UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
FORT LAUDERDALE DIVISIO N
Case No. 05-80128-ZLOCH/SNOW
SECURITIES AND EXCHANGE COMMISSION, )
Plaintiff, )
v. )
CONCORDE AMERICA, INC., )
ABSOLUTE HEALTH AND FITNESS, INC., )
HARTLEY LORD, DONALD E. OEHMKE, )
BRYAN KOS, THOMAS M. HEYSEK, )
ANDREW M. KLINE, AND PAUL A. SPREADBURY, )
Defendants, )
and )
DASILVA, SA, VANDERLIP HOLDINGS, NV, )
CHIANG ZE CAPITAL, AVV, )
RYZCEK INVESTMENTS, GMBH, )
BARRANQUILLA HOLDINGS, SA, )
Relief Defendants . )
PLAINTIFF SEC'S MOTION AND MEMORANDUM OF LAW
IN SUPPORT OF PRELIMINARY INJUNCTION
ORDERING AN ASSET FREEZE AND OTHER RELIEF
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r~
1. INTRODUCTION
Plaintiff Securities and Exchange Commission (the "Commission") seeks a preliminary
injunction to continue the asset freeze already imposed in this case against Defendants Donald
Oehmke, Bryan Kos and the five Relief Defendants . A preliminary injunction pursuant to Rule
65 of the Federal Rules of Civil Procedure is necessary to prevent Oehmke, Kos, and the Relief
Defendants from dissipating the currently frozen proceeds of the fraudulent pump-and-dump
scheme they perpetrated on the investing public .
As explained in more detail in this memorandum, Oehmke, Kos, and others orchestrated
fraudulent promotional campaigns that artificially inflated the stock price of two thinly-traded
startup companies, Concorde America, Inc . ("Concorde") and Absolute Health and Fitness, Inc .
("Absolute Health") . both of which had no assets, no revenues and no business . After achieving
their goal of inflating both companies' stock price, Oehmke and Kos dumped their shares and
diverted their ill-gotten gains to offshore accounts using the Relief Defendants as nominees .
The Commission brought this action in February 2005 and sought an emergency, exparte
asset freeze to stop the flow of investors' funds out of the country . The Court entered an asset
freeze after the Commission demonstrated through exhibits and sworn testimony that Oehmke
and Kos had violated the securities laws during the promotional campaigns, had directed the
sale of Concorde and Absolute Health stock, and had retained the proceeds through the Relief
Defendants .
Oehmke has sought to lift the asset freeze even though - after six months - he still has
not complied with the Court's Order to provide a full and complete sworn accounting . One of
the remedies the Commission sought then and seeks now is an accounting from Oehmke, Kos,
and each of the Relief Defendants of the funds they diverted . The Commission also seeks
disgorgement of those profits . Both disgorgement and, as this Court recognized in its Order of
August 5, 2005, an accounting, are equitable remedies justifying an asset freeze . Even though
this Court specifically ordered Oehmke and Kos to provide complete accountings, neither has
done so, necessitating a continuation of the asset freeze .
2
Rather than account for the fraudulent profits he received, Kos asserted his Fift h
Amendment privilege against self-incrimination - adverse inference . Oehmke ostensibly
provided an accounting but as this memorandum demonstrates, misled the Court and failed to
account for approximately $3 .7 million he received as a result of the fraud in this case . The
Relief Defendants have failed to make an appearance in this case and are in default .
The Commission has spent the last six months gathering records to do what Oehmke, Kos
and the Relief Defendants have not - reveal what funds they received from the sale of Concorde
and Absolute Health stock . As detailed in Section III below, various bank and brokerage
account records confirm that Oehmke received at least $3 .7 million and Kos received at least
$250,000 through offshore accounts they each control . The evidence gathered thus far indicates
both Oehmke and Kos received even more money, but the SEC has not yet been able to trace all
the illicit trading profits in this case because many of the accounts in question are located
offshore, and obtaining those records requires the cooperation of foreign institutions not subject
to this Court's jurisdiction .
In contrast to those amounts, the asset freeze has preserved only approximately $852,000
in accounts Oehmke controls, and $75,000 in accounts Kos controls . Since the amounts already
traced to Oehmke and Kos are far greater, and because Defendants are clearly attempting to
shi additional ill-gotten gains from the Court through an intricate web of offshore accounts,
foreign entities and other devices, the Commission asks the Court to enter a preliminary
injunction continuing the asset freeze against these two Defendants unless and until they can
show they have at least $3 .95 million plus prejudgment interest set aside to satisfy their
potential disgorgement obligations . '
Based on the Commission's analysis of bank records to date, defendants are liable for $3 .95 million in
disgorgement plus prejudgment interest, however discovery is ongoing and the Commission anticipates receivin g
3
The conduct of the Relief Defendants, whom Oehmke and Kos controlled, provides
additional grounds for a preliminary injunction . Because all of the Relief Defendants' U .S .
brokerage accounts had been emptied before the Commission filed this lawsuit, and because the
remainder of the Relief Defendants' bank: and other financial accounts are located offshore, the
Commission has been unable to secure a freeze of any funds traceable to them . Meanwhile, the
Relief Defendants' brokerage account records show they made approximately $22 .9 million in
profits trading Concorde and Absolute Health stock . To ensure that any disgorgement order is
meaningful, the Court must maintain the asset freeze over the Relief Defendants unless and until
they can show they have at least $22 .9 million set aside to satisfy their potential disgorgement
obligations.2
Finally, the Commission asks the Court to order Oehmke, Kos, and the Relief Defendants
to immediately provide full and complete accountings, and repatriate any funds or other assets
held in foreign accounts.
II. DEFENDANTS AND RELIEF DEFENDANTS
1. Defendants and Relief Defendants Who Are The Subject Of This Motion
Oehmke, of Kalamzoo, Michigan, owns Ventana Consultants, Ltd . and Ventana
Consultants of Pennsylvania ("Ventana of PA"), two consulting companies through which he
purchased and traded Concorde and Absolute Health stock . Michigan Corporate Records o f
additional records from offshore banks that may increase the total amount of trading proceeds received by Oehmke
and Kos.
2 The Commission has located a small amount of money traceable to the Relief Defendants in foreign
bank accounts . The Commission is attempting to secure the cooperation of foreign governments in
freezing those funds, but cannot do so if the Court lifts the asset freeze in this case . The Commission has
reason to believe its ongoing attempts to trace funds wired out of the Relief Defendants' U .S. brokerage
accounts will result in locating additional money to be frozen .
4
Ventana Consultants, Ltd., Ex . 3; Pennsylvania Corporate Records of Ventana of PA, Ex . 4.3 In
1991, the NASD barred Oehmke from the securities industry for participating in a fraudulent
scheme to make improper use of customer funds, disseminating misleading sales literature, and
failing to maintain adequate supervisory procedures, among other things . NASD Certified
Copies of Web Central Registry Depository Documents, Ex . 5 .
Kos, of Montreal, Canada, coordinated the Concorde and Absolute Health promotional
campaigns . He hired promoters Thomas Heysek and Andrew Kline to prepare analyst reports,
and Paul Spreadbury to prepare press releases, tout sheets, and voice mail scripts concerning
these two stocks. Testimony Transcript of Thomas Heysek ("Heysek Test ."), Ex. 6 at 69;
Testimony Transcript of Andrew Kline ("Kline Test ."), Ex. 7 at 25 ; Testimony Transcript of
Paul Spreadbury ("Spreadbury Test ."), Ex . 8 at 32-33 . In addition, Kos hired Heysek to produce
a video interview touting Absolute Health . Transcript of Absolute Health Video ("Video Tr .")
Ex. 9; Declaration of Thomas Flynn ("Flynn Decl ."), Ex . 10 at ¶¶ 6-8. Kos also hired a company
to maintain a website touting the stocks . Kos e-mail of June 22, 2004 and I-Max e-mail to Kos
of June 30, 2004 ("I-Max e-mails"), Ex. 11 .
Barranquilla Holdings, SA, ("Barranquilla") is a company incorporated in Anguilla
which held accounts at three U .S. brokerages . Oehmke had trading authorization for all thre e
s The Court may consider all the declarations and other exhibits submitted in support of this motion as
evidence in support of the request for a preliminary injunction. It is well established that Rule 65(a)
allows for consideration of affidavits and hearsay materials in a preliminary injunction hearing . Levi
Strauss & Co. v. Sunrise Int'I Truding, Inc ., 51 F.3d 982, 985 (11`h Cir . 1995) ("at the preliminary
injunction stage, a district court may rely on affidavits and hearsay materials which would not be
admissible evidence for a permanent injunction, if `weighing all the attendant factors, including the need
for expedition,' the evidence is `appropriate given the character and objectives of the injunctive
proceeding,"') ; CBS Inc. v. Primetime 24 Joint Venture, 9 F.Supp.2d 1333, 1341-42 (S .D. Fla . 1998)
(hearsay evidence admissible without exception at preliminary injunction hearing due to need for
expedition); McLaughlin v . Williams, 801 F. Supp. 633, 642 (S .D . Fla. 1992) (court admitted hearsay
evidence in the form of letter from doctor with personal knowledge of the contents of the letter) ; SEC v.
Prater, 289 F.Supp.2d 39, 50 n .7 (D . Conn . 2003) (court may rely on affidavits and hearsay evidence,
among other things, in considering a motion for a preliminary injunction) .
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Barranquilla brokerage accounts and used two of them to trade in Concorde and Absolute Health
stock . Barranquilla Certificate of Incorporation, Ex . 12 ; Newbridge Securities Corporation
("Newbridge") Account Opening Documents, Composite Ex . 13 ; Newbridge Trading
Authorization, Ex. 14; Sunstate Equities Trading, Inc. ("Sunstate") Account Opening
Documents, Composite Ex . 15 ; Sunstate Trading Authorization, Ex . 16; Electronic Access Direct
("Electronic Access") Account Opening Documents, Composite Ex . 17; Electronic Access
Trading Authorization, Ex . 18 .
Chiang Ze Capital, AVV, ("Chiang Ze") is a Trinidadian corporation that held accounts
at three U.S. brokerages . Chiang Ze Certificate of Incorporation, Ex . 19; Newbridge Account
Opening Documents, Composite Ex . 20; Sunstate Account Opening Documents, Composite Ex .
21 ; Electronic Access Account Opening Documents, Composite Ex . 22 . Oehmke had authority
to trade in two of these brokerage accounts and traded Concorde and Absolute Health shares in
these accounts. Declaration of Daniel Kantrowitz ("Kantrowitz Decl.") Ex . 23 at ¶¶ 4, 6 ;
Electronic Access Trading Authorization, Ex . 24 . Kos had authority to trade both Concorde and
Absolute Health shares at the third brokerage house . Sunstate Trading Authorization, Ex . 25 .
Ryzcek Investments, GMBH ("Ryzcek") is a Trinidadian corporation that held accounts
at three U.S. brokerages . Oehmke had trading authorization in two of these brokerage accounts
through which he traded shares in Absolute Health . Ryczek Certificate of Incorporation, Ex . 26 ;
Newbridge Account Opening Documents, Composite Ex . 27; Newbridge Trading Authorization,
Ex. 28 ; Electronic Access Account Opening Documents, Composite Ex. 29; Electronic Access
Trading Authorization, Ex . 30. Kos had authority to trade both Concorde and Absolute Health
stock at a third Ryzcek account at the Sunstate brokerage house . Sunstate Account Opening
Documents, Composite Ex . 31 ; Sunstate Trading Authorization, Ex . 32.
6
DaSilva. SA, ("DaSilva") is a company incorporated in Anguilla which maintained a U .S.
brokerage account, through which Oehmke traded in Concorde stock . DaSilva Certificate of
Incorporation, Ex . 33 ; Sunstate Account Opening Documents, Ex . 34; Sunstate Trading
Authorization, Ex . 35 .
Vanderlip Holdings, NV, ("Vanderlip") is a company incorporated in Anguilla .
Vanderlip Certificate of Incorporation, Ex . 36. Like DaSilva, Vanderlip had a U.S. brokerage
account, through which Oehmke traded in Concorde shares . Sunstate Account Opening
Documents, Ex. 37; Sunstate Trading Authorization, Ex . 38 .
2. Other Defendants
Concorde is a Nevada corporation, with its principal place of business in Boca Raton,
Florida. Nevada Corporate Records for Concorde, Ex . 39 ; Florida Corporate Records for
Concorde, Ex . 40. Concorde's purported business was recruiting Latin American workers for
employment in Europe . Concorde Press Release of July 28, 2004, Ex . 41 .
Absolute Health is a Nevada corporation with its purported principal place of business in
Greensboro, North Carolina, and which claimed to operate health and fitness centers . Nevada
Corporate Records for Absolute Health, Ex . 42. On December 15, 2004, the Commission
suspended trading of this stock . Trading Suspension Order, Ex . 43 .
Hartley Lord is president of Concorde . Florida Corporate Records for Concorde, Ex . 40.
He participates in Concorde's day-to-day operations and has authority over all of its activities .
Testimony Transcript of Hartley Lord ('Lord Test ."), Ex . 44 at 38-42 . In 1981, Lord consented
to a permanent injunction against future violations of the anti-fraud provisions of the federal
securities laws based on his involvement in a stock manipulation scheme . NASD Certified
Documents, Ex . 45 .
7
Thomas Heysek prepared an analyst report for Kos concerning Concorde and produced a
promotional video for Absolute Health . Heysek Analyst Report, Ex . 46 ; Video Tr., Ex. 9;
Heysek Testimony, Ex . 6 at 96-103 ; Flynn Dec, Ex, 10 at ¶¶ 6-8 . Heysek has been associated
with three broker-dealers that terminated him for misconduct ranging from unauthorized trading
to improper handling of customer funds . NASD Web Central Repository Document, Ex . 47 .
Andrew Kline prepared analyst reports for Kos on Concorde and Absolute Health . Kline
Test., Ex. 7 at 28-30. Kline previously served a five-year sentence in a Bolivian jail for a drug
offense . Id. at 12-15 .
Paul Spreadbury was hired by Kos to prepare press releases, tout sheets, and websites
promoting Concorde and Absolute Health . Spreadbury Test ., Ex. 8 at 32-33 ; Concorde Tout
Sheet, Ex. 48 ; Absolute Health Tout Sheet, Ex . 49.
III. FACTUAL BACKGROUND
A. The Concorde Schem e
1 . Concorde' s Reverse Merge r
In mid-June 2004, Lord met with Oehmke and Kos to discuss a proposed reverse merger
between Concorde and MBC Food Corporation, a publicly traded shell corporation Oehmke
owned. Lord Test., Ex . 44 at 47-56 ; Testimony of Mauricio Madero O'Brien, ("Madero Test .")
Ex . 50 at 131-136; Oehmke e-mail of June 13, 2004, Ex . 51 . Concorde was purportedly in the
business of sending Latin American agricultural workers to Europe . Almerimar Direct Labor
Agreement ("Almerimar Agreement"), Composite Ex . 52 ; Concorde Press Release of July 28,
2004, Ex . 41 . During that meeting, Oehmke and Kos revealed their plans to promote Concorde,
which included a videotaped interview with Lord . Lord Test ., Ex . 44 at 50-51 ; Oehmke e-mail
of June 18, 2004, Composite Ex . 53 . Lord told Oehmke and Kos these plans were premature
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because Concorde had no business operations and had not yet sent any workers to Europe . Lord
Test., Ex . 44 at 51 .
Also during the meeting, Lord provided Kos with portions of an agreement he claimed
obligated Concorde to provide 150,000 workers in 2004, and 50,000 workers in 2005, to a
Spanish company by the name of Almerimar, S .A . Almerimar Agreement, Ex . 52. Lord also
showed Kos charts depicting Concorde's projected gross income and placement of workers
under the Almerimar Agreement for 2004 and 2005 . Raul Mendez e-mail of July 5, 2004, Ex .
54.
A few days later, Oehmke and Lord entered into an agreement under which Oehmke,
through Ventana of PA offered Lord $1 million for 10 million shares of Concorde stock. Letter
from Michael Spadaccini of June 29, 2004, Ex . 55 ; Plan of Merger, Composite Ex . 56 . Oehmke
received all the shares but initially paid Lord only a portion of the $1 million. Lord Test ., Ex . 44
at 98-100, 110-19 .
2. Pumping Concorde's Stock
a. The Analysts ' Reports
Even before the June meeting with Lord, Kos retained Heysek and Kline to prepare
analyst reports about Concorde . Kline e-mail of June 16, 2004, Ex . 57; Heysek e-mail of June 8,
2004, Ex. 58 . Despite Lord's misgivings about promoting Concorde, Oehmke and Kos
proceeded to coordinate the promotional campaign . Lord Test ., Ex . 44 at 93-94, 98 ; Oehmke email
of June 18, 2004, Composite Ex . 53; Kline e-mail of June 16, 2004, Composite Ex . 57 . In
the course of preparing their analyst reports, Heysek and Kline communicated by phone and email
with Lord five to ten times about Concorde's operations and future business . Heysek Test .,
Ex. 6 at 107 ; Kline Test., Ex. 7 at 64-66 . For example, in a June 18, 2004 e-mail to Heysek ,
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Lord cautioned him not to "deviate from the party line," of Concorde providing Spanishspeaking
workers to European businesses . Lord e-mail to Heysek of June 18, 2004, Ex . 59.
Heysek finished a draft of his report in early July, and sent it to Kos and Lord for their
review. Heysek e-mail of July 1, 2004, Ex . 60. The draft report made baseless share price and
revenue projections . Id. ; Heysek Analyst Report, Ex . 46 . For example, Heysek predicted
Concorde's share price would rise from $3 per share to a $6 .69 "near-term target price" and
between $25 to $30 within 12 months. Heysek e-mail of July 1, 2004, Ex . 60; Heysek Analyst
Report, Ex. 46 . He also estimated revenue and net income for Concorde of $630 million and
$399 million, respectively, for 2004 . Heysek e-mail of July 1, 2004, Ex . 60; Heysek Analyst
Report, Ex . 46 . Heysek's report projected revenue of $673 million and net income of $465
million for 2005, and $421 million of revenue and $289 million of net income for 2006. Heysek
e-mail of July 1, 2004, Ex . 60; Heysek Analyst Report, Ex . 46. Heysek based these projections
on information Kos provided and the charts Lord gave him . Heysek Test ., Ex . 6 at 93 ; Concorde
Business Plan, Ex . 61 . The Heysek report projected significant revenues in 2006, even though
the Almerimar Agreement, Concorde's only actual or purported contract, contemplated the
placement of workers only in 2004 and 2005 . Heysek Analyst Report, Ex . 46.
Heysek knew or was reckless in not knowing his Concorde projections were false and
misleading. After reviewing Heysek's report, Lord told Heysek his projections were
``ridiculous," and that Concorde had not sent any workers to Spain . Lord Testimony, Ex. 44 at
54. Although Heysek had never seen the Almerimar Agreement, he told Lord he put the
numbers in the report to support selling the stock at $3 per share . Id. Heysek also knew the
charts Lord gave him did not provide any projected revenues or placement of workers for 2006 .
10
Plan of Merger, Ex . 56. Although Lord told Heysek his numbers were ridiculous, Heysek did
not significantly change his report . Revised Heysek Analyst Report, Ex . 62 .
Even though Lord knew the projections in Heysek's report were impossible for Concorde
to achieve and depended on unrealistic numbers, Lord still allowed "Oehmke's PR people" to
publish the report . Lord Test ., Ex . 44 at 53-61 ; Lord e-mail to Mendez of June 18, 2004, Ex . 63 ;
Heysek e-mail of June 30, 2004, Ex . 64. Lord knew Kos and Heysek intended to disseminate the
report to the investing public, and he allowed that to occur despite knowing the report was full of
false and misleading information . Lord Test ., Ex. 44 at 124-30 .
Kos reviewed and approved Heysek's report, even though he also knew or was reckless
in not knowing the information in it was false and misleading. Mendez e-mail of July 5, 2004,
Ex . 54 ; Heysek Test., Ex. 6 at 96-98 . Because Kos had met with Lord and discussed Concorde's
actual operations, he knew or was extremely reckless in not knowing Concorde could not
achieve the spectacular results Heysek's report touted. Lord Test ., Ex. 44 at 47-52 .
In addition, Oehmke received Heysek's report before it was published . On July 2, 2004,
Raul Mendez, a Concorde employee working with Lord, e-mailed Oehmke, among others, drafts
of both Heysek reports and a report prepared by Kline which is discussed below . Mendez emails
of July 2 and July 5, 2004, Ex . 65. Oehmke knew Concorde could not achieve the results
Heysek claimed because he had met with Lord and knew there was no substantive basis for
Heysek's description of Concorde's current operations . Lord Test ., Ex. 44 at 47-52 .
Heysek's reports appeared on two websites, W inn ingStock-Picks . net and
USPennyStocks .com in July and August 2004 . Declaration of Walter Mathews ("Mathews
Decl."), Ex . 66 at ¶ 3 . Kos controlled the content of the websites, with Heysek and Kline
providing some content . Heysek Test., Ex . 6 at 58-59 ; Kline Test., Ex . 7 at 28-29; Spreadbury
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Test., Ex. 8 at 34-35 . The website featured Concorde as a "winning pick" and a "Strong Buy
Recommendation," with a projected price of $30 per share . Mathews Decl . at ¶ 3, Ex. 66. The
WinningStockPicks.net website contained the same baseless information as did the Heysek
report, including the statement that Concorde stock will "see a price of $38 .00 per share over the
next 6 months ." M. at ¶ 1 . The website also repeated Heysek's revenue projections and the
website boasted that Concorde had entered into a three-year contract with the Spanish
government that would "result in $2 .6 billion in revenue and earnings aggregating $9 .23 a
share." Id. Kos specifically authorized the content of the WinningStockPicks .net website urging
Spreadbury to "let it rip tomorrow right at market open" with the title "WSP Presents CNDD
1000% Profit Potential!" so it would have the maximum impact Kos e-mail to Spreadbury of
July 27, 2004, Ex . 67 .
The USPennyStocks .com website, which listed Heysek as a Senior Analyst and Editor,
repeated virtually every false statement about Concorde found on WinningStockPicks .net, and
Heysek's report, including claiming that Concorde had contracts with European countries and
companies to provide a Latin American workforce. Mathews Decl., Ex . 66 at ¶ 5 . It also
projected a $38 per-share price for Concorde stock in six months . Id.
Kline also prepared a report he sent to Kos for approval in June 2004 . Kline e-mail of
June 29, 2004. Ex . 68 ; Kline Analyst Report with Lord's Initials, Ex . 69. It made outlandish
projections similar to those in the Heysek report . For example, Kline said he expected
Concorde's share price to rise from $3 to $38 in six months and to $84 in 12 to 18 months . M.
Kline used the highest possible number of workers Concorde could have placed with Almerimar
to compute these projections . Id. ; Mendez e-mail of July 5, 2004, Ex . 54. However, these
12
figures were utter fantasy because Concorde had yet to place a single worker anywhere or
generate any revenue in 2004 . Kline Test ., Ex . 7 at 81 ; Lord Test., Ex . 44 at 54.
Lord reviewed Kline's report and told him the projections were "ridiculous" because
Concorde had not yet placed any workers . Lord Test ., Ex. 44 at 54 . Lord also told Kline, who
had never even seen the Almerimar Agreement, he was falsely assuming Concorde would be
able to provide the maximum number of workers specified in the agreement . Id. Just as with
Heysek's report, Lord knew the statements in Kline's report were false and the projections were
baseless . Id. Yet, to assure that Oehmke paid Concorde the balance of the $1 million he had
promised to pay for Concorde's stock, Lord felt compelled to initial and approve Kline's draft
report. Id. at 50-55, 163-64, 173-75 ; Kline Analyst Report, Ex . 69 .
Oehmke received an e-mail from a Concorde employee on July 2, 2004, attaching a draft
of Kline's report . Mendez e-mails of July 2 and July 5, 2004, Ex . 65. Because of his meeting
with Lord, Oehmke knew or was extremely reckless in not knowing that Kline's reports were
false and baseless . Lord Test ., Ex. 44 at 47-52. Kos also received copies of Kline's report, both
from Lord and Kline, prior to its dissemination . Kline e-mail of July 4, 2004 with Final
Concorde Report ("Final Kline Analyst Report"), Ex. 70 . For the same reasons stated above,
Kos knew or was extremely reckless in not knowing the report contained false statements and
baseless projections .
Kline prepared a final version of his report that repeated the misrepresentations discussed
above, and added new false and misleading statements . Final Kline Analyst Report, Ex . 70. For
example, Kline predicted Concorde's share price would be $84 in 2006, with estimated revenues
of more than $2 billion and a profit margin of 75 .3%. M. Kline's report falsely told investors
that Concorde is Cash Flow positive now," and "will offer strong profits in its first year o f
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operation ." Id. Finally, like Heysek. Kline failed to disclose that the Almerirnar Agreement
only contemplated the placement of workers in 2004 and 2005, and therefore his revenue and
income projections for 2006 were baseless . Id. The report was also posted on
WinningStockPicks .net and USPennyStocks .com in July and August 2004 . Mathews Decl., Ex .
66 at ¶¶ 4-6.
b. Unauthorized Press Releases
Around the same time Heysek and Kline were preparing their reports, Kos separately
hired Spreadbury to write press releases, tout sheets and content for two websites, as well as
scripts for a voice-mail campaign, to promote Concorde . Spreadbury Test ., Ex . 8 at 32-33 . On
July 28, 2004, Spreadbury issued his first Concorde press release via PR Newswire. Press
Release of July 28, 2004, Ex . 41 . The Pink Sheets website and other media outlets also
circulated this release . Id. Spreadbury used the Heysek and Kline reports Kos provided him to
prepare the press release. Spreadbury Test ., Ex. 8 at 255 . The release, entitled "First Global
`Monster' Employment Placement Service Launched - Concorde America to Place
approximately 200,000 Workers in Spain," announced Concorde had developed a "unique
solution" to the lack of workers in Spain to "perform duties in agriculture, hospitality, sanitation,
security and other jobs ." and touted a "new agreement with the Spanish government ." Press
Release of July 28, 2004, Ex . 41 .
The press release quoted Lord as stating "[t]he recent agreement with Spain is the tip of
the proverbial iceberg . . . [o]nce this first contract is underway and others can see for themselves
our global solution in action, we anticipate the floodgates to open ." Id. The press release also
quoted Julio Aspe, a purported employee of Concorde, claiming that Concorde afforded workers
great opportunities . Id. Aspe explained that while Latin Americans earned about $60 a month i n
14
their own countries for domestic or service work for doing the same work in Spain . Italy or
Germany, they can earn over $1000 a month . . . they can provide their families back home with
health and dental insurance and even be part of a pension plan ." Id.
Virtually every fact in this press release was a lie . First, it stated that Concorde had a
contract with the Spanish government, rather than a Spanish company. Id. Second, Spreadbury
manufactured the quote from Aspe, an associate of Lord's, not employed by Concorde .
Spreadbury Test., Ex. 8 at 63-64. Aspe never made the statement attributed to him . M. Third,
Spreadbury made up the quote from Lord . Id. In fact, Spreadbury never even spoke to Aspe or
Lord before issuing the release, purportedly on behalf of Concorde . Id.
Both Oehmke and Kos received Spreadbury's press release prior to its publication . Kos
e-mail of July 28, 2004, Ex . 41 . In addition, Kos specifically directed Spreadbury to disseminate
it . M. Both Oehmke and Kos knew or were extremely reckless in not knowing the information
in the press release was baseless because for starters, Spreadbury had made up quotes .
Spreadbury Test ., Ex . 8 at 63-65 . In addition, even a quick review of the Almerimar Agreement
or a brief conversation with anyone at Concorde would have revealed Concorde had no
agreement with the Spanish government . Lord Test., Ex . 44 at 79 .
Lord eventually saw the press release and telephoned Spreadbury to ask how it had come
to be issued without his approval, and to inform him of the false statements in it . Spreadbury
Test., Ex . 8 at 100-108 . Spreadbury then called Kos, and the two agreed to publish a second
press release, ostensibly to correct the errors in the first . Id.
Twelve days after the first release, Spreadbury published the second one . Concorde Press
Release of August 9, 2004, Ex . 71 . He deleted the quotes attributed to Lord and Aspe, and
substituted the reference to the government of Spain with one of Spain's largest agricultura l
15
firms ." Id. He also changed Concorde's contact person to John Richey . Id. The second release,
however, was no more truthful than the first . For example, John Richey did not exist .
Spreadbury Test ., Ex . 8 at 109 . The release also omitted disclosing the fact that Concorde had
no revenues and had not placed a single worker anywhere . Concorde Press Release of August 9,
2004, Ex . 71 .
When Lord learned of Spreadbury's two false press releases, Lord directed Concorde to
issue a corrective press release on August 11, 2004, disclaiming them . Concorde Disclaimer
Press Release of August 11, 2004, Ex . 72 . Distributed after the market closed that day,
Concorde's press release indicated that : no one had contacted Concorde about the information in
the first two releases; Spreadbury did not have any relationship with Concorde ; Concorde did not
have a contract with the Spanish government ; Concorde had not made an announcement about its
future earnings ; and it had not specified the number of workers it could supply under any
contract . Id.
c. Tout Sheets and Voice Mails
Concurrently with the unauthorized press releases, Kos coordinated a massive tout sheet
and voice-mail campaign to promote Concorde . Kos paid Spreadbury to prepare the tout sheets,
published under the banner of "The Best Penny Stock Picks!" Spreadbury Test ., Ex . 8 at 72-73 ;
Concorde Tout Sheet, Ex . 48 . Spreadbury used the false and misleading information from the
Heysek report and his press releases to create the tout sheets . Spreadbury Test ., Ex . 8 at 80-81 .
The tout sheets contained extraordinary predictions concerning Concorde's revenues and stock
price potential . Concorde Tout Sheet, Ex . 48. One tout sheet projected Concorde's price to rise
from $4.50 per share to $38 in 6 months and $84 in 12 months . Id. That same tout shee t
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declared that its projections "seem almost conservative" with Concorde having a "market value"
of $1 .2 billion . Id.
Spreadbury also authored the script for the voice-mail campaign promoting Concorde as
a "hot stock pick," with contracts valued at "over $1 billion," and a projected price of $30 per
share . Spreadbury Test ., Ex. 8 at 258-59. Kos coordinated the voice-mail campaign, hiring a
production company to record the voice messages and disseminate them . Id. at 175, 205 . Kos
knew or was extremely reckless in not knowing the voice-mail scripts were false because Lord
had told him Concorde had no revenues and had yet to place any workers . Lord Test., Ex. 44 at
50-51 . Kos nevertheless orchestrated the promotional campaign .
3 . Effect on the Marke t
Investors responded to the massive media campaign . In just one week in early August
2004. Concorde's stock price rose from $3 .70 to $8.90 per share . Yahoo! Finance Company
Events for Concorde. Ex . 108 . However, after Concorde's corrective press release, Concorde's
stock plummeted on August 12, 2004, closing at $2 .51 per share . Id. Although Concorde's
stock price and volume later fluctuated due to further touting, it has since declined in price and
volume, and presently trades at approximately $ .03 per share. Id. However before this
precipitous drop in price, Oehmke and Kos had dumped most of the shares they controlled, either
directly or through the Relief Defendants, to make enormous profits .
B. The Absolute Health Scheme
1 . Absolute Health ' s Purported Merger
In 2004, Kos and Oehmke used a similar pump-and-dump scheme to artificially inflate
the price of Absolute Health's stock . In early 2004, Kos and his associate Jeremy Jaynes met
with Randall Rohm, the majority owner of two companies that own and operate several fitnes s
17
centers in North Carolina . Declaration of Randall Rohm ("Rohm Decl ."), Ex . 73 at ¶ 3 . Kos and
Jaynes proposed that Rohm merge his business with a shell company, Ornate Holdings, Inc .
("Ornate") . Id. Oehmke was the majority shareholder of Ornate through Ventana Consultants .
Action By Written Consent of the Majority Shareholder of Ornate, Ex . 74. The new company to
be called Absolute Health would purportedly manage fitness facilities . Rohm Decl., Ex . 73 at ¶¶
10-14 . Kos, Jaynes and Rohm discussed initiating a public offering of the proposed new
company's stock. Id. at ¶ 3 . Flynn Decl ., Ex . 10 at ¶ 3 . Robin, however, never agreed to the
merger and ceased discussions with Kos and Jaynes . Rohm Decl., Ex . 73 at ¶¶ 6, 8 . 4
2. Pumping the Stock
Although they knew the merger had not occurred, Oehmke and Kos again engaged
Heysek, Kline and Spreadbury to promote Absolute Health's stock . Oehmke and Kos hired the
same false promoters they had used in Concorde, Heysek, Kline and Spreadbury, to create tout
sheets, websites, voice mail spams, a promotional video and false "analyst" reports, all of which
contained false and misleading information concerning Absolute Health . Spreadbury Test ., Ex . 8
at 39-40, 156-57, 169-76, 250-52 ; Kos e-mail of July 12, 2004, Ex . 75 ; Heysek Test ., Ex . 6 at
161-70; Kline Test., Ex . 7 at 29 .
a. Tout Sheets and Voice Mail s
Kos orchestrated a massive tout sheet campaign to promote Absolute Health . At Kos's
direction, Spreadbury promoted Absolute Health through tout sheets titled ,"The Best Penny
Stock Picks!" Spreadbury Test ., Ex. 8 at 263-65 ; Absolute Health Tout Sheet, Ex. 49.
Absolute Health produced a copy of an agreement and plan of merger which purportedly
contains Rohm's signature . While a signature appears under Rohm's name on the supposed merger
agreement, Rohm testified that he never executed any agreement to merge either of his holding companies
with Absolute Health . Ex . 73 at ¶¶ 8, 9 . Thus, the Commission believes that this document was a
forgery .
18
Spreadbury claimed Absolute Health was a "strong buy recommendation" because Absolute
Health owned several fitness centers in the Southeast and was a regional leader in the health and
fitness industry . Id. Absolute Health, however, did not own any fitness centers and had no
business operations or revenues. Rohm Dccl., Ex . 73 at ¶ 14 . Kos knew the information
contained in the tout sheets was false because Rohm never executed the merger agreement . Id. at
¶5,6,and8.
The tout sheets also made outrageous statements about Absolute Health's growth and
financial picture, claiming it would be expanding its operations by 300% and tripling in size
from four to twelve fitness centers. Absolute Health Tout Sheet, Ex . 49. In addition, the tout
sheets projected Absolute Health's stock would "jump almost 300%" in price and that its
revenues would double within a year . M. Spreadbury sent the proposed tout sheets to Kos, who
approved them and arranged to disseminate them to the public through unsolicited mass faxing
campaigns . Spreadbury Test., Ex . 8 at 204-205, 263-65 ; Spreadbury e-mails of June 21 and June
23, 2004, Ex . 76 . Kos paid Spreadbury for these efforts . Spreadbury Test ., Ex . 8 at 228 .
In addition, Kos coordinated a voice-mail spam campaign to promote Absolute Health .
Spreadbury drafted the scripts for the voice messages and Kos approved them . Spreadbury Test.,
Ex . 8 at 250-52 . The scripts contained the same false and misleading information about
Absolute Health's operations as the tout sheets . Voice Mail Tr., Ex . 77. For example, one
message said Absolute Health's stock price would rise to $4 a share and urged investors to
consult the WinningStockPicks.net website . Id. ; Spreadbury Test., Ex. 8 at 160-176. That
website, which Kos controlled, featured Spreadbury's tout sheets promoting Absolute Health .
Spreadbury Test., Ex. 8 at 160-176, 258-60 . Kos knew or was extremely reckless in not
knowing that the voice mails were false because Absolute Health was a shell with no busines s
19
and no revenues. There was simply no basis on which to make such predictions . Kos
nevertheless reviewed and approved the tout sheets and voice mail campaign . Spreadbury Test.,
Ex . 8 at 160-162 .
b. Website Promotion Containing Bogus Analysts' Report s
Kos simultaneously engaged Heysek and Kline, the same analysts that prepared bogus
reports for Concorde, to promote Absolute Health on WinningStockPicks .net and
USPennyStocks .com . Heysek Test ., Ex. 6 at 58-59 and 162-170 ; Kline Test., Ex. 7 at 29-30, 49-
53 . Heysek claimed on WinningStockPicks .net that Absolute Health's "revenues and earning s
are expected to at least double every year through 2006," and touted a 12-month target stock
price of $5 per share . WinningStockPicks .net Website, Ex . 78 . In addition, the website stated
Absolute Health was in the process of acquiring and consolidating health clubs, and expected to
generate revenue of $10 million per year . Id. Information about the company also appeared on
two other websites, Penn sy tockpro.com and Hotstockfinder .com. Declaration of Paul Anderson,
Ex . 79 at ¶ 3 . Penn s~pro.com contained similar outrageous claims about Absolute Health .
The website trumpeted a "600% Profit Potential in 6 Months," with incredible revenue
predictions of $1 .6 million for 2004, $4 .9 million for 2005, and $13 .5 million for 2006. M.
Similarly, it touted a stock price increase from $1 .30 per share to $10 in six months . Id.
Hotstockfinder.com repeated the same baseless assertions, stating that "revenues and earnings
are expected to double every year through 2006 ." Id. Kos specifically approved the content of
the websites and advised how to direct internet traffic to those sites . I-Max e-mails, Ex . 11 .
Kline echoed these extraordinary predictions on US PennyStocks.com. USPennyStocks.com
Website, Ex . 80 .
20
c. Video Promotion
In addition, Kos retained Heysek to produce an Internet video broadcast about Absolute
Health. Heysek Test .. Ex. 6 at 104 . Heysek provided a script to two of Rohm's fitness center
employees whom Jaynes selected to appear in the video . Flynn Decl., Ex . 10 at ¶¶ 4-7, 9. The
employees, following Heysek's script, falsely said Absolute Health owned and operated three
fitness centers and was considering buying eight more . Id. at ¶ 10. The video also claimed
Absolute Health would generate more than $23 million in revenue in 2004 and possibly $100
million in three years. Declaration of Michael Smith, Ex . 81 at ¶ 3 . This projection was baseless
because Absolute Health owned no fitness centers . Rohm Decl., Ex. 73 at ¶ 8 . It had no
revenue, no clients, no employees and no prospects . Id. at ¶ 8 .
Oehmke and Kos knew or were reckless in not knowing the entire promotional campaign
was false and misleading . They knew the Absolute Health tout sheets, faxes, websites and video
were factually baseless because Absolute Health did not own any fitness centers or generate any
revenues. Id. at ¶ 8 . They knew Rohm never agreed to the proposed merger and that Absolute
Health was merely a successor to a shell corporation controlled by Oehmke . Id. at ¶ 14; Action
By Written Consent of the Majority Shareholder of Ornate Holdings, Inc., Ex . 74 .
3. Effect on the Marke t
Investors responded to Absolute Health's media campaign . From early June to
December 2004, the stock price rose from 55 cents to more than $5 per share with heavy
fluctuation during the time periods when Oehmke and Kos traded . Yahoo! Finance Company
Events for Absolute Health, Ex . 109. For example, Absolute Health's stock sank to a 52-week
low of 55 cents on October 21, 2004, and then spiked again to a high of $5 .09 during trading on
December 1, 2004 . Id. Prior to the drop in price, Oehmke and Kos dumped the shares the y
21
controlled either directly or through the Relief Defendants and in the process made enormou s
profits.
C. Proceeds of the Fraud
Oehmke and Kos sold millions of shares of both companies' stock taking advantage of
the sharp increases in the stocks' prices the fraudulent promotional campaigns generated .
Oehmke and Kos ordered trades of Concorde and Absolute Health stock held in the Relief
Defendants' various brokerage accounts . As a result of these trades, the Relief Defendants
netted approximately $22 .9 million in profits . Oehmke and Kos, through the Relief Defendants'
accounts, sold their stock during the fraudulent touting campaigns and funneled the proceeds of
the sales from the Relief Defendants' brokerage accounts to offshore bank accounts. Tullis
Decl ., Ex. I at ¶¶ 5, 8 ; Galdencio Decl ., Ex. 2 at ¶¶ 4-10 . As detailed below, at least $3 .95
million was then transferred from these offshore accounts back to Oehmke and Kos . Galdencio
Decl ., Ex . 2 at ¶¶ 5-9 .
1 . Absolute Health Trading and Tracing Proceeds
In March and April 2004, one of Oehmke's companies, Ornate, transferred 23 .5 million
of its shares to Victoria Management, Ltd . ("Victoria"), IMA Advisors, Inc . ("IMA"), and
Brazos Partners ("Brazos") . Ornate Subscription Agreement, Composite Ex . 82; Interwest
Transfer Documents, Composite Ex . 83 . These three entities then transferred their shares, now
renamed as Absolute Health, to Relief Defendants Barranquilla, Chiang Ze, Ryzcek, and
Ventana Consultants . Interwest Transfer Documents, Composite Ex . 84. Subsequently, each of
the Relief Defendants and Ventana Consultants deposited their Absolute Health shares at various
U.S . brokerages whose trading activities either Oehmke or Kos controlled . The trades are
specifically detailed as follows :
a . Barranquilla's Brokerage Account s
On July 23, 2004, Barranquilla deposited 4 .5 million Absolute Health shares in an
account it held at the Newbridge brokerage firm and began trading . Newbridge Receipt of Stock
Certificates, Composite Ex . 85 . Oehmke had trading authority over this account and was the
only person who directed the broker at Newbridge to buy and sell the stock . Newbridge Trading
Authorization . Ex. 14; Kantrowitz Decl., Ex . 23 at ¶¶ 4, 6, 7-8 .
On November 8, 2004, Barranquilla transferred its 4 .5 million shares of Absolute Health
into its brokerage account at Electronic Access . Electronic Access Security Movement
Statement, Composite Ex. 86; Oehmke also had trading authority over the Electronic Access
account. Electronic Access Trading Authority, Ex . 18 .
At the height of the Absolute Health fraudulent promotional campaign, the Electronic
Access account made more than $9 .2 million in trading profits through sales of Absolute Health
stock . Tullis Decl., Ex . I at ¶¶ 3(a), 8, 9(c). Barranquilla wired these proceeds to its offshore
account at First Curacao International Bank ("FCIB") . Tullis Decl., Ex . 1 at ¶ 11(a) ; Galdencio
Dec ., Ex . 2 at ¶¶ 4-5 . Of Barranquilla's approximately $9.2 million in trading proceeds from
both brokerage accounts, Oehmke received at least $1 .6 million through entities he directly
controlled . Galdencio Decl ., Ex 2 at ¶ 5 ; Michigan Corporate Records for Ventana, Ex . 3 ;
Declaration of Reinaldo Conejo ('`Conejo Decl ."), Ex . 87 at ¶¶ 3-5 . 5
b. Chiang Ze's Brokerage Accounts
On May 25, 2004, Chiang Ze deposited into its account at Newbridge the 3 .5 million
Absolute Health shares it had received from Brazos . Interwest Transfer Documents, Composit e
As of January 25, 2005, Oehmke was listed as the director and chairman of Storage Innovations Tectmologies, a
company that received trading proceeds from Relief Defendants . Conejo Decl ., Ex . 87 at ¶¶ 3-5 .
23
Ex . 88; Newbridge Receipt of Stock Certificate, Ex . 89. Just as with the Barranquilla accounts,
Oehmke controlled the trades for this Newbridge account . Kantrowitz Decl ., Ex . 23 at ¶¶ 3-4, 6 .
On June 8, 2004, Chiang Ze transferred 3 .5 million shares from Newbridge into its
account at Sunstate . Sunstate Receipt of Stock Certificate, Composite Ex . 90. Kos had trading
authority over this account . Sunstate Trading Authority, Ex . 25 . During the same time period
that Kos was overseeing the fraudulent promotion of Absolute Health stock, this account reaped
$4.38 million in trading profits. Tullis Dec ., Ex . I at ¶¶ 3(c), 7(a). Chiang Ze wired these
proceeds to FCIB. Tullis Dec ., Ex . I at ¶¶ 3(c), 11(b) ; Galdencio Dec., Ex 2 at ¶¶ 4, 6 .
Chiang Ze also maintained a third brokerage account at Electronic Access over which
Oehmke had trading authority and which received more shares of Absolute Health stock .
Electronic Access Trading Authority, Ex . 24 ; Electronic Access Security Movement Report, Ex .
91 . While defendants touted Absolute Health, Chiang Ze made more than $4 .3 million in trading
profits from sales of these shares . Tullis Decl ., Ex . I at ¶ 7(a) . Chiang Ze wired its trading
profits to its offshore account at FCIB . Tullis Decl ., Ex. 1 at ¶ 11(b) . A minimum of $975,000
was then transferred to entities controlled by Oehmke . Galdencio Decl., Ex . 2 at ¶ 6 ; Michigan
Corporate Records, Ex . 3 ; Conejo Decl ., Ex . 87. Specifically, Oehmke received $150,000 in his
name, while Oehmke's company, Ventana Consultants, received an additional $575,000, and
Storage Innovations received $400,000, all from Chiang Ze . Galdencio Dec ., Ex . 2 at ¶ 6 .
c. Ryzcek ' s Brokerage Accounts
Ryzcek deposited the six million Absolute Health shares it received from Victoria into its
account at Newbridge on May 24, 2005 . Interwest Transfer Documents, Composite Ex . 92 ;
Newbridge Receipt of Stock Certificates, Composite Ex . 93 . Oehmke controlled the trading of
shares in this account . Newbridge Trading Authority, Ex . 28 ; Kantrowitz Decl ., Ex . 23 at ¶ 4. 6 .
24
Over the course of two months in August and September 2004, Ryzcek transferred
Absolute Health shares from Newbridge to its Electronic Access brokerage account . Electronic
Access Security Movement Statement, Composite Ex . 94. Oehmke had authority to trade stock
in this account as well. Electronic Access Trading Authorization, Ex . 30. Ryzcek also had an
account at Sunstate, over which Kos had trading authority . Sunstate Trading Authorization, Ex .
32 : While investors were receiving materially false and misleading information about Absolute
Health, Ryzcek's brokerage accounts netted approximately $76,000 in trading profits . Tullis
Dec., Ex . 1 at ¶¶ 3(e), 5 .
d. Ventana's Brokerage Account
During this same time period, Oehmke also traded 100,000 Absolute Health shares issued
to Ventana Consultants by Brazos and deposited with Newbridge . Interwest Transfer
Documents, Composite Ex. 95; Newbridge Deposit Documents, Composite Ex . 96. Ventana
made a profit of $81,068 .88 trading this Absolute Health stock . Tullis Decl ., Ex . I at ¶ 3(f), Ex .
F, ¶TI 5-6 .
e. Trading Proceeds Wired To Other Offshore Accounts
In addition to the payments described above, Bovee Enterprises ("Bovee") and Jasmine
Takamine ("Jasmine"), two entities with accounts at FCIB, received cash transfers from
Barranquilla and Chiang Ze's brokerage accounts . Galdencio Decl., Ex . 2 at ¶ 8. From August
through December 2004, Bovee received wires totaling $5 .5 million from Barranquilla and $4 .5
million from Chiang Ze . Id. Bovee then paid out $1 million to Ventana Consultants . Id. ;
Michigan Corporate Records, Ex . 3. From July through October 2004, Chiang Ze wired $2 .2
million to Jasmine, another entity with accounts at FCIB . Galdencio Decl ., Ex . 2 at ¶ 6 . On
25
August 23, 2004, Jasmine disbursed $250,000 to another Vanderlip account on which Kos is a
signatory. Galdencio Dec ., Ex . 2 at ¶ 9, Ex . H, I .
2 . Concorde Shares and Tracing Proceeds
The Defendants conducted a similar fund transfer scheme by trading shares of Concorde .
Through Ventana of PA, Oehmke purchased 10 million shares of Concorde common stock .
Interwest Transfer Documents, Ex . 97 . The next day, Oehmke transferred six million of those
shares to four of the Relief Defendants . Cancelled Concorde America Stock Certificate,
Composite Ex. 98 ; Interwest Transfer Documents, Composite Ex . 99. The Relief Defendants
received Concorde shares as follows :
a. Barranquilla received 1 million Concorde shares in its account at Newbridge on
July 20, 2004. Newbridge Receipt of Concorde Stock Certificates, Composite Ex . 100. Oehmke
controlled the trading in this account . Newbridge Trading Authorization, Ex . 14; Kantrowitz
Decl.. Ex . 23 at ¶¶ 4, 6. During the Concorde fraudulent promotional campaign, Barranquilla
netted approximately $5 .8 million in profits through its sale of Concorde stock . Tullis Decl ., Ex .
I at ¶¶ 8-1 O(b) .
b. Chiang Ze received 1 million Concorde shares in its Sunstate account on July 23,
2004 . Sunstate Receipt of Concorde Stock Certificates, Composite Ex . 101 ; Declaration of
Kimberly Miller, ("Miller Decl ."), Ex. 102.6 Kos had trading authority for this account.
Sunstate Trading Authorization, Ex . 25. During the fraudulent Concorde promotional campaign,
Chiang Ze netted more than $898,000 through sales of Concorde stock . Tullis Decl ., Ex . 1 at ¶¶
8-10 (a) .
6 Penson Financial Services, Inc ., reissued the original Concorde stock certificates transferred to Chiang Ze, Da
Silva and Vanderlip to facilitate trading in these shares . Penson acts as a clearing agent for Sunstate's trades . This
reissuance caused the Concorde certificates to bear a different stock certificate number, however they were the sane
shares originally issued to these entities . Declaration of Kimberly Miller, Ex . 102 .
26
c . DaSilva maintained a brokerage account at Sunstate over which Oehmke had
trading authority . Sunstate Trading Authorization, Ex . 35 . On July 23, 2004, Da Silva received
2 million Concorde shares in this account . Sunstate Receipt of Concorde Certificates, Composite
Ex . 103 ; Miller Decl., Ex . 102. DaSilva netted more than $1 .8 million through sales of Concorde
stock while the stock was being fraudulently promoted . Tullis Decl ., Ex . I at ¶¶ 8-10(c) .
d. Vanderlip received two million in an account it held at Sunstate in July and
August 2004 . Sunstate Receipt of Concorde Stock Certificates, attached as Composite Ex . 104;
Miller Decl . Ex. 102.' Oehmke had authority over the Vanderlip account at Sunstate to buy, sell
and trade shares. Sunstate Trading Authorization, Ex . 38. Vanderlip then transferred its
Concorde shares from Sunstate to its account at Electronic Access for trading . Electronic Access
Security Movement Report, Ex. 105 . Overall, Vanderlip made approximately $26,000 trading
Concorde stock. Tullis Decl ., Ex. I at ¶¶ 8-9.
C. Ventana also traded in Concorde stock through its account at Newbridge from
July 30, 2004 through August 4, 2004 . Tullis Decl ., Ex. 1 at ¶ 3(f), Ex . F. Oehmke controlled
the trading in this account . Kantrowitz Dec, Ex . 23 at ¶ 6 . During the Concorde fraudulent
promotional campaign, Ventana netted $5,263 .96 in trading profits. Tullis Decl ., Ex . I at ¶ 9 .
In total, as a result of their trading activities, Relief Defendants' brokerage accounts
netted more than $8 .5 million in profits from trading Concorde stock . Tullis Decl ., Ex . 1 at ¶ 8 .
The Commission believes that additional bank records will show millions in direct and indirect
payments to Oehmke, Kos and entities they control .8
' The Vanderlip account opening documents show Penson Financial Services, Inc ., because that firm acted as the
clearing agent for Sunstate's trades .
The Commission has subpoenaed the SunTrust bank trust account records of the Bush Ross law firm, which
received proceeds from the Relief Defendants' brokerage accounts during the Concorde promotional campaign .
One of the firm's partners, Jeremy Ross, Esq ., advised the Commission that absent a Court Order, he will not
produce the firm's trust account records because counsel for Oehmke and Kos advised him to assert the attorney-
27
IV. LEGAL ARGUMENT
A. An Adverse Inference Should Be Drawn From Defendants' Exercise Of The Fifth
Amendmen t
Oehmke and Kos exercised their Fifth Amendment privilege during their testimony to
every relevant question (other than their personal identification information), and Kos asserted
the privilege instead of filing a sworn accounting . Sworn Testimony Transcript of Donald E.
Oehmke, September 13, 2004, Ex . 106; Sworn Testimony Transcript of Bryan Kos, September
13, 2004, Ex . 107. Courts may draw an adverse inference may be drawn against parties to civil
actions when they refuse to testify in response to probative evidence offered against them .
Baxter v. Palmigiano, 425 U.S . 308, 318 (1976) ; United States v. A Single Family Residence,
803 F.2d 625, 629 n . 4 (11th Cir. 1986) (district court drew a permissible inference from failure
to testify that testimony would not have been favorable to the corporation's position) ; FDIC v.
Elio, 39 F .3d 1239 (1 s` Cir . 1994) (district court entitled to draw negative inference against
defendant who was recipient of fraudulent transfer) ; SEC' v. Cherif, 933 F.2d 403, 412 (7`h Cir .
1991) (affirming preliminary injunction where court took adverse inference from assertion of
Fifth Amendment); SEC v. Scott, 565 F.Supp. 1513 (S .D.N.Y . 1983) (evidence of scienter was
bolstered by defendant's exercise of Fifth Amendment privilege) .
Because Oehmke and Kos refused to answer all questions concerning this matter, the
Court should infer that if they had testified the testimony would not have been favorable to their
positions . This supports the Court's entry of the preliminary injunction, the asset freeze and the
other relief the Commission requests . United States v. Two Parcels of Real Property, 868 F.
Supp. 306, 311 (M .D. Ala. 1994) (granting summary judgment based on probative evidence and
inference that because defendants invoked Fifth Amendment, their testimony "would not hav e
client privilege . The Commission intends to file a separate motion compelling production of the firm's trust account
records .
28
been favorable to their position") . See also SEC v. Prater, 289 F . Supp.2d. at 50 (defendant's
invocation of the Fifth Amendment weighed in favor of issuing preliminary injunction against
him). Thus. the Court should keep in mind Oehmke's and Kos's complete lack of substantive
testimony and their failure to file accountings when considering the evidence that an injunction
and asset freeze is appropriate .
B. Oehmke And Kos Violated The Anti -Fraud Provisions Of The Securities Laws
1 . Violations of Section 10(b)
The Commission's Complaint alleges Oehmke and Kos violated Section 10(b) of the
Exchange Act and Rule 10b-5, which proscribe fraudulent conduct in connection with the
purchase or sale of securities . U.S. v. Naftalin, 441 U .S. 768, 773 (1979) . These provisions
prohibit making any untrue statement of material fact or omitting to state material facts in
connection with the purchase or sale of securities . A fact is material under the securities laws if
a "reasonable man would attach importance to the fact misrepresented or omitted in determining
his course of action ." SEC v. Carriba Air, Inc . 681 F.2d 1318, 1327 (11th Cir. 1982) . The
Commission must also show Oehmke and Kos acted with scienter . SEC v. Chemical Trust, No .
00-8015-CIV-Ryskamp . 2000 WL 33231600 at *9 (S .D . Fla. Dec . 19, 2000)(defendants'
knowing distribution of offering materials they knew contained false and misleading information
established requisite scienter) .
2. Oehmke and Kos Made False Statements and Omission s
A defendant makes a false statement when he "acting alone or with others, creates a
misrepresentation ." In re Enron Corp. Sec., 235 F.Supp .2d 549, 588 (S .D . Tex. 2002) . Section
10(b) and Rule 10b-5 permit violations to be established against defendants who, with scienter,
participate in a course of business or a "device . scheme, or artifice" that operates as a fraud o n
29
sellers or buyers of stock, even if the defendants did not make a false statement . Id. (emphasis
added); See also, Affiliated Ute Citizens v. United States, 406 U.S . 128, 152-53 (1972) . See also
SEC v. Zandford, 535 U .S . 813, 819-22 (2002) (continuous series of unauthorized sales of
securities and personal retention of proceeds without client's knowledge properly viewed as a
course of business that operated as a fraud in connection with the sale of securities) ; Santa Fe
Indus. v. Green, 430 U.S . 462, 475-76 (1977) (Section 10(b) covers deceptive practices and
conduct) .
Here, Oehmke and Kos made false statements and omissions within the meaning of
Section 10(b) and Rule lOb-5 by orchestrating two multi-media campaigns endorsing companies
that had little, if any, business . They executed this plan by hiring and directing promoters to tout
Concorde and Absolute Health stock through factually baseless analyst reports, tout sheets, press
releases and the internet, knowing the information was false and misleading .
More specifically, Oehmke and Kos approved analyst reports Heysek and Kline wrote for
dissemination to the public in various forms, including on websites, through Spreadbury's press
releases and tout sheets and in voice messages . They did the same with Absolute Health, even
producing a video broadcast on the internet. They approved widespread distribution of these
materials even though they knew (1) Concorde was a fledgling company with no revenues, no
profits, and not even one worker in Spain or anywhere else in the world, and (2) Absolute Health
had absolutely no business and only existed as a renamed shell company.
This conduct makes them liable under Section 10(b) and Rule lOb-5 because they were
involved in creating, editing or reviewing false statements that reached investors . SEC v. First
Jersey Sec ., Inc., 101 F .3d 1450, 1471 (2"' Cir . 1996) ("primary liability may be imposed not
only on persons who made fraudulent misrepresentations but also on those who had knowledg e
30
of the fraud and assisted in its perpetration ") (internal quotation marks and citation omitted)
(emphasis added) ; Enron, 235 F .Supp.2d at 588 (adopting Commission's definition that to
"make" a false statement under Rule lOb-5, a person "can be a primary violator if he or she
writes misrepresentations for inclusion in a document to be given to investors, even if the idea
for those misrepresentations came from someone else") (emphasis added) ; McNamara v. Bre-X
Minerals Ltd., 57 F.Supp .2d 396, 426 (E.D. Tex . 1999) ("if a defendant played a 'significant
role' in preparing a false statement actually uttered by another, primary liability will lie") ; In re
Sunbeam Sec. Litig., 89 F .Supp.2d 1326, 1342 (S .D. Fla. 1999) (any complex securities fraud
case is likely to have "multiple violators" who each participated at some level in creating a
misrepresentation) . Accordingly, Oehmke and Kos made false statements and omissions within
the meaning of the federal securities laws .
3. Oehmke and Kos's False Statements and Omissions Were Materia l
An omission is material if there is "a substantial likelihood that the disclosure of the
omitted fact would have been viewed by the reasonable investor as having significantly altered
the 'total mix' of information made available ." Basic, Inc . v. Levinson, 485 U.S. 224, 231-32
(1988). See also Carriba Air, 681 F .2d at 1323 .
Here, Oehmke and Kos approved Concorde promotional materials that:
n Misrepresented that Concorde had contracts with European countries and the
Spanish government, when, in reality, all Concorde had was a single contract
with a Spanish company;
n Projected hundreds of millions of dollars in revenue and profits for Concorde
based on workers the company was going to send to Europe while neglecting to
mention that Concorde in reality had never placed a worker and had no
revenue;
n Projected astronomical share price increases for Concorde based on projections
the company president classified as "ridiculous" and impossible to achieve ; and
31
n Made up people and quotes .
With regard to Absolute Health, Oehmke and Kos approved and disseminated
promotional materials to the investing public that :
n Falsely stated Absolute Health owned and was in the process of acquiring
fitness centers when , in fact, it owned nothing and had no prospects of
acquiring any fitness centers ; and
n Falsely stated Absolute Health had revenues when it did not .
In sum , Oehmke and Kos were intricately involved in producing and distributing
materials about the two companies that misstated virtually every relevant fact about them . On
their face , these misrepresentations and omissions were materi al . In deciding whether to buy the
stock of Concorde and Absolute Health a reasonable investor would certainly consider the fact
that neither company had the business the promotional materi als claimed. A reasonable investor
obviously would want and need to know that Absolute Health did not own any fitness centers. A
reasonable investor would further consider it extremely important to know that the president of
Concorde had rejected the factual bases of the revenue and stock price projections about the
company. It is hard to imagine misrepresentations and omissions being more materi al .
4. Oehmke and Kos Acted With Sciente r
The evidence establishes that Oehmke and Kos acted with scienter, which the courts have
defined as either knowing misconduct or severe recklessness - an extreme departure from the
standards of ordinary care . Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976) ; Carriba Air,
681 F.2d at 1322. Added to this evidence is Oehmke and Kos's asse rtion of the Fifth
Amendment privilege from which the Court should infer they acted with the requisite scienter
See Scott, 565 F .Supp . at 1533 ( drawing negative inference from defendant's exercise of Fift h
32
Amendment that he acted with requisite scienter, knowledge and intent that he violated the
securities laws) .
Here, the evidence overwhelmingly shows Oehmke and Kos knew, or were severely
reckless in not knowing, the entire promotional campaign they orchestrated was false and
misleading . Kos reviewed and approved the public distribution of the analyst reports Heysek
and Kline prepared about Concorde, and the tout sheets and press releases Spreadbury created .
The analyst reports and Spreadbury's first press release both said Concorde had a three-year
contract with the Spanish government, which Kos knew or was extremely reckless in not
knowing was false . The analyst reports also contained revenue and share-price projections for
Concorde based on figures Kos knew Concorde's president had termed ridiculous . The analyst
reports further stated Concorde would have extraordinary revenues and profits in 2006, when
Kos knew or was reckless in not knowing Concorde had no contracts to support any revenue or
profit projections for that year.
With regard to Absolute Health, because he was involved in meetings between the
principals, Kos knew that no merger between Oehmke's company and the holding companies
that actually owned fitness centers ever occurred . Therefore, he knew that Absolute Health's
promotion as an up-and-coming fitness center owner was a complete sham. Under these
circumstances, Kos acted with the requisite scienter .
Similarly, Oehmke knew the touting was false because he also was involved in meetings
between the principals that his company had never acquired any fitness centers. Yet he knew
Kos and others were distributing promotional materials to the public that falsely claimed
Absolute Health was a fitness center owner. As with Kos, Oehmke knew Absolute Health had
no business, no revenues and no fitness centers, and he was aware of the fraudulent promotiona l
33
campaign and promotional materials containing revenue and profit projections in the hundreds of
millions of dollars. Oehmke also knew that Concorde had no business and no revenue and had
yet to place even a single worker in Spain . Therefore, Oehmke plainly acted with scienter.
5. The Conduct Was In Connection With The Purchase and Sale Of Securitie s
The Commission must show that the fraudulent conduct of Oehmke and Kos occurred in
connection with the purchase or sale of securities . The Supreme Court has held that the federal
courts should broadly interpret this "in connection with" requirement of the securities laws to
effectuate their remedial purpose . Zandford, 535 U.S . at 819. Statements or omissions made
with regard to trading in general, not just particular transactions, meet the "in connection with"
requirement. In re Carter-Wallace Sec. Litig., 150 F.3d 153, 156 (2"d Cir. 1998) (company
statements in technical medical journals were in connection with trading of securities) ; SEC v.
Rana Research, 8 F .3d 1358, 1362 (9t}' Cir . 1993) (press releases were in connection with stock
trading) ; In re Ames Dep't Stores Inc . Stock. Litig., 991 F.2d 953, 966 (2d Cir. 1993) (annual
reports and Commission filings met "in connection with" test) .
The omissions and misrepresentations Oehmke and Kos made were in connection with
securities trading . They approved distributing promotional materials about Concorde and
Absolute Health rife with omissions and misrepresentations for the express purpose of interesting
investors in buying the stock of both companies. They knew the promoters were posting and
communicating the false information through channels aimed specifically at potential purchasers
of stock. Their long-term goal, of course, was to drive up the stock prices of both companies so
they could, in turn, sell their own shares (or those of the Relief Defendants) for the highest price
possible. Thus, their conduct was in connection with the purchase and sale of securities . SEC v.
Corporate Relations Group, Case No. 6:99-cv-1222, 2003 U .S . Dist. Lexis 24925 at *31 (M .D.
34
Fla. March 28 . 2003) (promoters' conduct was in connection with the purchase and sale of
securities because it acquired and sold stock it recommended that others buy) ; SEC v. Blavin,
557 F. Supp. 1304, 1310-11 (E .D. Mich. 1983) (statements were made in connection with the
purchase and sale of securities because sole purpose of newsletter was to recommend stock the
promoter-defendant sold).
C. An Order Freezing Assets Is Warranted To Preserve Investor Fund s
In its Complaint, the Commission seeks injunctive relief, disgorgement of the
Defendants' ill-gotten gains, an accounting, an asset freeze, repatriation of foreign funds,
prejudgment interest and civil penalties . Here, the ancillary remedy of an asset freeze is
appropriate to prevent Oelunke and Kos from dissipating the proceeds of their fraudulent
scheme, to require Kos and Oehmke to provide sworn accountings of the ill-gotten gains they
received, and to ensure sufficient funds are ultimately available to satisfy any final judgment the
Court might enter ordering the payment of disgorgement, prejudgment interest or civil penalties .
1 . Standard for Obtaining a Preliminary Injunctio n
Under Rule 65, the Court may issue a preliminary injunction after providing notice to the
adverse party. Fed . R. Civ . P . 65 ; Order of August 5, 2005, D .E. 91 . Section 21(d) of the
Exchange Act . 15 U.S .C. § 78u(d), entitles the Commission "upon a proper showing" to a
preliminary injunction. SEC v. Unifund SAL, 910 F .2d 1028, 1035 (2d Cir . 1990) ; SEC v.
Lybrand, Case No . 000iv .1 387, 2000 WL 913894 *11, *9 (S .D .N .Y. July 6, 2000) . This "proper
showing" has been described as a "justifiable basis for believing, derived from reasonable
inquiry and other credible information, that such a state of facts probably existed as reasonably
would lead the Commission to believe that the defendants were engaged in violations of the
statutes involved ." SEC v. General Refractories Co ., 400 F. Supp. 1248, 1254 (D .D .C. 1975) .
35
Such a showing is made when the Commission presents a prima facie case that the
Defendants have violated the law, and that there is a likelihood of a risk of repetition . Lybrand,
2000 WL 913894 at *9 ; SEC v. Cavanaugh, 155 F.3d 129, 132 (2d Or. 1998) . Unlike private
litigants, the Commission need not demonstrate irreparable harm or the unavailability of an
adequate remedy at law . Lybrand, 2000 WL 913894 at *9. As shown in the facts set forth
above, the Commission is easily able to demonstrate that the Defendants have violated the
securities laws set forth below, and will continue to violate them if not immediately enjoined
from their fraudulent activity .
As this Court has found, Rule 65 is the mechanism by which courts may grant emergency
relief freezing assets . SEC v. Asset Recovery and Management Trust, S.A., 340 F.Supp.2d 1305,
1309-10 (M.D. Ala. 2004) (court analyzed whether magistrate's order freezing assets should be
regarded as a temporary restraining order or a preliminary injunction under Rule 65, regardless
of the fact that magistrate's order was not so labeled and concluded it should be treated as a
preliminary injunction) ; Trafalgar Power Inc. v. Aetna Life Ins . Co., 131 F .Supp .2d 341, 350
(N.D .N.Y. 2001) (court is empowered to grant preliminary relief freezing assets in case seeking
equitable relief under Rule 65) .
An asset freeze "facilitates enforcement of any disgorgement remedy that might be ordered"
and may be granted "even in circumstances where the elements required to support a traditional
SEC injunction have not been established ." Unifund, 910 F.2d at 1041 . Indeed, an asset freeze
requires a lesser showing than a preliminary injunction. Cavanaugh, 155 F.3d at 132 ("an asset
freeze requires a lesser showing ; the SEC must establish only that it is likely to succeed on the
merits") ; Unif rnd, 910 F.2d at 1041 (asset freezes appropriate "even in circumstances where the
elements required to support a traditional SEC injunction have not been established") .
36
2. The Court's Broad Equitable Powers
Pursuant to their general equity powers, federal courts may order ancillary relief to
effectuate the purposes of the federal securities laws . Levi Strauss & Co. v. Sunrise Intl Trading
Co., 51 F .3d 982, 987 (11 "' Cir. 1995) (a request for equitable relief invokes the district court's
inherent equitable powers to order preliminary relief, including an asset freeze); SEC v. Posner,
16 F.3d 520, 521-22 (2d Cir . 1994) (courts have "broad equitable power in securities cases to
fashion appropriate ancillary remedies necessary to grant full relief') ; SEC v. Unifund SAL, 910
F.2d 1028, 1041 (2d Cir . 1990); SEC v. Wencke, 622 F.2d 1363, 1369 (9th Cir. 1980); SEC v.
Manor Nursing Ctrs., 458 F.2d 1082, 1103 (2d Cir . 1972) (district court's entry of asset freeze as
ancillary relief to effectuate the purpose of the securities laws was proper exercise of its equity
powers); SEC v. Current Financial, 62 F.Supp.2d at 66 (D .D.C. 1999) ("District courts have the
equitable power to use ancillary remedies to preserve assets") ; SEC v. R.J. Allen & Assoc ., 386 F.
Supp . 866, 881 (S .D. Fla . 1974) (once the equity jurisdiction of the court has been invoked by a
securities law violation, the Court possesses the necessary power to fashion an appropriate
remedy).
When there are concerns that defendants might dissipate assets, or transfer them beyond the
jurisdiction of the Court, the Court need only find some basis for inferring a violation of the federal
securities laws in order to impose an asset freeze . Unifitnd SAL, 910 F .2d at 1041-42 . See also SEC
v. Margolin, 1992 U.S . Dist. LEXIS 14872 at * 19-*20 (S .D.N.Y. Sept. 30, 1992) (court issued
freeze order based on "sufficient showing" that an asset freeze was necessary to prevent defendants
from "secreting or dissipating" assets) ; SEC v. Grossman, 1987 U.S. Dist. LEXIS 1666, at *35-*36
(S.D.N.Y. Feb. 17, 1987) ("[a]n order freezing assets may be imposed even in the absence of a
preliminary injunction") . Indeed, it is well settled that a court may impose an interim asset freeze i n
37
order to preserve funds for a number of equitable remedies, including disgorgement , and subject all
assets owned by a defendant to the freeze up to the amount of the defendant's "Ill-gotten gains ."
CFTC v. American Metals Exchange Corp., 991 F.2d 71, 79 (3d Cir . 1993) ; SEC v. Current
Financial Serv., Inc ., 783 F. Supp. 1441, 1443 (D .D.C. 1992). Such a broad asset freeze is
generally necessary to ensure that a future disgorgement order will not be rendered meaningless .
See, e.g., United States v . Cannistraro , 694 F. Supp. 62, 71-72 (D .N.J. 1988) ; SEC v. Vaskevitch,
657 F. Supp . 312, 315 (S .D.N .Y. 1987) ; International Controls Corp. v. Vesco, 490 F.2d 1334,
1347 (2d Cir . 1974); R.J. Allen, 386 F. Supp. at 881 ("[a]s to the issue of an asset freeze, the court
certainly has the ability to ensure that the defendants' assets are not secreted or dissipated before
entry of final judgment concluding this action") .
To ensure compensation to victims of securities fraud, cou rts commonly maintain an
asset freeze when a defendant ' s potential liability for disgorgement , prejudgment interest and
civil penalties exceeds the value of the frozen prope rty. SEC v. Comcoa, Ltd., 887 F. Supp .
1521, 1524 (S .D . Fla . 1995) ; Current Financial Services, 62 F. Supp. 2d at 67-68 (holding that it
was reasonable to maintain an asset freeze over all of defendant's assets and rejecting a request
for atto rneys' fees because the potential disgorgement the SEC could receive far exceeded the
amount of frozen funds) ; Grossman, 887 F.Supp . at 661 ; SEC v. Roor, 1999 WL 553823
(S .D.N .Y. July 29, 1999) (refusing to release any of defendant's funds to pay counsel because
there was "a likelihood that defendant would soon have significant personal liabilities to the
government and victims of the fraud").
In addition , there is no requirement that frozen assets be traceable to the fraud and, in fact,
courts typically freeze funds and assets not so traceable . See e.g. Grossman , 887 F.Supp. at 661
("t is irrelevant whether the funds affected by the assets freeze are traceable to the illega l
38
activity"), aff'd, 101 F.3d 109 (2d Cir . 1996) ; SEC v. Glauberinan, 1992 WL 175270, 1 (S .D.N .Y.
1992) (rejecting defendant's argument that funds subject to disgorgement must be traced "dollar for
dollar" to the illegal activity, and noting that defendant cannot take refuge in having commingled his
profits with his other personal funds") : SEC v. Belmonte, 1991 WL 214252 (S .D.Fla. 1991).
3. A Freeze Over Oehmke and Kos's Assets is Appropriat e
Here, the Commission has presented more than a sufficient basis for inferring that Oehmke
and Kos violated the federal securities laws by fraudulently promoting the stock of Concorde and
Absolute Health to drive up the price of both for their own gain. As set forth above, Oehmke and
Kos orchestrated two multi-media campaigns endorsing companies that had little, if any,
business . They specifically directed promoters to tout Concorde and Absolute Health stock
through factually baseless analyst reports, tout sheets, press releases, voice-mails and the
internet, knowing the information was false and misleading .
Once the fraudulent promotional campaign was in place, Oehmke and Kos ordered the
trading of these shares in Relief Defendants' brokerage accounts. Specifically, Oehmke
controlled both companies that issued the Concorde and Absolute Health stock to Relief
Defendants. Michigan Corporate Records, Ex . 3 ; Pennsylvania Corporate Records, Ex . 4;
Action By Written Consent, Ex . 74. Then, Oehmke exercised his trading authority to sell the
stock held by all five Relief Defendants' brokerage accounts . For example, the Newbridge
broker took his trading instructions from Oehmke, not the nominees, and had very little contact
with the nominees . Kantrowitz Decl ., Ex . 23 at ¶¶ 3, 4, 6-8 ; Newbridge Trading Authorizations,
Exs . 14, 28 . Oehmke also could order trades for the Barranquila, DaSilva and Vanderlip
accounts at Sunstate brokerage, and enjoyed the same authority over the Electronic Access
accounts for Barranquilla, Chiang Ze and Ryzcek. Sunstate Trading Authorizations, Exs . 16, 35 ,
39
38 ; Electronic Access Trading Authorizations, Exs. 18, 24, 30 . Similarly, Kos had authority to
trade the Chiang Ze and Ryzcek accounts with Sunstate . Sunstate Trading Authorizations, Exs .
25, 32 .
Oehmke and Kos's trades of Concorde and Absolute Health shares generated
approximately $22 .9 million in illegal gains wired to offshore nominee accounts . Tullis Dec.,
Ex . I at ¶¶ 5, 8, 11 (a) and 1 1 (b). An accounting analysis of the brokerage account statements
and the bank records reveals that Barranquilla's $9 .2 million trading profits were wired to FCIB
and then disbursed, at least in part, to Oehmke . Id. ; Galdencio Decl., Ex. 2 at ¶ 5 . Chiang Ze
also wired its trading proceeds to FCIB, and later transferred funds to Oehmke . Tullis Dec ., Ex.
1 at ¶ 1 I (b) ; Galdencio Decl ., Ex . 2 at ¶ 6. Other FCIB accounts received trading proceeds and
wired these to Relief Defendants as well, with at least one disbursement to Kos . Galdencio
Decl ., Ex . 2 at ¶¶ 5, 6, 8, 9 .
Oehmke and Kos have failed to comply with this Court's Order dated March 1, 2005, which
required a sworn accounting to the Court and the Commission, therefore, the current value of their
assets is unknown .' They also failed to answer relevant questions concerning their assets during
their testimony . To date, the Commission has been able to track more than $3 .97 million in direct
payments to Oehmke and Kos . The Commission is still attempting, however, to track what
happened to the millions of additional dollars earned through the pump and dump scheme.
Even if Oehmke and Kos are held liable only for the $3 .97 million they directly received,
that is far greater than the approximately $927,000 frozen . However, Oehmke and Kos may well
9 On March 8, 2005, Oehmke provided the Commission with a sworn accounting, under penalty of perjury, which
purportedly accounted for all of Oehmke's proceeds derived from sales of Concorde and Absolute Health stock .
Oehmke disclosed that he received only approximately $86,000 from Ventana Consultant's sales of Absolute Health
and Concorde shares . Oehmke failed to account for any of the $3 .7 million in proceeds he received from Relief
Defendants that can be directly traced to sales of Concorde and Absolute Health stock . Galdencio Decl ., Ex 2 at ¶¶
5, 6, 8 . Thus, Oehmke's accounting is unreliable if not perjurous .
40
be liable for all of the fraudulent profits dispersed in this scheme at the expense of investors,
because when two or more individuals or entities collaborate or have close relationships in
engaging in the securities laws violations, they may be held jointly and severally liable for the
entire amount of the fraud . See e.g. SEC v. Hughes Capital Corp., 124 F.3d 449, 455 (3`d Cir .
1997) (holding a defendant jointly and severally liable for disgorgement) ; SEC v. First Pacific
Bancorp, 142 F.3d 1186, 1191-92 (9tt' Cir. 1998) (holding defendant who was chairman, CEO
and majority shareholder jointly and severally liable with corporate defendant) ; SEC v. Berger,
244 F.Supp .2d 180 (S .D .N.Y. 2001) (holding defendant jointly and severally liable with
corporation because he conceived of the fraud and controlled the corporate defendant) . Oehmke
and Kos will also be liable for prejudgment interest and civil penalties .
Under either scenario, Oehmke and Kos's potential liability greatly exceeds their assets
currently frozen . So far, the Court's orders have resulted in $938,000 in frozen funds . There
remains a shortfall of millions of dollars in unaccounted for money that that the Court may order
disgorged. The Commission has been unable to determine where millions of this money went .
As a result, the Court should keep the freeze in place and not release funds from any of Oehmke
and Kos's assets. SEC v. Bremont, 954 F .Supp . 726, 733 (S .D .N.Y. 1997) (denying defendant's
motion to use frozen assets where defendants had asserted Fifth Amendment privilege, and as a
result, court could not determine whether frozen assets exceeded the request for damages) ; SEC
v. Schiffer, Case No . 97 Civ. 5853, 1998 WL 307375, *7 (S .D.N .Y. June 11, 1998) (continuing
previous asset freeze where Defendant asserted Fifth Amendment and refused to provide sworn
accounting because Court had to assume that all of Defendant's accounts were traceable to
fraud); FTC v. International Charity Consultants, Inc ., Case No. CV-S-94-195-DWH, 1994 WL
263887, *1, *3 (D . Nev. April 26, 1994) (denying motion to relax asset freeze after Defendant s
41
refused on Fifth Amendment grounds to provide financial information because of the substantial
amount of potential liability and the limited amount of funds thus far discovered by the receiver) .
In addition, there also a well-founded basis for concluding that, absent an asset freeze,
Oehmke and Kos will continue to dissipate investor funds . For example, Oehmke has already
funneled at least S 3 .7 million of trading profits into offshore accounts . Tullis Decl ., Ex . I at ¶¶ 3,
4, 11 (a) and (b) ; Galdencio Decl ., Ex . 2, ¶¶5, 6 . 8 . Similarly, Kos has funneled approximately
$250,000 of trading profits into offshore accounts through the various relief defendants . Tullis
Decl ., Ex . I at ¶¶ 11 (b) ; Galdencio Decl., Ex . 2, ¶9 . Thus, an immediate order freezing Oehmke
and Kos's assets is needed to prevent them from further transferring funds so as not to render any
order for disgorgement and prejudgment interest meaningless .
4. The Court Should Keep Relief Defendants ' Assets Froze n
A continued asset freeze is also appropriate as to the Relief Defendants . Federal courts
may order equitable relief, such as disgorgement, against a party who is not accused of
wrongdoing where that party received ill-gotten funds without a legitimate claim to those funds .
Cavanaugh, 155 F.3d at 136 (federal courts may order equitable relief against a person who is
not accused of wrongdoing in a securities enforcement action) ; SEC v. Colello, 139 F.3d at 674,
676 (9`h' cir . 1998) ; Cherif, 933 F.2d at 414, n.ll ; SEC v. Heden, 51 F.Supp.2d 296, 299
(S .D.N .Y. 1999). In addition, ample authority supports the proposition that the broad equitable
powers of the federal courts can be employed to recover ill gotten gains for the benefit of the
victims of wrongdoing, whether held by the original wrongdoer or by one who has received the
proceeds after the wrong." Colello, 139 F.3d at 676 (nominal defendant required to disgorge
more than $2 million received from stock fraud where he failed to prove that he received the
funds as compensation for his services in arranging letters of credit) ; Heden, 51 F.Supp.2d at
42
299 ; Elfindepan, 2002 WL 31165146 at *4 ; Chemical Trust, 2000 WL 33231600 at *11 . See
also, SEC v. Infinity Group, 993 F. Supp, 324, 331 (E.D. Pa. 1998), gff'd, 212 F.3d 180 (3d Cir.
2000) (relief defendants ordered to disgorge funds received from Ponzi scheme, including
donation to religious organization and funds transferred to charitable trust and other
organizations for which no consideration was given) ; SEC v. Antar, 831 F.Supp. at 380, 400
(D .N .J. 1993).
Here, the Relief Defendants' profits indisputably came from the Oehmke and Kos's
trading of Concorde and Absolute Health stock, generated through the fraudulent pump and
dump scheme Oehmke and Kos orchestrated . Services rendered in furtherance of a fraud do not
constitute a legitimate claim on the ill-gotten gains of the fraud . Infinity Group Co ., 993 F. Supp .
at 331 . Moreover, as between the investors and a Relief Defendant, the relief defendant has "no
bona fide claim of title to any of the securities offering's proceeds ." Chemical Trust, 2000 WL
33231600 at *1 1 ; see also Antar, 831 F.Supp . at 402 (nominal defendants should not be allowed
to retain funds that are the product of securities fraud at the expense of defrauded investors) .
Because Oehmke and Kos used the Relief Defendants' accounts to shelter the proceeds of
their fraud, the Court should also freeze the Relief Defendants' assets in order to effectuate relief.
See SEC v. Hickey, 322 F.3d 1123 (9`h' Cir. 2003) (court's broad power to reach assets of third
parties in order to effect order in securities fraud actions authorized the freeze of non-parties' assets
to protect and give life to disgorgement and contempt orders); Cherif, 933 F.2d at 414, n.11
(equitable relief from a non-party is available if non-party possesses illegally obtained profits but
has no legitimate claim to them) . Here, the trading records show Oehmke and Kos effectuated
trades and then transferring the proceeds to their nominee offshore accounts to reap millions . hi a
short period of time, Oehmke and Kos profited from their fraud, transferring more than $8 .5 million
43
in profits from Concorde trades and $14 .4 million of illicit gains from Absolute Health trades to
offshore nominee accounts beyond the reach of this Court . Thus, this Court should also freeze
Relief Defendants' assets to prevent their dissipation and allow recovery of these ill-gotten gains .
D. An Order Requiring Repatriation Of Fund s
The Commission may seek repatriation of the proceeds of illegal securities transactions . See
FTC V. Affordable Media, LLC, 179 F.M. 1228 (9`1' Cir. 1999); SEC v. Antar, slip op ., No . 89 Civ.
3773 1990 SEC LEXIS 183 (Jan . 29, 1990) (D .N.J . January 24, 1990) . Here, the Commission has
identified offshore nominee accounts in the Bahamas through which Oehmke and Kos have
conducted their trading and dumping of Concorde and Absolute Health stock . In addition, the
Commission has information identifying bank accounts in Curacao, which may contain proceeds of
this fraud . Therefore, an order repatriating from abroad all funds resulting from the fraudulent
conduct is appropriate . If the Commission obtains a money judgment against the proposed
defendants, all of the illegally obtained assets they control should be available to satisfy that
judgment. Accordingly, the Commission requests authorization to seek a repatriation order against
the proposed defendants.
E. An Order Prohibiting Destruction Or Alteration Of Records
And Requiring Sworn Accountings
The Commission also seeks an order prohibiting all of the Defendants and Relief
Defendants from destroying or altering records . This order will prevent the disappearance or
destruction of documents before investors' claims can be adjudicated and help assure that whatever
equitable relief might ultimately be appropriate is available. R.J. Allen, 386 F. Supp. at 866 . The
Commission also seeks an Order requiring Oehmke and Kos to file with this Court, within twenty
days, sworn written accountings, signed by Oehmke and Kos under penalty of perjury .
44
V. CONCLUSION
For the foregoing reasons, the Cou rt should grant the Commission's motion for an order
of preliminary injunction freezing Defendants Oehmke, Kos and the Relief Defendants ' assets,
providing a full accounting and repatriation of funds and preventing the destruction or alteration
of documents and any other relief this Cou rt deems appropriate .
August 22, 2005
By:
Senior Tri al Counsel
Florida Bar No. 0156337
Direct Dial : (305) 982-631 5
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
801 Brickell Avenue, Suite 180 0
Miami, Flori da 33131
Telephone : (305) 982-6300
Facsimile : (305) 536-4154
CERTIFICATE OF SERVIC E
I hereby ce rtify that a true and correct copy of the foregoing was se rved by Federal Express
this 22nd day of August, 2005 on the following :
Sotiris Planzos, Esq .
Patton Boggs, LLP
2550 M Street, N.W.
Washington, D .C . 20037-1350
Counsel for Defendant Donald Oehmke
Telephone: (202) 457-6457
Facsimile : (202) 457-631 5
Richard Serafini, Esq .
Greenberg Traurig, et al .
401 E . Las Olas Blvd ., Suite 2000
Fort Lauderdale, FL 3330 1
Counsel for Defendant Donald Oehmke
45
Telephone: (954) 768-8256
Facsimile: (954) 765-1477
Jeremy Ross, Esq .
Bush Ross Gardner Warren & Rudy, P .A .
220 S . Franklin Stree t
Tampa, FL 33602
Counsel for Defendants Hartley Lord
and Concorde America, Inc.
Telephone: (813) 224-9255
Facsimile: (813) 223-9620
Steven Gourley, Esq .
Malek & Malek
3625 Del Amo Boulevard, Suite 350
Torrance, CA 90503
Counsel for Andrew Kline
Telephone: (310) 540-5100
Facsimile : (310) 542-465 4
William Nortman, Esq.
Akerman Senterfitt
350 Las Olas Blvd ., Suite 1600
Fort Lauderdale, FL 33301-4217
Co-Counsel for Defendant Bryan Kos
Telephone: (954) 463-2700
Facsimile : 954-463-2224
David J . Levenson, Esq.
7947 Turnquest Dr .
Potomac, MD 2085 4
Co-Counsel for Defendant Bryan Kos
Telephone: (301) 299-8092
Facsimile: (301) 299-8093
Paul A. Spreadbury, pro se
8652 Bellemeadow Blvd .
Pensacola, FL 32514
Telephone: (850) 478-1725
Facsimile: (707) 982-187 3
Marc Bogatin, Esq .
52 Duane Street
New York, New York 10007
Fax : 212-406-156 0
Counsel for Thomas M. Hevsek
46
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 05-80128-CV-ZLOCH
DE#97
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