LUIS R. MEJIA
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0808
Phone: (202) 942-4744 (Mejia)
Fax: (202) 942-9569 (Mejia)
Local Counsel:
GREGORY C. GLYNN, Cal. Bar # 039999
Securities and Exchange Commission
5670 Wilshire Boulevard, 11th Floor
Los Angeles, CA 90036-3648
Phone: (323) 965-3998
Fax: (323) 965-3812
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
SECURITIES AND EXCHANGE COMMISSION, : Case No.
:
Plaintiff, :
:
vs. : PLAINTIFF SECURITIES AND
: EXCHANGE COMMISSION'S
ARASH AZIZ-GOLSHANI, HOOTAN : COMPLAINT FOR TRO, ORDER
MELAMED, ALLEN DERZAKHARIAN, : FREEZING ASSETS, PRELIMINARY
: AND PERMANENT INJUNCTIONS
: AND OTHER LEGAL AND
Defendants. : EQUITABLE RELIEF
:
:
___________________________________ :
Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against defendants Allen Derzakharian ("Derzakharian"), Arash Aziz-Golshani ("Aziz-Golshani"), and Hootan Melamed ("Melamed"), 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), 77(d)(1) & 77v(a)] and 21(d)(3), 21(e) and 27 of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d)(3), 78u(e) and 78aa]. Venue is proper in the Central District of California because a substantial part of the events or misrepresentations giving rise to the claim occurred in this District.
SUMMARY
2. From on or about October 6, 1999 to November 12, 1999, Defendants purchased securities of NEI Webworld, Inc. ("NEIP"), a public company whose common shares are quoted on the National Association of Securities Dealers' Over-the-Counter Bulletin Board quotation service (the "OTC BB"). Defendants then disseminated through the Internet to the investing public a series of statements falsely announcing that NEIP would be acquired by LGC Wireless, Inc. ("LGC"), a privately-owned company based in San Jose, California.
3. The publication of these false messages caused significant trading activity in NEIP securities and caused the market price of NEIP securities to increase substantially. After Defendants sold their NEIP securities at the inflated prices triggered by the false messages, and after their dissemination of false information ceased, the price of NEIP declined precipitously. 4. By their conduct, Defendants manipulated the price of publicly traded securities. By knowingly or recklessly engaging in this conduct, Defendants, directly or indirectly, violated, and, unless restrained and enjoined, may again violate 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].
5. In connection with the acts, transactions, and practices alleged herein, Defendants, directly or indirectly, made use of the means or instruments of transportation or communication in interstate commerce, or of the mails or of the facilities of a national securities exchange.
6. The Commission seeks to enjoin each Defendant from engaging in the transactions, acts, practices and courses of conduct alleged in this Complaint, and transactions, acts, practices, and courses of conduct of similar purport and object, for other equitable relief, including disgorgement, for payment of civil penalties by the Defendants, and for such other and further relief as the Court may deem appropriate.
DEFENDANTS
7. Allen Derzakharian, 26, is an Iranian citizen and resides in La Crescenta, California. He is a pharmacy student at Western University of Health Sciences in Pomona, California.
8. Arash Aziz-Golshani, 23, is an Iranian citizen and resides in Beverly Hills, California. He operates an Internet retail business from his home.
9. Hootan Melamed, 23, resides in Pomona, California. He is a pharmacy student at Western University of Health Sciences in Pomona, California.
BACKGROUND
10. NEIP is a Texas corporation that was based in Dallas, Texas. Formerly a provider of commercial printing services, NEIP filed for bankruptcy in 1998 and is in Chapter 7 liquidation. By the time of the trading detailed herein, NEIP was a prostrate company bereft of operations or assets. NEIP's common shares are still publicly traded and currently quoted on the OTC BB under the symbol "NEIP." Warrants to purchase NEIP's common shares are quoted on the OTC BB under the symbol "NEIPW."
11. Yahoo! Finance is a World Wide Web business and finance news and information service of Yahoo! Inc., an Internet search and information provider, based in Santa Clara, California. Yahoo! is one of the most widely used World Wide Web gateways. Included in the Yahoo! Finance service is a series of public message boards that are available for posting business-related information.
12. Raging Bull, Inc. is a World Wide Web business and finance news and information service based in Boston, Massachusetts. Included in the Raging Bull service are public message boards that are available for posting business-related information.
13. Freerealtime.com is a World Wide Web business and finance news and information service based in Irvine, California. Included in the freerealtime.com service are public message boards that are available for posting business-related information.
14. During the weeks prior to November 8, 1999, there was virtually no market activity in NEIP's common stock.
15. Defendants began accumulating shares of NEIP during the second week in November 1999. Their purchases and that of another associate combined constituted roughly 97% of the entire trading volume in NEIP for the week. Specifically, 150,150 shares of NEIP traded hands that week and the Defendants and another associate bought 145,000 of those shares. On November 9 and 10, 1999, Aziz-Golshani bought 25,000 NEIP shares at $.09 per share, through an account he maintained at Bank Hapaolim in Tel Aviv, Israel. Also, on November 10, 1999, Aziz-Golshani bought 10,000 NEIP shares, also at $.09 per share through an account he maintains at Web Street Securities, Inc.("Web Street"). Derzakharian and Melamed opened a joint trading account at Web Street's Beverly Hills office on Friday, November 12, 1999, just hours before the false Internet postings commenced, and immediately purchased 50,000 NEIP shares at $.13 per share. Also on Friday, Aziz-Golshani bought 20,000 NEIP shares in his Web Street account at a price of $.13 per share. Aziz-Golshani had previously purchased 17,000 NEIP stock purchase warrants at $.005 per share on October 6, 1999.
16. Commencing on Friday evening, November 12, 1999, shortly following the final purchases of NEIP stock by each of the Defendants, and continuing throughout the weekend of November 12-14, 1999, Defendants posted messages on the Yahoo! Finance, Raging Bull and freerealtime.com messages boards stating that LGC would acquire all of NEIP's outstanding shares. One widely-circulated message stated that LGC was going to buy all outstanding common stock in NEIP in order to take advantage of NEIP's OTC BB stock quotation, and, further, that investors could profit handsomely from purchasing NEIP shares prior to the deal's announcement. This posting predicted that NEIP would be "a fast mover" with a target price of "$5-10" per share.
17. The messages posted by Defendants were materially false and fraudulent. No such merger, stock acquisition or other business combination had been considered by either company.
18. Following the commencement of the posting of the purported impending merger messages, Defendants posted other messages posted under various screen names discussing the NEIP acquisition news and prospects for NEIP's share price. Many of these posts were positive in tone, predicting sharp price rises for the following week and large profits for NEIP investors. These posts, appearing on Saturday and Sunday, November 13 and 14, 1999, gave the appearance of an ongoing conversation among investors regarding the desirability of investing in NEIP stock. These posts also contained materially false and fraudulent statements relating to NEIP.
19. Both the impending merger postings and many of the subsequent positive postings were created and posted by the Defendants.
20. The materially false postings caused numerous investors to place a large number of orders to purchase NEIP stock, creating an imbalance in the supply and demand for NEIP stock when the market opened on Monday, November 15, 1999. As a result, NEIP stock opened at $8.00 per share, an increase of nearly 6,000% from its Friday, November 12, 1999 closing price of $.13 per share. In the first 30 minutes of trading, NEIP experienced heavy volume and rose to a peak price of $15 5/16 per share.
21. Defendants sold off their entire positions in NEIP stock on Monday, November 15, 1999, at prices between $.25 and $15.1875 per share, realizing approximately $363,991 in profits. Specifically, Derzakharian and Melamed realized $211,250 in trading profits; and Aziz-Golshani realized $152,742 in trading profits.
22. Later that day, when no press release by NEIP or LCG appeared announcing a buyout and after the Defendants ceased posting the fraudulent messages, the price of NEIP declined dramatically.
CLAIM ONE
(STOCK PRICE MANIPULATION)
Violation of Section 17(a) of the Securities Act
[15 U.S.C. § 77q(a)]
23. Paragraphs 1 through 22 are realleged and incorporated herein by reference.
24. Defendants knew or were reckless in not knowing that their statements concerning an impending merger between NEIP and LGC were materially false and misleading and, in addition, that posting those statements on the various message boards would materially mislead investors as to the reliability of that information.
25. Defendants knew or were reckless in not knowing that the posting of the false information concerning an impending acquisition of NEIP by LGC would affect both the price and volume of trading in NEIP securities.
26. Defendants, by engaging in the conduct described above, directly or indirectly, in connection with the offer or sale of securities, by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails:
(a) with scienter, employed devices, schemes, or artifices to defraud,
(b) obtained money or property by means of untrue statements of material facts or omissions 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 operate or would operate as a fraud or deceit upon the purchasers of such securities.
27. By reason of the foregoing, Defendants, directly or indirectly, violated, and unless restrained and enjoined will continue to violate, Section 17(a) of the Securities Act.CLAIM TWO
(STOCK PRICE MANIPULATION)
Violation of 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]
28. Paragraphs 1-27 above are realleged and incorporated herein by reference.
29. Defendants, by engaging in the conduct described above, directly or indirectly, by use of the means or instruments of transportation or communication in interstate commerce, or by use of the mails, or of any facility of any national securities exchange, in connection with the purchase or sale of securities:
(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 operate or would operate as a fraud or deceit upon any person.
30. By reason of the foregoing, Defendants violated, and unless restrained and enjoined will continue to violate, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
RELIEF REQUESTED
WHEREFORE, the Commission respectfully requests that this Court:
I.
Issue findings of fact and conclusions of law that the Defendants committed the alleged violations;
II.
Issue orders temporarily, preliminarily and permanently enjoining the Defendants from violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder;
III.
Issue a temporary restraining order and a preliminary injunction freeezing the assets of each of the Defendants, and issue orders granting expedited discovery, prohibiting each of the Defendants from destroying documents, for accountings from each of the Defendants and for repatriation of assets of the Defendants held in foreign locations;
IV.
Grant such other and further relief as this court may determine to be just, equitable and necessary, including, but not limited to, disgorgement; and
V.
Enter an Order directing all Defendants to pay civil penalties.Dated: December , 1999
Respectfully submitted,
____________________________
Luis R. Mejia
Attorney for Plaintiff
Securities and Exchange Commission
Local Counsel:
Gregory C. Glenn
Of Counsel:
Thomas C. Newkirk David P. Gionfriddo
Erich T. Schwartz N. Blair Vietmeyer
C. Joshua Felker David R. Herman
John Reed Stark Bud Roth
Matthew P. Moro