U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19430 / October 14, 2005
SECURITIES AND EXCHANGE COMMISSION v. DARYL G. DESJARDINS, ROBERT S. ZABA, ALNOOR JIWAN, RONALD D. BROUILLETTE, JR. and BRIAN A. KOEHN, 1:03CV01992 (D.D.C. September 12, 2005/October 5, 2005) (PLF)
SEC OBTAINS PERMANENT FRAUD INJUNCTIONS, DISGORGEMENT AND PENALTIES IN EXCESS OF $7 MILLION AGAINST INDIVIDUALS WHO ENGAGED IN FRAUDULENT SCHEME INVOLVING PAY POP, INC. SECURITIES
On September 12, 2005, the United States District Court for the District of Columbia entered final judgments permanently enjoining defendants Daryl G. Desjardins, Alnoor Jiwan, Ronald D. Brouillette and Brian A. Koehn from violating the antifraud provisions of the federal securities laws and from participating in penny stock offerings. In addition to the injunctive relief, the court ordered Desjardins to pay disgorgement, including prejudgment interest, of $3,057,466.27 and a civil penalty of $2,332,455.41. Brouillette was ordered to pay disgorgement of $84,126.22, including prejudgment interest, and a penalty of $1,000,000; Jiwan was ordered to pay disgorgement of $130,374.96, including prejudgment interest, and a penalty of $440,000 and Koehn was ordered to pay disgorgement of $47,033.16, including prejudgment interest, and a penalty of $330,000. On October 5, 2005, the court issued another final judgment against Alnoor Jiwan, Ronald D. Brouillette and Brian A. Koehn that included the same relief granted in the September 12, 2005, judgment as to each of the defendants and additionally enjoined Brouillette from violating the broker registration provisions of the federal securities laws.
In its Complaint, the Commission alleged that Desjardins, Jiwan, Brouillette and Koehn, along with co-defendant, Robert S. Zaba, engaged in a fraudulent scheme to sell the stock of Pay Pop, Inc. ("Pay Pop"), a now defunct telecommunications company. The scheme included creating purportedly "free trading" Pay Pop stock (i.e., legend-free stock certificates that created the false impression that the stock complied with U.S. registration requirements), issuing a series of materially false and misleading public statements and selling Pay Pop shares to unsuspecting investors.
The Commission's Complaint alleged that purportedly "free trading" Pay Pop stock was secured through a series of bribes paid to Jiwan, who was a senior manager of Pay Pop's transfer agent, CIBC Mellon Trust Company ("CIBC Mellon"). In exchange for the bribes, the Complaint alleged, CIBC Mellon issued Pay Pop stock certificates free of any restrictive legends, without requiring proof that the Pay Pop shares were subject to a registration statement filed with the Commission or exempt from such registration. The Complaint alleged that by the end of the fraudulent scheme, approximately 98 million Pay Pop shares were illegally issued and distributed to the public.
The Commission's Complaint also alleged that defendants Desjardins and Zaba made a series of material misrepresentations and omissions regarding Pay Pop to create continued demand for Pay Pop stock. As alleged in the Complaint, at Desjardins' and Zaba's direction, Pay Pop issued a series of press releases that falsely reported multi-million dollar investment bank financings that did not exist, the purchase and sale of valuable Caribbean beach resort property that never occurred, the growth in Pay Pop's client base and revenue in the face of business decline, the signing of material contracts that never existed, and the successful expansion into new business territories that were either never pursued or recently abandoned. As further alleged in the Complaint, Koehn, who was not an accountant, created fictitious "audited" financial statements that grossly inflated Pay Pop's assets.
The Complaint alleged that Brouillette sold Pay Pop stock for the benefit of Desjardins and Zaba. According to the Complaint, Brouillette did this through, among other things, trading of Pay Pop stock through a series of nominee accounts, systematic unauthorized trading in his customers' accounts and knowingly making various false and misleading statements to his customers about Pay Pop's business prospects. After being terminated by his brokerage firm and being barred from acting as a registered representative by NASD, the Complaint alleged that Brouillette continued to act as an unregistered securities broker.
As a result of the scheme, the Complaint alleged that Zaba and Desjardins made over $3 million from the sale of Pay Pop stock.
The court permanently enjoined Desjardins, Jiwan, Brouillette and Koehn from violating Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder. The court also permanently enjoined Jiwan from aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and permanently enjoined Brouillette from violating Section 15(a)(1) of the Exchange Act. Finally, the court issued permanent penny stock bars against Desjardins, Jiwan, Brouillette and Koehn.
The Commission previously instituted and settled claims against Warren Soloski and Sean Nevett for their roles in the scheme, and against CIBC Mellon. The Commission's litigation against Zaba is continuing.
The Commission acknowledges the assistance in its investigation by the Federal Bureau of Investigation, NASD Regulation, Inc., the District Attorney for San Diego County, California, the Organized Crime Agency of British Columbia, the Royal Canadian Mounted Police, the British Columbia Securities Commission, and the Ontario Securities Commission.