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U.S. Securities and Exchange Commission

Securities and Exchange Commission

Litigation Release No. 17906 / December 19, 2002

SEC Obtains Preliminary Injunction Against Broker-Dealer and Affiliates

SEC v. eWealth Securities, Inc., et al., (S.D.N.Y. 02 Civ. 8626 (JES))

The Commission today announced that on December 9, 2002, the U.S. District Court for the Southern District of New York issued a preliminary injunction against 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 court issued the preliminary injunction after a hearing and finding that the Commission had shown that it is likely to succeed in establishing the allegations contained in its complaint. The Commission's complaint, filed on October 29, 2002, alleges that defendants have fraudulently obtained over $7 million from approximately 100 investors in the offering of unregistered Holdings securities. The complaint further 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 preliminary injunction order follows a temporary restraining order entered on October 29, 2002 and enjoins the defendants until final resolution of the action 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. Pending resolution of the action, the preliminary injunction order also freezes defendants' assets; requires the defendants to submit accountings; prohibits defendants from destroying documents and other evidence; prohibits defendants from witness tampering, suborning perjury or otherwise impeding this case; and appoints a receiver for Holdings and eWealth.

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:

  1. eWealth, a New York Corporation, is a registered broker-dealer based in White Plains, New York and employed eleven registered representatives. eWealth is wholly owned by Holdings.
  2. 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.
  3. 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 Holdings' offering memoranda, N. Formisano is the Chairman and Chief Executive Officer ("CEO") of Holdings. According to N.Formisano, he owns approximately 87% of Holdings.
  4. Cunningham, 40, is a resident of Glen Ridge, New Jersey, is a registered representative of eWealth, and holds a Series 7 license. According Holdings' offering memoranda, Cunningham is the President of Holdings.
  5. 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.
  6. 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 litigation is pending.



Modified: 12/20/2002