Litigation Release No. 17810 / October 29, 2002
SEC Files Emergency Action to Halt Ongoing Fraud by Broker-Dealer and Affiliates
SEC v. eWealth Securities, Inc., et al. (S.D.N.Y. 02 Civ. 8626 (JES))
The Commission today brought an emergency action in federal court in Manhattan to halt an ongoing fraud by eWealth Securities, Inc. ("eWealth"), a registered broker-dealer; eWealth Holdings, Inc. ("Holdings"), eWealth's parent company; Neil Formisano ("N. Formisano"), Chairman and Chief Executive Officer ("CEO") of Holdings; Donald Cunningham ("Cunningham"), President of Holdings; and eWealth registered representatives, Jonathan Aronica ("Aronica") and Steven Mastrosimone ("Mastrosimone"). The Commission alleges that, to date, defendants have fraudulently obtained over $7 million from approximately 100 investors in the offering of unregistered Holdings securities. The complaint alleges that, since January 2000, defendants have misled investors through a host of patently false representations about Holdings - including a repeated misrepresentation that Holdings would conduct an initial public offering ("IPO") in the near future.
The Commission has moved for a temporary restraining order, preliminary injunction and other interim relief to preserve the status quo. Pending the outcome of that motion, on the Commission's application, the court has temporarily restrained the defendants from violating antifraud, registration, and books and records provisions of the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act"), and from participating in any penny stock offerings. The court also has ordered that, pending the outcome of the preliminary injunction motion: (a) defendants' assets are frozen; (b) the defendants are required to submit accountings; (c) a temporary receiver has been appointed over eWealth and Holdings; (d) the parties may engage in expedited discovery; (e) the defendants are prohibited from destroying documents and other evidence; and (f) the defendants are prohibited tampering with witnesses, suborning perjury or otherwise impeding this case.
The Commission alleges that the defendants have deceived actual and prospective investors since January 2000 by claiming that Holdings is on the verge of launching an IPO. According to the complaint, Holdings has never filed any registration statement with the Commission or otherwise taken any steps toward an IPO. The Commission also alleges that the defendants have made baseless projections that Holdings stock would trade at 4 to 5 times its offering price on the secondary market. The defendants are also alleged to have misrepresented, among other things, key facts concerning Holdings management, use of investor proceeds, and business activities, including that Holdings had "entered into contract" to purchase a bank and developed a provider of online financial solutions to banks and other financial institutions.
The complaint names the following defendants:
- eWealth, a New York Corporation, is a registered broker-dealer based in White Plains, New York, employing eleven registered representatives. eWealth maintains offices in White Plains and Glen Falls, New York. eWealth is wholly owned by Holdings.
- Holdings is a Delaware corporation with an office address in White Plains, New York that is identical to eWealth's business address. As of March 1, 2002, Holdings is no longer in existence and good standing in the State of Delaware, and is inoperative and void for non-payment of taxes.
- N. Formisano, 34, is a resident of Katonah, New York, is the Executive Vice President of eWealth, and holds Series 24 and Series 7 licenses. According to the Holdings Private Placement Memoranda, N. Formisano is the Chairman, Chief Executive Officer ("CEO"), and he informed Commission staff that he is an approximately 87% owner of Holdings.
- Cunningham, 40, is a resident of Glen Ridge, New Jersey, is a registered representative of eWealth, and holds a Series 7 license. According to offering memoranda, Cunningham is the President of Holdings.
- Aronica, 29, is a resident of Great Neck, New York, and is a general principal and registered representative of eWealth, where he holds Series 7 and Series 24 licenses.
- Mastrosimone, 23, is a resident of Yorktown, New York, and is a general principal and registered representative of eWealth, where he holds Series 7 and Series 24 licenses.
The complaint seeks, as final relief against all defendants, permanent injunctions against future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In addition, the complaint seeks to enjoin eWealth from future violations of Sections 15(g), 17(a) and 17(b) of the Exchange Act, and Rules 17a-4(j) and 15g-9 thereunder, and seeks to enjoin N. Formisano from future violations or aiding and abetting future violations of Sections 17(a) and 17(b) of the Exchange Act, and Rule 17a-4(j) thereunder. The Commission also seeks against all defendants, disgorgement of all ill-gotten gains plus prejudgment interest, and civil penalties. In addition, the Commission seeks a bar against each defendant from participating in any future offering of penny stocks.
The court has scheduled a hearing on the Commission's motion for a preliminary injunction for November 12, 2002. The litigation is pending.
