Securities and Exchange Commission
Litigation Release No. 17863 / November 25, 2002
Accounting Auditing Enforcement
Release No. 1674 / November 25, 2002
SEC Obtains Preliminary Injunction, Receivership Order, Asset Freezes, and Other Relief in Case Charging Financial Fraud at Company Controlled by Criminal Recidivists
SEC v. 800America.com, Inc., et al., (S.D.N.Y. 02 Civ. 9046) (JSM)
On November 21, 2002, Judge John S. Martin of the United States District Court for the Southern District of New York granted the Commission's application for preliminary relief pending the final determination of the Commission's case against 800 America.com, Inc. ("800America"), an Over-the-Counter Bulletin Board company and purported internet retailer; David Elie Rabi ("Rabi"), chief executive officer, chief financial officer, and a director of 800America; and Tillie Ruth Steeples ("Steeples"), an undisclosed control person of 800America. The Commission alleges that the defendants falsified financial results for 800America since at least 2000, unlawfully sold unregistered stock through nominee accounts, failed to disclose the criminal histories of Rabi and Steeples, and made other misrepresentations.
Specifically, the court's order provides that, pending the final determination of the case: (a) the defendants are preliminarily enjoined from violating antifraud, registration, books and records, and other provisions of the federal securities laws; (b) defendants' assets and certain nominee brokerage accounts are frozen; (c) the defendants are required to submit accountings; (d) a temporary receiver has been appointed over 800America; (e) Rabi and Steeples are enjoined from acting as officers or directors of public companies and from participating in the offering of penny stocks; (f) the defendants must repatriate assets held abroad; (g) the defendants are prohibited from destroying documents and other evidence; and (h) the defendants are prohibited from tampering with witnesses, suborning perjury or otherwise impeding this case.
The complaint alleges that:
- To create the image of a vibrant enterprise, the defendants fraudulently reported millions in fictitious earnings, revenues, expenses, and assets. To conceal the true results, they created fictitious periodic bank statements, checks, invoices and a general ledger, which they supplied to 800America's auditor.
- Rabi and Steeples sold unregistered 800America stock through nominee accounts in violation of the registration provisions of the securities laws, and at a substantial profit to themselves. Rabi and Steeples also misappropriated company assets.
- 800America issued a press release falsely denying Rabi's criminal past and failed to disclose that Steeples is a control person of the company. The company's most recent 10-KSB lists as officers and directors several individuals who either have left the company or cannot be located by the company.
As to the three defendants, the complaint alleges that:
The complaint charges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Sections 10(b), 13(a), and 13(b)(2), 13(b)(5) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13, Rules 13b2-1 and 13b2-2 thereunder. As final relief, the Commission seeks permanent injunctions, disgorgement of all ill-gotten gains plus prejudgment interest; civil penalties; and, against Rabi and Steeples, final penny stock and officer and director bars and a forfeiture of stock under their control. The litigation is pending.
- 800America is a Nevada corporation, has an executive office in New York, and has operations at 1301 North Mount Juliet Road, Mount Juliet, Tennessee. 800America purports to own and operate several Internet websites that retail various products, particularly clothing, or that provide links to websites of other retailers.
- Rabi, age approximately 62, was the Chief Executive Officer, the Chief Financial Officer, a Director, and the majority shareholder of 800America. Rabi also served as 800America's President for most of the period from July 9, 1999 through January 2002. On January 3, 1997, Rabi pleaded guilty in McCracken County, Kentucky, to state felony charges of securities fraud, acting as an unregistered broker-dealer, and selling unregistered securities. Rabi was sentenced to four years imprisonment, which was commuted, based on the four years Rabi had already served in Tennessee state prison fighting extradition to Kentucky on these charges.
- Steeples, age 55, was not disclosed as having any affiliation with 800America in 800America's public filings, but was acting as an undisclosed control person of the company. Among other things, she controlled some of 800America's bank accounts, and represented that she was 800America's Secretary, both in her own name and under the alias "Ruth Walley." On November 14, 1996, in Nashville, Tennessee, Steeples pleaded guilty to delivering cocaine into a prison. Steeples was sentenced to six years imprisonment for this conduct, and was incarcerated from January 1, 1997 to November 24, 1999.
See also Litigation Release No. 17835 (November 13, 2002).