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TMRT Class Action, Truthseeker Hopes Rebeil and Magliarditi Don't Represent Themselves Michael D. Braun (167416) STULL, STULL & BRODY 10940 Wilshire Boulevard Suite 2300 Los Angeles, CA 90024 Telephone: (310) 209-2468 Kevin J. Yourman (147159) WEISS & YOURMAN 10940 Wilshire Boulevard 24th Floor Los Angeles, CA 90024 Telephone: (310) 208-2800 Attorneys for Plaintiff UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION ?Investor X?, On Behalf of Herself and All Others Similarly Situated, Plaintiff, vs. 2THEMART.COM, INC., STEVEN W. REBEIL, and DOMINIC J. MAGLIARDITI, Defendants. ____________________________________ ) CASE NO. CLASS ACTION CLASS ACTION COMPLAINT FOR THE VIOLATION OF FEDERAL SECURITIES LAWS JURY TRIAL DEMANDED Plaintiff, through her attorneys, brings this action on behalf of herself and all others similarly situated, and on personal knowledge as to herself and her activities, and on information and belief as to all other matters, based on investigation conducted by counsel, hereby alleges as follows: NATURE OF THE CASE 1. This is a class action on behalf of all purchasers of the securities of 2TheMart.Com Inc., (?2TheMart? or the ?Company?) between January 19, 1999 and August 26, 1999 inclusive (the ?Class Period?), seeking remedies under the Securities Exchange Act of 1934 (the ?Exchange Act?). Defendants include 2TheMart, Steven W. Rebeil, and Dominic J. Magliarditi. 2. 2TheMart was conceived in January 1999 through a reverse merger with an unrelated Oklahoma corporation. Its proclaimed business strategy was to launch an E-commerce auction web site that would provide a dynamic person to person auction environment, in direct competition to those established by eBay, Onsale Inc., Excite Inc. and Ubid Inc. 3. From its inception, 2TheMart represented that the web site, which was the core of its business, was ?currently in final development? and was expected to be running before the end of the second quarter 1999. Defendants said the site would then offer direct, meaningful, competition with established sites such as eBay. These representations were made continuously throughout the Class Period and caused the Company?s stock price to soar as high as $50.00. 4. Throughout the Class Period, defendants assured the investing community that the web site was on schedule and that it would prove to be worthy competition to larger and better funded companies that already had or were developing similar sites. 5. Notwithstanding their positive statements to the investing community, defendants knew the following information which belied their representations: 1. The management of 2TheMart did not include a ?full team of operational, finance, marketing and technical personnel.? Rather it consisted of two men, Rebeil, and Magliarditi, who had a long checkered history of real estate dealings in Nevada. Most of 2TheMart?s support came through contractual dealings with third parties. 2. The website, which is the mainstay of the 2TheMart, was not currently in ?final development? and, in truth, had not yet been started. The Company?s August 26, 1999 public filing on Form 10 reveals that: (a) a basic IBM Customer Agreement had not been entered into until February 3, 1999; (b) it would not be until February 2, 1999 that IBM would agree to take the preliminary steps of identifying 2TheMart's business, technical and design requirements; (c) The preliminary plan consisting of a high level application design, a budget planning estimate and schedule for the implementation had not even been delivered to 2TheMart until April 30, 1999; and (d) IBM and 2TheMart would not sign a contract for IBM to ?[d]esign, build, and test the 2TheMart.com Web Site? until June 1, 1999. This was almost five months after 2TheMart began touting that its web site was in ?final development.? 3. The Form 10 also revealed that 2TheMart had not signed an IBM Customer Agreement until February 3, 1999. The Agreement was for a Phase 0 Solution Design which amounted to no more than an analysis and proposal for a Web Site. The contract which was signed by Magliarditi stated that this project would take an estimated ?eight weeks? from the initial ?three day Joint Requirements Definition? session which happened sometime after February 3, 1999. The proposal resulting from the Phase 0 Solution Design were delivered by IBM to 2TheMart on April 30, 1999. Not until June 1, 1999 was a contract entered into parties for the actual ?development of an online auction web site.? The final agreement gave a 6 month production plan for the completion of the site. In light of these facts, defendants representations throughout the Class Period that the web site was in ?final development? or that it would be ?active by the second quarter 1999" were patently false when made. 4. ?2TheMart expects competition to intensify further in the future. Barriers to entry are relatively low, and current and new competitors can launch new sites at a relatively low cost using commercially available software.? The Form 10 goes on to identify eBay, Amazon.com, Auction Universe, Yahoo Auctions, Excite, uBid, First Auction, Surplus Auction as competitors concluding that, ?[m]any of the Company?s current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources. Competitive pressures created by any one of these companies, or by the Company?s competitors collectively, could have a material adverse effect on the Company?s business, results of operations and financial condition.? 5. 2TheMart?s principals had already been determined to be not of good character, honesty and integrity and not suitable to act as officers or directors of public companies. 1. Magliarditi and Rebeil have been business associates for more than six years. On Feb. 19, 1997, the Nevada Gaming Commission denied their applications for a casino license. The commission found both men "not of good character, honesty and integrity. " It also found that both lied to investigators for the State Gaming Control Board, and thus each "failed to meet the burden of proving his qualifications and suitability as an officer, director or controlling shareholder of a publicly traded corporation." 2. According to a transcript of testimony before the Gaming Control Board in 1997, investigators for the agency also discovered that Magliarditi, an attorney who previously practiced tax law, under reported his income by about $70,000 in 1994. "The board felt this wasn't an honest mistake, but purposeful underreporting," Steve DuCharme, chairman of the Nevada Gaming Control Board, said in an interview. Magliarditi testified that he owed the IRS an additional $24,000 after he amended his federal tax return to include the previously unreported income. 3. Furthermore Magliarditi admitted that he altered K-1 tax schedules reporting Rebeil's partnership income after they were prepared and signed by the accounting firm of Arthur Andersen LLC. Magliarditi said the adjustments he made, at Rebeil's request, lowered Rebeil's 1994 income tax bill. "I think they were whited out and then the numbers were inserted," Magliarditi testified. He said more than a year passed before the accounting firm received a copy of the altered document. 4. Separately, in December 1998, Magliarditi was fined $4,000, publicly reprimanded and placed on one-year probation by the Nevada State Bar Association. That followed his conditional guilty plea to allegations he had a conflict of interest when he represented clients on both sides of an issue. 5. Control Board investigators also found that Rebeil diverted "millions of dollars" from a homebuilding company in which he was a partner to finance construction of his personal residence. Rebeil allegedly directed subcontractors to overcharge the builder and use the excess payments as credits toward work on his house. Magliarditi testified that there "could possibly be" criminal wrongdoing by Rebeil in connection with the diversion. Frank Schreck, Rebeil's former attorney, testified that at first he believed Rebeil's denials about the skimming. However, after interviewing a concrete subcontractor, he said he became "100 percent" certain that Rebeil was lying when he denied the skimming. At that point, he said, he resigned as his attorney. The Control Board alleged that Magliarditi told its investigators Rebeil's actions were a "complete surprise" to him, even after he'd been alerted to the activity by Rebeil's business partner and by subcontractors. 6. The Company had not ?secured funding? for the ?final development? of the website. The Form 10, filed on August 26, 1999 demonstrates that the Company will need millions of dollars more to complete the web site. Moreover, ?[A]fter the launch of the Company?s Web site, there can be no assurance that the Company will generate positive cash flow and there can be no assurances as to the level of revenues, if any, the Company may actually achieve from its web operations.? 7. Defendants knew that its public accountant, Deloitte & Touche, LLP (?Deloitte?), had serious concerns over the financial representations to be included in the Company?s upcoming public filing, which ultimately resulted in their withdrawal from the 2TheMart account. Although defendants also knew that Deloitte withdrew from the audit because of these issues, they purposefully hid this fact from the investing community. Defendants did not reveal the material loss of Deloitte & Touche, LLP until they had secured another auditor and still have not acknowledged the reasons Deloitte left. 8. The Company was suffering huge losses and was no where near releasing its web site -- its only source of revenue. As a result, the continued viability of the Company was in serious doubt -- a fact confirmed by 2TheAmrt?s outside auditors, Grant Thorton LLP. ?The Company is not yet generating revenues and, as shown in the financial statements, has incurred losses in its development stage. Also. . .the Company has incurred substantial obligations and will need to raise capital to complete its development activities. These factors, among others. . .raise substantial doubt about the Company?s ability to continue as a going concern.? 6. On August 27, 1999 2TheMart released its long anticipated public filing on Form 10 which revealed, among other things, that their highly touted web site which was supposedly in the final stages of development, had not even been started until April, 1999 and now would not be running until October, 1999. Moreover, defendants revealed that they did not have the money to pay for the web site and their auditors questioned the Company?s future viability. These disclosures caused the stock price of 2TheMart to plummet from $11 9/16 per share on August 26, 1999, to $7 5/16 per share on August 27, 1999, on volume of 412,200 shares representing a drop of over 30% in one day and a drop of over 80% from the stock?s high of $50 on January 20, 1999. 7. Due to defendants? deceptive and illegal conduct, plaintiff and the other class members purchased their 2TheMart securities at grossly inflated prices. Had plaintiff and the other class members been aware of the truthful condition of the Company and the adverse impact that defendants? statements and omissions were having on the Company, they would not have purchased their shares, or at least not at artificially inflated prices. JURISDICTION AND VENUE 8. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. õõ1331 and 1337, and õ27 of the Securities Exchange Act of 1934 (the ?Exchange Act?) (15 U.S.C. õ78aa). 9. This action arises under õõ10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder (17 C.F.R. õ240.10b-5). 10. Venue is proper in this district pursuant to õ27 of the Exchange Act and 28 U.S.C. 1391(b) because the acts charged herein, including the dissemination of materially false and misleading information, occurred in this district. Defendant 2TheMart also maintains its principal place of business in this district at 18301 Von Karman Avenue, 7th Floor, Irvine, California, 92612. 11. In connection with the conduct complained of herein, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the mails and interstate telephone communications, and the facilities of a national securities exchange. // // PARTIES 12. Plaintiff ?Investor X? purchased shares of 2TheMart common stock, as indicated in her certification attached hereto and was damaged thereby. 13. Defendant 2TheMart is an Internet based electronic commerce ("e-commerce") company. Defendants purport to be developing an e-commerce site in which buyers and sellers will be brought together to buy and sell a variety of goods in an auction format. Once fully functional, the 2TheMart service will enable sellers to list items for sale, buyers to bid on those items and allow 2TheMart users to browse through all items in a fully automated, topically arranged, online service that is expected to be available 24 hours a day, seven days a week. 14. Defendant Steven W. Rebeil, (?Rebeil?) was at all relevant times was Chairman of the Board, Chief Executive Officer and a Director of the Company. He owns 8,500,000 shares of company stock (34.79%). 15. Defendant Dominic J. Magliarditi (?Magliarditi?) was at all relevant times was President, Chief Operating Officer and a Director of the company. He also owns 8,500,000 shares of company stock (34.79%). 16. Rebeil and Magliarditi (collectively the ?Individual Defendants?) were at all relevant times during the Class Period controlling persons of 2TheMart within the meaning of Section 20(a) of the Exchange Act. By reason of their stock ownership, management positions, and/or membership on 2TheMart?s Board, the Individual Defendants were controlling persons of 2TheMart and had the power and influence, and exercised the same, to cause it to engage in the illegal conduct complained of herein. The Individual Defendants are liable for the false statements pleaded herein, as those statements were each ?group published? information, the result of the collective action of the Individual Defendants. 17. As officers, directors and/or controlling persons of a Company whose common stock is traded NASD OTC and governed by the provisions of the federal securities laws, the Individual Defendants each had a duty to disseminate truthful information promptly and accurately with respect to the Company?s operations, products, markets, management, earnings and business prospects, to correct any previously issued statements that had become materially misleading or untrue, and to disclose any trends that would materially affect earnings and the financial results of 2TheMart, so that the market price of the Company?s publicly traded securities would be based upon truthful and accurate information. 18. Under rules and regulations promulgated by the SEC under the Exchange Act, the Individual Defendants also had a duty to report all trends, demands or uncertainties that were likely to influence: 2TheMart?s net sales, revenues and/or income, and the Individual Defendants? representations during the Class Period violated these specific requirements and obligations. 19. The Individual Defendants, because of their positions with the Company, controlled and/or possessed the power and authority to control the contents of 2TheMart?s reports, press releases and presentations to the public. Each defendant was provided with copies of the Company?s reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. 20. Because of their positions and access to material non-public information available to them but not to the public, each of these defendants knew that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public and that the positive representations which were being made were then materially false and misleading. 21. Defendants are also each liable as individual participants in a fraudulent scheme and course of conduct that operated as a fraud and/or deceit upon the class. Because of their executive, managerial and/or directorial positions with the Company, each of the defendants had access to the adverse, non-public information about the business, finances and future business prospects of 2TheMart as particularized herein and acted to misrepresent, misstate or conceal such information from plaintiff and the investing public. 22. It is also appropriate to treat the defendants as a group for pleading purposes under the federal securities laws and the Federal Rules of Civil Procedure and to presume that the false and misleading information complained of herein was disseminated through the collective actions of the defendants. Defendants were involved in the drafting, producing, reviewing, and/or disseminating of the false and misleading information detailed herein, knew that such materially misleading statements were being issued by the Company, and/or approved or ratified these statements in violation of the federal securities laws. Defendants? false and misleading statements and omissions of fact consequently had the effect of, both on their own and in the aggregate, artificially inflating the price of the common stock of 2TheMart at all times during the Class Period. BACKGROUND 23. The Company was originally incorporated under the laws of the State of Oklahoma on December 2, 1992 as S.K.B. Design, Inc. Between 1992 to 1996, the Company was inactive. On October 1, 1996, the Company acquired certain technology and assets with the intention of developing a cd-rom based multimedia yearbook product. On December 22, 1997, the Company changed its name from S.K.B. Design, Inc. to CD-Rom Yearbook Company, Inc. ("CD-Rom"). CD-Rom ceased its operations in the fall of 1998. Effective January 8, 1999, CD-Rom acquired all of the outstanding common stock of 2TheMart.com, Inc., a Nevada corporation ("2TheMart-Nevada"), in a maneuver called a "reverse merger," in which a privately held company buys a publicly traded one and then disposes of the name, assets and management of the publicly traded company while retaining its access to the public markets. The reverse merger enabled 2TheMart to avoid the requirements of becoming public yet retain access to public monies. Through the reverse the merger, CD-Rom changed its name to 2TheMart.com, Inc. SUBSTANTIVE ALLEGATIONS 24. On or about January 19, 1999, defendants made the following announcement over the PR News Wire: HEADLINE: 2TheMart.com, Inc. Completes Acquisition of CD Rom Yearbook, Inc. 2TheMart.com, Inc. approved for trading on the NASD Electronic Bulletin Board (OTC Bulletin Board: TMRT), announced today that it has completed a merger with CD Rom Yearbook, Inc. (formerly OTC Bulletin Board: CDRH). As part of the acquisition of CDRH, the Company changed its name from CDRH to 2TheMart.com, Inc., changed its trading symbol to "TMRT," appointed a new board of directors and relocated its headquarters to Irvine, CA. The business strategy of 2TheMart.com will be the new focus of the Company. 2TheMart.com has discontinued the previous business of CDRH. The management of 2TheMart.com includes a full team of operational, finance, marketing and technical personnel. 2TheMart.com's business strategy will be to launch its E-commerce and person to person trading community Auction Website. The site, which is currently in final development, will provide a dynamic person to person auction environment, in direct competition to that established by eBay.com with enhanced features for the users of the site. The site, which is expected to be active by the second quarter 1999, is intended to be one of the largest and preeminent on-line auction sites on the web. To achieve this result, the Company has retained the services of leading web design and architecture consultants to design and construct the unique 2TheMart.com site. The site will contain a variety of useful tools for its users, such as e-mail access, chat room, security for transaction processing, escrow options, user feedback, and the ability to have real time, live video auctions. The Company is designing the site to provide a full community environment among its users. 1. In an attempt to demonstrate their fiscal viability in a highly competitive market, defendants announced that they obtained $3.2 million worth of new funding. As reported in the January 20, 1999 Business Wire: 2TheMart.com Inc. announced that it has received $1.7 million in cash and commitments for an additional $1.5 million from the sale of shares pursuant to a private placement. The funds will be utilized to fund 2TheMart.com's business plan, acquisitions, strategic alliances and working capital. 2TheMart.com's business strategy is to launch its E-commerce and person-to-person trading community Auction Website. The site, which is currently in final development, will provide a dynamic person-to-person auction environment, in direct competition to that established by eBay.com (Nasdaq:EBAY) and other online auctions such as those of Onsale Inc. (Nasdaq:ONSL); Excite Inc. (Nasdaq:XCIT); Ubid Inc. (Nasdaq:UBID); and Egghead Software (Nasdaq:EGGS), with enhanced features for the users of the site. The site, which is expected to be active by the second quarter 1999, is intended to be one of the largest and pre-eminent online auction sites on the Web. To achieve this result, the company has retained the services of leading Web design and architecture consultants to design and construct the unique 2TheMart.com site. The site will contain a variety of useful tools for its users, such as e-mail access, chat room, security for transaction processing, escrow options, user feedback and the ability to have real time, live video auctions. 25. These announcements resulted in an immediate and dramatic increase in the price of 2TheMart?s stock from a low of $8 1/2 on January 19, 1999 to an all time high of $50 on January 21, 1999. 26. Unfortunately for the investing community, the myriad of positive statements made by defendants in these releases were undermined by the existence of material adverse information known to defendants. Defendants failed to disclose, among other things, the following facts: 1. The management of 2TheMart did not include a ?full team of operational, finance, marketing and technical personnel.? Rather it consisted of two men, Rebeil, and Magliarditi, who had a long history of checkered real estate dealings in Nevada. 2. The web site, which is the mainstay of the 2TheMart, was not currently in ?final development? and, in truth, had not yet been started. The Company?s August 26, 1999 public filing on Form 10 revealed that: (a) not until February 2, 1999 did 2TheMart enter into contractual relations with IBM to take the preliminary steps of identifying 2TheMart's business, technical and design requirements. The Form 10 also revealed that only ?[s]hortly following the completion of the Company?s merger. . .the Company began work on its planned internet auction web site.? 3. A comprehensive site designed to be ?one of the largest,? ?preeminent? auction sites on the web, would take at least 6 months to complete. Moreover, a web designer had not yet been hired to design the site and neither principal had any background in web site design or the operations of an internet company, making the representation that the site was expected to be active by the second quarter 1999 impossible. 27. On January 21, 1999 the Orange County Edition of the Los Angeles Times printed a story concerning the run up of the Company?s stock. The article, by Jonathan Gaw, Times Staff Writer stated: 2TheMart.com Inc. on Tuesday purchased San Juan Capistrano-based CD-ROM Yearbook Co. in a move to take advantage of CD-ROM's access to public markets. A new board of directors was appointed and the company moved to Irvine. On the same day, the stock, which is traded over the counter, jumped from $4.50 to $13 a share. The stock surged 65%, or $8.50 a share, to $21.50 on Wednesday, making it the 10th-largest percentage gainer in U.S. markets. At one point, the shares traded as high as $50. One week earlier, they closed at $2 a share. Before the acquisition, stock of CD-ROM Yearbook had been lightly traded. Since the company began trading last March, there were only 19 days in which any activity was recorded. Until recently, a total of just 7,200 shares had exchanged hands at an average price of $3.48. But on Wednesday, after the company said it would begin "one of the largest and preeminent online auction sites," a total of 244,200 shares changed hands. The company said it had received $1.7 million in cash and commitments for an additional $1.5 million to "fund 2TheMart.com's business plan, acquisitions, strategic alliances and working capital." But the announcement gave no details of how it would market such a site, which would include live video auctions. 2TheMart.com and CD-ROM Yearbook officials did not return telephone calls. The $3.2 million in funding is less than one-tenth of 1% of the $8.6-billion market value of EBay Inc., which 2TheMart identified as its primary competitor. Although the company's news release said it would launch a person-to-person auction Web site, it also listed as competitors three companies that do not run such auctions. The company's Web site currently consists of several advertisements for unrelated Internet services and a notice that a site is "coming soon." The name 2TheMart was registered to BLI Enterprises Ltd. in Las Vegas and Dominic J. Magliarditi, 2TheMart.com's president. Magliarditi would not comment beyond the news release and referred calls to his attorney, who could not be reached. Calls to BLI went unanswered. 28. In an attempt to explain the dramatic increase in stock price and maintain momentum, 2TheMart?s attorney provided a four page business plan and assured investors the site would be operational by early March. As reported by the January 22, 1999 Orange County Edition of the Los Angeles Times: After jumping 40% at the outset, 2TheMart.com's stock closed the day at $17.38, off 19%, or $4.13, from its closing price the day before on the thinly traded over-the-counter market. But the shares still were trading nearly nine times above their price a week ago--all for a company that has no products and no revenue and faces heavy competition. ?This is very much a start-up company," said Richard Cutler, 2TheMart's attorney. "At this point it's trading on the Internet fervor just like everything else does." On Wednesday, the company said it had received $3.2 million in funding to build a person-to-person auction Web site to compete directly with EBay Inc., the Internet giant, which has a market value of more than $7.3 billion and claims more than 1.3 million users. * * * Cutler shed more light Thursday on 2TheMart as well as its operations and plans. The attorney provided a four-page summary of the company's business plan outlining how 2TheMart would leverage its "unique business model." But the plan consisted almost entirely of paragraphs that appeared word for word in filings that EBay submitted to regulators last year. 2TheMart.com officials did not provide an explanation for the similarity. Cutler also gave an address for the company that turned out to be a post office box in Irvine. He said later that the company planned to purchase a building soon but that he had no other address for the company, which is supposed to be headquartered in Irvine. * * * He insisted that the company is preparing a Web site "that is technologically superior to EBay." The site should be up by the end of February or early March, he said, and will "improve the value of the product and the delivery systems." Defendants endorsed these representations although they knew that such a comprehensive site would take at least 6 months to complete, and they had not even started, much less reached, preliminary agreements with web designers. 29. In response to the Los Angeles Times article, defendants released another statement touting not only 2TheMart?s business, but the abilities of its president. As reported in the January 27, 1999 Business Wire: 2TheMart.com, Inc. announced today in response to inquiries concerning the substance of its operations and business plan that it has secured funding for the final development of its new, state-of-the-art, E-commerce and auction website, which it expects to launch in the second quarter of 1999. The Company has secured a substantial portion of its funding through the strategic sale of some of its shares in a private placement to a select few high net worth individuals, including some found in the Forbes 400. The Company is also in the process of finalizing engagements with a variety of consultants, including an engagement of one of the most preeminent web design and hardware firms in the world, which will enable the company to launch its Ecommerce and auction site on a fully scaleable, state-of-the art platform, able to accomodate millions of transactions. That engagement is expected to be finalized by the end of January 1999. Moreover, the Company is also finalizing its engagement of a preeminent financial and public relations firm. * * * The Company's President, Dominic J. Magliarditi, has over ten years experience with startup and emerging growth companies. Since 1994, Mr. Magliarditi has been a principal of real estate development companies, having participated in the development of thousands of residences as well as commercial projects, including hotels. Mr. Magliarditi also has been involved in a variety of publicly traded enterprises over the past five years. From 1988 to 1994, Mr. Magliarditi practiced law in New York, NY and Las Vegas, NV, where he practiced primarily in the corporate, real estate and tax law areas. In addition to the other existing officers and directors of the Company, Mr. Magliarditi is in discussions and negotiations with other key company personnel, including technical, financial, and key board member positions. 30. These statements were false and misleading because, among other reasons, defendant?s press release did not contain the following information which was material to investors: 1. The Company had not ?secured funding? for the ?final development? of the web site. As revealed in 2TheMart?s Form 10, the Company will need millions more to fully develop the web site. Moreover, at the time of the statement, they had not even obtained an estimate from IBM as to how much the site would cost. Coupled with the fact Magliarditi ad Rebeil had no technology background representation as to funding were not made with a reasonable basis. 2. The Company was not ?finalizing agreements with a variety of consultants.? As revealed in the August 26, 1999 Form 10, the only agreement made before June 16, 1999 with a consultant was IBM. 3. Magliarditi had already been determined to be not of good character, honesty and integrity and not suitable to act as an officer or director of a public company. 4. February 19, 1997, the Nevada Gaming Commission denied Magliarditi?s application for a casino license. The commission found both men [Magliarditi and Rebeil] "not of good character, honesty and integrity." It also found that both lied to investigators for the State Gaming Control Board, and thus each "failed to meet the burden of proving his qualifications and suitability as an officer, director or controlling shareholder of a publicly traded corporation." 5. According to a transcript of testimony before the Gaming Control Board in 1997, investigators for the agency also discovered that Magliarditi, an attorney who previously practiced tax law, under reported his income by about $70,000 in 1994. "The board felt this wasn't an honest mistake, but purposeful underreporting," Steve DuCharme, chairman of the Nevada Gaming Control Board, said in an interview. Magliarditi testified that he owed the IRS an additional $24,000 after he amended his federal tax return to include the previously unreported income. 6. Furthermore Magliarditi admitted that he altered K-1 tax schedules reporting Rebeil's partnership income after they were prepared and signed by the accounting firm of Arthur Andersen LLC. Magliarditi said the adjustments he made, at Rebeil's request, lowered Rebeil's 1994 income tax bill. "I think they were whited out and then the numbers were inserted," |
