Source: https://www.sec.gov/litigation/complaints/complr17272.htm
Timestamp: 2019-04-18 11:03:31+00:00

Document:
1. The Commission brings this action to halt several fraudulent and unregistered offerings of securities, in the form of notes, investment contracts or other evidence of indebtedness (the "securities") reflecting investments in at least four investment programs (the "Investment Programs") offered by Defendant IB2001 and Defendants Does 1-10. Through advertisements and solicitations on the Internet, the Defendants promise investors astronomical, short-term investment yields by promising to return between 125% and 2500% of investor principal over very short periods - between three days and several weeks - while also promising that the investments are "risk-free" and "guaranteed." Defendant IB2001 and Defendants Does 1-10, who are the unidentified persons behind IB2001, represent to investors and potential investors that IB2001 can provide such extraordinary, risk-free profits, by pooling investors' funds and betting on sporting events. The representations by Defendants IB2001 and Does 1-10 that the offered securities are risk-free or guaranteed are false, because instruments promising such extraordinary yields, and instruments that are based on gambling to generate profit, cannot be risk-free. The Defendants have been conducting their fraudulent offering of unregistered securities since at least November 14, 2001 through the present, and have sold such securities to an undetermined number of investors. The Defendants principally have solicited investors and potential investors through a website bearing IB2001's name ("IB2001 website") and bulletin boards and web pages on the Microsoft Corporation's MSN Network ("IB2001 bulletin board" or "MSN bulletin board"). In addition to being fraudulent, the offerings of securities by the Defendants are not registered with the Commission.
2. Defendants IB2001 and Does 1-10, directly and indirectly, have engaged, are engaging, and are about to engage, in violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77e(a), 77e(c), and 77q(a), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
3. Unless Defendants IB2001 and Does 1-10 are permanently enjoined, Defendants IB2001 and Does 1-10 will continue to engage in the transactions, acts, practices and courses of business alleged herein, and in transactions, acts, practices, and courses of business of a similar type and object.
4. The Commission brings this action pursuant to authority conferred by Section 20(b) of the Securities Act, 15 U.S.C. § 77t(a), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d), seeking to permanently enjoin Defendants IB2001 and Does 1-10 from engaging in the wrongful conduct alleged in this complaint. The Commission also seeks a final judgment ordering the Defendants to disgorge their ill-gotten gains and to pay prejudgment interest thereon, and ordering the Defendants to pay civil money penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d). The Commission also seeks during the pendency of this action an order providing for expedited discovery and preventing the destruction of documents.
5. This Court has jurisdiction over this action, and venue lies in this District, pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Sections 21(d), 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d), 77u(e) and 78aa.
6. The Defendants, directly or indirectly, singly or in concert, have made use of the means or instrumentalities of transportation or communication in, or the instrumentalities of, interstate commerce, or of the mails, in connection with the transactions, acts, practices, and courses of business alleged in this complaint.
7. Certain of the transactions, acts, practices and courses of business constituting the violations alleged herein occurred within the Southern District of New York, including the use of computer servers in this District to host IB2001's website, the solicitation of investors and potential investors residing in this District, and the maintenance of telephone numbers in the (914) area code, which is in this District, by IB2001 and its agents.
8. Defendant IB2001 is an entity that until Monday, December 3, 2001, operated a website, hosted by a server in New York City, and operated, and continues to operate a bulletin board at the MSN Networks Communities website. Through the website and bulletin board, Defendants IB2001 and Does 1-10 offered, and continue to offer, to investors and potential investors guaranteed exorbitant returns on short-term investments in IB2001's Investment Programs. The website provided an email address to contact Defendant IB2001, but provided no address or telephone number. ZoneEdit, Inc., a company located at 111 Broadway, 11th Floor, New York, New York 10006, hosted IB2001's website.
9. Defendants Does 1-10 are unknown individuals and/or groups of individuals responsible for, and/or controlling, the Investment Programs offered by Defendant IB2001, the IB2001's website and/or bulletin board. Defendants Does 1-10 include the individuals responsible for maintaining, organizing and funding the IB2001 website and bulletin board, as well as those persons responsible for constructing and advertising the Investment Programs offered by IB2001.
10. From at least November 14, 2001, the Defendants, through the IB2001 website and bulletin board, have offered, and are continuing to offer, investments into four Investment Programs. The Investment Programs are short-term investments, with terms from three days to several weeks depending upon the program, and promise exorbitant returns ranging between what IB2001 characterizes as 125% and 2500%. Although it is not entirely clear from the IB2001 website or bulletin board, it appears that, actually, Defendant IB2001 does not promise an interest yield of 125% to 2500%, but instead promises to remit to investors a single payment equal to 125% to 2500%, of their investment principal after the specified duration of time.
11. The Defendants, through representations on the IB2001 website and bulletin board, represent to investors that the investments in, and returns from, the four Investment Programs are safe and guaranteed. For example, in program descriptions on the IB2001 website and bulletin board, IB2001 states, under the heading "DISCLAIMERS AND AGREEMENTS," that "there is no risk involved, your investments are safe and guaranteed the return we offer [sic]." Elsewhere in the same passage, IB2001 boasts that "Investments are GUARANTEED and are risk-free." (capitalization in original).
12. On the IB2001 website and bulletin board, the Defendants represent that IB2001 "is already the #1 investment service in existence and we are [sic] continuing to rapidly grow with new program releases, multiplying members and investors and the best customer service possible."
13. For all of IB2001's Investment Programs, the Defendants place no limitations on the number of investors that can invest in an Investment Program, the residence of an investor, the amount of an investor's investment and the amount of monies that IB2001 is seeking to raise for the Investment Program.
"125% 3 Day Ongoing Program." Through this program, IB2001 guarantees a 125% return after a three-day investment. There is no minimum or maximum investment in this program, just a guarantee that three days after the investment is made, 125% of the investment will be paid out.
"250% 1 Week Ongoing Program." Through this program, IB2001 guarantees a 250% return after a one-week (5-7 days) investment. The minimum investment in the one-week program is $50 and there is no maximum investment.
"1250% 1 Month Program." Through this program, IB2001 guarantees a 1250% return after a one-month investment. Defendant IB2001 states that investors may invest "any amount from $50 and up" and are "returned 1250% on your investment exactly one month from when you invest."
"2500% Christmas Miracle Program." IB2001 guarantees a 2500% return for monies invested between November 10, 2001, and December 15, 2001. IB2001 represents to investors that money invested during that time frame will pay a return of 2500% commencing December 26, 2001. The minimum investment for the Christmas Miracle Program is $100 and there is no maximum investment.
15. The Defendants represent that IB2001 generates profits for the Investment Programs and Christmas Miracle Program by pooling investors' money and placing "safe bets" with three online sportsbooks. IB2001 maintains that its team of bettors is "flawless in this sort of betting." IB2001 suggests that it uses a "formula for success" also employed by "Las Vegas and the Casinos and Sportsbooks [to] make their billions." IB2001 shares in the winnings of the pooled bets after making payments to investors.
16. The Defendants instruct investors to invest funds in its Investment Programs by making payments to one of Defendant IB2001's accounts with various Internet-based payment services that provide for money transfers and payment on the Internet. The Defendants have instructed investors and potential investors to send funds and make payments to IB2001 through the payment services Osgold, E-gold, Evocash, and Paypal. By transferring funds to accounts maintained by IB2001 at those payment services, the Defendants represent that the investor "establishes" an account with IB2001. Each investor's investment in IB2001 is a note, investment contract or other evidence of indebtedness. On its website and bulletin board, IB2001 does not explain how payments are made from IB2001 to the investors.
17. The Defendants also represent on the IB2001 website and bulletin board that Defendant IB2001 has a referral program whereby anyone that introduces a new member to the website will receive 10% of the initial investment of the new participant. Additionally, Defendant IB2001 offers a "Premium Investor's Class" for those individuals wishing to invest $25,000 or more. The Defendants represent that such investors will receive an even larger rate of return. As of December 3, 2001, the IB2001 website and bulletin contained representations by the Defendants claiming that there were three members in this class.
18. The representations described in paragraphs 1 and 10 through 17 were and are materially false and misleading as the investments in, and return on investments from, the four Investment Programs offered by the Defendants have risk and are not risk-free or guaranteed. Among other things, gambling by its very nature requires the undertaking of risk, and IB2001 cannot provide risk-free exorbitant returns on investments in the Investment Programs by betting on sporting events. In addition, it is economically not feasible for an issuer of fixed-income instruments to provide exorbitant short-term financial returns, in an open-ended offering, which are "risk-free." The investment terms offered by the Defendants -- short-term, fixed-financial returns, that are both exorbitant and risk-free -- are patently fraudulent and, in the past, have been offered only in fraudulent schemes, such as Ponzi or Prime Bank.
19. When making the misrepresentations described in paragraphs 1 and 10 through 17, the Defendants knew or should have known, or were reckless in not knowing, that they are false.
20. The Commission repeats and realleges the allegations contained in Paragraphs 1 through 19 by reference as if fully set forth herein.
c. offer to sell or offer to buy through the use or medium of any prospectus or otherwise, securities in the form of the notes, investment contracts and/or other evidence of indebtedness, when no registration statement was filed as to such offerings of securities.
22. By reason of the acts, practices, and courses of business set forth in this Complaint, the Defendants have violated, are about to violate, and, unless restrained and enjoined, will again violate, Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).
Violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5.
23. The Commission repeats and realleges the allegations contained in Paragraphs 1 through 19 by reference as if fully set forth herein.
24. The Defendants, directly and indirectly, singly and in concert, knowingly or recklessly, by the use of the means or instruments of transportation or communication in, and the means or instrumentalities of, interstate commerce, or by the use of the mails, in the offer or sale, and in connection with the purchase or sale, of securities, have: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of, or otherwise made untrue statements of material fact, or omitted to state material facts necessary to make the statements, in light of the circumstances under which they were made, not misleading; and (c) engaged in transactions, acts, practices and courses of business which operated or would operate as a fraud or deceit upon purchasers of securities or other persons.
25. As part of and in furtherance of this violative conduct, the Defendants, directly or indirectly, made the representations and omitted to state the facts alleged in paragraphs 1 and 10 through 19 above.
26. The false statements and omissions made by Defendants, more fully described in paragraphs 1 and 10 through 19, above, were material.
27. The Defendants knew, or were reckless in not knowing, that the material misrepresentations, more fully described in paragraphs 1 and 10 through 19 above, were false or misleading.
28. By reason of the acts, omissions, practices, and courses of business set forth in this Complaint, the Defendants have violated, are about to violate, and, unless restrained and enjoined, will again violate, Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
29. Final Judgments permanently, restraining and enjoining the Defendants, their agents, servants, employees, attorneys in-fact, and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c), and 77q(a), and Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
An Order permitting expedited discovery.
An Order enjoining and restraining the Defendants, and any person or entity acting at their direction or on their behalf from destroying, altering, concealing, or otherwise interfering with the access of the Commission to relevant documents, books and records.
A Final Judgment requiring the Defendants to disgorge their ill-gotten gains from the fraudulent conduct alleged in this Complaint, and to pay prejudgment interest thereon.
Final Judgments imposing against the Defendants civil monetary penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d), for the violations alleged herein.
Such other and further relief as the Court deems appropriate.

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