SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17028 \ June 6, 2001
U.S. ATTORNEY INDICTS ROBERT H. SHIELDS AND NINETEEN OTHERS IN CONNECTION WITH FRAUDULENT INVESTMENT SCHEME HALTED BY SEC
United States v. Marc David Levine, et al., Criminal Case No. 01 CR 1415 BTM
The Securities and Exchange Commission ("SEC") announced that on May 23, 2001, the United States Attorney's Office for the Southern District of California ("USAO") unsealed an indictment charging 20 individuals with, among other crimes, wire fraud, mail fraud, securities fraud and money laundering in connection with a series of fraudulent telecommunications-related securities offerings grossing $50 million from investors. The indictment charges Robert H. Shields and nineteen others with making false and deceptive promises and statements and omitting material facts in connection with the fraudulent securities offerings. The indictment further charges the defendants with preparing false and misleading offering materials for use in soliciting investors.
Through the fraudulent securities offerings, investors purchased interests in a general partnership that was to be managed by a corporation (the Initial Managing Partner) controlled by the defendants. The USAO charges in the indictment that the defendants deliberately failed to disclose, among other things, the fact of their ownership of the Initial Managing Partner and the fact that 85 percent of the investors' funds were paid to the Initial Managing Partner.
On October 30, 1996, the SEC filed an emergency action with the United States District Court for the Middle District of Florida against Shields, Gary Mariarossi and Michael Coyne, among others, seeking a temporary restraining order, a preliminary injunction, an asset freeze, the appointment of a receiver, and other relief to halt the fraudulent offer and sale of securities through a network of boiler rooms operating in Florida and Nevada. In response to the SEC's action, the court halted the operation of seven boiler rooms that had been soliciting investors nationwide to invest in four of the fraudulent securities offerings referenced in the USAO's indictment.
In its emergency action, the SEC alleged that Shields and Mariarossi oversaw the network of boiler rooms, and that the boiler rooms had raised $16.5 million from hundreds of investors nationwide through fraudulent offerings of securities issued by purported startup telecommunications companies. The SEC also alleged that Coyne was the interim manager of one of the startup companies. In addition, the SEC alleged that the defendants fraudulently omitted to inform investors that approximately 85 percent of the investors' funds were used for non-investment purposes, such as the payment of sales commissions, fees, and other costs associated with the offerings.
On July 21, 1999, the district court permanently enjoined Shields and Mariarossi from future violations of the securities registration and anti-fraud provisions of the federal securities laws. In addition, the court ordered Shields to pay a $50,000 civil penalty and disgorgement in the amount of $782,416, representing his ill-gotten gains from the fraudulent scheme plus prejudgment interest. The court ordered Mariarossi to pay a $50,000 civil penalty and disgorgement in the amount of $273,597, representing his ill-gotten gains from the fraudulent scheme plus prejudgment interest. On June 30, 1999, the district court permanently enjoined Coyne, with his consent, from future violations of the securities registration and anti-fraud provisions of the federal securities laws. Coyne neither admitted nor denied the allegations in the SEC's complaint. The court also ordered Coyne to disgorge $70,002.
Prior to the USAO's indictment, Mariarossi and Coyne entered into plea agreements with the USAO in related cases, and Mariarossi was sentenced to five years probation and ordered to pay restitution of $456,995. Coyne was sentenced to five years probation and ordered to pay restitution of $70,000.
For additional information, see SEC Litigation Release No. 15219 (January 17, 1997).http://www.sec.gov/litigation/litreleases/lr17028.htm