Source: https://www.sec.gov/litigation/complaints/complr17265.htm
Timestamp: 2019-04-20 02:35:26+00:00

Document:
Complaint: SEC v. Spectrum Brands Corp., et al.
1. This case involves a fraudulent scheme exploiting the nation's fear of anthrax and bio-terrorism to manipulate the stock price of a publicly traded shell company, Spectrum Brands Corp. ("Spectrum Brands" or the "company"). Spectrum Brands, nominally of Hauppauge, New York, is secretly owned and controlled by a group of stock promoters located in Hicksville, New York ("Hicksville promoters"). These undisclosed principals include a number of individuals who recently pled guilty to unrelated felony charges and are awaiting sentencing by the United States District Court for the Eastern District of New York.
2. On or before November 5, 2001, Spectrum Brands posted on its website (www.spectrumbrandscorp.com) that it had a hand-held device called the "DeGERMinator" capable of "WIP[ING] OUT SURFACE GERMS IN LESS THAN 5 SECONDS, INCLUDING ANTHRAX." The closing price of Spectrum Brands' common stock tripled on this news, shooting up from approximately $4 on November 1, to $7 on November 2, to $11.75 on November 5, with an intra-day high of $14 on November 5. Meanwhile, the Hicksville promoters engaged in a series of transactions designed to create artificial volume in the market for Spectrum Brands securities and sold stock into the inflated market.
3. The company has made certain corrective disclosures on its web site, but continues to tout in recent press releases and spam e-mails its supposed progress in combating "bio-terrorism" and "cyber-terrorism." These include a spam e-mail dated November 29 touting the company's management and predicting a "$15.00 stock price! Over a 10 fold move!" No disclosure has been made of the substantial ownership positions and management roles of the Hicksville promoters. Thus, unbeknownst to the investing public, Spectrum Brands continues to be owned and operated in secret by a group of convicted felons.
4. This Court has jurisdiction over this action pursuant to Sections 20(b) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b) and 77v(a)] and Sections 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(e) and 78aa].
5. Defendants have, directly or indirectly, made use of the means or instrumentalities of interstate commerce and/or of the mails in connection with the transactions described in this Complaint.
6. Spectrum Brands Corporation ("Spectrum Brands" or "company") was an inactive, publicly traded shell based in Boca Raton, Florida, as of September 2001. By the end of October 2001, the former principals of the shell had transferred control of the company to a group of individuals located at 33 Tec Street, Hicksville, New York, including a number of convicted felons. Shortly thereafter, the company formed a wholly-owned subsidiary, Spectrum Homeland Security Solutions, Inc. Spectrum Brands' website (www.spectrum brandscorp.com) lists an address at 300 Vanderbilt Motor Parkway, Suite 200, Hauppauge, New York. The company's common stock trades on NASDAQ's OTC Bulletin Board.
7. Saverio (Sammy) Galasso III ("Galasso Junior") recently pled guilty to unrelated racketeering charges in the Eastern District of New York and is awaiting sentencing. Under the terms of his plea agreement, Galasso Junior is entitled to a downward departure if he makes a $1 million restitution payment for victims of his other frauds on or before sentencing. He works out of an office at 33 Tec Street, Hicksville, New York. Upon information and belief, Galasso Junior resides at 24 Chauncey Place, Woodbury, New York 11797.
8. David Hutter (a/k/a David Green) ("Hutter") is a business associate of Galasso Junior. Hutter recently pled guilty to unrelated money laundering charges in the Eastern District of New York and is awaiting sentencing. He works out of an office at 33 Tec Street, Hicksville, New York. Upon information and belief, Hutter resides at 12-15 36th Avenue, Apt. 4-B, Long Island, New York 11106.
9. Charlie Dilluvio ("Dilluvio") is a business associate of Galasso Junior. Dilluvio is also the principal of Windsor Capital LLC. He works out of offices at 33 Tec Street, Hicksville, New York. Upon information and belief, Dilluvio resides at 3118 Wilkinson Avenue, Bronx, New York 10461.
10. Michael J. Burns ("Burns") claims to be Spectrum Brands' sole officer, director and employee. He purports to work out of the company's Hauppauge, New York offices. Upon information and belief, Burns resides at 3 Arbor Field Way, Lake Grove, New York 11755.
11. Tony Bozzello ("Bozzello") is the principal of Internet Data Corporation ("Internet Data") of 33 Tec Street, Hicksville, New York. Internet Data is the registrant for Spectrum Brands' website domain name, "spectrumbrandscorp.com."
12. Michael Cardascia ("Cardascia") is a former registered representative who was barred from the securities industry in 1998. He is married to Joan Cardascia. Cardascia appears to work out of an office at 33 Tec Street, Hicksville, New York. Upon information and belief, Cardascia resides at 611 Hunt Lane, Manhasset, New York 11030.
13. Robert J. Cassandro ("Cassandro") is an attorney with the law firm of Abelow & Cassandro, LLP, located in Jericho, New York.
14. Saverio (Sammy) Galasso II ("Galasso Senior") is Galasso Junior's father and business associate. Galasso Senior recently pled guilty to unrelated arson charges in the Eastern District of New York and is awaiting sentencing. He works out of an office at 33 Tec Street, Hicksville, New York. Upon information and belief, Galasso Senior resides at 4 Oakpoint Drive, Bayville, New York 11709.
15. As of September 2001, Spectrum Brands was an inactive, publicly traded shell based in Boca Raton, Florida. On September 21, the company filed a Form S-8 registering 1,000,000 shares of common stock to be issued "from time to time to certain officers, directors, employees and qualified consultants." In October, the then-principals of Spectrum Brands sold their shell to the Hutter, Dilluvio, Bozzello, Cardascia, Cassandro, Galasso Senior and possibly others, also known as the "Galasso crew." The Galasso crew is the group of stock promoters working with Galasso Junior at 33 Tech Street in connection with Spectrum Brands.
16. Galasso Junior, his assistant Dilluvio and the attorney Cassandro negotiated the acquisition of the shell, and Burns signed the relevant documents. On or about October 26, $275,000 in cash was wired to the former principals in exchange for a controlling interest in the shell.
17. On or about October 29, a total of 600,000 shares of unrestricted common stock were issued to Dilluvio, Cassandro, Bozzello and other members of the Galasso crew, pursuant to the previously filed Form S-8. The remaining 400,000 shares appear to have been issued to the former principals of the shell and their associates. An additional 1,000,000 shares of restricted securities were issued to Burns. Burns' stock certificate was sent directly to Dilluvio at 33 Tec Street, Hicksville, New York.
18. On November 5, the company issued an additional 3,000,000 unrestricted shares to Dilluvio, Cassandro, Bozzello and others members of the Galasso crew, 2,000,000 unrestricted shares to the former principals, and 5,000,000 restricted shares to Burns, pursuant to a 5-for-1 stock dividend. Approximately 125,000 unrestricted shares were issued in the name of Joan Cardascia and fedexed to 33 Tech Street, where her husband is believed to work.
19. At the same time they were acquiring the shell and issuing themselves S-8 stock, the Galasso crew negotiated for the distribution rights to a hand-held ultraviolet light called the "DeGERMinator." The DeGERMinator is one of several germicidal lights manufactured and sold by Spectronics Corporation, a private company located in Westbury, New York. Spectronics has manufactured and sold the DeGERMinator for general germicidal purposes for a number of years. It apparently can kill or render harmless a variety of germs, viruses and microorganisms.
20. When the Galasso crew was conducting these negotiations, there was reason to believe that the DeGERMinator was effective against anthrax bacteria; however, the DeGERMinator had not been tested for or shown to be effective against anthrax spores. The distinction is important. Exposure to anthrax spores causes anthrax disease. Anthrax bacteria, on the other hand, develop in the body after exposure to the spores. Therefore, a product must be able to kill the spores, not merely the bacteria, to prevent anthrax disease. Subsequent research made clear that the DeGERMinator is not effective against anthrax spores.
21. As of September 2001, the DeGERMinator's distributor was Joseph K. Schulman and his private company, Mobility Solutions, LLC, of Lakewood, New Jersey. Schulman was then marketing the product on-line through his website (www.restassured.com) for general germicidal purposes. In late October, Schulman was approached by Hutter. Hutter presented himself to Schulman as "David Green." Hutter told Schulman that Spectrum Brands was interested in acquiring the exclusive distribution rights to the DeGERMinator. Hutter also said Spectrum Brands wanted to acquire Schulman's website and toll free number and to appoint him President and CEO of the company.
22. An agreement with Schulman was negotiated by Galasso Junior, Galasso Senior, Hutter and Cassandro, during several meetings at 33 Tec Street. The linking of the two company's websites was discussed at a meeting attended by Galasso Junior, Cassandro and Schulman at 33 Tec Street. Spectrum Brands' domain name is registered to, and its website is maintained by, Bozzello and Internet Data of 33 Tec Street.
23. On or about November 1, Schulman signed a written agreement. However, that contract has not been counter-signed by Spectrum Brands. The relationship between Schulman and the Galasso crew quickly soured. On November 1, Spectrum Brands announced in a press release the appointment of Burns as the company's Chairman and CEO. The November 1 press release made no mention of the Galasso crew, thus creating the false impression that Burns was running the company.
24. Shortly thereafter, Burns, Hutter (again masquerading as "David Green") and Cassandro began negotiating with Spectronics directly. On November 15, Spectrum Brands paid $35,000 for 1,000 DeGERMinators. The company had not picked up these devices from the loading dock as of the end of November.
25. Shortly after reaching an agreement with Schulman, Spectrum Brands began advertising the DeGERMinator on its website. As of November 5, the DeGERMinator was being billed as capable of "WIP[ING] OUT SURFACE GERMS IN LESS THAN 5 SECONDS, INCLUDING ANTHRAX". No mention was made of the critical distinction between anthrax bacteria and spores. Again, the DeGERMinator had not been tested for or shown to be effective against anthrax spores. Consequently, Spectrum Brands' website was materially false and misleading.
26. The company's website was also false and misleading because it was linked to a local television program that aired on Channel 12 in Long Island on or about November 3. The Channel 12 program quoted Jon Cooper of Spectronics Corporation, the manufacturer of the DeGERMinator, as saying that the device may be effective against anthrax spores. By November 6, Cooper had informed Spectrum Brands through its outside counsel (Cassandro) that, despite his earlier comments, it was now clear to him that the DeGERMinator was not effective against anthrax spores. Spectrum Brands nevertheless kept its website linked to the Channel 12 program through November 9.
27. The closing price of Spectrum Brands common stock increased from a little over $4 per share on October 31 and November 1, to $7 on November 2, to $11.75 on November 5, with an intra-day high of $14 on November 5. Daily trading volumes likewise increased dramatically, from zero in mid October to approximately 25,000 to 55,000 shares per day during the first week on November.
29. Given the pattern of buying and selling in Dilluvio's Windsor Capital account, it appears that the trading activity was designed in part to create artificial volume in the market and to mislead investors into thinking that there was a legitimate, active market for Spectrum Brands common stock.
30. In addition, certain members of the Galasso crew succeeded in selling a portion of their sizeable holdings in early November. Bozzello deposited 25,000 S-8 shares in Internet Data's brokerage account and sold approximately $25,000 worth of stock during the first week of November at between $1.66 and $4.75 per share. Joan Cardascia deposited 125,000 unrestricted shares in her brokerage account and sold approximately $25,000 worth of these securities during the first week of November at between $1.90 and $4.75 per share.
31. On November 7, the financial press (Bloomberg) ran an article raising questions about the DeGERMinator's effectiveness against anthrax. That same day, Spectrum Brands took the DeGERMinator off its website. On November 8, Spectrum Brands put the DeGERMinator back on its website without the anthrax reference. Late on November 9, Spectrum Brands severed the link on its website to the Channel 12 program and posted an anthrax-related disclaimer.
32. Despite these corrective measures, the company has continued to tout its purported progress in addressing "bio-terrorism" and "cyber-terrorism" in recent press releases and spam e-mails. These include a spam e-mail dated November 29 touting the company's management (Burns) and predicting a "$15.00 stock price! Over a 10 fold move!"
33. Galasso Junior, Hutter, Dilluvio and Burns participated directly in the Spectrum Brands fraud. Galasso Junior negotiated the purchase of the inactive, publicly-traded shell and the acquisition of assets relating to the DeGERMinator by Spectrum Brands, as well as Schulman's employment contract and the linking of his website with Spectrum Brands' website. Hutter (masquerading as "David Green") helped negotiate the agreement with Schulman and the subsequent agreement with Spectronics, both of which related to the DeGERMinator. Dilluvio helped negotiate the purchase of the shell and received over 500,000 unrestricted shares of Spectrum Brands common stock in his own name, 1,000,000 restricted shares in the name of Burns, and 125,000 unrestricted shares in the name of Joan Cardascia. In sum, every major aspect of the company was managed and controlled behind-the-scenes by these three individuals (Galasso Junior, Hutter and Dilluvio). Furthermore, Dilluvio bought and sold Spectrum Brands common stock in the manipulative manner described in Paragraphs 27 through 29.
34. Burns signed the deal documents for the purchase of the shell, helped negotiate the deal with Spectronics, provided content for the Spectrum Brands' false and misleading website and press releases, and portrayed himself falsely to the public as being in charge of the company.
35. Galasso Junior, Hutter, Dilluvio and Burns knew, or were reckless in not knowing, that the Spectrum Brands misrepresented to the investing public that Burns was in charge, when in truth the Galasso crew was secretly running the company. Also, these individuals either knew, or were reckless in not knowing, that Spectrum Brands had published false and misleading information on its website concerning the ability of the DeGERMinator to combat anthrax.
36. Paragraphs 1 through 35 are realleged and incorporated by reference.
37. Defendants Spectrum Brands, Galasso Junior, Hutter, Dilluvio and Burns knowingly or recklessly misrepresented to the investing public (1) that Burns was in charge of Spectrum Brands, when in truth the Galasso crew secretly owned and controlled the company, and (2) that the DeGERMinator was capable of "WIP[ING] OUT SURFACE GERMS IN LESS THAN 5 SECONDS, INCLUDING ANTHRAX," when the DeGERMinator had not been tested for or shown to be effective against anthrax spores.
38. In the manner described in ¶¶ 1 through 37, defendants Spectrum Brands, Galasso Junior, Hutter, Dilluvio and Burns, in the offer or sale of securities, by the use of means or instruments of interstate commerce or by the mails, directly or indirectly (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material facts or omissions of material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon purchasers of securities, in violation of Section 17(a) of the Exchange Act [15 U.S.C. § 77q(a)].
39. Paragraphs 1 through 38 are realleged and incorporated by reference.
40. Defendants Spectrum Brands, Galasso Junior, Hutter, Dilluvio and Burns knowingly or recklessly misrepresented to the investing public (1) that Burns was in charge of Spectrum Brands, when in truth the Galasso crew secretly owned and controlled the company, and (2) that the DeGERMinator was capable of "WIP[ING] OUT SURFACE GERMS IN LESS THAN 5 SECONDS, INCLUDING ANTHRAX," when the DeGERMinator had not been tested for or shown to be effective against anthrax spores.
41. In addition, defendant Dilluvio engaged in a series of transactions in his Windsor Capital account designed in part to create artificial volume in the market and to mislead investors into thinking that there was a legitimate, active market for Spectrum Brands common stock.
42. In the manner described in ¶¶ 1 through 41, defendants Spectrum Brands, Galasso Junior, Hutter, Dilluvio and Burns, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce or of the mails, directly or indirectly (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts or omissions of material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon persons, in violation of Section 10(b) of the Exchange Act [15 U.S.C § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder.
43. Paragraphs 1 through 42 are realleged and incorporated by reference.
44. Defendant Galasso Junior was a control person of Spectrum Brands, Hutter, Dilluvio and Burns by virtue of his position as head of the Galasso crew.
45. In the manner described in ¶¶ 1 through 44, defendant Galasso Junior is liable jointly and severally as a control person for Spectrum Brands', Hutter's, Dilluvio's and Burns' violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5], promulgated thereunder, pursuant to Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)].
(vi) granting such other relief as this Court may deem just and appropriate.

References: v. 
 § 77
 § 78
 § 240
 § 78
 § 240
 § 78