BESIDES RAY DIRKS, HAVE YOU HEARD THE ONE ABOUT JAY I GOLDBERG OF CARNEGIE COOK & COMPANY?
GREGORY C. GLYNN, Cal. Bar No. 039999
MICHELE WEIN LAYNE, Cal. Bar No. 118395
JANET R. RICH, Cal. Bar No. 137023
Attorneys for Plaintiff
Securities and Exchange Commission
Randall R. Lee, Regional Director
Sandra J. Harris, Associate Regional Director
5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
Telephone: (323) 965-3998
Facsimile: (323) 965-3908
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
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SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
LAS VEGAS ENTERTAINMENT NETWORK, INC.,
JOSEPH A. CORAZZI, CARL A. SAMBUS,
and JAY I. GOLDBERG,
Defendants.
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Civil Action No.
COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
Plaintiff Securities and Exchange Commission ("Commission") alleges as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d)(1) and 22(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77t(b), 77t(d)(1) and 77v(a), and Sections 21(d)(3)(A), 21(e) and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d)(3)(A), 78u(e) and 78aa.
2. Venue is proper in this district pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa, because certain of the transactions, acts, practices and courses of conduct constituting violations of the laws alleged herein occurred within the Central District of California and because one of the defendants is located therein.
SUMMARY
3. This case involves financial fraud by Defendant Las Vegas Entertainment Network, Inc. ("Las Vegas Entertainment") in two quarterly reports, a proxy statement, and a tender offer document filed with the Commission in 1999. Las Vegas Entertainment was a Los Angeles company which purported to acquire, develop, and operate gaming facilities. Las Vegas Entertainment was operated by its CEO, Defendant Joseph A. Corazzi, and by its CFO, Defendant Carl A. Sambus.
4. First, Las Vegas Entertainment misrepresented the value of its assets relating to the development of a hotel. Las Vegas Entertainment claimed in its April and July 1999 quarterly reports that its marketing rights relating to the El Rancho Hotel in Las Vegas, Nevada, which had expired in mid-April 1999, were worth $3.5 million.
5. Second, Las Vegas Entertainment fraudulently described a transaction with a Brazilian company. In May 1999, Las Vegas Entertainment filed a proxy statement seeking shareholder approval of the deal with the Brazilian company, but failed to disclose that the deal would have given control of Las Vegas Entertainment to a Las Vegas businessman. Las Vegas Entertainment also misrepresented the value of its assets when it claimed that a gold certificate relating to the Brazilian deal was worth $3 million in its July 1999 quarterly report. The gold certificate was counterfeit.
6. Third, Las Vegas Entertainment made a fraudulent tender offer. In October 1999, Las Vegas Entertainment issued press releases claiming thecompany would receive a $190 million cash investment and then made a tender offer for an NYSE-listed gaming company using this information. However, Las Vegas Entertainment did not disclose that the receipt of the $190 million cash investment was contingent on bank guarantees. The bank guarantees were counterfeit, and Las Vegas Entertainment had to withdraw its tender offer when it did not have the assets to complete the offer.
7. This case also involves illegal touting by Defendant Jay Goldberg, a consultant to Las Vegas Entertainment. Goldberg promoted Las Vegas Entertainment's securities on the Internet in late 1999 without disclosing that he had received stock from the company.
THE DEFENDANTS
8. Defendant Las Vegas Entertainment Network, Inc. is a Delaware corporation based in Los Angeles, California. It purported to acquire, develop, and operate media and gaming facilities, including real estate redevelopment. Its securities were registered with the Commission pursuant to Section 12(g) of the Exchange Act. The last periodic report it filed was its July 1999 Form 10-QSB. Its securities traded on the Nasdaq Small Cap Market until the Commission suspended trading on October 18, 1999. At the expiration of the trading suspension, Nasdaq continued its trading halt and then delisted Las Vegas Entertainment's securities on March 23, 2000. Its securities then traded on the over-the-counter market. Although Las Vegas Entertainment has pursued several business opportunities in the gaming industry, it has had no revenue since 1996 and no significant assets since early 1999.
9. Defendant Joseph A. Corazzi resides in Albuquerque, New Mexico. He was Chairman of the Board, President, Chief Executive Officer, and a Director of Las Vegas Entertainment. His primary role at Las Vegas Entertainment was to pursue new business opportunities by meeting with executives from other businesses and negotiating possible business deals.
10. Defendant Carl A. Sambus resides in Garden City, New York. He was Chief Financial Officer, Chief Operating Officer, Secretary, Treasurer, and a Director of Las Vegas Entertainment. His primary role was to prepare the company's financial statements based on information from Corazzi.
11. Defendant Jay I. Goldberg resides in Las Vegas, Nevada. He provided "investor relations" services to Las Vegas Entertainment.
GENERAL ALLEGATIONS
Las Vegas Entertainment, Corazzi, And Sambus Made Material Misrepresentations In Two 1999 Periodic Reports By Including
As An Asset $3.5 Million Rights For The El Rancho Hotel
12. In 1993, Las Vegas Entertainment bought the El Rancho Hotel and Casino in Las Vegas, Nevada, and then in 1996 sold it to International Thoroughbred Breeders ("ITB"). Through settlement of private litigation arising out of this transaction, Las Vegas Entertainment received the rights to market the El Rancho Hotel until April 19, 1999. If Las Vegas Entertainment closed a sale of the hotel before April 19, 1999, then it would receive the proceeds of the sale in excess of $44 million; if ITB closed a sale of the hotel before April 19, 1999 for more than $55 million, then $10 million would be paid to Las Vegas Entertainment.
13. In April 1999, Las Vegas Entertainment's rights for the El Rancho Hotel expired. ITB later sold the vacant hotel to a developer, who then demolished it.
14. Las Vegas Entertainment included the rights as a $3.5 million asset in its financial statements included in its Forms 10-QSB for the periods ended April 30 and July 31, 1999. This asset, called an "investment in ITB," accounted for 92% of its assets in its April 30 quarterly report and 51% of its assets in its July 31 quarterly report. Generally Accepted Accounting Principles ("GAAP") require that an item have future economic benefit to an entity before it can beproperly recognized as an asset. This asset was worthless, however, because the rights had expired. Therefore, Las Vegas Entertainment misstated its assets when it reported the marketing rights as an asset in its 1999 quarterly reports.
15. Corazzi and Sambus were responsible for Las Vegas Entertainment's fraudulent financial reporting of the marketing rights to the El Rancho Hotel. Sambus signed the April and July 1999 Forms 10-QSB, and Corazzi reviewed and approved them. Corazzi and Sambus knew that the rights had been one of the company's most important assets. They also knew that the rights had expired. Finally, before Corazzi and Sambus filed the two periodic reports, two accountants had advised them that Las Vegas Entertainment should write off the asset.
16. As a result, Corazzi and Sambus knew, or were reckless in not knowing, that Las Vegas Entertainment's April and July 1999 quarterly reports were materially false and misleading.
Las Vegas Entertainment, Corazzi, And Sambus Made Material Misrepresentations Regarding A Transaction With A Brazilian Company
A. The Brazilian Transaction
17. While attempting to sell the El Rancho Hotel for ITB, Las Vegas Entertainment also sought to purchase an interest in a Brazilian gaming company through a complicated multi-party transaction.
18. In April 1999, Las Vegas Entertainment signed an agreement to purchase a one-half interest in a Brazilian gaming company. Las Vegas Entertainment agreed to pay the company $3 million within 45 days after reaching a definitive agreement.
19. On the same date in April 1999, Las Vegas Entertainment issued 500,000 shares to each of six trusts controlled by Fred Cruz, a Las Vegas businessman who is now deceased. In return, Cruz's company, Countryland Wellness Resorts, Inc. ("Countryland") assigned two purported assets to Las Vegas Entertainment: a gold certificate and bank guarantees.
20. Las Vegas Entertainment secured its payment to the Brazilian company with the assets that it received from Countryland.
21. Las Vegas Entertainment never reached a definitive agreement with the Brazilian company.
22. On September 26, 2000, the Commission filed a settled civil injunctive action for securities fraud against Cruz and Countryland. The Commission alleged that Countryland reported non-existent assets, including "gold in storage," "proven mining reserves," and Indonesian bank guarantees, in periodic filings and registration statements filed with the Commission between 1996 and 2000. On January 3, 2001, the Commission deregistered Countryland's securities.
B. Las Vegas Entertainment, Corazzi, And Sambus Omitted Material Information Regarding The Brazilian Transaction In A Proxy Statement
23. On May 27, 1999, Las Vegas Entertainment filed with the Commission a "Definitive Proxy Statement for Special Meeting" notifying its shareholders of a special meeting to vote on ratifying the agreement to purchase the interest in the Brazilian company.
24. The proxy statement did not explain that shareholder approval of the deal would have given control of Las Vegas Entertainment to Cruz. At the time, Las Vegas Entertainment had issued and outstanding 2.6 million shares. The deal included the issuance of 3 million shares to Cruz. Therefore, Las Vegas Entertainment fraudulently described the proposed Brazilian transaction in the proxy statement.
25. Shareholders ratified the proposal on July 15, 1999.
26. Las Vegas Entertainment cancelled the issuance of its shares to Cruz after the Commission's trading suspension.
27. Corazzi and Sambus were responsible for the misleading proxystatement because they knew the nature of the transaction with Cruz and approved the proxy statement for filing.
28. As a result, Corazzi and Sambus knew, or were reckless in not knowing, that Las Vegas Entertainment's proxy statement was materially false and misleading.
C. Las Vegas Entertainment, Corazzi, And Sambus Falsely Reported A $3 Million Gold Certificate In The July 1999 Quarterly Report
29. Las Vegas Entertainment included the gold certificate as a $3 million asset in its financial statements included in its Form 10-QSB filed with the Commission for the period ended July 31, 1999. The gold certificate asset, captioned "Deposit and Other," accounted for nearly half of its assets for this period. GAAP requires that an item have future economic benefit to an entity before it can be properly recognized as an asset. The gold certificate was worthless because it was counterfeit. Therefore, Las Vegas Entertainment misstated its assets when it reported the counterfeit gold certificate received from Countryland as part of the Brazilian transaction as an asset in its July 1999 quarterly report.
30. Corazzi and Sambus were responsible for Las Vegas Entertainment's fraudulent financial reporting of the gold certificate. Both Corazzi and Sambus reviewed and approved the July 1999 Form 10-QSB for filing and Sambus signed it. The gold certificate appeared counterfeit on its face. Corazzi and Sambus admitted that they did not understand the gold certificate. In addition, Corazzi's investment banker told him in May 1999 that he had never heard of a gold-backed certificate and that the transaction with Cruz did not look legitimate.
31. As a result, Corazzi and Sambus knew, or were reckless in not knowing, that Las Vegas Entertainment's July 1999 quarterly report was materially false and misleading.
Las Vegas Entertainment, Corazzi, And Sambus Made Material Misrepresentations Regarding An "Investment Agreement" With Cruz
And "Tender Offer" For A Gaming Company
32. After Las Vegas Entertainment failed to sell the El Rancho Hotel for ITB or close the Brazilian deal, it turned its attention to yet another possible business opportunity in the gaming industry. In October 1999, Las Vegas Entertainment announced in press releases that it would receive a $190 million cash investment and then made a tender offer for a Las Vegas gaming company. In summary, the press releases were false and misleading because the $190 million cash investment was contingent on counterfeit bank guarantees and the tender offer was fraudulent because Las Vegas Entertainment did not have the assets to complete the offer.
A. The "Investment Agreement" And Press Releases
33. On September 29, 1999, Las Vegas Entertainment and Cruz entered into an investment agreement in which Cruz would invest $190 million in Las Vegas Entertainment in exchange for 12.2 million shares. Corazzi signed the investment agreement and Sambus approved it. The investment agreement provided that the source of funds for Cruz's investment would be bank guarantees.
34. Like the gold certificate, the bank guarantees appeared suspect on their face. For example, the bank guarantees were purportedly drawn on an Indonesian bank and not negotiable until March 2000. Corazzi and Sambus each had doubts about the bank guarantees. Corazzi was warned in April 1999 that the guarantees were not readily available cash. Sambus did not understand the bank guarantees and told Corazzi that the bank guarantees could not be put on the company's books.
35. The bank guarantees were counterfeit.
36. On October 1, 1999, Las Vegas Entertainment announced the investment agreement. Corazzi wrote the release and Sambus approved it. Thepress release had an immediate and material effect on the market for the stock: the price closed at 2-3/4, up over 22% from the previous day's closing price of 2-1/4, and the volume of shares traded was 110,000.
37. On October 6, 1999, Las Vegas Entertainment issued a second press release "reconfirming" the investment agreement and further explaining that it "will receive a consideration of approximately $15.80 per share" from the investment agreement. Corazzi wrote the release. This press release affected the market: on October 6, the stock price closed at 2-21/32, up over 18% from the previous day's closing, on volume of 150,200 shares, and on October 7, it closed at 3-5/8, up over 36% from the previous day's closing, on volume of 250,300 shares.
B. The Tender Offer And Press Releases
38. On October 8, 1999, Las Vegas Entertainment filed a Schedule 14D-1 with the Commission for a tender offer for a Las Vegas gaming company whose securities traded on the NYSE. Corazzi and Sambus approved the filing of the Schedule 14D-1.
39. Las Vegas Entertainment announced the tender offer in a press release the same day and stated that the funds for the acquisition would be made available from the $190 million investment agreement. Corazzi wrote the press release and Sambus approved it. On October 8, the stock closed at 5-3/16, up over 43% from the previous day's closing, on volume of 1,590,200 shares.
40. Between October 1 and 8, Las Vegas Entertainment's announcements regarding the $190 million cash investment and the tender offer caused the price of its stock to increase from 2-1/4 to 5-3/16, an increase of approximately 130%. In addition, the announcements materially affected the trading volume, which increased from an average of 54,375 shares before the announcements to over 1.5 million shares traded on October 8.
41. On October 11, 1999, Las Vegas Entertainment issued a second pressrelease regarding its tender offer in which it "confirmed" that its "investors have several long-standing sources to provide the necessary $190,000,000 investment in LVEN." Corazzi wrote the press release.
42. On October 18, 1999, Las Vegas Entertainment withdrew its tender offer.
C. Las Vegas Entertainment, Corazzi, And Sambus Falsely Described The "Investment Agreement" And "Tender Offer"
43. Las Vegas Entertainment falsely stated in the Schedule 14D-1 and the press releases that it would receive $190 million in cash. The $190 million was not cash but four "bank guarantees." Further, the bank guarantees were counterfeit.
44. Las Vegas Entertainment's tender offer filing and related press releases were also fraudulent because Las Vegas Entertainment did not have the assets to complete the offer. Las Vegas Entertainment planned to fund the takeover with the funds from Cruz's investment agreement. The investment agreement, however, was supposed to be funded by Cruz's counterfeit bank guarantees. Therefore, Las Vegas Entertainment's tender offer was a fraud.
45. As a result, Corazzi and Sambus knew, or were reckless in not knowing, that Las Vegas Entertainment's press releases and tender offer were false or misleading.
Goldberg Made Illegal Touts Regarding Las Vegas Entertainment
In Internet Postings in September And October 1999
46. Goldberg provided "financial public relations" services pursuant to agreements with Las Vegas Entertainment. Between February and September 1999, Las Vegas Entertainment issued 85,000 shares to Goldberg.
47. Between September 23 and October 5, 1999, Goldberg made a total of 14 touts relating to the securities of Las Vegas Entertainment. These touts appeared as postings on several Internet bulletin boards, including those operatedby Raging Bull, Silicon Investor, and Yahoo Finance. Most of the touts described the $190 million "capital infusion" from investors.
48. The touts discussed Las Vegas Entertainment's securities: all postings to Raging Bull included current share price data; some postings included current and specific market information regarding trading in Las Vegas Entertainment's securities; and most postings stated that Las Vegas Entertainment was "an excellent speculation." Goldberg signed his name and listed his telephone number in all postings. Goldberg invited investors to call him if they had "any questions."
49. In publishing these touts, Goldberg failed to disclose that he had received consideration of 85,000 shares from Las Vegas Entertainment.
FIRST CLAIM FOR RELIEF
FRAUD IN CONNECTION WITH THE
PURCHASE OR SALE OF SECURITIES
Violations of Section 10(b) of the Exchange Act and Rule 10b-5
(Against Defendants Las Vegas Entertainment,
Corazzi And Sambus)
50. Paragraphs 1 through 49 are realleged and incorporated herein by reference.
51. Defendants Las Vegas Entertainment, Corazzi, and Sambus, and each of them, with scienter, by engaging in the conduct described above, directly or indirectly, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce, or of the mails:
(a) employed devices, schemes or artifices to defraud;
(b) made untrue statements of material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or
(c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon other persons.
52. By engaging in the conduct described above, each of the defendants violated, and unless restrained and enjoined will continue to violate, Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
SECOND CLAIM FOR RELIEF
FRAUD IN PROXY SOLICITATIONS
Violations of Section 14(a) of the Exchange Act and Rule 14a-9
(Against Defendants Las Vegas Entertainment,
Corazzi And Sambus)
53. Paragraphs 1 through 49 are realleged and incorporated herein by reference.
54. Defendants Las Vegas Entertainment, Corazzi, and Sambus, and each of them, by engaging in the conduct described above, directly or indirectly, by the use of means or instrumentalities of interstate commerce, or of the mails:
made statements in a solicitation by means of a proxy statement, form of proxy, notice of meeting or other communication, written or oral, which, at the time and in light of the circumstances under which they were made, were false and misleading with respect to any material fact, or which omitted to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in earlier communications with respect to the solicitation of proxy for the same meeting or subject matter which had become false or misleading.
55. By engaging in the conduct described above, each of the defendants violated, and unless restrained and enjoined will continue to violate, Section 14(a)of the Exchange Act , 15 U.S.C. § 78n(a), and Rule 14a-9 thereunder, 17 C.F.R. § 240.14a-9.
THIRD CLAIM FOR RELIEF
FAILURE TO FILE ACCURATE QUARTERLY REPORTS
ON FORM 10-QSB WITH THE COMMISSION
Violations, or Aiding and Abetting Violations, of
Section 13(a) of the Exchange Act
and Rules 12b-20 and 13a-13
(Against Defendants Las Vegas Entertainment,
Corazzi And Sambus)
56. Paragraphs 1 through 49 are realleged and incorporated herein by reference.
57. Defendant Las Vegas Entertainment, aided and abetted by defendants Corazzi and Sambus, by engaging in the conduct described in paragraphs 1 through 49 above, filed quarterly reports with the Commission on Form 10-QSB that failed to contain material information necessary to make the required statements in the Form 10-QSB, in light of the circumstances under which they were made, not misleading.
58. Defendants Corazzi and Sambus knowingly provided substantial assistance to Las Vegas Entertainment's violation of Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 12b-20 and 13a-13 thereunder, 17 C.F.R. §§ 240.12b-20 and 240.13a-13.
59. By reason of the foregoing, defendant Las Vegas Entertainment violated, and defendants Corazzi and Sambus aided and abetted such violations, and unless restrained and enjoined, defendant Las Vegas Entertainment will continue to violate, and defendants Corazzi and Sambus will continue to aid and abet violations of, Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.
FOURTH CLAIM FOR RELIEF
UNDISCLOSED COMPENSATION FOR STOCK TOUTING
Violations of Section 17(b) of the Securities Act
(Against Defendant Goldberg)
60. Paragraphs 1 through 49 are realleged and incorporated herein by reference.
61. Defendant Goldberg, by engaging in the above conduct, by use of means or instruments of transportation or communication in interstate commerce, or by the use of the mails, published, gave publicity to, or circulated notices, circulars, advertisements, newspapers, articles, letters, investment services or communications which, though not purporting to offer securities for sale, described such securities for consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amounts thereof.
62. By reason of the foregoing, defendant Goldberg has violated, and unless enjoined will continue to violate, Section 17(b) of the Securities Act, 15 U.S.C. § 77q(b).
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court:
I.
Issue findings of fact and conclusions of law that defendants Las Vegas Entertainment, Corazzi, Sambus, and Goldberg committed the violations alleged and charged herein.
II.
Issue final judgments of permanent injunction, in a form consistent with Fed. R. Civ. P. 65(d), enjoining:
a) Las Vegas Entertainment, Corazzi, and Sambus, from violating Sections 10(b), 13(a), and 14(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78m(a), and 78n(a), and Rules 10b-5, 12b-20, 13a-13, and 14a-9 thereunder, 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-13, and 240.14a-9; and
b) Goldberg from violating Section 17(b) of the Securities Act.
III.
Enter an order, pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2), prohibiting Corazzi and Sambus from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, 15 U.S.C. § 781, or that is required to file reports pursuant to Section 15(d) of the Exchange Act, 15 U.S.C. § 78o(d).
IV.
Enter an order directing Goldberg to pay civil penalties under Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Corazzi and Sambus to pay civil penalties under Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3).
V.
Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered, or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court.
VI.
Grant such other and further relief as this Court may determine to be just and necessary.
DATED: October 8, 2002
_____________________
Janet R. Rich
Attorney for Plaintiff
Securities and Exchange Commission
sec.gov
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