Litigation Release No. 16331/ October 7, 1999
Securities and Exchange Commission v. Debisys, Inc., Mark T. Flanagan, and James S. Eberhart, Civil Action No. 99-1237 (EEx) (C.D. Cal.)
On October 7, 1999, the Securities and Exchange Commission sued Debisys, Inc., and its principals Mark T. Flanagan and James S. Eberhart, both of Costa Mesa, for fraudulently selling $2.3 million in unregistered securities to 150 investors nationwide from January through July 1997.
Defendants sold unregistered securities in the form of investment contracts for a sale-leaseback program for point-of-sale terminals. Point-of-sale terminals process retail forms of payment, including ATM cards, debit cards, credit cards, check guarantee cards, and "smart" cards. Defendants made several material misrepresentations to investors. First, Defendants misrepresented the use of investor funds, falsely representing that they would use investor funds to purchase the terminals, when, in fact, Defendants paid approximately 66 percent of investor funds for sales commissions, administrative costs, and "returns" to investors. Second, Defendants represented that Debisys would re-purchase the terminals at the end of the four-year lease for the full amount of the investment, but Defendants failed to disclose that they were not financially able to satisfy the buy-back obligations and had no reasonable expectation that they would be able to do so in the future. Defendants also represented that they would file the necessary forms to secure the investors interests in the terminals but they did not do so.
Debisys and Flanagan consented to the entry of permanent injunctions against violations of the antifraud, securities registration, and broker-dealer registration provisions of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. Flanagan's settlement did not require him to pay penalties because he demonstrated that he was unable to pay them. The Complaint also seeks a permanent injunction, disgorgement, and civil penalties against Eberhart for the same violations.