United States Securities and Exchange Commission Litigation Release No. 16026 / January 19, 1999 SECURITIES AND EXCHANGE COMMISSION v. ALAN BENLOLO aka ALLEN BENDER aka HAIME ESCALANTE aka STUART JEFFRIES, MICHAEL RISMAN aka GRAHAM BAKER, LENNY NACHER aka ALEXANDER HAMILTON aka STUART JEFFRIES, and STEPHEN DALE aka DANE TEMPLETON, U. S. District Court for the Southern District of New York, Civil Action Number 99-Civ-0341 (LS) (S.D.N.Y.) SEC SUES FOUR CANADIAN NATIONALS FOR OPERATING "RECOVERY ROOM" FRAUDS The Securities and Exchange Commission today filed a Complaint in the United States District Court for the Southern District of New York alleging that four Canadian nationals -- Alan Benlolo ("Benlolo"), Lenny Nacher ("Nacher"), and Stephen Dale ("Dale") working in concert, and Michael Risman ("Risman") working independently -- operated a variety of "recovery room" frauds. The defendants are alleged to have targeted individuals worldwide who had previously been sold one or more U.S. microcap securities in offshore cold-calling telemarketing schemes. The Complaint alleges that the defendants carried out elaborate frauds to create the false appearance that they were established United States stock brokers, offered to repurchase those microcap securities at a substantial premium, successfully induced at least 55 individuals to post cash deposits of at least $1,536,514 to insure the proposed transaction, and absconded with those funds. Specifically, the Complaint alleges the following:  The schemes targeted investors who had been persuaded to invest in one or more U.S. "microcap" securities that were sold in 1995 and 1996 through boiler rooms in Europe and Asia. The securities sold by the boiler rooms included Electrogesic Corporation ("ELGC"), Stratosphere Communications Corporation ("SPHR"), International Software Technologies Corp. ("ISOF"), Rockford Investment Corp. ("Rockford"), Toxic Disposal Corp. ("Toxic"), and Integra Capital Corp. ("Integra") -- all of which were quoted on the OTC Bulletin Board in the United States over-the-counter markets. The price for these securities had collapsed once the European and Asian distributions were complete, leaving the investors with substantial losses if they attempted to sell their securities on the market.  These defendants are two independent groups that independently competed to defraud similar and occasionally the same victims. Each group separately obtained customer lists that identified the individuals who had bought securities from the boiler room operations. The defendants contacted the victimized investors and said they worked for a United States-based brokerage firm. They claimed to represent an investor who was seeking control of the issuer and was prepared to pay a substantial premium to acquire their shares. However, the proposed seller was required to first post a "deposit" to insure the closing of the transaction. For several months, Dale and Benlolo ran their portion of the fraudulent scheme, including calling potential victims, from Benlolo's apartment in Florida.  The defendants employed a variety of fraudulent devices. Each defendant used aliases in contacting investors. They also established fake entities with United States addresses that were purported to be the offices of United States broker-dealers, but in reality were mail box drops. Nacher, Dale and Benlolo ("Nacher's Group"), at various times used a series of names, including Nixon Management Group, Spencer Davis Group, Suntrust Management Group, Templeton Securities, Barrington Woodfield, Clarke Harris, Ridley Donovan, and Edwards Anderson. Defendant Risman and individuals who represented themselves as working for his "phantom" broker-dealer ("Risman's Group") operated as The William Ashley Group. To convince the sellers of the legitimacy of their "phantom" broker-dealers, the defendants gave the sellers telephone numbers in the United States for purported "government agencies," including the "International Business Registry" ("IBR") and the "International Protection Agency" ("IPA"), that the seller could call to research the firms' bona fides. IBR and IPA were merely voice mail boxes with remote access, set up by the "phantom" broker-dealers. Prospective sellers who left messages with IBR and IPA were called by individuals purporting to be IBR and IPA employees who falsely assured the prospective sellers that the "phantom" broker-dealers were established, reputable firms.  Because Risman's Group and Nacher's Group had customer lists from the same boiler room, they on occasion were simultaneously attempting to defraud the same individuals. During those solicitations, both groups disparaged each other in a brazen effort to be the first to conclude their fraud.  Deposit funds paid by victims of Risman's Group were wired to New York clearing banks for further credit to banks in St. Vincent, Grand Turk, and the Bahamas. Deposit funds paid to Nacher's Group were sent to mail drops throughout the United States to be forwarded to Canadian mail drops, or by wire to New York clearing banks for credit to banks in the Bahamas.  After receiving the "deposits," the defendants lulled the sellers into believing that the purchase price would be forthcoming, in order to delay the reporting of the fraud by victims, and ask for further deposits. This also enabled the defendants time to use the same aliases, mail drops and bank accounts to defraud other individuals. When they could no longer put off the victims' inquiries, the defendants disappeared to resume operations under new names or at new locations. The Complaint alleges that by engaging in this conduct, the defendants violated the antifraud and broker-dealer registration provisions of the federal securities laws, specifically, Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 15(a) and 15(c) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5 and 15c1-2. In its Complaint, the Commission seeks a permanent injunction against future violations of these provisions, disgorgement with prejudgment interest, and an accounting of all illegal gains. This enforcement action is part of the Commission's four-pronged approach to minimizing Microcap fraud: enforcement, inspections, investor education and regulation. For more information about the SEC's response to Microcap fraud, visit the SEC's Microcap Fraud Information Center at: http://www.sec.gov/news/extra/microcap.htm. The Commission wishes to thank the United States Attorneys Office for the Middle District of Pennsylvania and the United States Postal Inspection Service, Philadelphia Division for their assistance in this matter. The Commission encourages individuals who believe they have been victimized by the fraudulent scheme described in this release to contact the Commission's Office of Investor Education and Assistance at (202) 942-7040 for further information.