FindLaw Class Action and Mass Tort Center: Securities: SEC Resources:
Litigation Release No. 16237/ August 2, 1999
SECURITIES AND EXCHANGE COMMISSION v. EDWARD A. DURANTE (aka EDWARD DURANT), FIRST NEW HAVEN CORPORATION, BURTON G. VISHNO, THOMAS J. DONAHUE, INVESTMENT RESOURCES, INC., DANIEL C. SANDERS, THOMAS G. SCALZO, JR., TIMOTHY J. PINCHIN, SHAREHOLDER COMMUNICATIONS GROUP, LLC., PACIFIC CORPORATE EQUITIES, LLC., JACKSON L. MORRIS, MARK E. GOULD, THOMAS K. WILLIAMS, SYNCOM, INTERNATIONAL, INC., and WORLD INTERNATIONAL MARKETING, INC., Defendants, and JANICE SHEELEY DURANTE, STANLEY T. DECK, SR., AND WALTER J. ZINK, Relief Defendants, United States District Court for the Northern District of California, Civil Action No.: .
SEC Charges Fifteen Individuals and Entities in a Fraudulent Microcap Offering and Stock Manipulation Scheme
On August 2, 1999, the United States Securities and Exchange Commission ("Commission") filed a Complaint in federal district court against fifteen individuals and entities for their roles in a fraudulent offering and market manipulation of a microcap stock, Los Angeles-based PSA, Inc. ("PSA"). The complaint alleges that the fraud, which occurred between December 1997 and September 1998, caused the price of PSA stock to rise artificially from approximately $.50 per share to $5.00 per share in less than two weeks, before the price plummeted to a few pennies a share. Defendants reaped over $1 million in illegal profits by secretly controlling the supply of PSA stock, making false representations about PSA, and selling their supply of stock at inflated prices. The Complaint seeks disgorgement of these illegal profits, monetary penalties, and permanent injunctions prohibiting future violations of the securities laws.
In particular, the complaint alleges the following:
- Edward Durante, Burton Vishno, Thomas Donahue and Daniel Sanders, at the time all residing near San Francisco, California, gained control over nearly all of the tradable shares of PSA, in connection with a reverse merger between privately held PSA, Inc. and a publicly-traded shell company. Defendants obtained the millions of shares secretly from the shell company's former management, Boulder, Colorado defendants Thomas Williams and SynCom International, Inc.
- In furtherance of the scheme, Durante and others set up an unregistered broker-dealer called First New Haven in Los Angeles to market the PSA shares in an illegal offering that they failed to registered with the Commission. Durante and Donahue: (i) used aliases to sell small investors shares of PSA, (ii) falsely told investors that First New Haven was a registered broker-dealer, (iii) made misleading price predictions, falsely promising that that the investment was a no-lose proposition that would increase more than 10-fold in value within a few months; and (iv) failed to disclose that Durante had been convicted of multiple fraud-based felonies, is awaiting prosecution in California on a grand larceny charge, and was barred previously from associating with any securities broker-dealer, and failed to disclose that their partner Vishno had been convicted of criminal securities fraud.
- Durante, Vishno, Donahue, Sanders and others also manipulated the market for PSA stock by matching buy and sell orders, purchasing PSA stock on the open market to raise the stock's price artificially, and publishing false information about PSA on an internet website run by defendant Timothy Pinchin. They then dumped their PSA holdings on the market and the unsuspecting public, reaping substantial profits. Thomas Scalzo, Jr., who owned First New Haven, aided and abetted the fraud.
- Mark Gould and attorney Jackson Morris, who reside in the Tampa, Florida area, violated the registration provisions of the securities laws by participating with Durante and the others in the unregistered distribution of PSA stock, which Morris and Gould had received as compensation for assisting Durante and the others in completing the reverse merger.
- San Diego area resident Timothy Pinchin and a corporation he controls, Shareholder Communications Group, LLC, violated the anti-touting provisions of the federal securities laws by promoting PSA on an internet site they controlled without disclosing that they received 125,000 shares of PSA stock from Durante for the promotional services. In addition, Pinchin and another corporation he controls, Pacific Corporate Equities, LLC, acted as an unregistered broker-dealer and violated the registration provisions of the securities laws when they resold a large block of unregistered PSA stock they obtained from Durante and Donahue to an offshore investor. Pinchin previously has been adjudged to have violated the Canadian anti-fraud laws.
As a result of the conduct alleged in the Complaint, Durante, Vishno, Donahue, Sanders, First New Haven, and Investment Resources (a corporation controlled by Donahue) are alleged to have violated Sections 5(a), 5(c), and 17(a) of the Securities of 1933 ("Securities Act"), Section 10(b) of the Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, Sections 15(a) and 15(g) of the Exchange Act and Rules 15g-2 through 15g-6 thereunder, and Rule 101 of Regulation M. The complaint also charges that World International Marketing, a corporation controlled by Durante and his wife, relief Defendant Janice Sheeley Durante, violated 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 alleges that Pinchin violated Sections 5(a), 5(c), and 17(b) of the Securities Act and Section 15(a) of the Exchange Act. Shareholder Communications Group is alleged to have violated Sections 5(a), 5(c) and 17(b) of the Securities Act, and Pacific Corporate Equities is charged with violations of Sections 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The complaint also alleges that Morris, Gould, Williams, and SynCom violated Sections 5(a) and 5(c) of the Securities Act. In addition to the remedies noted above, the Commission's Complaint seeks the return of proceeds from the illegal scheme from relief defendants Walter Zink, Stanley Deck, and Janice Sheeley Durante.
Simultaneous with the filing of the Complaint, Scalzo consented, without admitting or denying the allegations, to the issuance of a final judgment permanently enjoining him from committing future violations of Sections 15(a) and 10(b) of the Exchange Act and Rule 10b-5 thereunder. Scalzo also consented to the issuance of an order in a related administrative proceeding to be filed by the Commission that suspends him from association with any broker or dealer for twelve months.