U.S. Securities and Exchange Commission
Litigation Release No. 17336 / January 24, 2002
SECURITIES AND EXCHANGE COMMISSION v. EMSANET INTERNET SERVICES, INC., STEFAN ABEL, PETER C. RESTIVO, INC. d/b/a U.S. FUNDING, PETER C. RESTIVO, NICOLA A. LIANTONIO, JR., AND CESARE J. IORI, JR.
CV 02-532 (ADS ) (E.D.N.Y) (January 24, 2002)
SEC Charges Emsanet Internet Services, Inc. and
Others with Defrauding Investors of Over $3.2 Million
The Securities and Exchange Commission announced that it filed a civil injunctive action today in the United States District Court for the Eastern District of New York, alleging that Emsanet Internet Services, Inc. ("Emsanet"), a start-up company purportedly attempting to create an Internet Service Provider, and others, offered and sold stock to investors in an unregistered offering and defrauded approximately 492 investors of $3.2 million.
In its complaint, the Commission charged the following defendants:
- Emsanet, a Delaware corporation that maintained its offices in Cathedral City, California.
- Stefan Abel, age 41, a resident of Cathedral City, California. Abel has been Emsanet's President and CEO since March 5, 1999, when he founded the company.
- U.S. Funding, a New York corporation that operated as an unregistered broker-dealer and maintained offices in Westbury, New York and New York, New York.
- Peter C. Restivo, age 30, a resident of Valley Stream, New York. Restivo was the President and CEO of U.S. Funding.
- Nicola A. Liantonio, age 35, a resident of Lattingtown, New York. Liantonio helped manage U.S. Funding's operations.
- Cesare Iori, Jr., age 29, a resident of Long Beach, New York. Iori also helped manage U.S. Funding's operations.
The Commission's complaint alleges as follows:
Beginning in approximately March 1999, Emsanet and Abel planned to raise money for Emsanet by selling stock to investors through a private placement offering. Abel hired U.S. Funding, an unregistered broker-dealer, to conduct this offering. Restivo, Liantonio, and Iori managed U.S. Funding's operations, and they personally sold Emsanet stock, and hired salespersons to sell Emsanet stock to investors.
In connection with the sale of Emsanet stock, Abel drafted a Private Placement Memoranda ("PPM"), which was distributed to investors. The PPM contained numerous materially misleading statements. For instance, the PPM stated that Abel had substantial industry experience when, in fact, he did not. In the PPM, Emsanet predicted that by the end of 2001, its Internet Service Provider would have 1.7 million subscribers and the company would generate $254,800,000 in revenues. Emsanet, however, lacked any operational infrastructure, and the company had no reasonable basis in fact to make this projection.
To facilitate the sale of Emsanet stock, U.S. Funding, Restivo, Liantonio, and Iori, directly and through U.S. Funding's salespersons, made materially misleading statements and failed to disclose material facts to investors. For instance, Restivo posted messages on various Internet message boards stating that Emsanet planned shortly to conduct an initial public offering at a price of $20 per share, and that investors who had purchased stock in the private placement at $3.50 per share would then be able to sell their shares. In fact, Emsanet had not undertaken steps to conduct an IPO, and Restivo had no basis in fact to make this statement. U.S. Funding, Restivo, Liantonio, and Iori also failed to disclose to investors that Emsanet was compensating U.S. Funding with approximately 25% commissions, in cash and stock, to sell Emsanet stock.
The Commission charged Emsanet, Abel, U.S. Funding, Restivo, Liantonio and Iori with violating Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The Commission also charged U.S. Funding, Restivo, Liantonio and Iori with violating Section 15(a) of the Securities Exchange Act of 1934. The Commission is seeking permanent injunctions, and disgorgement and prejudgment interest from all of the Defendants. The Commission is also seeking civil monetary penalties from Abel, U.S. Funding, Restivo, Liantonio, and Iori.
SEC Complaint in this matter