According to United States Attorney Vega, the 86-count Indictment unsealed today alleges that a telemarketing organization, described as "the Enterprise," which was headquartered in Los Angeles, but operated boiler rooms in several U.S. cities, including San Diego, Las Vegas, Nevada and Tampa, Florida, defrauded over 3,000 victims nationwide of almost $50,000,000 through its design, development and marketing of a series of "high-tech," telecommunications-related securities (including 900-number, pay-per-call services, virtual shopping malls and Internet service providers in various U.S. cities), which were not registered as required by law and which were fraudulently described to investors as "general partnerships." According to U.S. Attorney Vega, the Indictment, which was part of a multi-district investigation in the Southern District of California and the Middle District of Florida, demonstrates that high technology crime - the sophisticated criminal's crime of choice in the new century - can be effectively prosecuted so long as law enforcement is committed to staying ahead of the emerging cyber criminals by maintaining the necessary technological expertise and combining and coordinating investigative resources. According to U.S. Attorney Vega, "as I have said before, the Internet is a critical part of our infrastructure and an important and growing part of our economy. My office is committed to taking all necessary steps to protect its integrity and to prevent the ever-increasing Internet fraud problem from overwhelming U.S. consumers."

FBI Special Agent in Charge Gore said that this 20-defendant Indictment is part of Operation Cyber Loss, a national takedown in 31 FBI Divisions which represents the beginning of a multi-phased strategy under development by the FBI to address cyber crime at federal, state and local levels. Special Agent in Charge Gore said the FBI Headquarters has identified cyber crime as an emerging problem and he joined U.S. Attorney Vega in his commitment to investigate vigorously persons who subvert the Internet as a tool for committing fraud. Gore said that in preparing to address cyber crime, the FBI has engaged in various techniques to identify the nature and extent of cyber-criminal activity and outline an appropriate law enforcement response to future trends. As an initial step, in May 2000, the FBI, in partnership with the National White Collar Crime Center, established the Internet Fraud Complaint Center (IFCC) in Fairmont, West Virginia. According to Gore, since its inception, the IFCC has amassed over 39,000 complaints, of which over 10,000 have been referred to law enforcement agencies at federal, state and local levels. By late 2001, IFCC is projected to receive over 1,000 complaints per day. The majority of the complaints received by IFCC involve consumer and investment schemes, many of which are similar to the artifice alleged in the Indictment. Over 100 Internet fraud cases have been opened by FBI field offices, and over 350 additional cases pending investigation will be referred to FBI field offices in the near future. Gore said that IFCC has also referred 41 cases encompassing 200 complaints to international law enforcement agencies and had received complaints from 89 different countries. According to Gore, the IFCC has a web site (www.ifccfbi.gov), which in the past year has received 112,376,092 "hits" and a total of 1,328,071 visits.

United States Attorney Vega said that the San Diego Boiler Room Task Force, a telemarketing and Internet fraud investigative team made up of representatives from the United States Attorney's Office, the FBI, the Internal Revenue Service Criminal Investigations (IRS-CI), the United States Postal Inspection Service (USPIS), the Federal Trade Commission (FTC), the U.S. Securities and Exchange Commission (SEC), the California Department of Corporations (DOC) and other federal, state and local agencies in San Diego, had investigated this telemarketing organization for over four years and worked closely with its multi-jurisdictional counterpart in Tampa, the Securities Fraud Task Force, which has as its members the U.S. Attorney's Office, the FBI and the Florida Comptroller's Office. According to U.S. Attorney Vega, the Department of Justice's Tax Division played a critical role in the investigation regarding violations of the federal money laundering and tax laws.

According to United States Attorney Vega, the defendants charged in the Indictment included Marc David Levine, Jonathan Edward Shoucair, attorney James Michael Leonard, Robert Harry Shields, Robert Terrance Hart, Mark Darren McClafferty, Eugene Donald Evangelist, Jr., Kent Bollenbach, Brent Douglas Morris, Michael Owen Grayson, Joseph Anthony Marfoglia, Sylvan Morgan Metoyer, III, Rodney Scott Shehyn, David Zeidel Diamand, James Thomas Rissmiller, Anthony Matthew Castriotta, Mark Allen Jaconski, Stephen James Robinson, Daniel Sanders, and Richard York, 51. United States Attorney Vega said that all of these defendants were charged in the Indictment with conspiracy to commit wire fraud, mail fraud and securities fraud and to defraud the agencies of the United States, as well as with wire fraud, mail fraud, conspiracy to commit money laundering and money laundering, arising out of their involvement with the Enterprise.

United States Attorney Vega said that based on allegations in the Indictment, documents filed with the court in related cases and through admissions made by cooperating defendants during their guilty pleas, the telemarketing organization of which these defendants and others were members solicited victims to invest monies in "general partnerships" which were actually securities under federal law through the use of false and fraudulent promises and representations and omissions of material facts. Each fraudulent venture consisted of a partnership which was to be owned by the investors, and a corporation which was to serve as the Initial Managing Partner of the partnership. The Initial Managing Partner corporation, which was controlled by the Enterprise, received a management fee equal to 85% of the funds invested in the partnership, which normally involved several million dollars. The nature and percentage of this management fee was deliberately concealed from investors by means of intentional misrepresentations, lies and omissions.

According to United States Attorney Vega, the twelve fraudulent ventures were divided into three "high tech" categories, each of which involved the raising of millions of dollars. The first category of offerings, Touch Tone One, Touch Tone Two, Bureau Net, Link 900 and Teleserve Partners, were purportedly partnerships engaged in developing a business to offer 900-number, pay-per-call services to the public. The next group of fraudulent partnership offerings consisted of businesses engaged in developing a home shopping mall on the Internet called Future Net Emporium, a home shopping computer market and merchandise outlet on the Internet called Home Net Shopping, and an Internet shopping mall called Central Plaza Mall. The last set of offerings related to the development of companies which would provide Internet access to businesses and individuals in various U.S. cities and which were called I-Net Providers (Atlanta, Houston and Philadelphia), Enternet (Chicago, Detroit and Indianapolis), ConnectKom (Seattle) and Intellicom (New York).

According to Assistant U.S. Attorney Steven A. Peak, the lead prosecutor handling the case, the Indictment alleges that the scheme employed by the Enterprise to defraud investors focused on misleading victims in four ways. First, the defendants and others working for and with them falsely claimed that each of the ventures were "turn-key" businesses - viable companies substantially ready for profitable operations - that would be turned over to investors at the first partnership meeting by the Initial Managing Partner, who was developing it for their benefit. The glossy brochures sent to victims described the personnel already employed and equipment already acquired and ready to become operational when the investment offering was completely funded. The telephonic sales presentations corroborated the brochures and misled investors into believing that significant business development was underway. Second, the defendants and their coconspirators falsely claimed that consumers who invested in their projects were "getting in on the ground floor" of a venture guaranteed to reap immediate (within 30-60 days after the offering was funded and the first partnership meeting was held) and substantial (up to a 300 percent return) profits from these "high-tech" telecommunications and Internet-related businesses. During the latter six offerings, investors were falsely told that they would also receive a huge bonus from stock sales when their company became publicly traded, similar to the owners of well-known legitimate Internet companies like EarthLink and Yahoo. Third, defendants and their coconspirators falsely claimed that their offerings were low risk, conservative investments, and encouraged older consumers to invest their retirement savings. They reassured consumers that these projects were highly likely to succeed because of the level of managerial experience involved, the proven success of other well-known companies operating the same types of business, and the tremendous unmet demand for 900-number, pay-per-call and Internet-related services. Finally, the defendants and their coconspirators falsely touted the success of previous offerings despite knowing that none of the offerings had ever produced any assets, income, profit, return of capital or otherwise viable business to investors. For example, Enterprise telemarketers selling Touch Tone Two falsely touted the success of Touch Tone One and misled investors about the success of both of those offerings during the sale of Bureau Net. Salespersons selling Enternet, ConnectKom, and Intellicom falsely told potential investors that Home Net was a tremendous success and that its remarkable performance would be repeated in these offerings. Defendants and their colleagues also told prospective ConnectKom and Intellicom investors that the Enternet partners were enjoying success, receiving offers to be bought out by other companies, and returning to investors "144 percent for 100 percent" invested.

According to Special Assistant U.S. Attorney Danny N. Roetzel, the Department of Justice Tax Division attorney assigned to the investigation, the Indictment alleges that defendants defrauded agencies of the United States by deceitful and dishonest means, including the use of nominee entities in which to receive funds for their benefit. The defendants used foreign and domestic nominee corporations, attorney client trust accounts, financial accounts of family members, and trusts in which to hide monies from the SEC, FTC and the Department of the Treasury. Some of the countries in which certain defendants opened nominee accounts in order to transfer funds include the Turks and Caicos Islands, the Cayman Islands, Hong Kong, and the Cook Islands. The Indictment also alleges that defendants converted funds to currency in amounts of less than $10,000 to avoid reporting requirements of the Department of the Treasury. Some defendants also destroyed the books and records of the Enterprise in order to prevent the government agencies from determining the specific monies each defendant had received from the scheme.

Special Assistant U.S. Attorney Roetzel said that the Indictment also alleges that defendants conspired to engage in money laundering in order to promote the illegal activities of the Enterprise, such as payments made to the boiler room owners, who in turn paid the salesmen. The defendants engaged in money laundering to conceal the proceeds of their fraud by the use of nominees, attorney client trust accounts, relatives and trusts as described above, as well as to avoid the Department of the Treasury's currency reporting requirements.

Finally, according to Roetzel, the Indictment charges defendant Eugene Evangelist with filing two false individual income tax returns and three false corporate income tax returns for the years 1995 and 1996, in order to mislead the Internal Revenue Service as to his true income during those years. The false corporate income tax returns were in the names of two nominee corporations to which Evangelist transferred monies from the scheme. The Indictment also charges defendant Kent Bollenbach with attempting to evade his individual income taxes for 1995, 1996 and 1997 by failing to file a return or make payments. Bollenbach is alleged to have committed various affirmative acts of evasion, including the extensive use of currency to prevent the seizure of his money by creditors including the government.

According to Assistant U.S. Attorney Peak, the criminal investigation and resulting indictment of these defendants were in part the result of regulatory enforcement actions taken against various Enterprise members during 1996 and 1997 by the California DOC, the SEC and the FTC, all of which are Boiler Room Task Force members. In January 1996, the DOC filed a Desist and Refrain Order against defendants Shoucair and Morris and other members of the Enterprise relating to the Touch Tone One offering and its securities-related telemarketing operations which prohibited them from selling unregistered securities in California. In 1996, the SEC filed a civil enforcement action in the U.S. District Court for the Middle District of Florida (Tampa) relating to the Plaza Partners and I-Net Providers offerings, which resulted in a criminal referral to the Securities Fraud Task Force in Tampa. In 1997, the SEC filed a civil enforcement action in the U.S. District Court for the Central District of California (Los Angeles) against several of the defendants and other members of the Enterprise relating to the Touch Tone One offering. In 1997, the FTC filed a civil enforcement action in the U.S. District Court for the Central District of California against defendants Levine, Leonard, Evangelist, Bollenbach, Morris and Diamand and other members of the Enterprise relating to the Home Net, Enternet, ConnectKom and Intellicom offerings and to the operations of the Enterprise. The SEC and FTC enforcement actions filed in Los Angeles each resulted in settlements which included monetary penalties and/or disgorgement orders against several of the defendants. According to Peak, several of the cooperating defendants admitted in their plea agreements that despite the specific federal and California regulatory actions described above, as well as numerous other adverse state actions taken against them, the Enterprise intentionally operated in violation of the various judicial or administrative injunctions, decrees or processes which were issued as part of those adverse actions.

FBI Special Agent in Charge William Gore said that in the last 10 years, the Boiler Room Task Force has made significant accomplishments in combating increasingly sophisticated combinations of Internet investment and telemarketing frauds. According to Gore, as part of this national Internet fraud initiative, during the past year IFCC coordinators have been assigned in each of the FBI's Divisions and the San Diego FBI's IFCC coordinators are assigned to the Task Force. As part of their duties, they have expanded cyber-liaison and promoted investigations of cyber crime. Special Agent in Charge Gore said that this case, in which investors were lured with promises of large profits that have accompanied the rapid expansion of electronic commerce through the Internet, showcases the ability of the Task Force to bring together multiple agencies from the federal and state level to investigate complex frauds.

United States Attorney Vega praised the Boiler Room Task Force for its investigative efforts in connection with this prosecution and commended the heads of the local offices of the FBI, IRS-CID and the Postal Inspectors for the exemplary work of their agents. IRS-CI Special Agent in Charge Denise Rubin said that the perpetrators of the scheme evaded the tax laws in order to keep their ill-gotten gains and said that IRS-CI will continue to focus its efforts on this significant law enforcement problem. According to Rubin, "money laundering is tax evasion in progress and we will aggressively apply our resources and expertise to investigate and prosecute telemarketers who commit these crimes." USPIS Inspector in Charge Ken Laag said the Postal Inspectors are committed to maintaining the integrity of the mail and ensuring citizens are not defrauded through it. Laag said, "today's high-tech environment provides new opportunities for telemarketing fraud every day and this case highlights the successes realized by the Boiler Room Task Force, where the cooperation of multiple law enforcement agencies results in the effective investigation of increasingly sophisticated telemarketing fraud schemes." United States Attorney Vega described the indictment as an example of the government's continuing commitment to charge and convict illegal telemarketers and his intention to attack vigorously the growing Internet fraud problem. United States Attorney Vega also acknowledged the United States Attorney for the Middle District of Florida, Mac Cauley, the Tampa field office of the FBI and the Florida Comptroller's Office's Division of Investigations for their aggressive efforts in investigating telemarketing fraud in their jurisdiction and their assistance in developing the charges which formed the basis of the Indictment. Vega also thanked the California DOC and the Los Angeles Regional Offices of the SEC and the FTC for their dedicated public service and their assistance in bringing these defendants to justice. United States Attorney Vega also noted that the California DOC's "Operation Tough Call," under which this Indictment case was developed by the Boiler Room Task Force, demonstrates further how effectively federal and state agencies can combat white collar crime.

Finally, United States Attorney Vega said that despite this Indictment, the government's investigation into the fraudulent telemarketing activities of the Enterprise and its members is continuing. The sentences or sentencing dates of Enterprise members who have plead guilty in related cases, the roles of whom are identified in the Indictment, are outlined below.

DEFENDANTS

Marc David Levine
Jonathan Edward Shoucair
James Michael Leonard
Robert Harry Shields
Robert Terrance Hart
Mark Darren McClafferty
Eugene Donald Evangelist, Jr.
Kent Bollenbach
Brent Douglas Morris
Michael Owen Grayson
Joseph Anthony Marfoglia
Sylvan Morgan Metoyer, III
Rodney Scott Shehyn
David Zeidel Diamand
James Thomas Rissmiller
Anthony Matthew Castriotta
Mark Allen Jaconski
Stephen James Robinson
Daniel Sanders
Richard York

SUMMARY OF CHARGES

All Defendants

Title 18, U.S.C., Sec. 371 - Conspiracy to Commit Wire Fraud, Mail Fraud, Securities Fraud and Conspiracy to Defraud the United States (one count)
Maximum penalty per count: five years; fine of $250,000 (or twice the gain)

Title 18, U.S.C., Sec. 1343 - Wire Fraud (48 counts)
Maximum penalty per count: five years; fine of $250,000 (or twice the gain)

Title 18, U.S.C., Sec. 1341 - Mail Fraud (46 counts)
Maximum penalty per count: five years; fine of $250,000 (or twice the gain)

Title 18, U.S.C., Sec. 1956(h) - Conspiracy to Commit Money Laundering (one count)
Maximum penalty per count: twenty years; fine of $500,000 (or twice the involved funds)

Title 18, U.S.C., Sec. 1956(a)(1)(A)(i) - Money Laundering (Promotion) (11 counts)
Maximum penalty per count: twenty years; fine of $500,000 (or twice the involved funds)

Criminal Forfeiture Allegation 1 - $43,050,378.00
Title 18, U.S.C., Sec. 982(a)(1) and Title 18, U.S.C., Sec. 1956(h)

Criminal Forfeiture Allegation 2 - $346,510.05
Title 18, U.S.C., Sec. 982(a)(1) and Title 18, U.S.C., Sec. 1956(a)(1)(A)(i)


Eugene Donald Evangelist, Jr.

Title 26, U.S. C., 7206(1) - Filing a False Tax Return (five counts)
Maximum penalty per count: three years; fine of $250,000


Kent Bollenbach

Title 26 U.S.C., Sec. 7201 - Tax Evasion (three counts)
Maximum penalty per count: five years; fine of $250,000

AGENCIES

San Diego Boiler Room Task Force
Federal Bureau of Investigation, San Diego Division
Internal Revenue Service, Criminal Investigations
United States Postal Inspection Service Securities Fraud Task Force, Tampa, Florida
Federal Bureau of Investigation, Tampa Division
Florida Comptroller's Office, Division of Investigations
California Department of Corporations

An indictment is not evidence that the defendants committed the crimes charged. They, like all defendants, are presumed innocent until the Government meets its burden in court of proving guilt beyond a reasonable doubt.

SENTENCING DATES / SENTENCES OF DEFENDANTS
WHO HAVE PLEAD GUILTY IN RELATED CASES

Defendant Name Sentencing Date Sentence

Ira Itskowitz 07/13/01

Daniel William Rearick 07/13/01

Michael Emerson Lopuszynski 11/20/00 60 months in custody
3 years of supervised release
$28,254,961 restitution order
$164,750 forfeiture order


Christopher Scott Courtney 12/18/00 71 months in custody
3 years of supervised release
$48,400,081 restitution order


Michael Anthony Green 02/01/01 12 months in custody
3 years of supervised release
$5,577,990 restitution order


Robert Harry Reisner 09/20/01


Lindsay Wellman 07/13/01


Lawrence Francis Long, Sr. 08/14/01


Gary Mariarossi 11/12/99 5 years of probation
$456,995 restitution order


Timothy David Grayson 07/10/01


Timothy Caswell Traub 11/12/99 5 years of probation
$100,000 restitution order


Michael Wilhelm Engelhardt 11/17/00 37 months in custody
3 years of supervised release
$23,351,873 restitution order
$26,999 forfeiture order

James D. Coffey 11/03/99 3 years of probation
$34,000 restitution order


Joseph John Widmer 07/13/01


Dennis S. Goddard 02/05/01 24 months in custody
5 years of supervised release
$1,018,312 restitution order


James Charles Quinn Slaton 03/20/00 18 months in custody
3 years of supervised release
$4,485,000 restitution order


Michael Joseph Coyne 12/22/99 5 years of probation
$70,000 restitution order


Mark Victor Nachamkin 03/20/00 12 months in custody
3 years of supervised release
$4,974,575 restitution order


Paul Evan Perelman 03/20/00 3 years of probation
$1,499,855 restitution order