SECURITIES AND EXCHANGE COMMISSION v. CONVERGE GLOBAL, INC. (United States District Court for the Southern District of Florida, No. 04-80841 (CIV-Middlebrooks) (D. So. Fla.)
The Commission announced that, on September 2, 2004, it filed a civil fraud action in federal district court in Florida against Converge Global, Inc., a Boca Raton-based telecommunications company, and Michael P. Brown, also of Boca Raton and its CEO. Also named in the action were TeleWrx, Inc., Converge's sole subsidiary, Jonathan G. Fink, of Los Angeles and a purported consultant to Converge and Keith B. Laggos, of Homer Glen, Illinois and the owner and publisher of Money Maker's Monthly, an Illinois-based magazine.
The Complaint alleges, among other things, that Converge and TeleWrx jointly issued a press release on Monday, June 24, 2002 which falsely claimed in the headline that, as the result of its recent weekend "national launch," TeleWrx had raised "over $1 million." The release also falsely claimed that, as a result of the weekend "launch," TeleWrx had signed up "nearly 1,000 distributors" (to distribute its telecommunications equipment). The Complaint further alleges that Brown and Fink were responsible for drafting and issuing the false June 24 press release. The Complaint also alleges that, on Tuesday, June 25, Laggos' Money Maker's Monthly issued a press release with the headline "TeleWrx Explosive Launch May Set New Records" and reiterating the $1 million figure used in the June 24 press release. The June 25 release went on to note that "[t]here have been companies in the network marketing industry that have reached a billion dollars faster than Microsoft. TeleWrx is destined to be one of these companies." The June 25 release also predicted that "[b]y the end of its first year, it will be a surprise if TeleWrx is not operating at a hundred million dollar annual rate. In fact it is quite possible that TeleWrx will reach the billion dollar rate within the first three years." Fifteen days earlier, on June 10, Laggos' Money Maker's Monthly had issued another laudatory press release concerning TeleWrx. Finally, Laggos' Money Maker's Monthly published a laudatory article concerning TeleWrx in its July 2002 issue. The Complaint alleges that Laggos was compensated by Converge and/or TeleWrx, in both stock and cash, for issuing the above-mentioned press releases and article. Laggos failed to disclose said compensation in any of the aforementioned publications.
As a result of the conduct described in the Complaint, the Commission has charged Converge, TeleWrx, Brown and Fink with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder (antifraud provisions) and Laggos with violations of Section 17(b) of the Securities Act of 1933 (touting provision). The Commission's Complaint seeks: permanent injunctions and civil monetary penalties against all of the proposed defendants; disgorgement against Laggos; penny stock bars against Brown, Fink and Laggos; and an officer and director bar against Brown. The matter has been assigned to the Honorable Donald M. Middlebrooks, District Court Judge.