Schemes, Scams, Frauds.

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United States District Court Southern District of New York

Securities and Exchange Commission  Plaintiff,  v.

Alan Benlolo aka Allen Bender aka Haime Escalante aka Stuart Jeffries,
Michael Risman aka Graham Baker,
Lenny Nacher aka Alexander Hamilton aka Stuart Jeffries,
and
Stephen Dale aka Dane Templeton
  Defendants.

Plaintiff Securities and Exchange Commission ("SEC" or "Commission") alleges:

Summary

1. This securities fraud case involves a variety of "recovery room" schemes directed primarily at previously victimized investors from European and Asian countries, including Sweden, Norway, Denmark, Ireland, Germany, England, Italy, France, Greece, Finland, and Singapore ("the investors" or "the sellers").

The schemes targeted investors who had been persuaded to invest in one or more U.S. "microcap" securities that were sold in 1995 and 1996 through boiler rooms in Europe and Asia using various names, including Robinson, Schwab International ("RSI"), Chateau Schreiber Financial Management and Trust S.A. ("CSF"), Byron Forbes Ltd. ("Byron"), Anderson Blake ("Anderson"), and Oxford Securities ("Oxford") (the "microcap brokers").

These entities, most of which are now defunct, were headquartered in cities throughout Europe and Asia. The "microcap" securities which are the subject of the fraud, and which were marketed through cold calling telemarketing schemes, included Electrogesic Corporation ("ELGC"), Stratosphere Communications Corporation ("SPHR"), International Software Technologies Corp. ("ISOF"), Rockford Investment Corp. ("Rockford"), Toxic Disposal Corp. ("Toxic"), and Integra Capital Corp. ("Integra") – all of which were quoted on the OTC Bulletin Board in the United States over-the-counter markets.

The price for these securities had collapsed once the European and Asian distributions were complete. Accordingly, the investors stood to realize substantial losses if they attempted to sell their securities on the market.

2. The defendants – Michael Risman ("Risman"), Alan Benlolo ("Benlolo"), Stephen Dale ("Dale"), and Lenny Nacher ("Nacher") – approached the victimized investors and claimed to represent an investor who was prepared to purchase the shares at a substantial premium, but insisted that the proposed seller first post a "deposit" to insure the closing of the transaction.

Then, the defendants lulled the sellers into believing that the purchase price would be forthcoming, in order to delay the reporting of the fraud by victims, ask for further deposits, and give the defendants time to defraud other individuals using the same aliases, mail drops and bank accounts. When they could no longer put off the victims' inquiries, the defendants disappeared to resume operations under new names or at new locations.

To carry out their scheme the defendants carefully concealed themselves behind an elaborate screen of aliases, mail box drops, fake corporate names, phony government agencies and Caribbean bank accounts.

3. Defendant Risman and individuals who represented themselves as working for his phantom broker-dealer ("Risman's Group"), convinced at least 35 victims (sellers of securities) to send cash "deposits" totaling $992,006.

The cash deposits were required in order to secure the purchase of the securities by the alleged buying "customer" of Risman's broker-dealer. In each instance the sellers' deposit funds were wired to New York clearing banks, but were ultimately credited to banks in St. Vincent, Grand Turk, and the Bahamas. Risman operated his fraudulent scheme independently of Benlolo, Nacher, and Dale.

4. Defendants Benlolo, Dale, and Nacher, and individuals who represented themselves as working for the "phantom" broker-dealers of these defendants ("Nacher's Group"), convinced at least 20 victims to send cash totaling $544,508 as "deposits" to secure similar purchases by alleged "customers" of the broker-dealers. Some of these deposits were sent to mail drops in the United States to be forwarded to Canadian mail drops, while others were wired to New York clearing banks for credit to banks in the Caribbean.

5. By engaging in this conduct, the defendants directly or indirectly violated, are violating, and unless restrained and enjoined will violate the antifraud and broker-dealer registration provisions of the federal securities laws, specifically, Section 17(a) of the Securities Act of 1933 ("Securities Act")[15 U.S.C. § 77q(a)], Sections 10(b), 15(a) and 15(c) of the Securities Exchange Act of 1934 ("Exchange Act")[15 U.S.C. §§ 78j(b), 78o(a) and 78o(c)] and Exchange Act Rules 10b-5 and 15c1-2 [17 C.F.R. §§-5 and 15c1-2].

Jurisdiction

6. This Court has jurisdiction of this action pursuant to Sectionof the Securities Act [15 U.S.C. §] and Sectionof the Exchange Act [15 U.S.C. §].

7. The Commission brings this action pursuant to authority conferred upon it by Sectionof the Securities Act [15 U.S.C. §], and Sectionof the Exchange Act [15 U.S.C. § 78u(d)(1)].

8. The defendants, directly or indirectly, have made use, in the United States, of the means and instrumentalities of interstate commerce, or of the United States mails, or of the facilities of a national securities exchange in connection with the acts, practices, and courses of business alleged herein.

Defendants

9. Alan Benlolo – aka Allen Bender, aka Haime Escalante, aka Stuart Jeffries – is a Canadian citizen, age 29, a resident of Thornhill, Ontario, but who also resided at times in the United States during the relevant time. He is not registered in any capacity in the securities industry.

On September 2, 1997, Benlolo pled guilty in the United States District Court for the Middle District of Pennsylvania to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit wire fraud relating to the sale of securities. The criminal plea related to, among other things, his role in fraudulent schemes described herein.

On October 9, 1998, he was sentenced to 18 months in prison, 3 years supervised release, and ordered to pay criminal restitution in the amount of $470,000. He is currently incarcerated in the Federal Correctional Institute in Raybrook, New York.

10. Michael Risman – aka Graham Baker – is a Canadian citizen, and resident of Toronto, Ontario, who is not registered in any capacity in the securities industry. Risman held himself out as Graham Baker ("Baker"), purportedly a registered representative at The William Ashley Group ("WAG"). On December 17, 1997, Risman was indicted in the United States District Court for the Middle District of Pennsylvania, for conspiracy to commit mail and wire fraud for his role in fraudulent schemes to market precious metals.

11. Stephen Dale – aka Dane Templeton – is a Canadian citizen, age 32, and resident of North York, Ontario, who resided at times in the United States during the relevant period. He is not registered in any capacity in the securities industry. At various times, Dale held himself out as a registered representative at Nixon Management Group ("Nixon"), Suntrust Marketing ("Suntrust"), and Spencer Davis Group ("Spencer").

On December 17, 1997, Dale was indicted in the United States District Court for the Middle District of Pennsylvania, for conspiracy to commit mail and wire fraud for his role in fraudulent schemes to market precious metals.

12. Lenny Nacher – aka Alexander Hamilton, aka Stuart Jeffries – is a Canadian citizen and resident of Richmond Hill, Ontario. He is not registered in any capacity in the securities industry. Nacher was the organizer of, and he held himself out as a registered representative at, Nixon, Suntrust and Spencer.

Other Individuals and Entities

13. The William Ashley Group ("WAG"), purportedly located in Danbury, Connecticut, is not registered with the Commission in any capacity. WAG was represented to be an international investment management company by a number of individuals who identified themselves as employees of WAG. Defendant Risman operated WAG with assistance from other unknown individuals.

14. Nixon Management Group ("Nixon"), purportedly located in Washington, D.C., is not registered with the Commission in any capacity. Nixon was represented to be an international investment management company by a number of individuals who identified themselves as employees of Nixon. Defendant Nacher, using the alias Stuart Jeffries, set up a mail drop for Nixon in Washington, D.C. Nacher's Group operated Nixon.

15. Spencer Davis Group ("Spencer"), purportedly located in Los Angeles, California, is not registered with the Commission in any capacity. Spencer was represented to be an international investment management company by a number of individuals who identified themselves as employees of Spencer. Defendant Benlolo set up a mail drop for Spencer in Los Angeles, California. Nacher's Group operated Spencer.

16. Suntrust Management Group ("Suntrust"), purportedly located in Los Angeles, California, is not registered with the Commission in any capacity. Suntrust was represented to be an international investment management company by several individuals who identified themselves as employees of Suntrust. Nacher's Group operated Suntrust.

Claim One

Fraudulent Offer, Purchase and Sale of Securities

17. To effect their fraud, in 1996, Nacher and Risman independently obtained lists of clients of one or more of the now-defunct microcap brokers – including RSI and its successor CSF, Byron and its successor Anderson, and Oxford – whose clients had been persuaded to purchase the securities of ELGC, SPHR, ISOF, Rockford, Toxic, and Integra. Those lists were used as "lead sheets" to identify the vulnerable investors to be propositioned by Nacher's Group and Risman's Group.

Nacher Organized a Fraudulent Scheme and Enlisted Dale and
Benlolo to Assist in Carrying Out the Scheme Under a Variety of Names

18. Nacher organized a scheme to defraud the former RSI, CSF, Byron, Anderson, and Oxford clients on his "lead sheets" by falsely offering to repurchase their microcap securities at above the then reported market price, and by persuading them to deposit funds for the proposed transaction. Nacher recruited Dale to make fraudulent telephone solicitations to the investors. Dale, who was living in Florida, used an apartment rented by Benlolo to make telephone calls, maintain model contracts and other documents on Benlolo's computer, receive and send faxes to victims, and maintain lead sheets.

19. Nacher also recruited Benlolo in the summer of 1996 to participate in the scheme in a variety of ways, including laundering the fraud proceeds through Bahamian bank accounts Benlolo controlled, posing to prospective victims as a clearing agent for the proposed transactions, establishing mail drops as part of the fraud, and supplying an apartment to serve as a boiler room for Nacher's Group.

20. Using various aliases, Nacher, Dale and individuals who represented themselves as working for Nacher's "phantom" broker-dealers ("Nacher's Salesmen"), telephoned the investors and made fraudulent solicitations in an effort to convince the investors to transfer funds that would purportedly be held as a security deposit in connection with a sale of their securities. The material misrepresentations and omissions Nacher's Salesmen made to the investors during their telephone solicitations to the investors included the following:

21. To convince the sellers of the legitimacy of Nacher's Broker-Dealers, Nacher's Salesmen gave the sellers a telephone number in Dallas, Texas for the "International Business Registry" ("IBR"), purportedly a "government agency," that the seller could call to research the firm. IBR was merely a voice mail box with remote access, set up by persons purporting to act on behalf of Nixon.

Prospective sellers who left messages with IBR were called by individuals purporting to be IBR employees who falsely assured the prospective sellers that Nacher's Broker-Dealers were established, reputable firms. IBR did not exist beyond the voice mail system.

22. On other occasions Nacher's Salesmen directed prospective sellers to contact Stuart Jeffries, who they described as a representative of the purchaser. Benlolo posed as Stuart Jeffries in telephone conversations with prospective sellers, and Benlolo provided false assurances that the transaction would close as described by Nacher's Salesmen.

23. Nacher's Group used two routes to receive the proceeds of their fraudulent scheme. In September 1996, while living in Aventura, Florida, Benlolo agreed to allow Nacher to use a bank account he maintained in the name of Central International, a shell entity at Barclays Bank PLC in the Bahamas, to receive the fraud proceeds.

Nacher's Salesmen then directed some of the victims to wire the deposit funds to New York clearing banks, for further credit to a specified account number, which was associated with Benlolo's bank account in the Bahamas. After the funds arrived in the Bahamian account, Benlolo transferred the funds through New York to an account Nacher maintained in Toronto.

24. After several months, officials of Barclays Bank informed Benlolo that they had received complaints from various parties who had transferred funds to the Central International account. Benlolo closed that account, but continued to receive deposits extracted by Nacher's Salesmen in another account he maintained in the name of Central International at the Bank of the Bahamas.

25. Beginning in November 1996 and continuing until October 1997, Nacher's Salesmen instructed other sellers to send deposits in the form of checks to mail drops in the United States. By prearrangement, mail received at those mail drops was forwarded to Canadian mail drops.

26. Beginning in September 1996 and continuing until October 1997, after the deposit had been received, Nacher's Salesmen directed their victims to send further deposits under the guise that the price to be offered had risen or that additional money was needed to cover taxes or other expenses. The continuing contacts had the added effect of not only lulling the victims into a continuing belief that the transaction was legitimate, but also delaying reporting of the fraud by potential victims to the authorities.

27. Beginning in September 1996 and continuing until October 1997, in an effort to obtain still further funds from the victims, Nacher's Salesmen told certain sellers that they needed to buy extra shares of the stock because the ultimate buyer only wanted to buy from a small group of sellers.

28. Beginning in November 1996 and continuing until January 1997, Benlolo used false identifications to set up U.S. mail drops for Nacher. Nacher told Benlolo he wanted the mail drops to convey to prospective victims the appearance of prestige and legitimacy he believed they would associate with a United States broker-dealer.

The mail drops, established in the name of Spencer and one other entity, were used to receive correspondence and deposits from victims. For his role in the scheme, Benlolo was paid a total of $29,000 in cash by Nacher.

29. In reality, there was never a buyer, and once Nacher's Group had extracted from the prospective seller as much "deposit" money as possible, all communications ceased. No securities transaction ever occurred. The deposits were kept by Nacher's Group, and Nacher's Salesmen disappeared.

30. Nacher, Dale and Benlolo knew that the investors would rely on the material misrepresentations and omissions in determining whether or not to take part in the transactions that Nacher's Salesmen were offering.

31. Utilizing this scheme, Defendants Benlolo, Dale and Nacher, along with individuals who held themselves out as part of Nacher's Group, each knowingly solicited funds as "deposits" in connection with fictitious securities transactions.

32. Defendants Benlolo, Dale and Nacher, along with individuals who held themselves out as part of Nacher's Group, defrauded at least 20 victims of at least $544,508.

Risman Organized the Competing William Ashley Group Fraud

33. Beginning in December 1996 and continuing until April 1997, Risman's Group operated its fraudulent scheme under the name WAG, which Risman's Group held out as a Danbury, Connecticut-based "international investment management company." WAG's only presence in Danbury, however, was an answering service that forwarded all correspondence and messages by fax to a Massachusetts telephone number.

Moreover, the Massachusetts telephone number is associated with a commercial service through which customers can receive voice messages and fax transmissions. That information is stored digitally on a computer disk, and can be retrieved remotely by subscribers via telephone lines.

34. Risman arranged to create a presence in Connecticut by having an employee call an answering service provider in Danbury by telephone in December 1996 to set up an answering service for WAG. The WAG employee told the manager of the answering service that WAG imported and exported antiques and asked to use the answering service's Danbury address to create the appearance of having an office there.

The Danbury answering service was paid for its services with a Canadian Postal Money Order. After the Commission's investigation commenced, Risman, using the alias Graham Baker, called the answering service and directed it to destroy all documents that it received on behalf of WAG.

35. Risman, using the alias Graham Baker, and other individuals, using aliases such as Eric Nygaard, Lucas North, and Arnold Ashley, telephoned RSI and CSF investors and made fraudulent solicitations in an effort to convince the investors to transfer funds that would purportedly be held as a "security deposit" in connection with a sale of their securities. The material misrepresentations and omissions made to the investors by Risman's Group during their telephone solicitations to the investors included the following:

36. To persuade proposed sellers that there was a buyer and that he would perform, Risman's Group sent to sellers a fax copy of a phony document that purported to evidence that WAG had received the buyer's security deposit representing 35% of the purchase price, as proof that the buyer had accepted the terms of the agreement.

37. To convince the sellers of the legitimacy of WAG, Risman's Group also gave the sellers a telephone number in Chicago, Illinois for the "International Protection Agency," ("IPA"), purportedly a "government agency" that the seller could call to research WAG. Risman arranged for responses to inquiring sellers, however, in which the sellers were provided false details concerning WAG.

The sellers were assured that WAG was an established private investment firm that was licensed to trade securities since August 1, 1983, and in that time had received only one customer complaint. In fact, IPA was merely a voice mail box with remote access, and did not exist beyond the voice mail system.

38. Beginning in December 1996 and continuing until April 1997, on several occasions, Risman's Group asked victims to send further "deposits" under the guise that the price to be offered had risen or that such extra money was needed to cover taxes or other expenses. The continuing contacts had the added impact of lulling the victims into a continuing belief that the transaction was legitimate and delaying reporting the fraud.

39. In an effort to obtain still further funds from the victims, Risman's Group told certain sellers that they needed to buy extra shares of the stock because the ultimate buyer only wanted to buy from a small group of sellers.

40. In each instance, Risman's Group directed the victims to wire the funds to New York clearing banks, which Risman's Group then had credited to specified accounts at banks in St. Vincent, Grand Turk, and the Bahamas.

Telephone solicitors in Risman's Group used a variety of aliases, including Graham Baker, Arnold Ashley, Eric Nygaard, and Lucas North. Risman, who used the Graham Baker alias, was the most active and successful salesman at WAG. Further, the other WAG salesmen identified him to victims as having a management position. Baker (Risman) acted as the "closer" for other salesmen in his group when the victims resisted the initial pitch.

41. In reality, there was never a buyer, and once the prospective seller had provided as much "deposit" money as possible, Risman's Group disappeared. No securities transaction ever occurred. The deposits were kept by Risman's Group.

42. Because Risman's Group on occasion solicited the same former RSI clients as Nacher's Group, the two groups were in competition with each other. In such instances, RSI clients received fraudulent solicitations simultaneously from both groups. Both Risman's Group and Nacher's Group disparaged the competing group in a brazen effort to conclude their own fraud first.

43. Risman knew that the investors would rely on the material misrepresentations and omissions in determining whether or not to take part in the transaction that they were offering.

44. Utilizing this scheme, Defendant Risman knowingly solicited funds as "deposits" in connection with fictitious securities transactions.

45. Defendant Risman defrauded at least 35 victims of at least $992,006.

46. By reason of the foregoing, defendants Benlolo, Risman, Nacher, and Dale directly or indirectly, have violated, are violating, and unless restrained and enjoined will violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], and defendants Benlolo, Risman, Nacher, and Dale directly or indirectly, have violated, are violating, and unless restrained and enjoined will violate Sections 10(b) and 15(c) of the Exchange Act [15 U.S.C. §and 78o(c)], and Exchange Act Rules-5 and 15c1-2 [17 C.F.R. §-5 and 15c1-2].

Claim Two

Unregistered Broker

Violations of Sections 15(a) of the Exchange Act [15 U.S.C. § 78o(a)]

47. Paragraphs 1 through 46 are hereby realleged and incorporated by reference.

48. By reason of the foregoing, defendants Benlolo, Risman, Nacher, and Dale have violated, are violating, and unless restrained and enjoined will violate Section 15(a) of the Securities Act [15 U.S.C. §§ 78o(a)] by holding themselves out as broker-dealers and by failing to be registered as such with the Commission.

Prayer for Relief

Wherefore, the Commission respectfully requests that this Court issue Orders:

I. Permanently enjoining defendants Benlolo, Risman, Nacher, and Dale, and those persons in active concert or participation with them who receive actual notice by personal service or otherwise, from violating, directly or indirectly, Sections 17(a) of the Securities Act [15 U.S.C. §§ 77q], Sections 10(b), 15(a) and 15(c) of the Exchange Act [15 U.S.C. §§ 78j and 78o], and Exchange Act Rules 10b-5 and 15c1-2 [17 C.F.R. § 240.10b-5 and 15c1-2].

II. Directing defendants Benlolo, Risman, Nacher, and Dale to disgorge all illegal gains, together with prejudgment interest.

III. Directing defendants Benlolo, Risman, Nacher, and Dale to give an accounting of all illegal gains.

IV. Granting such other relief as this Court may deem just and proper.

Date: Washington, D.C. January 14, 1999

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