U.S. Securities and Exchange Commission
Litigation Release No. 17977 / February 10, 2003
Securities and Exchange Commission v. Marc David Shiner, Leon Swichkow, Timothy Wetherald, Telecom Advisory Services, Inc., Louis Stinson, Jr., P.A., as escrow agent for certain accounts, Equity Service Administration, Inc., Marketing Media, Inc., and USA Media Group, Inc., Case No. 03-608175 (S.D. Fla.)
SEC OBTAINS EMERGENCY RELIEF TO HALT FRAUDULENT SALE OF LOCAL PHONE COMPANY PARTNERSHIPS; COURT ORDERS ASSETS FROZEN
The Securities and Exchange Commission today announced that the Honorable William J. Zloch, Chief United States District Judge for the Southern District of Florida, entered a temporary restraining order against the promoters of a series of local telephone company partnerships. The Commission's complaint and request for emergency relief, filed on February 7, 2003, in Ft. Lauderdale, Florida, alleges Marc David Shiner, a convicted felon, and others defrauded hundreds of investors nationwide through the sale of unregistered securities in six limited liability partnerships ("LLPs") that were ostensibly formed to operate competitive local telephone exchange carriers ("CLECs") in Western states where Qwest Communications was the dominant local telephone carrier.
The Commission's complaint names four primary defendants. Specifically, as alleged in the complaint:
- Marc David Shiner ("Shiner"), age 58, is a resident of Boca Raton, Florida. Shiner is the corporate secretary of Defendant Telecom Advisory, as well as Relief Defendants Equity Service and USA Media. In 1986, the SEC barred Shiner from association with a broker or dealer, investment company, investment adviser or municipal securities dealer for five years for his failure to disclose a 1984 conviction in Massachusetts for insurance fraud, larceny and attempted larceny. In 1998, while promoting electric power partnerships in a similar scheme to this one, Shiner was convicted of federal tax evasion, and served four months in prison and four months of house arrest.
- Leon Swichkow ("Swichkow"), age 58, is a resident of Fort Lauderdale, Florida. Swichkow is the corporate president of Defendant Telecom Advisory, as well as Relief Defendants Equity Service and USA Media. In 1995, Swichkow paid a $10,000 civil penalty in settlement of allegations that he violated Federal Trade Commission rules in the marketing of certain business opportunities.
- Timothy Wetherald ("Wetherald"), age 43, is a resident of Denver, Colorado. Wetherald is the corporate president, part owner, and a control person of On Systems, an entity supposedly established to run each of the local phone companies that the partnerships would own.
- Telecom Advisory Services, Inc ("Telecom Advisory") is a Florida corporation owned and operated by Defendants Shiner and Swichkow in Boca Raton, Florida. Telecom Advisory is not registered as a broker-dealer with the SEC, yet its salesmen marketed the sale of "units" in the six LLPs that are the subject of the Commission's complaint.
The Commission's complaint also names four relief defendants. Specifically, as alleged in the complaint:
- Louis Stinson, Jr., P.A. ("Stinson Law Firm"), is the law firm of Florida attorney Louis Stinson, Jr., The Stinson Law Firm maintains escrow accounts for each of the six LLPs; investor money was funneled through these escrow accounts and then to various corporate entities controlled by the primary defendants.
- Equity Service Administration, Inc. ("Equity Service"), is a Florida corporation owned and operated by Defendants Shiner and Swichkow in Boca Raton, Florida, at the same address as Defendant Telecom Advisory. Equity Service was paid a flat fee for each telephone partnership "unit" purchased through Defendant Telecom Advisory for alleged "administration."
- Marketing Media, Inc. ("Marketing"), is a Florida corporation listing its principal place of business as defendant Shiner's home address in Boca Raton, Florida. Shiner uses Marketing to perform alleged "consulting" for the LLPs marketed by Telecom Advisory.
- USA Media Group, Inc. ("USA Media"), is a Florida corporation owned and operated by defendants Shiner and Swichkow in Coral Gables, Florida, listing its principal place of business as the same address as the Stinson Law Firm.
According to the complaint, since at least February 2001 and continuing through the present, the primary defendants raised in excess of $7.6 million in an elaborate scheme involving a series of interlocking companies that they secretly controlled, siphoning off the vast majority of funds raised for their own use, instead of using the proceeds to fund the underlying partnerships. Defendants Shiner and Swichkow used boiler room tactics at defendant Telecom Advisory, an unregistered broker-dealer, to market the LLPs to unsuspecting investors. According to the complaint, the defendants made numerous material misrepresentations and omissions, including (1) providing unrealistic and baseless projections for rates of return and potential buyout offers, (2) failing to disclose that the majority of the invested funds were used to pay exorbitant commissions and "management fees" to entities controlled by the Defendants, including the Relief Defendants herein, (3) failing to disclose the interlocking relationships of the entities and individuals involved, (4) failing to disclose that certain of the "non-voting" units would be sold before the voting units had recouped their original investment from the profits of the telephone company, (5) failing to disclose the negative regulatory histories of defendants Shiner, Swichkow and Wetherald, and (6) failing to disclose that neither Mile High Telecom, nor any of the other phone companies they established, were properly licensed to operate in the respective states they purported to serve .
The six LLPs marketed by the defendants are: (1) Mile High Telecom Partners, LLP; (2) Phone Company of Arizona, LLP; (3) Washington Phone Company, LLP; (4) Minnesota Phone Company Financial Group, LLP; (5) Iowa-Nebraska Phone Company, LLP; and (6) Oregon Phone Company Financial Group, LLP. According to the complaint, only one of the CLECs, Mile High Telecom in Colorado, had any significant, albeit negative, operating history. Investors were induced to purchase units in other LLPs by being repeatedly told that On Systems, and defendant Wetherald had extensive expertise in operating telecommunications companies, and that Mile High Telecom's customer base was growing substantially due to On System's and Wetherald's successful management. In fact, according to the complaint, Mile High Telecom was in trouble financially and never returned any investor's initial investment.
The Commission's complaint charges that Shiner, Swichkow and Telecom Advisory Services violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b), 15(a) and 15(c) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint further alleges that Wetherald violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
The complaint seeks, among other things, a temporary restraining order that prohibits the primary defendants from accepting funds from actual or potential investors, requires them to provide sworn accountings, and enjoins them from further violations of the securities laws referenced above.
The complaint does not charge the relief defendants with substantive violations of the federal securities laws. Rather, because they each received investor funds as a result of the primary defendants' misconduct, the Commission seeks to freeze their assets for eventual return to investors.
The Commission has previously sued Shiner for securities fraud. That separate litigation is on-going. For more information, see Litigation Release 17430 (March 22, 2002).
SEC Complaint in this matter