UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17660 / August 6, 2002
SECURITIES AND EXCHANGE COMMISSION v. EPHONE, INC., et al., 02 Civ. 4365 (LDW) (U.S.D.C., E.D.N.Y.)
The Securities and Exchange Commission today charged 20 persons and entities in connection with the fraudulent offer and sale of securities in three companies purportedly formed to establish long distance telephone service through the internet. The defendants conducted these offerings between July 1999 and December 2000 and raised over $2.9 million from investors throughout the United States. The offerings were fraudulent because the defendants falsely stated that the funds would be used for business purposes when in fact a substantial portion of the offering proceeds went for undisclosed cash commissions to the persons who organized and conducted the offerings. The defendants include the issuers and their principals, the persons who orchestrated the offerings, 10 unregistered brokers who sold the securities to investors, and a person who aided and abetted the fraudulent schemes by introducing telemarketers to the schemes and providing lists of prospective investors.
Named in the Commission's Complaint filed in the United States District Court for the Eastern District of New York are:
- Ephone, Inc. ("Ephone"), a Nevada corporation in the business of providing internet-based long distance telecommunications.
- Webphone, LLP ("Webphone"), Colorado limited liability partnership headquartered in Ft. Lauderdale, Florida that is in the business of providing internet-based long distance telecommunications.
- Newera Communications, LLP ("Newera"), Colorado limited liability partnership headquartered in San Diego, California that is in the business of providing internet-based long distance telecommunications.
- Arash Noorai ("Noorai"), 32 of San Diego, California. Noorai was the president of Ephone and controlled Webphone and Newera.
- Donald Plain ("Donald Plain"), 63 of La Jolla, California. Plain organized the independent sales offices (ISOs) that sold Ephone, Webphone and New Era securities to investors.
- Christopher Plain ("Chris Plain"), 33 of Santa Ana, California, is D. Plain's son and assisted in organizing the Ephone, Webphone and New Era offerings.
- Peter Bertorelli ("Bertorelli"), age 39 and a resident of Charlotte, North Carolina, introduced Plain to telemarketers who sold the Ephone, Webphone and Newera offerings and also sold lists of prospective investors.
- Electronic Audio Services, Inc. ("Electronic Audio"), a Colorado corporation controlled by Donald Plain, was the initial managing partner of Newera.
- Netcall, Inc. ("Netcall"), a Nevada corporation that is owned and controlled by Donald Plain and Chris Plain.
- Webphone, Inc. ("Webphone, Inc."), a Nevada corporation, was the Initial Managing Partner of Webphone. Donald Plain controlled Webphone, Inc.
In addition, the Commission's Complaint charges the following unregistered brokers who cold-called investors to sell Ephone, Webphone and New Era securities:
- Theodore Bender ("Bender"), 51, of St. Petersburg, Florida.
- Donald Kerns ("Kerns"), 40, of Sylmar, California.
- Patricia Ledezma ("Ledezma"), 50, of Carlsbad, California.
- Philip Leitner ("Leitner"), age 66, is currently incarcerated at the Fort Eglin Federal Prison Camp at Fort Eglin, Florida.
- Kevin Luce ("Luce"), 41, of Las Vegas, Nevada.
- Douglas Parnell ("Parnell"), 29, of San Diego, California.
- Sally Savinsky ("Savinsky"), 55, of Cardiff, California.
- Anthony Stark ("Stark"), 40, of Mission Viejo, California.
- Dana Valensky ("Valensky"), 52, of Laguna Niguel, California.
- Thomas Don Walker ("Walker"), 47, of Santa Monica, California.
According to the Complaint, Ephone, Webphone and Newera were entities formed by Noorai for the purpose of establishing long distance telephone service through the internet. Each issuer conducted its securities offerings through a nationwide network of boiler rooms (called "Independent Sales Offices" or "ISOs") organized by Donald Plain and his son Chris Plain to market their unregistered offerings to investors. The Complaint alleges that the particular defendants involved in each offering falsely stated that the investor funds would be used for business purposes when in truth the issuers had agreed to pay undisclosed cash commissions of 40% to 45% to the ISOs. Of the approximately $2.9 million raised from investors, about $1.2 million - 42% - was paid to Donald Plain, Chris Plain, Bertorelli and the ISO telemarketers they coordinated.
All of the defendants, except Bertorelli, are charged with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5. Bertorelli is charged with aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5. Donald Plain, Chris Plain and the unregistered brokers are also charged with violations of Section 15(a) of the Exchange Act.
The Complaint seeks a final judgment: (i) enjoining the defendants from future violations of the above-cited provisions, (ii) requiring the disgorgement of their ill-gotten gains, plus prejudgment interest; (iii) assessing civil penalties; and (iv) barring Noorai from acting as an officer or director of any public company.