orchestrated the fraud by filing fraudulent financial statements with the Commission and by issuing false press releases. The complaint also alleges that Tannenbaum and Jay Vermonty fraudulently promoted Power Phone and TMC Agroworld stock.
The complaint alleges that Power Phone's audited financial statements for the fiscal year ended June 30, 1995, improperly included two assets that Power Phone did not own: (i) artwork with a purported value of $2 million; and (ii) a commercial grade application software program known as "ASAP," also with a purported value of $2 million. Collectively these assets accounted for 95% of Power Phone's total assets. According to the complaint, Power Phone's audited financial statements for the fiscal year ended June 30, 1995 were included in Power Phone's annual report on Form 10-K and in a Form 10 registration statement, both of which were filed with the Commission in October 1995 and June 1996, respectively. The complaint states that Steinberg prepared and signed Power Phone's annual report and registration statement. The complaint also alleges that Steinberg made false statements to the accountants that audited Power Phone's financial statements for its fiscal year ended June 30, 1995.
The complaint further alleges that Steinberg and Carrion were involved in the issuance of false press releases. Among other things, those press releases claimed that Power Phone and TMC Agroworld owned a slaughterhouse and meat processing plant in Argentina purportedly worth $74 million. The complaint alleges that neither Power Phone nor TMC Agroworld ever owned this asset. In addition, the complaint alleges that without any reasonable basis for its statements, TMC Agroworld claimed in press releases that it had entered into contracts to supply urea fertilizer to a foreign purchaser and that the contracts would yield astronomical profits of $405 million to TMC Agroworld.
The complaint further alleges that two stock promoters, Tannebaum and Jay Vermonty, actively and fraudulently touted the stock of Power Phone and TMC Agroworld to the investing public and then sold their stock in those entities at artificially inflated prices. According to the complaint, Tannenbaum has a disciplinary history which includes the revocation of his brokerage license by the NASD. The complaint also alleges that in 1994, the SEC obtained an order against Jay Vermonty, enjoining him from violating the antifraud provisions of the federal securities laws.
According to the complaint, Jay Vermonty conducted most of his fraudulent trading through the brokerage account of his wife, relief defendant Carmen Vermonty. Carmen Vermonty is not alleged to have herself engaged in any violations of the federal securities laws, but is named in the complaint as a relief defendant because she holds funds that represent the fruits of the violations committed by Jay Vermonty.
The complaint alleges that Steinberg violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act), and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. The complaint alleges that Carrion, Tannenbaum and Jay Vermonty violated Sections 10(b) of the Exchange Act and Exchange Act Rule 10b-5. The Commission seeks permanent injunctions and civil monetary penalties against Steinberg, Carrion, Tannenbaum and Vermonty. The Commission also seeks disgorgement of ill-gotten gains, together with prejudgment and postjudgment interest thereon, from Tannenbaum and Jay Vermonty. The Commission is also asking the Court to require Carmen Vermonty to account for and disgorge the profits she realized as a result of the illegal conduct of Jay Vermonty and to pay prejudgment interest thereon.
On April 14, 1999, the Commission instituted a related administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice against Michael, Adest & Blumenkrantz, P.C. ("MA&B"), and its two principal shareholders, David Michael ("Michael") and Paul Adest ("Adest"). The Commission found that MA&B, Michael and Adest engaged in improper professional conduct in connection with their audit of the financial statements of Power Phone for the fiscal year ended June 30, 1995. Without admitting or denying the Commission's findings, MA&B, Michael and Adest consented to the entry of the Commission's order, which denies them the privilege of appearing or practicing before the Commission as accountants. See, In the Matter of Michael, Adest & Blumenkrantz, P.C. David Michael and Paul Adest , Securities Exchange Act Rel. No. 41284; Accounting and Auditing Enforcement Rel. No. 1125 (April 14, 1999).