United States District Court Central District of California: Sim Sonr@sec - Gov
United States District Court Central District of California: Sim Sonr@sec - Gov
SIMPSON
E-mail: [email protected]
2 CAROLYNE. KDRR
E-mail: [email protected]
3 Securities andtxcliange Commission
100 F Street, NE
4 Washington, D.C. 20549
Telephone: (202) 551-4495
5 FacsImile: (202) 772-9246
6 Local Counsel
DAVIDJ. VANHAVERMAAT, Cal. BarNo. 175761
7 E-mail: [email protected]
John W. Berry, Regionalrrial Counsel
8 Securities and Exchange Commission
5670 Wilshire Boulevard, 11th Floor
9 Los Angeles, California 90036-3648
Telephone: (323) 965-3998
10 FacsImile: (323) 965-3908
Attorneys for Plaintiff
11
12
UNITED STATES DISTRICT COURT
13
CENTRAL DISTRICT OF CALIFORNIA
14
15
16 SECURITIES AND EXCHANGE Case No.
COMMISSION,
17
Plaintiff, COMPLAINT FOR INJUNCTIVE
18 RELIEF, DISGORGEMENT,
vs. PENALTIES AND OTHER RELIEF,
19 FOR VIOLATIONS OF THE
NICHOLAS LOUIS GERANIO, FEDERAL SECURITIES LAWS AND
20 KEITH MICHAEL FIELD, DEMAND FOR JURY TRIAL
21 THE GOOD ONE, INC., and
KALEIDOSCOPE REAL ESTATE, INC.,
22
23 Defendants, and
24 BWREHAWAII,LLC
25
Relief Defendant.
26
27
28
.. j
1 traded stock price. Thus, the manipulation of the publicly-traded stock price
2 allowed the boiler rooms to sell the Regulation S shares at a higher price to the
3 overseas investors.
4 6. The boiler rooms, teams of unregistered telemarketers operating
5 mostly from Spain, used high-pressure sales tactics and material false statements
6 and omissions to induce the investors (many of them elderly and located in the
7 United Kingdom) to buy the Issuers' Regulation S stock. Based on a structure
8 created by Geranio, the boiler rooms directed the investors to send their money to
9 escrow agents in the U.S.
10 7. Under Geranio's oversight, the escrow agents paid 60% to 75% of the
11 approximately $35 million in proceeds to the boiler roo'ms as their sales markups,
12 kept 2.5% as their fee, 'and paid the remaining proceeds to the Issuers. The Issuers'
13 (or in some cases the escrow agents) then funneled approximately $2.135 million of
14 the proceeds of the Regulation S sales to Geranio, through The Good One and
15 Kaleidoscope. The Issuers and the escrow agents paid Field approximately
16 $279,000.
17 8. By committing the acts described in this Complaint, Geranio, Field,
18 The Good One and Kaleidoscope directly or indirectly engaged in and, unless
19 restrained and ~njoined by the Court, will continue to engage in, transactions, acts,
20 practices and courses of business that violate Section 17(a)(I) and (3) of the
21 Securities Act of 1933 (the "Securities Act") [15 U.S.C. § 77q(a)(1) & (3)] and
22 Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") [15
23 U.S.C. § 78j(b)] and Rule 10b-5(a) and (c) [17 C.F.R. § 240.10b-5(a) and (c)].
24 Field also directly or indirectly engaged in acts, practices or courses of business
25 that violate Securities Act Section 17(a)(2) [15 U.S.C. § 77q(a)(2)], and aided and
26 abetted the Issuers' violations of Exchange Act Section 10(b) [15 U.S.C. § 78j(b)]
27 and Rule 10b-5(b) [17 C.F.R. § 240.10b-5(b)]. Geranio also is liable as a control
28 person of The Good One and Kaleidoscope under Exchange Act Section 20(a) [15
1 U.S.C. §78u(a)].
2 9. The Commission seeks a judgment from the Court: (a) enjoining the
3 defendants from engaging in or aiding and abetting future violations of the federal
4 securities laws named above; (b) ordering them to disgorge, with prejudgment
5 interest, all ill-gotten gains obtained as a result of the securities violations
6 described in this Complaint; (c) requiring them to pay civil money penalties
7 pursuant to Securities Act Section 20( d) and Exchange Act Section 21 (d)(3) [15
8 U.S.C. §§ 77t(d), 78u(d)(3)]; (d) barring them from participating in any offering of
9 penny stock pursuant to Securities Act Section 20(g) and Exchange Act Section
10 21(d)(6) [15 U.S.C. §§ 77t(g), 78u(d)(6)]; (e) barring Geranio and Field from
11 serving as an officer or director of an issuer that has a class of securities registered
12 pursuant to Section 12 of the Exchange Act, as amended [15 U.S.C. § 781] or that
13 is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C.
14 § 780(d)], pursuant to Securities Act Section 20(e) and Exchange Act Section
15 21(d)(2) [15 U.S.C. §§ 77t(e), 78u(d)(2)]; and (f) requiring the relief defendant to
16 disgorge all funds it received from Defendants' ill-gotten gains or by which it has
17 been unjustly enriched, including all investor funds transferred to it or used for its
18 benefit, including prejudgment interest thereon.
19 JURISDICTION AND VENUE
20 10. The Court has jurisdiction over this action pursuant to Securities Act
21 Section 20(b) and (c) and Exchange Act Sections 21(d) and (e) and 27 [15 U.S.C.
22 §§ 77t(b) & (c), 78u(d) & (e), 78aa]. The defendants made use of the means or
23 instruments of interstate commerce, of the mails, or of the facilities of a national
24 securities exchange in connection with their acts, transactions, practices and
25 courses of business alleged in this Complaint.
26 11. Venue lies in the United States District Court for the Central District
27 of Cali fomi a pursuant to Securities Act Section 22(a) and Exchange Act Section
28 27 [15 U.S.C. §§ 77v(a) and 78aa] in that certain of the acts, practices and courses
1 During the relevant period, The Good One used as its business address a UPS Store
2 in Las Vegas, Nevada and also on a few occasions an address at a UPS store in
3 Calabasas, California.
4 16. 'Defendant Kaleidoscope Real Estate, Inc., a Nevada corporation, is a
5 financial consulting company that purports to provide general financial and
6 business advice. Geranio's girlfriend is the President, Secretary, Director and
7 Treasurer of Kaleidoscope.
8 17. Relief defendant BWRE Holdings, LLC is a domestic limited liability
9 company based in Hawaii.
10 RELATED ENTITIES (THE "ISSUERS")
11 18. Green Energy Live, Inc. ("Green Energy") is a Nevada corporation,
12 with its principal office located in Wyoming, Michigan. On November 19,2008,
-J 3 Green Energy began trading publicly on the OTC Bulletin Board under the symbol
14 "GELV.OB."
15 19. Spectrum Acquisition Holdings, Inc. ("Spectrum") is a Nevada
16 corporation, with its principal office located in Austin, Texas. In March 2008,
17 Western American Mining became the majority owner of Spectrum, and on March
18 17, 2008, Spectrum began trading on the OTC Bulletin Board under the symbol
19 "SPAR.OB."
20 20. United States Oil & Gas Corp. ("USOG") is a Delaware corporation,
21 with its principal office located in Austin, Texas. On April 17,2008, USOG shares
22 began trading on the OTC Bulletin Board under the symbol "USOG.OB." On June
23 7, 2011, the Commission suspended trading in USOG stock because of questions
24 regarding the adequacy and accuracy of publicly available information about the
25 company.
26· 21. Mundus Group, Inc. ("Mundus") is a Nevada corporation, with its
27 principal office located in Chatsworth, California. Mundus shares are quoted on
28 OTC Link under the symbol "MNDP."
1 22. Blu Vu Deep Oil & Gas Exploration, Inc. ("Blu Vu") was a Nevada
2 corporation with its principal office in Seattle, Washington. On May 26, 2010,
3 Deltron, Inc., a Nevada corporation, with its principal office located in Garden
4 Grove, California, acquired all the assets ofBlu Vu. Deltron shares are quoted on
5 OTC Link under the symbol "DTRO."
6 23. Wyncrest Group, Inc. ("Wyncrest") is a Nevada corporation, with its
7 principal office in Palos Park, Illinois. Wyncrest shares were quoted on OTC
8 Bulletin Board under the symbol "WYCT.OB" until January 29, 2009 when the
9 trading symbol changed to "WNCG.OB"
10 24. Microresearch Corp. ("Microresearch") was a Nevada corporation
11 with a principal office in Orcutt, CA. Beginning on April 18, 2008, Microresearch
12 shares were quoted on the OTC Bulletin Board under the symbol "MCEA.OB."
13 On June 29,2009, Microresearch merged with Insight Management Corp. Insight
14 Management securities are quoted on OTC Link under the symbol "IS 1M."
15 25. Power Nanotech, Inc. ("Power Nanotech") was a Nevada corporation,
16 with its principal office in Port Washington, New York. Corporate records reflect
17 that Power Nanotech was dissolved on April 19, 2011.
18 FACTS
19 A. How the Fraudulent Scheme Worked
20 26. Concealing his role from investors and the public at all times by
21 acting through The Good One and Kaleidoscope, Geranio organized the Issuers,
22 installed management, and introduced the Issuers to offshore boiler rooms he had
23 recruited. The offshore boiler rooms used assumed business names and maintained
24 slick websites and mail drops in those names.
25 27. In fact, the boiler rooms were call centers staffed with telemarketers
26 each run by one unregistered trader, typically an ex-patriate U.S., British or
27 Australian residing in Spain, who had his or her own team and competed with
28 other teams to sell the Regulation S shares of the Issuers. The boiler rooms used
1 f~lse and misleading, high-pressure sales tactics to sell the Issuers' Regulation S
2 shares, and received most of the sales proceeds.
3 28. The Issuers received 20% to 30% of the total proceeds of the boiler
4 room sales. A substantial amount ofthe proceeds that did find its way back to the
5 Issuers paid Geranio'shand-picked Issuer-CEOs and Field or was funneled to
6 Geranio through the "consulting fees" the Issuers paid The Good One and
7 Kaleidoscope.
8 29. Geranio worked behind the scenes to keep the Issuers' publicly-traded
9 shares trading at prices conducive to the boiler room sales. He did this by directing
10 Field, personal friends, and others to open accounts and buy or sell publicly-traded
11 shares in at least five of the Issuers as part of matched orders and manipulative
12 trades that created the impression of active trading and market value that the
13 Issuers' stock would not have otherwise had.
14 30. The manipulative trades allowed the boiler rooms to sell Regulation S
15 shares to overseas investors at higher prices as part of their fraudulent solicitation
16 efforts.
17 B. Geranio Found, Organized and Controlled the Issuers
18 31. According to a common system he devised, Geranio, and others at his
19 direction, created the Issuers, installed management, created consulting
20 arrangements with the Issuers (through The Good One and Kaleidoscope), and
21 instructed management about how to run the Issuers. In essence, Geranio served as
22 an undisclosed founder and executive officer of the Issuers.
23 32. During the relevant time period, Geranio located and acquired shell
24 companies through a "prospecting" system that he developed. As part of this
25 system, Geranio sent out letters to shell companies he identified from lead-lists.
26 Geranio found the companies that became the Issuers through these prospecting
27 efforts.
28 33. Geranio then found and appointed management for the Issuers, which
1 typically consisted ofField as a director and/or officer and a CEO who performed
2 administrative recordkeeping duties related to Regulation S sales and prospecting
3 for acquisitions. In some cases, Geranio appointed friends or business associates
4 as officers of the Issuers. For example, the former CEO ofBlu Vu was someone
5 Geranio met "kite surfing" in Malibu.
6 34. During the relevant time period, Geranio also hired the CEOs of
7 Spectrum, Green Energy, Blu Vu, USOG, and Mundus; the presidents of Power
·8 Nanotech and Wyncrest; and an interim president of Microresearch.
9 35. During the relevant time period, the Issuers had few or no employees,
10 little or no office space, and no sales or customers. With the exception of a few
11 standalone, small businesses they purchased: Wyncrest had two or three
·12 employees, no office space, and no sales or customers; Mundus had three
13 employees, rented 1,500 square feet of office space, and had no sales or customers;
14 Green Energy had no employees, office space, customers, or products; Blu Vu had
15 no employees, office space, products, or services; Microresearch and Spectrum had
16 no employees or office space; and USOG had two employees, one of whom was
17 the CEO of another Geranio-related company, Power Nanotech.
18 C. Geranio Instructed Management About How to Run the Issuers
19 36. During the relevant time period, Geranio instructed the Issuers' CEOs
20 on almost every aspect of the businesses, particularly setting up and overseeing the
21 Regulation S sales.
22 37. When Geranio appointed a CEO for Spectrum, he told the CEO "you
23 are an accountant ... do as I tell you ... you are a bookkeeper." Geranio further
24 told the CEO that his lack of experience didn't matter because he was just
25 "keeping track of stuff," including Regulation S funds, and updating Geranio. The
26 former CEO related how Geranio explained it to him:
27 "I mean [Geranio's] like, I'm doing this for - this recipe or this
28 way of doing, of starting companies, and doing it, and I can
9
1 raise the funds. We'll find you companies to buy and I just
2 need someone to keep everything straight. He's like, I'm doing
3 everything. I just need you to keep it straight. And he's like,
4 I've done this in the past and we're doing it, and that's what
5 we're doing."
6 38. Geranio explained to the CEO ofUSOG that his responsibilities
7 would consist of "running the company administratively." USOG's CEO
8 explained,
9 "Initially it was setting up the books for the company and being
10 introduced to ... the attorney who handled the document
11 preparation and the escrow for the fund raising through
12 Regulation S. So initially it was focused on, mostly on
13 bookkeeping and the Regulation S. And then ... the
14 acquisition side grew. It would be evaluating potential
15 acquisitions."
16 39. Emblematic of Geranio's control of the Issuers was his involvement
17 with Mundus. The Mundus CEO exchanged emails with Geranio concerning
18 Mundus' efforts to: file Form S-ls and Form lOs with the SEC, hire the
19 company's auditor, provide technical assistance with the company's website,
20 change Mundus' rating on the pink sheets, engage promoters, sell stock in a Rule
21 504 offering, and list Mundus on the Frankfurt Stock Exchange. As the Mundus
22 CEO described it, Geranio reminded him "what ... things to do." Geranio also was
23 involved with doing a reverse split for the company and preparing patents.
24 40. The CEO and the General Counsel of one company (not one of the
25 Issuers in this case) that Geranio had acquired through the Good One and
26 organized according to the common methodology outlined above, decided that that
27 company either had to disclose Geranio's relationship with the company or sever
28 that relationship. As a result, Geranio stopped working with that company.
10
11
1 50. From time to time and without giving any reason, Geranio directed the
2 Issuers' CEOs to send money to him through The Good One and Kaleidoscope.
3 51. Geranio used The Good One and Kaleidoscope to conceal his role as
4 an undisclosed promoter and control person of the Issuers. On September 18,
5 2009, Geranio explained to Field,
6 "I don't want any of these companies in my name. So we need
7 to get them out of my name or I close them. So we need to
8 transfer them to something or get fresh ones. I never want to
9 raise money with me on them that's all."
10 52. In another instance, at Geranio's request, Field gave instructions to
11 remove a news article featured on a website that related to the flying car marketed
12 by Mundus, because that news article mentioned Geranio' s name and Geranio " ...
13 had received judgment in 2000" providing "that he was not going to be involved in
14 the sale of securities."
15 E. The Issuers' Business Plans and Websites Contained Materially.
16 False and Misleading Information
17 1. Field Created the Issuers' Marketing Materials
18 53. During the relevant time period, Field served as an officer, director,
19 and/or investor relations representative for each of the Issuers. More specifically,
20 Field at times was the Chairman and a director of Green Energy, Power Nanotech,
21 USOG, Mundus, Wyncrest, and Spectrum. On some occasions, Field was the only
22 director at a particular Issuer.
23 54. Field also served as an ad-hoc investor-relations representative for all
24 the Issuers; he stated, "I was also asked by the presidents [of the Issuers] to help
25 out in investor relations, because there were obviously problems. And I learned
26 about those."
27 55. Field admitted that, "When the presidents asked me for help, when
28 there was a problem when investors were calling and they needed help, I was
12
1 inside, so it was good save [sic] money. And I knew about the companies, since I
2 helped write the business plans, and I could be of service."
3 56. In these roles, Field drafted business plans, press releases, and the
4 content for the Issuers' websites. Field also wrote the press releases for Blu Vu,
5 Green Energy, USOG, Wyncrest and Mundus, and created brochures for all the
6 Issuers. As Field himself admitted, "I write most everything" for the Issuers.
13 content; use of the word "customers" for entities that had little or no relationship to
14 the companies; discussion of "plans" when no such plans were in place; and
17 Issuers were established operating businesses when in fact they were mere start
18 ups built around business plans that incorporated Field's Internet research and, in
22
23 (a) Spectrum "WAMCO has a team of expert metallurgists,
process automation, and design engineers."
24 (b) Spectrum "In addition to proven technology, we provide
integrated process design, equipment supply,
25 related engineering, project management and start
up training, as well as a customer focus after sale
26
service."
27
28
13
1
(c) Green Energy ". . . [we] are pursuing strategic collaborations with
2 members of academia, industry and foundations to
3 further accelerate the pace of [our] research
efforts."
4 (d) Green Energy "Green Energy provides engineering assistance,
assists customers in applying biometh fuel energy
5 systems to their specific needs and provides
"
6
(e) Microresearch
7
8
(f) USOG "USOG's current management team [is] ...
9 supported by experienced, skilled, and dedicated
10 at all ofUSOG's business units."
(g) BIuVu "Blu Vu is an oil and gas technologies consortium
11 with 'Small footprint' technologies including
patented Rebreather systems, geological imaging,
12 composite drilling components and new micro
drilling technologies that will minimize the
13 traditionally poisonous and toxic environmental
14 effects the oil and "
(h) BluVu "BIu Vu is currently listed on the pink sheet
15 "
(i) . Wyncrest "Through Wyncrest's Offshore Service Division,
16 the company provides offshore insurance
companies, offshore bank and trust companies and
17
command[s] the most up-to-date tools in the field of
18 tax and tax "
Wyncrest "Wyncrest Offshore Aviation Division .... insure [s]
19 helicopters, small aircraft, large aircraft, aircraft
maintenance facilities, fixed-based operators,
20 re airlines and schools."
21 (k) Wyncrest "Wyncrest Group's offshore Catastrophic Insurance
Division provides their clients with insurance
22 services which can include various types of
Insurancef'n.~7PT<> "
23 (1) Wyncrest "Wyncrest Offshore Extended Warranty Division
acts as a third party administrator, facilitating
24
claims for all of our Offshore Division programs ....
25 Our Offshore Division Marketing Agent network is
our most important asset and is always available to
26 assist "
27 60. The Issuers knew or were reckless in not knowing that these
28 statements about their own basic operations and business were materially false or
14
1 misleading.
2 61. Field drafted at least the statements listed in Paragraph 59(a) to (g)
3 and (i) to 0), and he knew, or was reckless, or negligent, in not knowing that all of
4 the statements in Paragraph 59 were materially false or misleading.
5 62. The Issuers and Field provided information on the websites and in the
6 business plans to the boiler room advisors, who then provided the information to
7 investors. Indeed, Field specifically explained that he asked the boiler room
8 advisors to have the investors rely on information contained in the companies'
9 business plans, websites, and on the pink sheets. He added,
10 "... that's what we asked them - everything about the company
11 is posted, All the officers, how many shares, what we're doing,
12 the 132(C)11 [sic], the company profile. Everything that there
13 is that we have to say to anybody. . .. "
14 63. The Issuers' false statements were distributed widely and provided to
15 investors. The Issuers, Geranio and Field sent, or instructed others to send, the
16 Issuers' solicitation materials (including business plans, press releases, and
17 brochures) to the boiler room advisors. The then-CEO of Spectrum understood
18 that, "Nick [Geranio] was taking care of [providing the boiler room sales advisors
19 with a business plan] and giving them whatever information they needed to
20 educate themselves as well as the shareholders or the prospective shareholders."
21 64. The false statement from the Green Energy business plan about
22 "strategic collaborations with members of academia" also appeared in Green
23 Energy's SB-2 offering and in its Annual Reports for 2007 and 2008. This
24 business plan was also sent directly to at least one prospective investor in Australia
25 who was solicited by a boiler room. Field included the same false statement in
26 Power Nanotech's and Spectrum's offering documents and reports.
27 65. Likewise, the Issuers and Field sent the Blu Vu business plan that
28 included the false statement that Blu Vu was listed on the Pink Sheets and the
15
1 USOG business plan that exaggerated its "business units" to potential or actual
2 U.K. investors.
3 66. The Issuers and Field also sent the Wyncrest and Blu Vu business
4 plans that included the false statements listed above to boiler room sales advisors.
5 On occasion the boiler room representatives asked for updated business plans for
6 each of the Issuers, and the Issuers and Field provided them~
7 F. Geranio Instructed Stock Promoters and Individuals to
8 Manipulate the Issuers' Share Prices in the United States
9 1. Geranio Directed U.S. Investors to Particular Brokers
10 67. Geranio directed several U.s. individuals ("Traders") to open
11 accounts' at particular brokerage firms, with brokers he knew. Then the Issuers
12 issued shares to certain of the Traders. Four traders, subsequently involved in
13 matched orders and manipulated trades, opened one or more brokerage accounts at
14 Geranio's suggestion.
15 68. Geranio helped one trader ("Trader A") open two brokerage accounts
16 with "friendly brokers" who "knew the story" of one of the Issuers. Geranio also
17 asked him to set up a corporation for the purpose of purchasing stock, and Geranio
18 paid a lawyer for the costs of organizing that corporation for Trader A.
19 69. Geranio arranged for Trader A to receive millions of shares of
20 Wyncrest and Mundus stock at a discount of 25% from the bid price.
21 70. Trader A received some of the shares based on his assurances that he
22 would pay for them later. When the stock market declined and he was unable to
23 sell these shares, no one asked Trader A to return the shares.
24 71. Geranio or an individual acting at Geranio' s direction asked another
25 trader ("Trader B") to open up an account with a brokerage firm and then caused
26 five million shares of Wyncrest stock to be deposited into this account. Trader B
27 explained, "I believe, to the best of my recollection, that somebody from [the
28 brokerage firm] or someone [else] ... indicated that I had to have a million shares
16
\
/ )
1 "of stock in that account for the purpose of fulfilling the intent of this advertising
2 campaign, which was to sell shares and raise capital for the company ...".
3 72. Geranio introduced another trader ("Trader C") to three brokers when
4 Trader C asked him for a place to send his stock. Trader C also received shares. of
5 a number ofthe Issuers by purchasing restricted shares owned by Kaleidoscope or
6 The Good One. Trader C was a personal friend of Geranio and spoke to him
7 approximately once a week.
8 73. Geranio helped set up the brokerage account of another trader
9 ("Trader D"). Pursuant to a consulting agreement with Green Energy, Trader D
10 answered telephone calls responding to prospecting letters that went out under her
11 name. Trader D understood that Geranio was associated with Green Energy, and
12 she spoke with him about ten times on the telephone during the relevant period.
13 2. Geranio Orchestrated Matched Orders and Manipulative
14 Trades to Raise the Issuers' Share Price
15 74. Geranio instructed Traders A, B, C and D and others to engage in a
16 total of at least five matched orders. In addition, Geranio made at least four
17 additional manipulative trades through The Good One.
18 75. "Matched orders" are orders for the purchase or sale of a security that
19 are entered with the knowledge that orders of substantially the same size at
20 essentially the same price have been or will be entered by the same or different
21 persons for the sale or purchase of the same security.
22 76. "Manipulative trades" are a series of transactions creating actual or
23 apparent active trading in a security, or raising or depressing the price of a security,
24 for the purpose of inducing the purchase or sale of the security by others.
25 77. These manipulative and matched trades deceptively conveyed to the
26 market the impression that legitimate transactions had established bona fide prices
27 to facilitate the Regulation S sales to investors and raised the price at which the
28 overseas boiler rooms were able to sell those shares.
17
)
1 78. As a practical matter, the Issuers' publicly traded share price affected
2 the prices that the boiler rooms could charge overseas investors for the Regulation
3 S shares. Frequently, the boiler rooms offered to sell the Regulation S shares at a
4 price that was discounted from the publicly quoted price for unrestricted shares.
5 79. For example, the CEO of Green Energy admitted that the Issuers'
6 publicly-traded share price correlated directly to the Regulation S share price, by
7 noting:
8 "[t]he understanding that I had was [the Regulation S] price
9 was a discounted price off the quoted exchange ... that, for the
10 Regulation [S] investors, once there's a quoted price out there,
11 they discount it from the exchange price .... It was a lot simpler
12 when we weren't [publicly] trading because [the price] was
13 statiC - it went dynamic and got complicated."
14 3. The Manipulation of Spectrum
15 a. The Wyncrest CEO's February 14, 2008 purchase
16 80. In early January 2008, Geranio identified Spectrum Acquisition
17 Holdings Corporation, Inc. (then-ticker symbol "SAQH") as a potential public-
18 shell target for· Western American Mining ("WAM"). Ultimately, in March 2008,
19 SAQH and WAM were reverse-merged to create Spectrum, with the ticker symbol
20 "SPAH."
21 81. Even before the reverse-merger was complete, Geranio instructed the
22 CEO of Wyncrest to manipulate the then publicly-traded stock price for SAQH.
23 On February 14,2008, the CEO ofWyncrest sent an email with the subject
24 heading "share price assistance," to the then-CEO of Spectrum stating, among
25 other things, that:
26 "... Nick [Geranio] told me to put 10,000 into the account for
27 working on the share price of SAQH. We have already propped
28 up the share price from 2 cents to 5 cents. To replace my own
18
19
1 c. Spectrum Manipulation in August and September
2 2008
3 87. On August 14,2008, The Good One purchased 500 Spectrum shares
4 at $2.00 per share, a nearly $0.55 per share increase from its prior Spectrum
5 purchase.
6 88. The following week, on August 21, 2008, a secretary associated with
7 an overseas boiler room emailed the then-CEO of Spectrum, copying the boiler
8 room's team leader, writing, "[t]he movement in share price should really help
9 hope that we will do a lots more for you guys."
10 89. On September 17,2008, The Good One purchased 500 Spectrum
11 shares at $3.00 per share, a dollar per share increase from its prior Spectrum
12 purchase.
13 90. During this time frame, the overseas boiler rooms increased the share
14 price at which they sold Spectrum's Regulation S shares from $1.12 per share to
15 approximately $1.50 per share.
16 d. Spectrum Manipulation from November 19, 2008 to
17 Decem ber 9, 2008
18 91. From September 17,2008 to November 19, 2008, Spectrum's stock
19 traded thinly, with very few shares changing hands. On the morning of November
20 19,2008, the then-interim-CEO of Microresearch, who also worked for Geranio at
21 The Good One, purchased 1,000 Spectrum shares (500 shares at $1.05 per share
22 and 500 shares at $2.00 per share).
23 92. At 12:37 p.m. on November 19, 2008, a boiler-room team leader
24 emailed the former CEO of Spectrum stating, "I have a bunch of trades coming in
25 the next few days. Can we expect the price to go back up? Need to know!!"
26 93. At 1:33 p.m., Trader B entered an order to purchase 500 Spectrum
27 shares at $3.50 per share. Around the same time as Trader B's purchase order, the
28 former CEO of Microresearch placed an order to sell 500 Spectrum shares at $3.50
20
.•...... )
1 per share. Trader B communicated with Geranio before he made his purchase.
2 Later in the evening on November 19,2008, the former CEO of Spectrum replied
3 to the boiler room team leader's email, stating, "I show that the price closed at
4 $3.50."
5 94. These orders matched, thereby setting Spectrum's share price at $3.50
6 per share.
7 95. The next day, demonstrating the artificial nature of Spectrum's stock
8 price, Spectrum shares dropped by $2.00 to $1.50 per share. The very next
9 morning (November 21, 2008), the former CEO of Microresearch bumped up
10 Spectrum's stock price by purchasing 500 Spectrum shares at $2.50 per share.
11 4. The Manipulation of United States Oil and Gas
12 a. Manipulation Between April and September 2008
13 96. In the summer of 2007, various overseas boiler rooms started selling
14 Regulation S shares ofUSOG at $1.50 per share. At this time, USOG did not trade
15 publicly.
16 97. On March 6, 2008, USOG announced that it had entered into a reverse
17 merger and would soon be publicly-traded. Geranio instructed others to
18 manipulate USOG in the same manner as he did with respect to Spectrum.
19 98. On or about April 17, 2008, USOG began trading publicly on the Pink
20 Sheets. The next day,.AprilI7, Field purchased 166 shares ofUSOG at an
21 astronomical $18.50per share. Field's trade set the closing price for USOG at
22 $18.50 on its first day trading. At the time of this purchase, Field owned 2 million
23 USOG founders shares, which he acquired for approximately $200, or $.0001 per
24 share.
25 99. Between April 29, 2008 and June 2, 2008, USOG traded thinly, with
26 little to no shares changing hands. On June 2, 2008, again demonstrating the
27 artificial nature of the prior $18.50 closing price, USOG stock sold (in one
28 transaction) for only $0;10 per share.
21
.)
1 100. On July 11,2008, The Good One acted to increase USOG's stock
2 price, by purchasing 150 USOG shares at $3.50 per share.
3 101. On July 14, 2008, Trader C entered an order to sell 1,000 USOG
4 shares at $3.50 per share.
5 102. On July 21, 2008, 200 shares of Trader C's sell order filled when
6 Field entered a purchase order to buy 200 USOG shares at $3.50 per share, the
7 exact price at which Trader C wished to sell his shares.
8 103. On July 28,2008, an additional 500 shares of Trader C's sell order
9 filled when Field entered a purchase order to buy 500 USOG shares, again at $3.50
10 per share.
11 104. On July 28,2008 and August 12,2008, the CEO of Microresearch
12 acted to increase USOG's stock price, by purchasing 500 USOG shares at $3.40
13 per share on each date.
14 105. On September 16, 2008, The Good One entered an order to sell 100
15 USOG shares at $3.70 per share. This order filled when Trader B, at
16 approximately the same time, entered an order to purchase 100 USOG shares at
17 $3.70 per share.
18 106. During this time frame, the overseas boiler rooms increased the share
19 price at which they sold USOG's Regulation S sharesfrom $1.50 per share to over
20 $2.00 per share.
21 5. The Manipulation of Mundus
22 107. Geranio also instructed Trader B to place manipulative trades in
23 Mundus. On November 14, 2008, Trader B sent an email to Geranio stating,
24 "Nick, None of my MNDP orders went through today. 1 put one in at .30 and .35,
25 too. I'll start Monday at .25 and go upwards."
26 108. Three days later, on November 17, 2008, Trader B sent another email
27 to Geranio stating, "What should 1 do about Mundus today?" Later that day,
28 Trader B sent another email to Geranio stating, "'1 have orders in for MNDP ...
22
1 5000 at $.25 ... 5000 at $.30 ... 5000 at $.35 ... about to put in for 5000 at $.40.
2 But...orders are not clearing. What's up?"
3 109. The next day, November 18,2008, TraderB purchased 999 shares of
4 Mundus for $0.40 per share.
5 110. The next day, November 19, 2008, Trader B purchased another 2,500
6 shares of Mundus for $1.00 per share, which was $0.60, or 150%, higher than the
7 share price he had paid just a day earlier.
8 111. On November 19,2008, the CEO ofBlu Vu acted to increase
9 Mundus' stock price, by purchasing 500 shares ofMundus for $1.20 per share.
10 6. The Manipulation of Green Energy
11 112. As he had with the other above-described securities, Geranio arranged
12 for Green Energy, when it began trading publicly, to start trading at an artificially
13 high stock price.
14 113. On November 19,2008, the first day Green Energy began trading
15 publicly, Trader A entered an order to purchase 100 shares of Green Energy for
16 $2.90 per share.
17 114. Trader A bought the stock after Geranio called him and said, "Can
18 you do me a favor? Just buy 100 shares because nobody is trading in it."
19 115. At approximately the same time, Trader D entered an order to sell 100
20 shares of Green Energy for $2.90 per share. Trader D's sell order matched with
21 Trader A's buy order, thereby setting Green Energy's stock price at $2.90.
22 116. Trader D's sale was financed by Green Energy. In October 2008,
23 Trader D was drawing an $800 per month salary for answering telephone calls for
24 Green Energy. In October 2008, Trader D entered into an additional consulting
25 agreement with Green Energy pursuant to which she received a wire of $6,500.
26 After receiving the $6,500, Trader D then spent $6,000 in a private transaction
27 purchasing the Green Energy shares that she then sold to Trader A for $2.90 per
28 share. Geranio helped to arrange the private transaction through which Trader D
23
) )
24
1 shares to overseas investors at a price significantly above the price-per-share listed
2 in the agreements with the Issuers. The investors then sent their funds to several
3 U.S. escrow agents, who after retaining a 2.5% fee, paid most of the investor funds
4 to the boiler rooms as their markup and then sent the remainder mainly to the
5 Issuers. On some occasions, the escrow agents sent money directly to The Good
6 One, Kaleidoscope and Field.
7 122. Field and the then-CEO of Green Energy created Worth because two
8 attorneys told them that they needed to set up an offshore corporation in order to sell
9 shares of Regulation S stock to foreigners.
10 123. Field discussed the need to create Worth with Geranio, and Geranio
11 contacted the Panamanian company that set up Worth.
12 124. As an example of Worth's role, on July 31, 2008, Wyncrest entered
13 into a consulting agreement with Worth in which Wyncrest agreed to transfer to
14 Worth 30,000,000 restricted Rule 144 shares and to allow Worth to keep a
15 commission of not more than one percent "from re-selling these securities to
16 qualified non-US individuals." The next day, Wyncrest asked its transfer agent to
17 issue the 30,000,000 shares to Worth and send the stock certificate to Field at his
18 home in California.
19 2. Geranio Recruited the Boiler Rooms and Negotiated the
20 Terms ofTheir Agreements with the Issuers, Including Large
21 ~arkups
22 125. Geranio recruited the boiler rooms to raise money for the companies.
23 Prior to the creation of Green Energy, Geranio traveled to Spain to talk to overseas
24 advisors to find investors or ways to raise capital without having to go through
25 investment bankers.
26 126. Geranio recruited, and negotiated the terms of the agreements with, at
27 least two boiler room teams and with the persons who served as liaisons with three
28 other boiler room teams.
25
1 127. The fonner CEOs of Green Energy 'and Spectrum asked Geranio
2 about one boiler room's exorbitant 80% sales commissions and Geranio responded
3 by claiming that the boiler room would not work for less and adding, "As we get
4 bigger and more established, we'll get better deals .... Trust me, this is what - this
5 is good as you're going to get - or we're going to get."
6 128. Geranio explained to the CEO ofUSOG that the commission rate for
7 these sales agents was so high (over 70%) because, "that was the best rate you
8 could get on a start-up company."
9 129. On at least one occasion, the liaison with three of the boiler room
10 teams visited Geranio at his home in Hawaii.
11 130. Geranio gave the Issuers' CEOs contact infonnation for the boiler
12 room sales advisors.
13 3. Geranio Recruited the Escrow Agents and Negotiated the
14 Terms of Their Agreements
15 131. The boiler rooms instructed Regulation S investors to wire their funds
16 to one of several U.S.-based escrow agents. From October 2006 to August 2009,
17 one escrow agent in the New York area received incoming wires that totaled over
18 $23 million mostly from overseas investors.
19 132. Geranio retained that escrow agent and negotiated the 2.5%
20 commission that he received.
21 133. Geranio also hired an attorney in Woodland Hills, California to
22 provide escrow and other services. Another Los Angeles-based attorney also
23 served as escrow agent for the Issuers during the relevant period.
24 4. Geranio and Field Controlled the Mechanics of the
25 Regulation S Process
26 134. During the relevant time period, Geranio and Field oversaw the
27 transfer of the Issuers' shares to Worth. Geranio directed the Issuers' CEOs to
28 keep track of the transactions.
26
1 135. After a Regulation S sale, the boiler room agent who made the sale
2 sent the CEO of the Issuer whose stock had been sold a trade sheet listing the name
3 of the investor, the number of shares sold, and the total funds from the sale. At the
4 same time, the investor sent his payment to one of the escrow agents. One key job
5 of the Issuers' CEOs was to reconcile funds listed in the trade sheets with
6 corresponding funds in the escrow accounts to ensure that they were consistent.
7 136. Geranio closely coordinated with the Issuers' CEOs and escrow
8 agents about this process. Geranio told Spectrum's CEOs that his job" ... was to
9 deal with funds coming in, and so [Geranio] was responsible for any relations with
10 any brokers. And so [the CEO] viewed [Geranio] as ultimately the person in
.
11 charge of any money coming in .... " Every Friday, Spectrum's CEO updated
12 Geranio about funds received from the sale of Regulation S Spectrum stock for that
13 week, using a spreadsheet that contained the share price and the shareholder's
14 name.
15 137. Geranio also told Spectrum's CEO to reconcile funds in the trade
16 sheets with corresponding funds in the escrow accounts.
17 138. The Regulation S funds for a particular sale were released from the
18 escrow account after an investor had returned a completed subscription agreement.
19 The escrow agents then sent between 60% and 77.5% of the funds from the sale to
20 the boiler rooms as. their sales markup; collected 2.5% of the funds as their escrow
21 fee, and sent the remainder of the funds to the Issuers whose securities had been
22 sold. The Issuers then transferred much of this amount to Geranio's companies,
23 The Good One and Kaleidoscope, as their consulting fees. The escrow agents also
24 at times directly paid The Good One and Kaleidoscope, and both the escrow agents
25 and Issuers from time to time made payments to Field.
26 H. The Boiler Rooms Made Material False Statements and
,
27 Omissions to the Purchasers
28 139. During the relevant time period, the boiler rooms deceived investors
27
.)
28
29
1 names ifhe received any inquiries. About a month later, the sales agent sent the
2 former CEO another email which read, "We-are-saying-[name omitted]-is-a
3 consultant-for-your-company, I-checked-with-nic-on-that-as-well." Neither of
4 these individuals actually worked for Spectrum.
5 I. Geranio and Field Knew Through Investor Complaints that the
6 Boiler Rooms Made Fraudulent Statements to Regulation S Investors
7 146. During the relevant time period, Geranio and Field received many
8 complaints from Regulation S investors and others, over a long period of time, that
9 several boiler rooms, hired by Geranio, had made material misrepresentations to
10 .investors,
11 1. Geranio Received Complaints About the Boiler Room
12 Advisors
13 147. In general terms, the Issuers frequently p~ssed investor complaints on
14 to Geranio. The former CEO of Spectrum, for example, received numerous
15 investor complaints which he passed on to Geranio. He explained,
16 "... and so I would forward that [the complaints] toNick
17 [Geranio] or to [name omitted] or whichever person, but always
18 . to Nick also, and said, What does this relate to? Can you guys
19 take care of it? And Nick would respond right away, yeah
20 we're on it, we're taking care of it, and so I felt this was his
21 area of expertise, and he was on top of it .... And he's like,
22 don't worry about it, we've got it under control, you just keep
23 track of the numbers ..."
24 148. The former CEO of Green Energy told Geranio about a June 22,2007
25 email from an investor complaining that a boiler room had made
26 misrepresentations to him about Green Energy.
27 149. In 2008, the Green Energy CEO also told Geranio about a shareholder
28 who had been falsely told by a boiler room that Green Energy would be acquired
30
\
- I
31
1 for several of the Issuers (other than Mundus) and complaints about him continued.
2 156. In 2007 and 2008, Field received complaints about two other boiler
3 rooms. After the Mundus CEO received an October 11, 2007 email from the team
4 leader of those boiler rooms stating "you don't want to know what we tell
5 investors" and referring to investors as "punters" and "buggers," the Mundus CEO
6 told Field that the team leader's sales practices concerned him. Specifically, the
7 email stated that,
8 "... You have no idea what we tell investors to get them
9 involved. (You don't want to know.) Taking their calls about
10 anything to do with stock purchases/prices could potentially
11 lead to problems. Mainly because you might have clay feet and
12 we told them you were Gods. Anyway what the hell is the high
13 and mighty CEO of a potential multinational corporation taking
14 calls from punters?"
15 157. That team leader and his boiler rooms however, continued to sell the
16 Issuers' Regulation S shares.
17 158. In a February 15,2009 email to the then-president ofBlu Vu, Field
18 acknowledged his concerns about sales agents' practices when, in response to an
19 investor inquiry asking whether a solicitation to purchase Blu Vu was a "scam,"
20 Field advised the CEO to send the investor a Blu Vu package, saying, "Regardless
21 of what other twists the advisor has put on the sale ... we protect ourselves when we
22 send out the package."
23 159. On August 23,2009, Field received a complaint from an investor who
24 stated that he had been "conned" into buying shares of Green Energy and Blu Vu
25 by a boiler room, and had even contacted the City of London police regarding the
26 misleading misrepresentations made to him.
27 160. In early 2009, Field repeatedly responded to investor inquiries and
28 complaints with similar stock answers which expressed his surprise that third
32
1 parties would use boiler room tactics to sell shares of the companies. On February
2 26,2009, Field prepared responses to three U.K. investors or potential investors
3 who wrote to him about cold-call solicitations ofBlu Vu stock. Field told the
4 investors that he was sorry to hear that an unscrupulous outfit was "using our
5 name," that he had heard stories about boiler rooms and hardcore sales, but would
6 never expect it to be about an Issuer he was involved with. Field promised to
7 investigate.
8 161. Despite these several investor inquiries that he had already received,
9 on May 18,2009, when Field received another complaint about sales ofBlu Vu in
10 the U.K., he again answered with the same stock response, "We hear stories about
11 boiler rooms and hardcore sales that revolve around lying and misrepresenting, but
12 would never expect it to be involved with selling Blu Vu," and again he promised
13 to investigate.
14 J. Geranio, through The Good One and Kaleidoscope, and Field
15 Drained a Significant Portion of the Regulation S Revenue
16 162. The Issuers used a substantial percentage of the investor funds they
17 received from Regulation S sales to pay consulting fees to Geranio. According to
18 the former CEO of Spectrum,
19 "So anything that Nick got paid, this was the money that the
20 company - that was the company's share of the Regulation S
21 stock sale. There was no extra money left over. The money out
22 of the escrow went specifically to the sellers or the brokers and
23 then Spectrum got their portion of it. And then that's what the
24 money would go to pay Nick [Geraniol"
25 163. During the relevant period, The Good One and Kaleidoscope received
26 a total of approximately $2.135 million from the Regulation S sales, representing
27 monies forwarded to them from the escrow agents and Issuers.
28 164. During the relevant period, Field received a total of approximately
33
, "
! ,J '. i
34
1 171. Geranio, Field, The Good One and Kaleidoscope each violated
2 Securities Act Section 17(a)(1) and (3) [15 U.S.C. § 77q(a)(l) & (3)].
3 172. Between April 2007 and September 2009, these defendants, directly
4 or indirectly, by use of the means or instruments of interstate commerce, or of the
5 mails, or the facilities of a national securities exchange, in the offer or sale of
6 securities, and with knowledge, recklessness or negligence: (a) employed devices,
7 schemes or artifices to defraud; and/or (b) engaged in acts, practices or courses of
8 business which operated or would operate as a fraud or deceit upon the purchaser
9 of the securities being offered or sold.
10 173. The defendants' fraudulent scheme included, among other things, the
11 following fraudulent devices and acts:
12 a. Geranio, through The Good One and Kaleidoscope, entered into
13 consulting agreements with the Issuers that allowed Geranio to be paid
14 while concealing his control over the Issuers from investors and the
15 public;
16 b. Geranio instructed stock promoters and other individuals to
17 manipulate the Issuers' share prices in the United States by means of
18 matched orders and manipulative trades;
19 c. The Good One purchased shares of Spectrum stock at inflated prices
20 in March through September 2008, purchased shares ofUSOG at an
21 inflated price in June 2008, and sold shares ofUSOG as part of a
22 matched order with Trader B in September 2008.
23 d. On November 19, 2008, Geranio arranged for others to execute a
24 matched order at $2.90 per share for Green Energy stock to create the
25 artificial impression of active trading and value for Green energy stock
26 on the first day it was quoted publicly, and
27 e. Field purchased USOG stock at an inflated price on the first day
28 USOG shares were quoted publicly in April 2008, and entered purchase
35
... )
36
28 II
37
38
) .. )
1 188. The Good One and Kaleidoscope violated Exchange Act Section
2 lOeb) and Exchange Act Rule 10b-5(a) and (c) [15 U.S.C. §78j(b); 17 C.F.R. §
3 240.10b-5(a) and (c)].
4 189. By his conduct described herein, Geranio is a control person of the
5 The Good One and Kaleidoscope under Exchange Act Section 20(a). Geranio
6 directed the Issuers' CEOs to send money and consulting agreements to The Good
7 One and Kaleidoscope. The Good One and Kaleidoscope paid for Geranio' s
8 personal expenses, including his credit card bills and even his personal helicopter.
9 Geranio's girlfriend was the president of Kaleidoscope.
10 190. By reason of the foregoing, Geranio is jointly and severally liable as a
11 control person for violations of The Good One and Kaleidoscope of Exchange Act
12 Section 10(b) and Rule 10b-5(a) and (c) thereunder.
13 PRAYER FOR RELIEF
14 WHEREFORE, the Commission respectfully requests that the Court:
15 L
16 Enter judgment in favor of the Commission finding that Geranio, Field, The
17 Good One and Kaleidoscope each violated the federal securities laws as alleged in
18 this Complaint;
19 IL
20 Permanently enjoin Geranio, Field, The Good One and Kaleidoscope from
21 violating Section 17(a)(1) and (3) of the Securities Act and Section 10(b) of the
22 Exchange Act and Rule 10b-5(a) and (c) promulgated thereunder;
23 III.
24 Permanently enjoin Field from violating Section l7(a)(2) of the Securities
25 Act and from aiding and abetting the Issuers' violations of Section 1O(b) of the
26 Exchange Act and Rule 1Ob-5(b) thereunder;
27 II
28 II
39
, \
1 IV.
2 Permanently enjoin Geranio, as control person of The Good One and
3 Kaleidoscope, from violating Section 10(b) of the Exchange Act and Rule 10b-5(a)
4 and (c) thereunder;
5 V.
6 Order Geranio, Field, The Good One and Kaleidoscope, jointly and
7 severally, to disgorge all ill-gotten gains resulting from their participation in the
8 conduct described above, and to pay prejudgment interest thereon;
9 n
10 Order Geranio, Field, The Good One and Kaleidoscope to pay civil penalties
11 pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the
12 Exchange Act [15 U.S.C. §§ 77t(d), 78u(d)(3)];
13 VII.
14 Permanently bar Geranio and Field from serving as an officer or director of
15 an issuer that has a class of securities registered pursuant to Section 12 of the
16 Exchange Act, as amended [15 U.S.C. § 781] or that is required to file reports
17 pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 780(d)], pursuant to
18 Section 20(e) ofthe Securities Act and Section 21 (d)(2) of the Exchange Act [15
19 U.S.C. §§ 77t(e) and 78u(d)(2)];
20 VIII.
21 Permanently bar Geranio, Field, The Good One and Kaleidoscope from
22 participating in any offering of penny stock pursuant to Section 20(g) of the
23 Securities Act and Section 21 (d)(6) of the Exchange Act [15 U.S.C. §§ 77t(g) and
24 78u(d)(6)];
25 IX .
. 26 Order relief defendant BWRE Holdings, LLC to disgorge all funds it
27 received from defendants' ill-gotten gains or by which it has been unjustly
28 enriched, including all investor funds transferred to it or used for its benefit,
40
1 including prejudgment interest thereon.
2 x.
3 Grant such equitable relief as may be appropriate or necessary for the benefit
4 of investors pursuant to Exchange Act Section 21(d)(5) [15 U.S.C. § 78u(d)(5)].
5 DEMAND FOR JURy TRIAL
6 The Commission hereby demands a trial by jury pursuant to Rule 38(b) of the
7 Federal Rules of Civil Procedure.
8
DATED: May 16,2012
9
Respectfully submitted,
10
11 r1~.
12 /dt;irn VAN HAVERMAAT
Cal. Bar No. 175761
13 Local Counsel
vanhavermaatdla2sec.gov
14 Securities and EXchange Commission
5670 Wilshire Boulevard, 11 th Floor
15 Los Angeles, California 90036-3648
Telephone: (323) 965-3998
16 FacsImile: (323) 965-3908
17
18 RICHARD E. SIMPSON
simpsonrla2sec. gpv
19 CAROLYN E. KURR
[email protected]
20 Secunties and Exchange Commission
100 F Street, NE
21 Washington, D.C. 20549
Telephone: (202) 551-4495
22 FacsImile: (202) 772-9246
23 O/Counsel:
Stephen L. Cohen
24 Ricky Sachar
C. Joshua Felker
25 Securities and Exchange Commission
100 F Street, NE .
26 Washington, D.C. 20549
27
28
41