09/24/2009 3 DECLARATION of Norman H. Jones in support of 1 Complaint, 2 MOTION by United States Securities and Exchange Commission.
Doc 3 OCR extract
DECLARATION OF NORMAN H. JONES
I, Norman H. Jones, do hereby declare under penalty of perjury, in accordance with 28 U.S.C. § 1746, that the following is true and correct and that, if called upon to do so, I could competently testify as follows:
1. This declaration is submitted in support of Plaintiff Securities and Exchange Commission's Motion for a Temporary Restraining Order, Preliminary Injunction and Other Relief and Memorandum in Support.
I am employed as a Staff Accountant by the United States Securities and Exchange Commission (the "Commission" or "SEC") in its Chicago Regional Office, located at 175 West Jackson Boulevard, Suite 900, Chicago, Illinois, 60604. I have been employed with the Commission since 1975.
3. My official duties with the Commission include participating in fact-finding inquiries and investigations to determine whether the federal securities laws have been, are presently, or are about to be violated, and assisting in the Commission's litigation of securities laws violations. As part of my job, I routinely obtain and review bank records, trading records and other financial records typically maintained at all varieties of financial institutions — including banks, brokerage firms and investment adviser firms — and am intimately familiar with the type of records maintained by such entities.
4. In June 2008, I was assigned to work on a nonpublic investigation captioned In the Matter of Signature Leisure, Inc., C-07385. In connection with the investigation, I was asked to review and summarize certain brokerage and bank records and financial transactions. Specifically, I have reviewed:
a. brokerage records of Stephen W. Carnes, K&L International Enterprises, Inc. ("K&L"), Signature Leisure, Inc. ("Signature Leisure") and Signature Worldwide Advisors, LLC ("Signature Worldwide"), including but not limited to account opening documents, letters of authorization, monthly account statements, correspondence, records of receipts and disbursements and deposited stock certificates;
b. bank records of Carnes, K&L, Signature Leisure, Signature Worldwide, Enzyme Environmental Solutions, Inc., Revenge Designs, Inc., AUS Designs, LLC, Cross Atlantic Commodities, Inc., International Power Group, Ltd., Jared E. Hochstedler and Peter Toscano, including but not limited to account opening documents, bank signatory forms, canceled checks, monthly statements, deposits, debit and credit memoranda and wire transfer advices; and
c. transfer agent records for Enzyme Environmental Solutions, Inc., Revenge Designs, Inc., Cross Atlantic Commodities, Inc. and International Power Group, Ltd., including but not limited to shareholder lists, transaction journals, control logs, correspondence, opinion letters, transfer sheets and documents supporting stock issuances.
5. Based upon my review of the documents described in paragraph 4, I have prepared certain summaries, which are either in my Declaration or attached as exhibits to it. The estimated count of the documents I reviewed is in excess of approximately 10,000 and, therefore, voluminous. The summary exhibits are fair, accurate and complete summaries of the underlying records and documents I reviewed. The documents underlying the attached summary exhibits will be made available to Defendants for examination and copying at a reasonable place and time.
6. Additionally, throughout this declaration, I refer to other exhibits. These additional exhibits are true and accurate copies of documents produced to the Commission or obtained by the Commission staff during its investigation. All of these exhibits are attached to my Declaration. The Declaration and the exhibits are collectively referred to as Norman H. Jones Declaration Filed in Support of Plaintiff Securities and Exchange Commission's Motion for a Temporary Restraining Order, Preliminary Injunction and Other Relief and Memorandum in Support.
7. Based upon my review of the documents described in paragraph 4 and the Commission's files, in addition to conversations with Commission staff, I am informed and, therefore, state the information set forth below.
K&L, Signature Worldwide and Signature Leisure
8. Certain documents provided to the Commission staff by Blue Trading, LLC ("Blue Trading"), Scottrade, Inc. ("Scottrade") and Oppenheimer & Co., Inc. ("Oppenheimer") show that K&L holds itself out as a Florida corporation, is located at 1375 State Road 436, Suite 1035, Casselberry, Florida 32707 and is controlled by Lawrence A. Powalisz as its sole officer with titles of President and Secretary.
9. As of April 9, 2009, K&L's website stated that it was a direct marketing business with a focus on providing telemarketing services. Exhibit 1 contains true and correct pages from K&L's website that K&L produced to the Commission staff.
10. According to records obtained on Lexis Nexis's website located at www.lexisnexis.com, Powalisz, age 45, is a resident of Winter Park, Florida.
11. Certain documents provided to the Commission staff by Blue Trading, Scottrade and Oppenheimer show that Signature Worldwide holds itself out as a Minnesota limited liability company controlled in whole or part by Stephen W. Carnes as its Managing Member. They also show that Signature Worldwide has a mailing address of 1375 State Road 436, Casselberry, Florida 32707 and a business address of 11108 Zealand Ave. N., Suite 201, Champlin, Minnesota 55316.
12. I searched the Commission's database of public company filings and located filings associated with Signature Leisure. The Form 10-Q for the quarterly period ended September 30, 2008 states that Signature Leisure is incorporated in Colorado and has its principal place of business in Casselberry, Florida. It lists Carnes as its President, Principal Executive Officer and Principal Accounting Officer. On January 15, 2009, Signature Leisure filed with the Commission a Form 15, which terminated its registration of common stock under Section 12(g) of the Securities Exchange Act of 1934.
13. Signature Leisure's Form 10-Q for the quarterly period ended September 30, 2008 states that Signature Leisure, Inc. has a wholly-owned subsidiary, also called Signature Leisure, Inc. ("Signature Leisure-MN"), which was formed in January 2007 and provides "business consulting services to assist non public companies [that] are going public" and "investor relation services to these companies by fielding inquiries from investors." Carnes is the company's president. Certain documents provided to the Commission staff by Blue Trading and Scottrade show that Signature Leisure-MN holds itself out as a Minnesota corporation controlled by Carnes. The documents also show that Signature Leisure-MN, has a mailing address of 1375 State Road 436, Casselberry, Florida 32707 and a business address of 11108 Zealand Ave. N., Suite 201, Champlin, Minnesota 55316. Hereinafter, any reference to Signature Leisure will encompass Signature Leisure-MN as its wholly-owned subsidiary.
14. Exhibit 2 is a true and correct copy of a letter dated May 7, 2009 and received by Commission's staff from the attorney for Signature Worldwide, Signature Leisure and Carnes.
15. According to records obtained on Lexis Nexis's website located at www.lexisnexis.com, Carnes, age 45, is a resident of Apopka, Florida.
16. Exhibit 3 is a true and correct copy of the April 17, 2009 letter from Carnes' attorney responding to, among other things, the Commission staff's subpoena for documents issued to Carnes on March 11, 2009.
17. Exhibit 4 is a true and correct copy of a May 14, 2009 e-mail sent by Carnes' and Powalisz's attorney to the Commission staff in response to May 12, 2009 subpoenas seeking testimony from Carnes and documents and testimony from Powalisz.
Revenge Designs, Inc.'s Background
18. Exhibit 5 is a true and correct copy of webpages I located when I searched for Revenge Designs, Inc. ("Revenge Designs") on the Pink Sheets' website at www.pinksheets.com.
19. I reviewed Revenge Designs' website located at www.revengedesignsinc.com/about.html, which states that the company designs and develops modification packages for cars. It also states that Revenge Designs has been listed on the Pink Sheets since October 2007 through its acquisition of a public company.
Revenge Designs' Promissory Notes
20. Certain documents provided to the staff by Revenge Designs show that Revenge Designs, LLC, was organized on March 17, 2006, is an Indiana limited liability company with its principal place of business in Decatur, Indiana.
21. On July 18, 2006, Revenge Designs as "Company" and Thomas Cress and Peter Collorafi as "Owner" entered into a Loan and Stock Purchase Agreement ("July 2006 Agreement") with Signature Leisure as "Lender." Cress, Collorafi and Signature Leisure also entered into an Operating Agreement for Revenge Designs ("Operating Agreement") in which they became the initial members of the LLC. Exhibit 6 is a true and correct of the July 2006 Agreement and the Operating Agreement, produced to the Commission staff by Revenge Designs.
22. Exhibit 7 is a true and correct copy of excerpts from the testimony transcript of Peter Collorafi, Revenge Designs' President and Chief Executive Officer, provided to the Commission staff on May 11 and May 18, 2009. According to Collorafi, Revenge Designs, LLC reversed merged into Southern Cosmetics, Inc., a public company located by Carnes. Collorafi became the new controlling officer and shareholder of Southern Cosmetics and changed the company's name to Revenge Designs, Inc. Collorafi testified that he entered into the transaction as the suggestion of Carnes to raise working capital because Revenge Designs LLC was not making its scheduled payments to Signature Leisure under the July 2006 Agreement. (Ex. 7 at 48-49, 73-77.)
23. On September 14, 2007, Revenge Designs as "Borrower" entered into a Promissory Note with Signature Leisure as "Lender." Signature Leisure agreed to loan Revenge Designs $322,000. Exhibit 8 is a true and correct copy of the Promissory Note that Revenge Designs produced to the Commission staff.
24. Between September 14, 1997 to January 8, 2008, Revenge Designs and K&L entered into 13 Promissory Notes, on similar terms, totaling $420,000 to be repaid by Revenge Designs within approximately one year of execution. Exhibit 9 contains true and correct copies of those Promissory Notes.
25. The following chart is a summary of the Promissory Notes between Revenge Designs and K&L, based on my review of the notes and of the bank records for Revenge Designs at Wells Fargo Bank. The chart shows the date of the note, the face amount of the note, the date that Revenge Designs received payments, and the amount of the payments.
Date of Note Amount of Note Date Funds Rec'd Amount
09/14/07 $10,000 09/14/07 $10,000
09/24/07 $10,000 09/25/07 $10,000
09/27/07 $10,000 09/27/07 $10,000
10/04/07 $10,000 10/05/07 $10,000
10/09/07 $30,000 10/10/07 $15,000
10/18/07 $15,000
10/26/07 $50,000 10/26/07 $15,000
11/02/07 $35,000
11/15/07 $10,000 11/15/07 $10,000
11/26/07 $20,000 11/26/07 $20,000
12/07/07 $45,000 12/05/07 $30,000
12/06/07 $15,000
12/07/07 $75,000 Unknown Unknown
12/17/07 $50,000 12/17/07 $10,000
12/20/07 $40,000
12/26/07 $50,000 12/26/07 $50,000
01/02/08 $50,000 01/09/08 $25,000
01/14/08 $25,000
Totals: $420,000 $345,000
Exhibit 10 is a summary of transactions by Revenge Designs that I created based on my review of the bank records produced by Wells Fargo Bank for Revenge Designs.
26. Collorafi personally guaranteed timely repayment of each Promissory Note. (See Exs. 8, 9.)
27. On November 15, 2007, Signature Leisure sent a conversion request to Revenge Designs. Exhibit 11 is a true and correct copy of the November 15, 2007 conversion request that Revenge Designs produced to the Commission staff.
28. Between November 15, 2007 and February 28, 2008, Sigature Leisure issued such conversion requests to Revenge Designs and Revenge Designs issued board resolutions instructing Revenge Designs' transfer agent, X-Clearing, to issue shares to Signature Leisure. The following chart is a summary of conversion shares issued to Signature Leisure under the conversion clause of the September 14, 2007 Promissory Note.
Conversion Request Conversion Amount Issuance Date Shares Actual Conversion Price Actual Conversion Amount
11/15/2007 $ 30,000.00 11/16/2007 12,000,000 $0.0018 $43,200.00
12,000,000
11/20/2007 $ 30,000.00 11/21/2007 24,000,000 $0.0020 $48,000.00
12/07/2007 $ 30,000.00 12/17/2007 12,000,000 $0.0025 $30,000.00
12/18/2007 $125,000.00 12/21/2007 50,000,000 $0.0045 $225,000.00
02/28/2008 $107,000.00 03/03/2008 85,000,000 $0.0016 $136,000.00
$322,000.00 Totals: 195,000,000 $482,200.00
Exhibit 12 consists of true and correct copies of price and volume data I obtained from the Pink Sheets' website (www.pinksheets.com) relating to Revenge Designs' common stock from October 15, 2007 through mid-September 2009. The last two columns of the chart show the conversion price per share under the conversion clause of the Promissory Note and, based on the price, the actual value of the conversion shares issued.
29. In conjunction with each of Signature Leisure's conversion requests, attorney William Yarno sent nearly identical opinion letters to X-Clearing. Exhibit 13 is a true and correct copy of one of the opinion letters that X-Clearing produced to the Commission staff.
31. Signature Leisure transferred the shares it received from Revenge Designs to others, shortly after receipt. Exhibit 14 are true and correct copies of the documents showing those transfers, along with one example of Carnes' transfer instructions, that X¬Clearing produced to the Commission staff. On October 25, 2007, K&L sent a conversion request to Revenge Designs. Exhibit 15 is a true and correct copy of the October 25, 2007 conversion request that Revenge Designs produced to the staff.
32. Between October 25, 2007 and about February 28, 2008, K&L sent such conversion requests to Revenge Designs. Revenge Designs issued board resolutions instructing Revenge Designs' transfer agent to issue shares to K&L. The following chart is a summary of conversion shares issued to K&L under the conversion clauses of the Promissory Notes that I created based on my review of the transfer agent records:
Conversion Request Conversion Amount Promissory Note(s) Note Amount Issuance Date No. Shares
10/25/07 $30,000 09/24/07 $10,000 10/29/07 1059 12,000,000
09/27/07 $10,000
10/04/07 $10,000
11/09/07 $30,000 10/09/07 $30,000 11/14/07 1063 12,000,000
1064 12,000,000
11/20/07 $15,000 10/26/07 $15,000 of 11/21/07 1071 12,000,000
$50,000
12/13/07 $30,000 09/14/07 $10,000 12/17/07 1090 12,000,000
10/26/07 $20,000 of
$50,000
12/17/07 $125,000 10/26/07 $15,000 of 12/17/07 1091 50,000,000
$50,000
11/15/07 $10,000
11/26/07 $20,000
12/07/07 $45,000
12/07/07 $35,000 of
$75,000
01/02/08 $75,000 12/0707 $40,000 of 01/07/08 1104 50,000,000
$75,000
12/17/07 $35,000 of
$50,000
Conversion Request Conversion Amount Promissory Note(s) Note Amount Issuance Date No. Shares
unknown $115,000 12/17/07 $15,000 of 02/04/08 1113 191,666,667
$50,000
12/26/07 $50,000
01/02/08 $50,000
Totals: 5420,000 5420,000 351,666,667
33. In conjunction with each of K&L's conversion requests, attorney William Yarno sent nearly identical opinion letters to X-Clearing. Exhibit 16 is a true and correct copy of one of the opinion letters the X-Clearing produced to the Commission staff.
34. Exhibit 17 is a summary of brokerage transactions by K&L in Revenge Designs shares that I created based on my review of the account statements and documents produced to the Commission staff.
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09/24/2009 3 DECLARATION of Norman H. Jones in support of 1 Complaint, 2 MOTION by United States Securities and Exchange Commission. (2 volumes of exhibits supporting the declaration are in hard copy on the shelf) (LAK) (Entered: 09/24/2009)
6:09-cv-01638-GAP-KRS SEC v. K & L International Enterprises, Inc. et al
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