UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
______________________________
)
IN RE PRO NET LINK ) CIVIL ACTION NO. 03-CV-2298
SECURITIES LITIGATION )
______________________________)
PLAINTIFFS’ SECOND CONSOLIDATED AMENDED
CLASS ACTION COMPLAINT
VIANALE & VIANALE LLP
Kenneth J. Vianale (KV 4607)
Julie Prag Vianale (JP 4718)
5355 Town Center Road, Suite 801
Boca Raton, Florida 33486
Tel: (561) 391-4900
Fax: (561) 368-9274
GAINEY and McKENNA
Thomas J. McKenna (TJM 7109)
485 Fifth Avenue, 3rd Floor
New York, New York
Tel: (212) 983-1300
Fax: (212) 983-0383
Lead Counsel for Lead Plaintiffs and the Class
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Lead Plaintiffs, having received written consent from counsel for all defendants, as required
by Rule 15(a), Fed.R.Civ.P., hereby file their Second Consolidated Amended Class Action
Complaint.
Lead Plaintiffs make the following allegations, except as to allegations specifically pertaining
to them, based upon the investigation undertaken by plaintiffs’ counsel, which investigation included
analysis of publicly-available news articles and reports, public filings, press releases, statements
issued by defendants on-line, via internet message boards and other internet media, review of the
record in the related bankruptcy proceedings in this District, interviews with former employees of
ProNetLink Corp. (“ProNetLink” or the “Company”), and consultation with a forensic accountant.
INTRODUCTION
1. This is a class action on behalf of all purchasers of the common stock of ProNetLink
between August 26, 1998 and July 1, 2001, inclusive, (the “Class Period”), seeking to pursue
remedies under the Securities Exchange Act of 1934 (the “Exchange Act”). As particularized below,
the individual defendants, principals of ProNetLink, engaged in a scheme to artificially inflate the
price of the Company’s shares so that they could reap substantial benefits. The individual defendants
issued false and misleading statements to the public regarding, among other things, the Company’s
present and future financial prospects and the individual defendants’ own plans regarding the sale
of Company shares.
2. For example, during the Class Period, the individual defendants told the public that
the Company was signing up thousands of subscribers for its website through which global trade
transactions were to be effected. The individual defendants hid the fact, however, that the vast bulk
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of these subscribers were non-paying; it was only later in the class period, in January 2000, that the
Company disclosed that there were only 40 paid subscribers for the ProNetLink website.
3. In addition, the individual defendants told the public repeatedly that they were abiding
by a so-called lock-up agreement, under which the Company’s President and CEO, defendant Jean
Pierre Collardeau (“Collardeau”), agreed not to sell his ProNetLink stock. Nevertheless, Collardeau
executed other sales in the names of nominees, in an intentional effort to hide his sales of
ProNetLink stock from the investing public. As a result, Collardeau, and persons associated with
him, made millions of dollars on the sale of ProNetLink stock. On November 6, a federal grand jury
in Newark, New Jersey, indicted Collardeau and others for securities fraud, wire fraud and money
laundering in connection with the sale of Pro Net Link stock. The indictment charges, among other
things, that Collardeau and others conspired to use nominee accounts to hide the true ownership of
the Pro Net Link stock they were secretly trading. (A copy of the indictment in U.S. v. Pierre
Collardeau, et al., No. Cr. 03-800 (D. N.J.) (unsealed on 11/24/03) is annexed hereto as Ex. A and
is incorporated by reference herein (“Collardeau Indictment”)). Collardeau is believed to be in
custody on these charges. The Company made no disclosure in any of its SEC filings that Collardeau
and others were the true owners (and sellers) of millions of shares of Pro Net Link stock.
4. Moreover, Collardeau personally sold approximately $ 4,568,760 in ProNetLink
Stock on April 17, 2000 at prices of $3 and $5 per share; these sales were suspicious in timing and
in amount, as discussed below. A separate count is alleged for Collardeau’s liability for this insider
trading under Section 20A of the Securities Exchange Act of 1934.
5. Defendant Glenn Zagoren (“Zagoren”), the Company’s Co-Chairman of the Board
and Executive Vice President, with Collardeau’s agreement, was given ProNetLink’s television
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production division to keep as his own personal asset without paying any consideration to the
Company. Zagoren either knew or was reckless in not knowing, of the fraudulent scheme alleged
herein.
6. In 2001, the Company continued to assure the public that it had sufficient operating
capital to run the Company for the next 12 months. The individual defendants told the public that
the Company still had access to a $5 million line of credit and other capital resources at its disposal.
These statements were blatantly false, as shown by the testimony of the Company’s Chief Operating
Officer, David Walker, taken in connection with the Company’s bankruptcy proceeding in this
District.
7. Nevertheless, the Company’s outside auditor, Feldman Sherb & Co., P.C. and its
successors named as defendants herein (collectively referred to herein as “Feldman Sherb”), together
with non-defendant Philip Weiner (a partner of Feldman Sherb), issued an unqualified audit opinion,
dated September 28, 2000 on ProNetLink’s financial statements that was contained in the
Company’s annual report on SEC Form 10-K for fiscal year ending June 30, 2000. Feldman Sherb
also authorized the Company’s use of this unqualified audit opinion in a Registration Statement the
Company filed with the SEC on May 4, 2001. Feldman Sherb, however, knew or recklessly
disregarded numerous red flags showing that the Company had inadequate resources to sustain
operations for 12 months, and accordingly should have at least given ProNetLink a “going concern”
opinion, rather than an unqualified opinion on its financial statements. For example, according to
the Collardeau Indictment, on March 16, 2000, defendant Collardeau sent instructions to American
Stock Transfer to reissue 1,500,000 shares of Pro Net Link stock previously issued in the name of
one individual (Eric Niger) and reissued in the name of another (Muriel Prochasson). Feldman Sherb
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ignored this red flag which should have alerted them to the defendants’ securities fraud scheme.
Although securities fraud was rife at Pro Net Link -- as the Collardeau Indictment readily shows --
Feldman Sherb either knew of the fraud or recklessly ignored it.
8. In a complete surprise to investors, the Company filed for bankruptcy protection on
July 1, 2001, which the Company announced publicly on July 2, 2001, the close of the Class Period.
The Company’s shares immediately became worthless and investors have sustained millions of
dollars in damages.
JURISDICTION AND VENUE
9. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
§§1331, 1337 and 1367 and Section 27 of the Exchange Act (15 U.S.C. § 78aa).
10. This action arises under Sections 10(b), 20(a) and 20A of the Exchange Act (15
U.S.C. § § 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5).
11. Venue is proper in this District pursuant to Section 27 of the Exchange Act (15 U.S.C.
§ 78aa) and 28 U.S.C. § 1391(b) and (c). Substantial acts in furtherance of the alleged fraud and/or
its effects have occurred within this District and ProNetLink maintained its principal executive
offices in this District.
12. In connection with the acts and omissions alleged in this complaint, defendants,
directly or indirectly, used the means and instrumentalities of interstate commerce, including, but
not limited to, the mails, interstate telephone communications, and the facilities of the national
securities markets.
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PARTIES
13. Lead Plaintiffs Doreen A. Labit, Scot Campbell, Craig Zychal, Daniel P. Provost and
Dennis Bell were appointed by the Court on September 2, 2003. The Lead Plaintiffs purchased
ProNetLink common stock during the Class Period, as set forth in the accompanying certifications
which are incorporated herein by reference, and were damaged thereby.
14. ProNetLink was formed in 1997 and stated in its public filings that its business
focused on facilitating the conduct of international trade through various tools and services
accessible through its internet website. Its primary assets were (1) www.ProNetLink.com (“the
ProNetLink website”), a web site marketed to the public as a resource for facilitating international
business transactions among small and medium sized companies, and (2) PNL-TV, a facility for
producing programming to be aired on-line via the ProNetLink and PNL-TV web sites. ProNetLink
was headquartered at 645 Fifth Avenue, New York, New York. ProNetLink stock traded exclusively
on the “over-the-counter” market. ProNetLink is not named as a defendant because it filed for
bankruptcy protection in July 2001. ProNetLink was a penny stock within the meaning of the
Exchange Act and accordingly any forward-looking statements made by the Company or the
individual defendants are statutorily exempt from the “safe harbor” protection of Section 21E of the
Exchange Act.
15. The Individual Defendants, at all times relevant to this action, served in the capacities
listed below and received substantial compensation:
1 Auguste Francis Vincent was a named defendant; he is not named as a defendant in this
Complaint because plaintiffs were unable to effect service of process on him. Vincent was a
director of ProNetLink and is a citizen of France, where it is believed he is now living.
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Name Position
Glenn Zagoren Director since 5/98; Chairman of the Board (4/8/99 to
8/7/00); Co-Chairman of the Board and Executive VP (8/8/00
to 9/27/00); Chairman and/or Member of the Board (9/12/00
to 7/2/01).
Jean Pierre Collardeau President and Chief Executive Officer; Director and founder
of the Company. Collardeau is a French national and
currently maintains a residence in France. He also maintains
an apartment at 117 Prince Street, Apt.4C, New York, NY
10017 and on Brickell Key, Miami, Florida.1
16. Defendant Feldman Sherb was the Company’s outside auditor; it audited the
Company’s June 30, 2000 financial statements and provided an unqualified audit opinion that was
included in ProNetLink’s June 30, 2000 Form 10-K filed with the SEC on October 13, 2000.
Feldman Sherb subsequently authorized this audit opinion to be used in a Form S-1 Registration
Statement that ProNetLink filed with the SEC on May 4, 2001. According to a May 7, 2002 press
release issued by defendant Grassi & Co., P.C. (“Grassi”), Grassi merged with Feldman Sherb on
May 7, 2002. According to the same press release, ProNetLink’s former outside accountant Philip
Weiner joined Grassi in this merger. Defendant Sherb & Co., LLP broke off from Feldman Sherb
at some time at or after the Grassi merger.
17. In addition, according to Philip Weiner, who spoke at ProNetLink’s December 4,
2000 annual shareholders’ meeting in Manhattan and was the Feldman Sherb engagement partner
on ProNetLink: Feldman Sherb represented “approximately 30 to 40 publicly held firms. Some are
traded on the American Exchange, many are traded on the Nasdaq exchange.” According to the SEC
2 According to a personal acquaintance of Philippe Hababou, Mr. Hababou, during the
period, sometimes used the names Philippe Solomon, Haim Solomon and Malko. A criminal
docket sheet in a case against Mr. Hababou lists as his aliases “Haim Solomon” and “Malko.”
Mr. Hababou will be referred to herein primarily as “Hababou.”
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filings of Voice Flash, another public company whose financial statements Feldman Sherb audited:
“Feldman Sherb & Co. was ... merged into Grassi & Co., CPA’s, P.C. Some of the accountants from
the original Feldman Sherb & Co., P.C. left and started their own firm called Sherb & Co., LLP.”
Stephen Feldman and Philip Weiner of Feldman Sherb are currently partners at the accounting firm
of Marcum & Kleigman LLP, New York. Steven Sherb is a partner in Sherb & Co., LLP.
SUBSTANTIVE ALLEGATIONS
A. The Scheme is Set Up
18. According to ProNetLink’s publicly filed documents, ProNetLink was formed by
defendant Jean Pierre Collardeau and began its operations on July 25, 1997 (“Inception”) as
ProNetLink Corp., a Delaware corporation (“ProNet Delaware”). In September 1997, the fledgling
ProNetLink morphed into being as a public company by a technique commonly known as a “backend
merger.” Holders of the common stock of ProNet Delaware, with the assistance of Marc
Armand Rousso and Philippe Hababou2, acquired control of Prevention Productions Inc., a Nevada
corporation (“Prevention Productions”), a publicly-held corporation with no material operations.
According to ProNetLink’s public statements, the acquisition of control of Prevention Productions
occurred through an exchange of securities whereby, following a 30- to-1 reverse stock split of the
outstanding common stock of Prevention Productions (which left the shareholders of Prevention
Productions with an aggregate of 249,500 shares), Prevention Productions acquired 100% of the
outstanding capital stock of ProNet Delaware in exchange for 28,400,000 shares of common stock
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of Prevention Productions. Prevention Productions subsequently changed its name to “ProNetLink
Corp., “ the publicly-held company at issue in this action.
19. According to a witness (“W-1”) who is a friend and business associate of Philippe
Hababou, W-1, an Israeli native, met Hababou because W-1 rented Hababou a residence in Israel.
They subsequently became friendly. Hababou (who was known to W-1 as Philippe Solomon), told
W-1 that he worked in league with defendant Collardeau to execute the back-end merger that
allowed Collardeau to convert ProNetLink into a public company. Hababou acknowledged to W-1
that he located the shell company, Prevention Productions, Inc., for Collardeau, which allowed
Collardeau to take ProNetLink public. According to Hababou (as reported by W-1), after
ProNetLink became a public company, Hababou and Collardeau were issued shares in their own
names and in the names of nominees. By holding stock in nominee names, Collardeau and others
could conceal from the investing public the true identities of the owners of ProNetLink stock.
According to Hababou (as told to W-1), both Collardeau and Hababou made significant sums of
money on sales of ProNetLink stock during the class period. According to Hababou (as told to W-1),
some of these trades, both for Collardeau and Hababou, were executed through nominee accounts.
20. After “going public” ProNetLink issued millions of shares of stock for pennies per
share in a series of private placements. According to publicly available documents, in October and
November 1997, ProNetLink issued a total of 7,500,000 shares of common stock in private
placements to two foreign companies and three foreign individuals pursuant to exemptions from
registration pursuant to Rule 504 of Regulation D under the Securities Act of 1933, as amended (the
“Act”). The aggregate consideration received by ProNetLink was $150,000.
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21. In October 1997, ProNetLink issued an aggregate of 1,700,000 shares of common
stock in other private placements to two foreign companies and one foreign individual pursuant to
exemptions from registration pursuant to Section 4(2) under the Act. The aggregate consideration
received by ProNetLink was $170,000.
22. Unbeknownst to the investing public, a substantial portion of the common stock
issued in these private placements, was issued to alter egos of Collardeau, Hababou and their
cohorts, including Collardeau family members. Collardeau issued stock in private placements to
these individuals so that he could cause the price of the Company’s stock to be artificially driven up,
and thereby reap profits by selling shares through his alter egos at inflated prices. On this issue, W-1
learned from Hababou and from other sources that Hababou sold 500,000 ProNetLink shares in April
1999 when ProNetLink was over $5.00, as did Collardeau family member Nicole Piegnier. W-1
further learned that (1) Hababou and Collardeau owned several off shore companies, and huge profits
that they made on ProNetLink were sent there, and (2) Hababou and Collardeau also made millions
in a similar scheme involving trading in a company called Starnet Communications.
23. According to a January 30, 2001 article in The Record (Bergen County, NJ), Philippe
Hababou pleaded guilty in U.S. District Court in New Jersey in September 2000 to charges arising
from his involvement in a series of illegal penny stock fraud schemes.
24. According to press articles describing the cases, Mr. Hababou’s silent partner in this
series of stock schemes was Marc Armand Rousso. According to a January 30, 2002 article in The
Record (Bergen County, NJ), law enforcement authorities have “paint[ed]. . . Marc Rousso as the
guiding force behind a series of ‘pump and dump’ schemes in the mid-1990's involving tens of
millions of dollars of low-priced stocks.” According to the same article, federal authorities have
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maintained that “Rousso hid his substantial holdings in a series of penny stocks that he illegally
promoted and then sold after the price rose, leaving investors holding near-worthless stock.”
According to a January 30, 2002 New York Times article:
Hiding his interest behind other associates like Mr. Hababou, Mr. Rousso bought
millions of shares of cheap stock, which he then fraudulently promoted with
investors. When the value of the stocks rose, he quietly sold off the shares he
controlled, making huge illicit profits.
According to the same New York Times article, the federal prosecutor handling the criminal case
described the Rousso-Hababou operation as “a large, complex money-laundering and securities fraud
scheme.” According to the same article and the docket sheet from the District of New Jersey, Mr.
Rousso pleaded guilty in September 1999 to money laundering and stock fraud charges. According
to Mr. Rousso’s docket sheet, Rousso is at liberty, awaiting sentencing. Collardeau, Hababou and
Rousso are named as co-conspirators in the Collardeau Indictment annexed hereto and are charged
with engaging in the securities fraud scheme alleged herein.
25. Abundant circumstantial evidence demonstrates that Marc Rousso was also involved
in setting up and executing the ProNetLink stock scheme alleged herein, along with the individual
defendants. The Collardeau Indictment charges that Rousso and Collardeau engineered the reverse
merger for the purpose of perpetrating this stock fraud. In addition, press reports and court filings
on the Hababou-Rousso criminal cases establish that Hababou and Rousso were partners. As the
above-quoted article explained, Rousso routinely used Hababou and others to hide his interest in the
companies that he fraudulently promoted. W-1 has provided information regarding Hababou’s
involvement in ProNetLink. Rousso’s involvement can be inferred from his partner Hababou’s
involvement and from compelling circumstantial evidence, as follows.
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26. First, a Press Release issued by ProNetLink on June 24, 1998 names Leon B. Lipkin
as ProNetLink’s legal counsel. According to a January 30, 2002 New York Times article, Leon B.
Lipkin also served as legal counsel to Marc Rousso. According to the same article, Mr. Lipkin
pleaded guilty in 2001 to securities and wire fraud for his role in Rousso’s stock schemes.
27. A further connection between ProNetLink and Rousso arises from their apparent use
of the same Canadian brokerage house to execute trades. An October 14, 2002 article in Canadian
Business identifies Pacific International Securities in Vancouver, Canada as one of the brokerage
houses frequently used by Marc Rousso.
28. A review of SEC Forms 144 (“Notice of Proposed Sale of Securities Pursuant to Rule
144 Under The Securities Act of 1933”) reflecting sales of ProNetLink stock shows that 23 of these
forms, filed on behalf of 16 different ProNetLink “investors,” lists “Pacific International
Securities, Inc., . . .Vancouver, Canada” as the “Broker Through Whom the Securities are to be
Offered or . . . Market Maker who is Acquiring the Securities.”
29. The use of the common brokerage house, Pacific International Securities, Inc., located
a continent away from ProNetLink’s offices, provides another link between the individual defendants
and the activities of Marc Rousso. Many of these “individuals” and “entities” who filed these Forms
144 to sell ProNetLink restricted stock, also list their residence in France or in French territory, as
follows:
! Jean E. Mula, 4 Ter Impasse Francois Raymond, Miens 63780, France (According to W-1, Jean
Mula is a relative of Collardeau’s); 30,000 shares to be sold approximately 4/15/99;
! Pioneer Infosys Inc., (no address listed on Form 144), 50,000 shares to be sold approximately
9/15/98;
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! Gilles Marret, 96 Boulevard Pereire, 75017 Paris, France; 9,200 shares to be sold approximately
4/15/99;
!Claude Delas, 74 Rue Lecourbe, 75015 Paris France, 10,000 shares to be sold
approximately12/23/98;
! Andre Martinez, 6 Rue Albert Dubout, Le Calypso PSTC Marseille, France 13008; 5,000 shares
to be sold approximately 12/23/98;
! Bernard Loller, 76 Ave. Andre Morilet Boulogne France 92100; 2,800 shares to be sold12/23/98;
! Jean Emilio Mula, (no address listed); 8,414 shares to be sold approximately12/23/98;
! Jean Alain Scarpaci, 32 Rue Du Calvaire, 92110 St. Cloud France; 48,913 shares to be sold
approximately 2/23/99;
! Gerald Testaniere, 104 Rue des Sable, 84100 Orange France; 4,802 shares to be sold
approximately 12/22/98;
! “Serge Touitou” or “Serge Touttou”, Latisseuer Cariase Allee Curacao 97222 Cose Pilote,
Martinique; 10,000 shares to be sold approximately12/23/98;
! Gerard Achard, 2 Allee Des Aules, 60150 Villiers Skoudun, France; 56,500 shares to be sold
approximately 12/23/98;
! Gerard Achard, 2 Allee Des Aules, 60150 Villiers Skoudun, France; 56,500 shares to be sold
approximately 12/23/98;
! Pioneer Infosys, St Amagasse 16, Ott8027, Zurich, Switzerland; 1,500,000 shares to be sold
approximately 9/11/98;
! Usines Diffusion, La Quinta Allee de la Marjolaine 06370 Mouans-Sartoux; 154,000 shares to
be sold approximately12/22/98(signed by “Graham Burke”).
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! Jean Alain Scarpaci, 32 Rue Du Calvaire, 92110 Saint Cloud, France; 43888 shares to be sold
approximately12/23/98;
! Fode Diop, 01 BP 5280 Abidjan 01, Cote d’Ivoire,West Africa; 500,000 shares to be sold
approximately10/1/98. The Form 144 states that these 500,000 shares were acquired from
ProNetLink on 7/31/97 as “Repayment of debt.”
! Fode Diop, 01 BP 5280 Abi Djandi, Cote D’Ivoire, West Africa; 200,000 shares to be sold on
approximately 9/2/98. Acquired from ProNetLink on 7/31/97 as “Repayment of Dette;”
! Fode Diop, 01 BP 5280 Abidjan 01 Cote d’Ivoire, West Africa; 20,000 shares to sell on
approximately 8/31/98. Acquired from ProNetLink on 7/31/97 as “Dette;”
! Charles Nisenbaum, 2000 Island Rd., Apt. 607, Miami, FL 33160; 79,667 shares to be sold on
approximately 8/8/98. (According to the docket sheet for U.S. v.Charles Nisenbaum, Case No. 02-
CR-712-ALL, District of New Jersey, Nisenbaum was arrested in the Southern District of Florida
on 11/2/02. He waived indictment and pleaded guilty in Newark federal court on 10/21/03 on
charges relating to conspiracy to defraud the United States in connection with currency transactions
(31 USC §5324). According to the Form 144, Nisenbaum received the ProNetLink shares from
“Fode Diop” as a “Finder’s Fee” on 7/31/97.
! Amex Corp., 24 Route Demalagnau CH-1208, Geneva Switzerland; 200,000 shares to be sold
approximately 8/5/98. According to the Form 144, these shares were received from “Charles
Nissenbaum” on 7/31/97 as “Repayment of debt.”
! Firstimpex, 24 Route Demalagnau CH-1208, Geneva, Switzerland; 385,000 shares to be sold
approximately 8/5/98. According to the Form 144, the shares were acquired from “Fode Diop”
on 7/31/97 as “Repayment of Debt.”
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! Judith Lerner, 14 Kehilot Yakob BNE Brack Israel; 200,000 shares to be sold approximately
8/5/98. According to the Form 144, the shares were acquired from “Fode Diop” on 7/3/197 as
“Repayment of Debt.”
! Fode Diop, 847A Second Avenue, Suite 208, NY, NY 10017 (Collardeau listed his address
on Forms 144 as 847A Second Avenue, Suite 329A, New York, NY 10017); 109,998 shares to
be sold approximately 5/29/98 at an approximate market value of $800,000. According to the Form
144, the shares were received from “ProNetLink (Prevention Production) on 12/1/96 for
“Services.”
30. In addition, Rousso’s business, Pacific Art, leased office space to ProNetLink at 645
Fifth Ave., Suite 303 (“the suite”). According to a former employee of Pacific Art, who later also
worked for ProNetLink (“W-2"), Rousso brought ProNetLink into the suite as a subtenant, and
ProNetLink and Pacific Art shared space for a number of months. The space shared by ProNetLink
and Rousso had a common reception area and neighboring offices. According to W-2, Rousso and
ProNetLink shared space until approximately 6 - 8 months prior to Rousso’s arrest. W-2 also stated
that Hababou had “free room and board” in the suite. According to W-2, this co-tenancy allowed
defendants Collardeau and Zagoren to have frequent contact with Rousso and Hababou.
31. ProNetLink and the individual defendants are also linked to the activities of Marc
Rousso through a supposed ProNetLink investor named “Fode Diop.” Based on a Form D (“Notice
of Sale of Securities Pursuant to regulation D, Section 4(6), and /or Uniform Limited Offering
Exemption”) filed with the SEC on October 28, 1997, “Fode Diop” received shares of ProNetLink
as a “beneficial owner.” The same form also lists defendant Collardeau and three Collardeau family
members as recipients of ProNetLink stock. On this form, the home address of “Fode Diop” is the
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same New York street address (different suite) as that of defendant Jean Pierre Collardeau and
Collardeau’s family members. Subsequent SEC Forms 144, dated 9/2/1998 and 10/25/1998, reflect
that during the class period , “Fode Diop” made millions of dollars on the sale of ProNetLink stock.
The Forms 144 for “Diop” reflect that these stock sales were handled by Pacific International
Securities. There is a strong inference that “Fode Diop,” among others, was simply a nominee
through which Collardeau sold ProNetLink stock.
32. Marc Rousso apparently also held property under the name “Fode Diop.” In a
“Consent Judgment and Order of Forfeiture” in the case of United States v. Marc Armand Rousso,
99 Cr. 512 (D.N.J.), Mr. Rousso agreed to forfeit, inter alia, an account at Ivy & Mader Philatelic
Auctions, Inc. in the name of “Fode Diop.” In addition, according to the Collardeau Indictment,
Marc Armand Rousso caused Fode Diop to be installed as the nominal President and sole director
of Prevention Productions (the original shell corporation) and conspired with Collardeau to trade Pro
Net Link stock in Diop’s name. (Collardeau Indictment, ¶¶11-13).
33. To accomplish the goal of touting the Company and inflating the stock price,
Collardeau enlisted the aid of defendant Glenn Zagoren, the president of Zagoren-Zozzora, Inc.
(“ZZI”), a strategic development and marketing company. ProNetLink stated in a March 27, 1998
press release that “[ZZI] has been retained to handle all marketing, advertising and promotion for
the company.” The Press Release stated that “Mr. Glenn Zagoren, President of [ZZI] will personally
be[] handling the account,” and that “[ZZI] plans on a major marketing program for ProNetLink that
will include direct mail, advertising, telemarketing, internet marketing and special events.” Zagoren
was appointed as a director of the Company in May 1998.
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34. The alliance between Collardeau and Zagoren was formed with the intention of
having Zagoren promote ProNetLink, so that Collardeau and others could profit through the sale of
ProNetLink stock at inflated prices, and with the further intention of benefitting Zagoren by (1)
providing him with substantial income as a paid consultant and employee of ProNetLink, (2)
enhancing the value of his shares, and (3) providing him with a means of profiting through the use
of other peoples’ money to create -- PNL-TV-- a ProNetLink asset which Zagoren would later
acquire from ProNetLink at no cost.
B. The Drum Beat of False Statements by the Defendants Begins
35. One of the primary methods by which Zagoren, Collardeau and Hababou and Rousso
touted ProNetLink to the investing public was by distributing positive, but often false or misleading,
information on the internet, both in promotional materials and by posting messages on message
“threads” on business-oriented websites such as Silicon Investor and Raging Bull. (These internet
and message board postings were printed in hard copy form by plaintiffs). Both Silicon Investor and
Raging Bull had message “threads” devoted to ProNetLink, on which current and prospective
ProNetLink investors could obtain information about the company and the stock. Zagoren and
Phillipe Hababou periodically posted information on these “threads.”
36. In or about March 1998, ProNetLink paid thousands of dollars to a website called
“Stock Genie.” Stock Genie is essentially an advertising tool, which, for a fee will promote a
company and its stock to the investing public. Zagoren, in a posting on the Silicon Investor
ProNetLink thread, acknowledged that ProNetLink paid to be Stock Genie’s profiled company of
the month for March 1998. In this posting, Zagoren stated:
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Please be advised that the fee that ProNetLink paid to Stock Genie is payable over
2 years and not in one lump sum. It is a very inexpensive marketing tool and allows
PNLK news to get out very quickly. Sincerely, Glenn Zagoren, President Zagoren-
Zozzora, Inc., Marketing firm for ProNetLink.
37. The Stock Genie Report on ProNetLink (“the Stock Genie Report” or “the Report”)
contained revenue and other financial projections which had absolutely no basis in fact. (According
to the Stock Genie, “The information that Stock Genie relies on is generally provided by the featured
companies and also may include information from outside sources and interviews conducted by
Stock Genie”). The Report’s “Financial Highlights” section states the following:
According to the company’s business plan, over the next 12 months the company
anticipates signing up approximately 40,000 subscribers at an average of $360 each
which would generate revenues of 14.4 million dollars, which would be classified as
subscriber revenue. Other revenue streams include, but are not limited to banner
advertising revenue and fees for catalog listings, and others, which would produce
gross revenues of approximately 21 million dollars in year one. For the first year the
company estimates pre-tax income of approximately 16.1 million dollars, after-tax
net income of approximately 8.7 million and an E.P.S. of 23 cents per share.
In the second full year of operation the company anticipates approximately 47,500
new subscribers and 33,600 renewal subscribers for a total subscriber base of 81,100.
This estimated subscriber revenue of approximately 29.2 million (81,100 subscribers
x 360 annual subscription) combined with additional revenue streams is expected to
bring in 42 million dollars.
For the second year the company estimates pre-tax income of approximately 31.4
million dollars and after-tax net income of approximately 17 million dollars with an
E.P.S. of 44 cents per share.
During early May 1998, after he had been named a Director of ProNetLink, Zagoren posted a
message on the Silicon Investor ProNetLink thread reiterating that ProNetLink “projects 40,000
members by the end of the year at $360 per year.” Shortly after this highly optimistic statement was
made, ProNetLink stock reached its all time high on May 13, 1998 of $8.09.
-19-
38. The statements in the Stock Genie Report as reiterated in Zagoren’s May 1998
internet posting, that ProNetLink would have 40,000 paying subscribers by year end 1998 had no
basis in fact, and was either knowingly false or made with a conscious disregard for its truth or
falsity. In its January 27, 2000, second amendment to its Form 10-Q for the quarterly period ended
September 30, 1999 with the SEC (“the September 30, 1999 Form 10-Q/A2”), the Company stated
that “as of September 30, 1998, ProNetLink had approximately 450 members (of which 40 were
subscription paying members).” There was no surge in subscriptions after September 1998. Based
on the September 30, 1999 Form 10-Q/A2, as of September 30, 1999, ProNetLink had only 22
subscription paying members. There can have been no credible basis for the Company and
Zagoren’s March and May 1998 projections of 40,000 paying subscribers by December 1998 if by
September 1998 ProNetLink had sold only 40 subscriptions. According to the Collardeau
Indictment, Collardeau enlisted the efforts of the Stockgenie.com to fraudulently “pump” Pro Net
Link stock. (Collardeau Indictment, ¶¶22-26). Collardeau and Irving Freiberg (who controlled
Stockgenie.com) are charged with conspiring to artificially inflate Pro Net Link’s stock price.
Collardeau signed a sham agreement with Freiberg stating that Freiberg’s company (Sutton Capital
Corp.) would receive $50,000 for promoting Pro Net Link. (Collardeau Indictment, ¶24). Zagoren,
as a Director and Executive Vice President of Pro Net Link, was either aware of this fraudulent
“pump and dump” agreement with Stockgenie or was reckless in not knowing of it.
39. Moreover, a former employee of ProNetLink, who worked in the sales division of the
Company for approximately 13 months beginning in mid-1999 (“W-3”), states that W-3 “never saw
any focus on building a subscriber base” for the ProNetLink website. This witness states there was
no inside sales force at ProNetLink at all prior to August 1999, and nothing in place when this
-20-
witness arrived in August 1999 that would have enabled the company to develop any significant paid
subscriber base. The only concerted effort to sell subscriptions prior to August 1999 that this
employee was aware of was the use of outside telemarketers. Based on this witness’ observation,
the telemarketing effort had produced a “0% return in terms of producing paid subscriptions.” The
falsity of the subscription sales projections is supported by W-3’s observation of the absence of any
concerted plan for generating subscription sales at ProNetLink, and the dramatic difference between
the “projected” sales (40,000 subscriptions) and the actual sales (well under 100).
40. At the Annual Shareholders’ meeting held on December 4, 2000 at the Grand Hyatt
on East 42nd Street in Manhattan, a ProNetLink investor asked Zagoren how many premium
subscribers the Company had. Premium subscribers were paying users of the Company’s website.
After attempting to evade answering the question with a non-responsive answer, the shareholder
posed the question again. Zagoren told her that ProNetLink had over 8,000 paid subscribers. In
truth, however, ProNetLink had fewer than 20 paid or “premium” subscribers in 2000. According
to the Company’s Annual Report on Form 10-K filed 10/12/00, the Company had approximately
7,500 “registered users,” i.e., non-paying users of the Company’s website. But the Annual Report
makes clear that the Company only received $7,123 in “premium registration fees,” which at the
$350 annual fee per user comes out to approximately 20 paying subscribers.
41. Zagoren’s next step as chief marketer of ProNetLink was to introduce Jean Pierre
Collardeau to the investing public, via an April 27, 1998 Press Release entitled “ProNetLink
President and Founder . . . Jean Pierre Collardeau A leader in the Import-Export business.” This
Press Release stated, among other things, that “Collardeau has been called on to give frequent
informative speeches and seminars aimed at educating members of import-export associations such
-21-
as the Florida Trade Data Center (FTDC) [and] the World Trade Center (WTC).” This statement
was misleading in that it suggested that Mr. Collardeau had spoken at the World Trade Center in
Manhattan, a prestigious hub of international commerce. Collardeau subsequently acknowledged
that the “World Trade Center” referred to in this press release was the Florida World Trade Center,
a regional trade association in Miami. Moreover, the chief operating officer of the Florida Trade
Data Center stated subsequent to this press release that Collardeau was never invited to speak. “He
may have given some sort of speech at the center, but he certainly didn’t give a speech for the
center.”
42. On May 20, 1998, a ProNetLink message “thread” was launched on the Silicon
Investor website. The messages posted to this “thread” are still available on the Silicon Investor
website and have been read by counsel. This “thread” has received a steady stream of messages
since 1998 from ProNetLink investors and others, including some of the plaintiffs; According to the
Silicon Investor website 40,650 messages have been posted to this “thread” to date.
43. This ProNetLink “thread” was begun by a message from “Malko.” This message
remains available for review on the Silicon Investor website, “Malko’s” message read in part as
follows:
Ladies and Gentleman:
If you’ve wondered where sound fundamentals have gone in the internet sector...
If you’ve thought that profitless P/E ratios are slightly missing in the logic
department...
If you wished you could find a substantial company in their infancy for an
investment...
If you’re looking for a company with great vision and solid execution...
3 The docket sheet in Mr. Hababou’s criminal case identifies “Malko” as one of
Hababou’s aliases.
-22-
If you think no company could be as good as this seems to imply...
Then we cordially invite you to study the business plan and the execution that has
been conceived and achieved by the ProNetLink team. In the PNLK Research
Website ... you will learn the history that attests to the vision, capabilities,
organization, execution and the results of the Pronetlink Webtool evolution to date.
While gaining insight to ProNetLink consider this: Do you know any other company
with the potential that ProNetLink offers as an investment? At the time of this initial
updated writing (3-21-99) the share price was about $1.75.
Let us assert that as you examine this information, the investment value will quickly
become self-evident. Upon further investigation, you may begin to think that your
eyes are deceiving you. However, as you satisfy your own questions, we believe that
you too will become members of the ProNetLink family of investors.
As has been stated by the company founders, “ProNetLink is a work in progress,
which means that the Webtool is keeping pace with the changes in the technical, ecommerce
and customer environments. It is never static. It will stay dynamic to
satisfy the rigorous demands of this burgeoning industry -- about which, we believe,
ProNetLink will be among its principle pacesetters. We members of this thread,
along with many others, represent investors around the globe who applaud the efforts
and achievements of all the ProNetLink team, and extend to them our
encouragement. And now you have the opportunity to find out why...
Welcome to this thread!
44. Unbeknownst to the investing public, “Malko” was Phillipe Hababou3, the individual
who assisted defendant Collardeau in setting up ProNetLink as a public company and who told W-1
that he and Collardeau had registered blocks of ProNetLink shares in nominee names with the
intention of running the price up and eventually selling their shares at a profit.
45. On June 8, 1998, the Company issued a press release which touted the Company’s
new Internet trade news broadcast feature stating: “ProNetLink is now 3 weeks old as a live website.
It has achieved many of its initial goals as set forth in Phase 1 of development.” Lauding the
-23-
Company’s daily trade news internet broadcast, the press release stated: “This feature has been
activated and 3 times a day it is updated with current news from around the world.”
46. The June 8, 1998 press release was intended to, and did, lull the investment
community into believing that the Company’s internet news broadcasting operation was a critical
component to the success of the business venture.
47. On June 24, 1998, ProNetLink issued a press release entitled “ProNetLink
Management Announces Voluntary Stock Lock-up,” stating:
ProNetLink (OTC Bulletin Board: PNLK-news) . . . announced today that the
management of the company have signed a voluntary “lock-up” agreement that states
that they will not sell any of their restricted stock to the public for a period of one
year from the date of the agreement. Jean Pierre Collardeau, ProNetLink President
and CEO and the other members of the executive staff control 16,500,000 shares of
restricted stock.
“We want to show the market and our investors that we are behind ProNetLink and
we are here for the long term” said Mr. Collardeau, “Our goal is to build the most
comprehensive import-export tool on the internet.”
The stock certificates will be held by the company’s counsel Leon B. Lipkin.
Contact:
Glenn Zagoren[.]
48. According to court records, Attorney Leon B. Lipkin, “counsel” to ProNetLink as of
June 24, 1998, has pleaded guilty to having been legal counsel to Marc Rousso in Rousso’s stock
schemes. As part of Rousso’s plea, he has agreed to forfeit his ProNetLink stock certificates, among
other things, according to court records from the U.S. District Court in Newark, New Jersey.
49. This press release was intended to inspire confidence in investors, by assuring them
that insiders, and particularly Collardeau, were holding their shares for the “long term.” The June
24, 1998 press release was false and misleading in that it failed to reveal the information provided
-24-
by W-1, to wit, that Mr. Collardeau and Hababou owned and were trading ProNetLink shares in the
names of nominees at substantial profits.
C. The Class Period Begins
50. The Class Period begins on August 26, 1998. On this date, ProNetLink stock closed
at a price of $1.55 on volume of 346,900 shares. During the class period, and as a result of the false
and misleading statements of the defendants as set out herein, the stock price rose to a high of $7.84
(April 15, 1999). The Company filed for bankruptcy protection on or about July 1, 2001, rendering
the company’s shares worthless.
51. On August 26, 1998, the Company issued a press release which announced its first
“live” broadcast. This press release was intended to, and did, increase the level of interest in the
Company’s internet broadcast operations, and thus the price of the Company’s stock. The price of
the Company’s stock, which closed at $1.52 on August 25, 1998, closed at $1.55 on August 26, 1998
and rose 11% to close at $1.72 August 27, 1998.
52. This press release was materially false and misleading because it failed to disclose
that Collardeau had entered into the scheme described by W-1 to have Zagoren and others promote
the company, thereby allowing Collardeau to sell shares in secret nominee accounts through the
Pacific International Securities brokerage firm in Vancouver, Canada at artificially inflated prices.
53. During September and October 1998, ProNetLink issued 4,210,000 shares of common
stock in private placements to three foreign companies pursuant to exemptions from registration
pursuant to Rule 504 of Regulation D under the Act. The consideration received by ProNetLink was
$842,000.
-25-
54. As of December 1998, under a Securities Exchange Agreement between ProNetLink
and Jean Pierre Collardeau, ProNetLink issued 1,162,920 shares of restricted common stock to
Collardeau, pursuant to an exemption from registration under Section 3(a)(9) or 4(2) of the Securities
Act, in exchange for his surrender to ProNetLink of a Promissory Note of ProNetLink in favor of
Collardeau, which then had an outstanding principal balance plus interest of $232,584. (As
described more fully below, Collardeau later sold these shares at prices of $3 and $5 per share,
reaping profits exceeding $4 million. His stock sales were suspicious in timing and amount.)
55. As of December 1998, under a Securities Exchange Agreement between ProNetLink
and Micheline Baron, ProNetLink issued 1,056,150 shares of common stock, pursuant to an
exemption from registration under Section 3(a)(9) or 4(2) of the Act, to Ms. Baron in exchange for
the surrender to ProNetLink by Ms. Baron of a Promissory Note of ProNetLink in favor of Ms.
Baron, which at such time had an outstanding principal balance plus interest of $211,230.
56. In February 1999, ProNetLink issued 790,000 shares of common stock in private
placements to one foreign individual pursuant to exemptions from registration pursuant to Rule 504
of Regulation D under the Act. The consideration received by ProNetLink was $158,000.
57. In February through April 1999, ProNetLink issued 5,000,000 shares of common
stock in private placements to three foreign individuals and one foreign company pursuant to
exemptions from registration pursuant to Rule 506 of Regulation D or otherwise under Section 4(2)
of the Act. The consideration received by ProNetLink was $1,000,000.
58. As revealed by W-1, and unbeknownst to the investing public, a substantial portion
of the common stock ProNetLink issued in private placements (and thus exempt from registration)
was issued to alter egos and family members of Collardeau, pursuant to a scheme whereby
-26-
Collardeau would artificially drive up the price of the Company’s stock and reap profits by selling
through these alter egos and family members. In addition, the Collardeau Indictment charges that
defendant Collardeau and others used these nominee accounts to generate trading profits in Pro Net
Link stock for themselves, to avoid disclosure to investors. (Collardeau Indictment, ¶¶29-30). Each
of the Forms 10-Q and Forms 10-K and the Registration Statement that Pro Net Link filed with the
SEC during the Class Period was materially false and misleading because, among other things, they
failed to disclose that Collardeau was the true beneficial owner of millions of shares of Pro Net Link
stock held in the names of others. (This allegation applies to all of Pro Net Link’s quarterly and
annual reports as well as the Registration Statement discussed below, and will not be repeated after
the mention of each of these SEC filings.)
59. On November 2, 1998, the Company issued a press release entitled “ProNetLink
November Update” (“the November Update”). As of that date, the Company had issued no public
statement revising the March and May 1998 projections that ProNetLink would have 40,000 paying
subscribers by the end of the year. (It was revealed 14-months later in a SEC Form 10-Q/A filed on
January 27, 2000 that as of September 30, 1998, ProNetLink had only 40 subscription paying
members). On the issue of volume of subscription sales, the November Update stated:
The current number of paying members in ProNetLink is lower than the original plan
called for by this time but this is partly due to the increased time that was necessary
for product development. The marketing program began in September and since then
the membership has started going up. ‘Due to development issues we were slower
then we originally planned to bring the full marketable capabilities of ProNetLink to
the end user,’ said Jean Pierre Collardeau, President of ProNetLink. ‘However, now
that the development has reached the advanced stages, we expect accelerated growth
in membership.’
-27-
This statement was false and misleading when made because subscription sales had not “started
going up” in any appreciable degree at that time or any time thereafter. Based on statements in the
Company’s own filings (made long after the November Update), subscription sales went from 40
as of September 1998 to 22 as of September 1999. W-3, a former employee in ProNetLink’s sales
division, has stated that when he joined the company in 1999, he saw no evidence of a sales strategy
ever having been in place at ProNetLink that could have generated subscription sales in the
thousands, much less the tens of thousands.
60. ProNetLink stock saw a spike in volume of activity in the two days after the
November Update was issued; the price remained in the $1.00 range. The false and misleading
statements in the November Update regarding the pace of subscription sales had the effect of
artificially maintaining ProNetLink’s already artificially elevated stock price.
61. In Press Releases beginning in early 1999, the Company anticipated the upcoming
“launch” of the “full version of the ProNetLink Global Trade Internetwork.” This “launch” was
scheduled for early April 1999.
62. On April 8, 1999, the Company issued a press release announcing the appointment
of Glenn Zagoren as Chairman of the Board:
In a special meeting of the Board of Directors, it was unanimously accepted that it
would be in the best interest of the company and its shareholders if Mr. Zagoren, a
current Board member, were elevated to the position of Chairman. ‘Mr. Zagoren has
been working with ProNetLink since the early days of the company,’ said Jean Pierre
Collardeau, President of ProNetLink. ‘He is critical to the continued growth of the
company and we respect his business guidance and growth programs,’ Mr.
Collardeau continued, ‘We also feel that this title gives him more prestige when
working on our behalf with Governments and strategic alliances around the world.’
Mr. Zagoren is President of Zagoren-Zozzora, Inc. the strategic development and
marketing company that has been working with ProNetLink since its inception...Mr.
-28-
Zagoren has been Executive Producer on a number of Network Television Specials.
‘Mr. Zagoren has a unique range of talents’, Mr. Collardeau said. ‘His core
competencies includes strategic development, technology introductions, sales
development, television production and marketing...all of which we use at
ProNetLink. His skills and understanding of ProNetLink will help us reach the next
level of penetration into the global marketplace.’
*****
Currently the ProNetLink site is in beta testing with its strategic alliances. The full
version of the ProNetLink Global Trade Internetwork will be available to the public
in early April.
63. On April 12, 1999, the Company issued a press release announcing that it would be
launching its “new Global Trade Internetwork and Portal” on the morning of Friday, April 16th. The
Press Release quoted Zagoren as stating:
‘We have invested over two years building this business and preparing for the
upcoming release of our Global Trade Internetwork,’ said Glenn Zagoren,
ProNetLink’s Chairman. ‘We know that the marketplace has been anticipating the
launch as much as we have. Our delivery date was set for the evening of April 14th
however, after a long meeting we decided that it would make more sense not to
compete with the IRS for attention on the 15th. After two years of development we
wanted everyone focused on the launch of ProNetLink and not on their taxes. So,
what’s one more day?’
*****
Later this month, ProNetLink will debut its Internet broadcast feature when, on April
21st, a live cybercast of events from the 1999 International Business Expo (IBE)[.]
ProNetLink stock closed on April 12, 1999 at $6.12, the second highest closing price in the stock’s
history.
64. The April 12, 1999 press release was materially false and misleading because it failed
to disclose, among other things, that Collardeau was holding stock in nominee names (accumulated
during the “over two years” the individual defendants were “building this business”), awaiting an
advantageous time to sell his shares at a profit. The press release also failed to correct information
-29-
the individual defendants previously disseminated regarding the dramatically inflated sales
subscription projections (40,000 subscriptions) and actual sales reality (22 subscriptions sold).
65. On June 15, 1999, the Company issued an announcement entitled “Management of
ProNetLink.com Continues Stock Lock-Up.” This announcement stated:
ProNetLink.com(R) (OTC Bulletin Board: PNLK), pronetlink.com
(PNL), the Global Trade Internetwork and Portal specializing in electronic
international commerce, announced today that key management of the company will
continue to voluntarily lock-up its stock to show its support for the company.
Jean Pierre Collardeau, the President of ProNetLink, who voluntarily locked up his
shares last year will continue to do so for an additional year. In addition to the lockup,
Mr. Collardeau has not taken any salary or compensation since the start of the
company. He is the only ProNetLink executive that has shares that could be traded
in the public market in the immediate future. Mr. Collardeau had agreed with
ProNetLink to extend the term of his lock-up agreement with respect to his shares of
ProNetLink common stock. Under the terms of the original lock-up agreement,
which was entered into as of June 23, 1998, Mr. Collardeau, together with members
of his immediate family, agreed with the company not to sell 16,500,000 shares of
ProNetLink common stock in the public market for at least one year
66. The foregoing statement was false and misleading because Collardeau had already
set up numerous secret nominee accounts as alleged above, and had traded ProNetLink stock for
substantial profits.
67. On June 21, 1999, the Company filed a Registration Statement (No. 000-26451) on
Form 10 with the SEC (“the June 1999 Registration Statement”). The June 1999 Registration
Statement was signed by Jean Pierre Collardeau. This filing marked the beginning of the Company
becoming a reporting company with the SEC. The June 1999 Registration Statement touted the
uniqueness of the Company’s “Global Trade Internetwork” and the import of its internet
broadcasting facility as follows:
-30-
ProNetLink’s Global Trade Internetwork website consists of three functional areas.
The first is a customized portal page that gives members important trade information
gathered from around the world about virtually any industry. The portal includes
trade leads, business news and many other trade related data streams. The second is
the trade directory and resource area where members can search the online directory
of over 2.75 million companies...The third area is the interactive broadcast facility
which has been designed to enable members to view or participate in live cybercasts
of key trade events from around the world and to retrieve such cybercasts from
ProNetLink’s archives on demand...ProNetLink considers the Global Trade
Internetwork to be a multi-dimensional portal that offers great depth to users because
it represents a true online trade community by combining the features of an executive
business club, a trade resource center and a broadcast network all in one easy-to-use
website.
68. Describing the Company’s broadcast operations, the June 1999 Registration
Statement stated:
ProNetLink.com’s interactive broadcast facility is designed to enable members to
view or participate in live cybercasts of key trade events from around the world and
retrieve such cybercasts from ProNetLink’s archives on demand. ProNetLink
launched its interactive broadcast feature on April 21, 1999 with a live cybercast of
events from the 1999 International Business Exposition (the “IBE”) presented jointly
with World Trade Magazine. While the IBE was held at the Jacob Javits Convention
Center in New York City, ProNetLink members worldwide were able to view the
event by just “tuning in” to www.pronetlink.com. Members were also able to submit
questions via e-mail and have them answered by the guests on the show.
Currently, programming is produced in rented facilities as needed. ProNetLink is
planning to build a new broadcast studio in New York City in Fall 1999, where it
anticipates producing trade specific programming for the Global Trade Internetwork,
including trade news, special events, seminars and presentations as well as
interviews. ProNetLink also plans on using local broadcast crews to bring special
events from around the world to the ProNetLink.com. ProNetLink anticipates that all
programming will be available for advertisers to sponsor and companies will also
have the opportunity to purchase “infomercial” time on the website.
ProNetLink continues to build the “global” portion of the website with marketing
missions in various regions throughout the world. Currently, ProNetLink has opened
sales and development offices in connection with local independent representative
firms in Indonesia and Israel, and expects to expand elsewhere in Asia, the Middle
East as well as Europe. As of June 9, 1999, ProNetLink was in negotiations with
businesses and organizations in seven European markets to open sales and marketing
-31-
offices, but no assurances can be given that such negotiations will result in definitive
agreements. ProNetLink is also working directly with government representatives
and Chambers of Commerce and Trade associations in several nations to increase the
amount of information that resides directly on the ProNetLink site... at this time there
does not appear to be any competitive site broadcasting trade specific information on
a regular basis.
69. The June 1999 Registration Statement also stated four anticipated revenue streams,
“membership fees, advertising, strategic alliance commissions and Internet broadcasting.” The June
1999 Registration Statement did not provide information on the number of ProNetLink’s paid
subscribers.
70. The audited financial statements attached to the 1999 Registration Statement were
prepared by Feldman Sherb Erlich & Co., P.C. -- defendant Feldman Sherb prior to a name change.
71. The foregoing statements in the June 1999 Registration Statement were materially
false and misleading because:
a. membership fees were represented as one of the four “primary anticipated
revenue streams,” when the individual defendants knew that membership fees had fallen dramatically
short of projections and had failed to produce any significant revenue during the Company’s
preceding two years of operation;
b. the broadcast operations, which was represented to be a key component of the
ProNetLink Global Trade Internetwork website and a key source of revenue, was being developed
solely for the personal benefit of Zagoren as discussed above;
c. as of June 21, 1999, trade specific information was being broadcast by
competitors on a regular basis;
-32-
d. it failed to reveal the information reported by W-1, that Collardeau had
entered into an alliance to issue false and misleading statements in order to create a market for the
Company’s securities so that Collardeau and others could profit through the clandestine sale of
stocks held in nominee names.
e. A substantial portion of the Company’s 50,068,570 shares of common stock
was owned by alter egos and nominees of Collardeau.
72. On August 10, 1999, the Company issued a press release entitled “ProNetLink.com
Averages Over 1 Million Hits per Month Since Launch in April,” stating:
While a million hits sounds like a small number compared to some of the huge
consumer sites, the management of ProNetLink.com is pleased with this volume
coming to a targeted business-to-business wide where members have to pay a
subscription fee to get access.
* * * * *
The number of hits to the site is important for two reasons. First, it shows that the
site is getting the attention that it needs in order to reach the next level of
international expansion. Second, the number of hits to the site determines the
amount the site can charge for advertising[.]
73. This press release was false and misleading for several reasons. First, it states
management’s satisfaction at having achieved these “hit” numbers on a site “where members have
to pay a subscription fee to get access.” The individual defendants knew, however, when this press
release was issued that (1) the site had only approximately 22 paying members, a number inadequate
to generate 1,000,000 “hits” per month, and (2) the vast majority of users were receiving free access.
74. Additionally, W-3, a former employee who came to work in sales for ProNetLink at
the time of this press release, has stated that the number of “hits” to ProNetLink’s site is a useless
term. It does not reveal whether the site is being accessed for its intended purpose. Additionally,
-33-
according to this witness, the ProNetLink’s portal-based website was set up in a way that would be
likely to generate many “hits” for a single user session. In addition this witness is extremely
skeptical of the truthfulness of these “hit” numbers, stating that the computers ProNetLink had at the
time of this press release would not have been able to handle this kind of user volume.
75. On August 23, 1999, the Company issued an “August Update” press release, over the
name of Glenn Zagoren, stating that the Company’s Global Trade Internetwork(TM), “has received
a positive reaction from the international business-to-business marketplace to its global business
directory, data mining capabilities and on-line trade tools since its launch in April.” The press
release further stated:
In June, the company began a national TV advertising campaign that targeted the
business-to-business marketplace. Membership from around the world climbed
sharply and strong growth continued through July. The marketing and sale program
will begin again in September and will have the additional support of new
international sales offices and Chambers of Commerce partners.
* * * * *
The following is a company overview and member activity during the first14 weeks
since launch
Current users: 2,337 companies from 53 countries
Average monthly hits: 1,182,242
Number of user sessions: 110,152
* * * * *
Revenue Streams: Advertising, Subscriptions, e-com commissions & sales,
Broadcasting
76. The August 23, 1999 press release was materially false and misleading because:
a. membership from around the world had not “climbed sharply” or shown
“strong growth” through July 1999, as evidenced by the fact that as of September, 1999, ProNetLink
had only 22 paid subscribers, down from the September 1998 total of 40 paid subscribers;
-34-
b. the press release falsely suggested that the user activity was attributable to
“members,” when the individual defendants knew (1) that there were only a handful of paying
“members” at the time, and (2) ProNetLink was being accessed during this time primarily by nonmembers;
c. there was no significant or “positive” reaction from the international businessto-
business marketplace to the Company’s global business directory, data mining capabilities and
on-line trade tools; and
d. it failed to disclose that Collardeau and Zagoren had entered into the above
described alliance to use Company funds to develop ProNetLink’s broadcasting division, which
Zagoren would receive cost free, at the same time that a market for the Company’s securities was
being developed so that Collardeau could sell his shares secretly at a substantial profit.
e. On September 28, 1999, the Company issued a press release which announced
that the Company would “launch PNL-TV, the first internet B2B trade news network, on Monday,
October 4th.” The press release stated:
NEW YORK, Sept. 28 /PRNewswire/-ProNetLink.com (OTC Bulletin Board: PNLK
- news), the Global Trade Internetwork(TM), today announced that it will launch
PNL-TV, the first online news network focusing exclusively on breaking trade news
and in-depth analysis of business-to-business international commerce issues, on
Monday October 4th. PNL-TV will broadcast a live newscast Monday through Friday
at 11:00 a.m. EST featuring current global trade issues, interviews with government
and international business leaders and reports from correspondents from around the
world.
*****
ProNetLink.com has built a new, state-of-the-art digital Internet broadcasting studio
that features a two-camera stage and Chroma Key backdrop, as well as a standard set.
Digital switchers, graphics, effects, encoders and audio systems will provide
broadcast standard live programming. The studio also features non-linear digital
editing for taped shows. PNL-TV will be distributed to the internet at three modem
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speeds... ‘PNL-TV represents the most advanced stage of the Internet and a great
example of the convergence of the computer and television,’ said Glenn Zagoren,
Chairman of ProNetLink.com. ‘We see PNL-TV as a way for businesses from around
the world to not only get current trade news, but to participate in the shows.
ProNetLink.com has members in 53 countries which will allow PNL-TV to bridge
traditional global news boundaries and change the way executives get their businessto-
business and international trade news.’
77. W-2 and W-3, witnesses who were former employees at ProNetLink, both working
there at the time of this press release, state that PNL-TV was Glenn Zagoren’s pet project. W-2, who
served as office manager for ProNetLink, stated that Zagoren ran PNL-TV essentially as his own
personal enterprise. This witness stated that, after PNL-TV was operational, Zagoren in discussions
with Company insiders made no secret of his wish to have the Company cede PNLTV to him. As
will be explained more fully herein, this wish was fulfilled in 2001, when defendant Collardeau gave
PNL-TV to Zagoren.
78. On October 6, 1999, the Company, over the name of Glenn Zagoren, issued a press
release stating that the Company’s “netcasting division has successfully been launched and that
viewer demand has set records in data stream rates according to a spokesperson at AT&T CerfNet,
the company that monitors ProNetLink.com servers.” The statement “viewer demand has set records
in data stream rates” could reasonably be interpreted to mean that PNL-TV had a large audience.
79. On November 15, 1999, the Company filed its SEC Form 10-Q for the quarterly
period ended September 30, 1999 (“the September 30, 1999 Form 10-Q”). This document, which
was signed by Collardeau, stated:
Due to our transition from our development stage to the implementation of our
selling phase with the launch of the current version of our website in April of 1999,
we have begun to generate more significant revenues. The Company’s recent
activities have included the launch of its Internet trade news facility, known as
PNL-TV, whose programming includes paid advertising, and the hiring of additional
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sales professionals. The Company believes that its revenues will increase as it
continues to implement its business plan.
80. The September 30, 1999 10-Q was false and misleading because the individual
defendants knew as of the date of this filing that the Company was receiving no significant revenue
from subscription sales, a revenue source that supposedly formed the bedrock of the Company’s
business plan. The filing was misleading because it did not reveal that, contrary to the previously
announced projection of thousands of subscribers, as of September 30, 1999 the Company only had
approximately 22 paid subscribers.
81. Moreover, the September 30, 1999 10-Q was false and misleading in its
representation that the company had left the “development stage” (during which no significant
revenue could be expected) and entered the “selling phase” (during which increased revenue could
be expected). This transition (and the promise of increasing revenues) is belied by the Company’s
subsequent 10-Q, for the quarterly period ending December 31, 2000 (filed on February 20, 2001)
(“the December 31, 2000 10-Q”). The December 31, 2000 10-Q states that “during the six month
period ended December 31, 2000 and December 31, 1999, ProNetLink was a development stage
enterprise. Accordingly, it engaged in limited revenue generating operations.” This statement
is plainly contrary to ProNetLink’s pronouncement in the September 30, 1999 10-Q that it had left
its development stage and entered the selling phase.
82. The price of ProNetLink’s stock rose from a closing price of $2.34 on November 12,
1999 to a closing price of $2.90 on November 15, 1999, based on the rosy, but false, prospects
described in the December 30, 1999 10-Q.
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83. A note to the financial statements (Note - 3 Related Party Agreements) which were
contained within the September 30, 1999 Form 10-Q purported to describe Zagoren’s compensation
as follows:
On February 19, 1999, the Company entered into a consulting agreement with
Zagoren-Zozzora, Inc. (“ZZI”), under which ZZI provides on-going marketing and
business functions to Pro Net Link, including the development of marketing
plans, general business consultation, supervision of marketing tools and the
investigation and recommendation of strategic alliances and other business
opportunities. Glenn Zagoren, the President of ZZI, currently serves as Chairman of
the Board of Directors of ProNetLink, and spends substantially all of his time in such
capacity. The current consulting agreement, which expires in February 2000,
provides that ZZI be paid $10,000 per month by ProNetLink for its services. For the
quarter ended September 30, 1999, ProNetLink paid ZZI $30,000.
84. During the second quarter of fiscal 1999 (that is, between October 1, 1999 and
December 31, 1999), despite ProNetLink’s lack of any meaningful revenue and without
contemporaneous disclosure to the investing public, ProNetLink began paying quarterly
compensation of $75,000 to defendant Collardeau. Prior to the second quarter of fiscal 1999,
Collardeau had been receiving no compensation from ProNetLink.
85. On December 8, 1999, the Company, over Zagoren’s name, issued a Press Release
entitled “November-December Update,” which described the alleged success of PNL-TV and the
plans for its expansion as follows:
November has been quite a month at ProNetLink.com
We have been quite busy working on new elements for the PNL and PNLTV.com
sites. As you know we had our news team in Seattle for the WTO meetings. In my
opinion, Bruce Blosil, our news anchor, did a great job. Thank you for your nice
emails about the shows. Things were a mess in Seattle and yet he and the camera
crew managed to duck the tear gas to be in the right places at the right time. In fact,
CNN used footage from PNLTV.com on the signing of the U.S./China Agriculture
agreement...Some investors have asked why are we taking the time to build
PNLTV.com and how does it fit into the ProNetLink.com business plan. The WTO
broadcasts are your answer. We were able to bring to the world trade market news
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that was targeted to their needs and not to ratings. We were able to broadcast as much
material as we could generate without the worry of network time constraints. We
interviewed trade leaders from around the world and pushed for answers that affect
businesses around the world. In the end we were the only news network dedicated to
bringing daily news programming targeted to trade professionals. PNLTV.com
helped put ProNetLink.com in the top of minds of the Trade Ministers of the world.
It was a great honor to have Ministers that I have met during trade missions send me
their regards while being interviewed by PNLTV.com. If global awareness is what
we are looking for, PNLTV.com is certainly helping us get it...
*****
PNLTV.com is a news resource that brings business people from around the world
to our site on a daily basis. It is also a revenue generator. And it is only the beginning
of PNLTV.com “stay tuned” as they say. Advertising on PNLTV.com is where
businesses want to be, since they can run their existing commercials and build their
brand image... While PNLTV.com has been showing off in Seattle the rest of us have
been working on ProNetLink.com back in New York. Our new and improved inhouse
tech team has been adding new features to the show on a regular basis...
*****
We have also been working on our international footprint. As a result of the trade
mission to the Middle East we are now finalizing sales agreements with Jordan,
Egypt, Abu Dhabi and Dubai. We see this region as an important area specifically
with Dubai building the first free trade zone for e-commerce. We had some very
promising meetings with them during our mission.
We have new sales agreements in the Netherlands (the 7th largest Internet user in the
world) and California, our first in the US and one of the largest import/export
markets in the world. In February, we will begin to expand the ProNetLink.com
market into Latin America.
*****
As you all have probably seen we have filed our Form 10 and our Form 10Q. We
continue to provide our shareholders with the information that is needed to make a
sound investment. We will be adding a new investor section to the site in the very
near future, where you will be able to get up-to-the-minute information about what
is going on at PNL.
86. On December 14, 1999, the Company filed an amendment to its Form 10-Q for the
quarterly period ended September 30, 1999 with the SEC (“the September 30, 1999 Form 10-Q/A”).
A note to the financial statements (Note - 3 Related Party Agreements) which were contained within
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the September 30, 1999 Form 10-Q/A disclosed additional data regarding Zagoren’s compensation
as follows: “the Company recognized $340,000 of non-cash compensation expense related to options
granted to Mr. Zagoren during the year ended June 30, 1999. An additional $660,000 will be
amortized through the remaining period of the consulting agreement.”
87. On December 14, 1999, the Company also filed an SEC Form 10/A, Amendment to
General Form of Registration of Securities (“the December 14, 1999 Form 10A). The December 14,
1999 Form 10A did not correct any of the false and misleading statements contained in the Original
Registration Statement, detailed above. The December 14, 1999 Form 10A has attached to it an
Independent Auditors’ Report issued by Feldman Sherb Horowitz & Co., P.C. and audited financial
statements.
88. In addition to the false and misleading statements pointed out in the Initial
Registration Statement, the December 14, 1999 Form 10A states that, “For the period from Inception
through September 30, 1999, Jean Pierre Collardeau, the President of ProNetLink, did not receive
any compensation for services in any capacity to ProNetLink.” This statement was misleading
because it failed to state that the Company had begun paying Collardeau a a salary of $75,000 per
quarter beginning in fiscal quarter 10/1/1999 - 12/31/1999.
89. On January 27, 2000, the Company filed a second amendment to its SEC Form 10-Q
for the quarterly period ended September 30, 1999 (“the September 30, 1999 Form 10-Q/A2”). This
SEC filing disclosed the following information for the first time:
As of September 30, 1999, ProNetLink had over 2,300 registered members from
approximately 95 countries (of which 22 were subscription paying members and
40 were members who had previously paid subscription fees (and for whom the
Company waived further payment)). As of September 30, 1998, ProNetLink had
approximately 450 members (of which 40 were subscription paying members).
-40-
90. The September 30, 1999 Form 10-Q/A2 also touted that “The Company’s revenue
increased from $11,759 for the three-month period ended September 30, 1998 to $241,802 for the
three month period ended September 30, 1999. 99.3% of the revenue in 1999 occurred as a result
of ProNetLink’s bartering transactions with approximately ten companies in exchange for website
development and marketing expenses.”
91. These revenue figures were false and misleading, in that they included barter as an
element of revenue. In November, 1999, two months prior to the filing of the September 30, 1999
Form 10-Q/A2 (1/27/00), the Financial Accounting Standards Board Emerging Issues Task Force
(EITF # 99-17) issued a ruling concluding that revenue and expense from advertising barter
transactions should be recognized only when an entity has an historical practice of receiving or
paying cash for similar advertising. EITF # 99-17 prohibited ProNetLink from recognizing the barter
revenue reflected in the September 30, 1999 Form 10-Q/A2. This accounting error was compounded
by narrative in the 10-Q/A2 touting the alleged increase in revenue. Contrary to the Company’s
pronouncement of an increase in revenue for the quarter ending September 30, 1999, after
discounting the improper barter revenue, revenue actually decreased in September 30, 1999 as
compared to the quarter ending September 30, 1998.
92. On January 27, 2000 and February 9, 2000, the Company also filed second and third
Amendments to the SEC Form 10 Registration Statement that it had filed in June 1999 (“the Forms
10/A2 and 10/A3"). The Forms 10/A2 and 10/A3 did not correct any of the false and misleading
statements in the original Registration Statement, filed in June 1999 and in the Form 10A
amendment filed on December 14, 1999.
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93. On February 14, 2000, the Company filed its SEC Form 10-Q for the quarterly period
ended December 31, 1999 (“the December 31, 1999 Form 10-Q”). This filing, signed by Collardeau,
stated in a note to the financial statements:
On February 19, 1999, the Company entered into a consulting agreement with
Zagoren-Zozzora, Inc. (“ZZI”), under which ZZI provides on- going marketing and
business functions to ProNetLink, including the development of marketing plans,
general business consultation, supervision of marketing tools and the investigation
and recommendation of strategic alliances and other business opportunities. Glenn
Zagoren, the President of ZZI, currently serves as Chairman of the Board of Directors
of ProNetLink, and spends substantially all of his time in such capacity. The current
consulting agreement which expires in February 2000 provides that ZZI be paid
$10,000 per month by ProNetLink for its services. For the six months ended
December 31, 1999 ProNetLink paid ZZI $60,000. In addition, the Company
recognized $680%2 |
