Mr. Paloma, who did not return a call seeking comment, was the subject of an S.E.C. enforcement action in 2002.
That action accused him of securities fraud for falsely claiming that his former company,
the Desert Winds Entertainment Corporation, had a contract with Warner Brothers Television
and for illegally selling restricted shares.
Mr. Paloma settled the case without admitting or
denying the charges, and as part of the settlement,
paid more than $500,000 and was permanently enjoined from further violations of the securities laws.
nytimes.com
SECURITIES AND EXCHANGE COMMISSION,
450 Fifth St., N.W.
Washington, D.C. 20549
Plaintiff,
v.
MICHAEL PALOMA
9615 East McKillips Road
Mesa, Arizona 85207
MATTHEW BARDASIAN
2325 Rock Hill Circle
Reno, Nevada 89509
DESERT WINDS ENTERTAINMENT CORP.
(N/K/A SUNNCOMM, INC.)
668 N. 44th Street Suite 248
Phoenix, Arizona 85008
Defendants.
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CASE NO.
Complaint for Injunctive and other Relief
Summary
Plaintiff Securities and Exchange Commission (the "Commission") alleges:
1. From at least March 1999 through November 1999, defendants Michael Paloma ("Paloma"), Matthew Bardasian ("Bardasian") and Desert Winds Entertainment Corp. ("Desert Winds") falsely announced in press releases and Commission filings a $25 million contract between Desert Winds and Warner Bros. As they knew, however, no such contract existed. Both Paloma and Bardasian profited from their involvement with the company by offering and selling restricted Desert Winds shares when no registration statement as to the securities was in effect or had been filed with the Commission.
2. By engaging in this conduct, the defendants violated the antifraud and registration provisions of the securities laws, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 (the "Securities Act") [15 U.S.C. §§ 77e and 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5].
Jurisdiction
3. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Sections 21(d)(3)(A), 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d)(3)(A), 78u(e) and 78aa]. Venue lies in this Court 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].
4. The Commission brings this action pursuant to authority conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and Section 21(d)(1) of the Exchange Act [15 U.S.C. § 78u(d)(1)].
5. Defendants, directly or indirectly, have made use of the means and instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange in connection with these acts, practices, and courses of business alleged in the complaint.
Defendants
6. MICHAEL PALOMA is a resident of Mesa, Arizona. Paloma was the President and Chief Executive Officer of Desert Winds from its inception in 1998 until 2000.
7. MATTHEW BARDASIAN is a resident of Reno, Nevada. From 1998 through at least November 1999, Bardasian financed Desert Winds, providing approximately $1.3 million in operating capital.
8. DESERT WINDS is a Nevada corporation whose stock was quoted on the Pink Sheets and traded in the over-the-counter market. From its inception until approximately January 2000, Paloma and Bardasian controlled Desert Winds, which is now named SunnComm, Inc.
First Claim For Relief
[Material Misrepresentations]
Violations of Section 17 (a) of the Securities Act [15 U.S.C. § 77q(a)], 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]
9. Paragraphs 1 through 8 are realleged and incorporated by reference.
10. On March 15, 1999, Desert Winds announced in a press release that it had signed a $25 million deal with a "major studio" for the production of 33 episodes of a television series called "News Traveler." On April 14, 1999, Desert Winds announced in another press release that it "will be delivering to a yet-to-be-disclosed major studio . . . the first three episodes of there [sic] new production, News Traveler." On May 7, 1999, Desert Winds announced that Warner Bros. was the major studio that had contracted with Desert Winds for the News Traveler show.
11. On November 12, 1999, Desert Winds filed a Form 10-12G with the Commission (later withdrawn) that also described the contract with Warner Bros. The filing falsely states that "n March 1999, the Company signed an agreement with Warner Brothers Television providing for production of 33 episodes of `News Traveler'." The Form 10-12G also reported that Desert Winds had net assets at year-end 1999 of $19.8 million, entirely attributable to the fake contract.
12. Within two weeks, Desert Winds' Form 10-12G was withdrawn and an amended Form 10-12G was filed with the Commission. The amended Form 10-12G contained the same representations as the previous filing about the Company's purported Warner Bros. contract and net assets. Shortly thereafter, the amended filing also was withdrawn.
13. In fact, Desert Winds had no contract or other agreement with Warner Bros. of any description at any time. Moreover, Desert Winds had no contract or other agreement of any description at any time with any other studio or other source of funding for the development of "News Traveler."
14. Paloma and Bardasian caused Desert Winds to issue each of the press releases and to make each of the Commission filings described in Paragraphs 10-12, above. Paloma, Bardasian and, through Paloma and Bardasian, Desert Winds, knew or were reckless in not knowing that the statements contained in those documents concerning the Company's purported contract with Warner Bros. and its net assets, as described in Paragraphs 10-12, above, were materially false and misleading.
15. Paloma, Bardasian and Desert Winds, in the offer or sale of securities, by the use of means or instrumentalities of interstate commerce or of the mails, directly or indirectly: (a) employed devices, schemes or artifices to defraud; (b) obtained money by means of untrue statements of material facts or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon the purchaser, in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
16. Paloma, Bardasian and Desert Winds, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce or of the mails, directly or indirectly: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts 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, including purchasers and sellers of such securities, in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.
17. By reason of the foregoing, Paloma, Bardasian and Desert Winds have violated and unless restrained will violate Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Second Claim for Relief
[Sale of Unregistered Securities]
Violations of Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a), and 77e(c)]
18. Paragraphs 1 through 17 are realleged and incorporated by reference.
19. From January through March 2000 Bardasian, while a "control person" of Desert Winds, as that term is defined for purposes of Commission Rule 144, offered and sold, directly or indirectly, a total of 778,800 restricted shares of Desert Winds common stock, issued to him in March 1999 by the Company.
21. From May through December 2000 Paloma, while a "control person" of Desert Winds, as that term is defined for purposes of Commission Rule 144, offered and sold, directly or indirectly, a total of 2,072,500 restricted shares of Desert Winds common stock, issued to him by the Company on December 31, 1998.
22. No registration statement was ever filed or in effect as to these offerings and sales of securities by Bardasian, Paloma and Desert Winds, and no exemption from registration is applicable.
23. By reason of the foregoing, Paloma, Bardasian and Desert Winds have violated and unless restrained will violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)].
Prayer for Relief
WHEREFORE, the Commission respectfully requests that this Court enter Judgments:
A. Permanently enjoining all defendants, and each of them, and their agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice by personal service or otherwise, from violating, directly or indirectly, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], 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];
B. Permanently enjoining all defendants, and each of them, and their officers, agents, servants, employees, attorneys, and those persons in active concert or participation with them who receive actual notice by personal service or otherwise, from violating, directly or indirectly, Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)];
C. Ordering payment of disgorgement and imposing civil monetary penalties on Paloma pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)];
D. Permanently prohibiting Paloma and Bardasian, pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)], from acting as officers or directors of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78l], or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)];
E. Granting such other relief as this Court may deem just and proper.
Respectfully submitted,
____________________________________
Charles D. Stodghill (D.C. Bar No. 256792)
Paul R. Berger
Richard C. Sauer
Robert J. Keyes
Jena T. Martin
Attorneys for Plaintiff
U.S. Securities and Exchange Commission
Mail Stop 9-11
450 Fifth Street, N.W.
Washington, D.C. 20549-0911
Tel: 202-942-4528 (Stodghill)
Fax: 202-942-4569
Date: April __, 2002
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