S.E.C. v. Unique Financial Concepts, Inc., 98-7147CIV.

Decision Date19 November 1998
Docket NumberNo. 98-7147CIV.,98-7147CIV.
PartiesSECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. UNIQUE FINANCIAL CONCEPTS, INC., Frederick Hollander, Ernest J. Patti and Nicholas D. DeAngelis, Defendants.
CourtU.S. District Court — Southern District of Florida

J.B. Grossman, Adorno & Zeder, Boca Raton, FL, for Defendants.

ORDER GRANTING PRELIMINARY INJUNCTION

HIGHSMITH, District Judge.

THIS CAUSE is before the Court on the following motions: (1) Plaintiff's Motion for Preliminary Injunction; (2) Defendants' Emergency Motion to Dismiss for Lack of Subject Matter Jurisdiction; and Defendants' Motion to Vacate the Temporary Restraining Order. The Court held hearings on the foregoing motions on October 30, 1998, November 6, 1998 and November 9, 1998.

The Securities and Exchange Commission ("SEC") brought this action to prevent Defendants Unique Financial Concepts, Inc. ("Unique"), Frederick N. Hollander, Ernest J. Patti and Nicholas DeAngelis1 from allegedly continuing to defraud public investors in connection with the offer and sale of interests in a purported trading program involving options on foreign currency through the foreign currency market known as the Forex. For the following reasons, the SEC's Motion for Preliminary Injunction is granted and Defendants' Emergency Motion to Dismiss for Lack of Subject Matter Jurisdiction and Emergency Motion to Vacate Temporary Restraining Order are denied.

FINDINGS OF FACT

Unique was established in October of 1997 by Defendants Hollander and Patti. Unique offered investors the opportunity to invest in foreign currency options.2 Unique advertised its purported trading program on national cable television stations, in major newspapers and on the Internet. Unique's advertisements, which were created and/or reviewed by Hollander and Patti, promised large returns based on minimal investments. Deposition of Patti at 128-131, 134-136; Deposition of Hollander at 139-141, 165-172. A classified ad that was run in a national newspaper proclaimed that a 10k investment on 5/9/97 could turn into 70k by 5/23/97. Government Exhibit 3. A television commercial claimed that $5000, if invested properly in the Japanese Yen, would result in a return of $35,000. Government Exhibit 4. Unique's Internet website also promised incredible returns in a short period of time. The site claimed that an actual investment of $5000 on May 13, 1997 had returned $62,500 in 13 days. Government Exhibit 5. The advertisements provided a toll-free number for interested investors to call.

Potential investors who telephoned Unique were placed in contact with a sales representative. The sales representative would send a packet to the interested investor containing an offering document describing the Forex market, a customer agreement and a disclosure of risk statement. Government Exhibit 7. The customer agreement, which Unique utilized until August of 1998, provided in pertinent part:3

Client funds will be initially deposited into Client segregated omnibus account (sic) in one or more banks and thereafter transferred to a holding bank. The current holding bank is Barclays Bank PLC., located in Nassau, Bahamas. Holding banks status may change at any time as Advisor deems appropriate.... By executing this agreement, Client authorized (sic) U.F.C. in its sole discretion to use the total funds on deposit in the omnibus account which includes the funds of the undersigned to execute single trades or transactions and to apportion the gains, losses, commissions, and clearing expenses proportionally to each account. The result of each trade will be apportioned and applied proportionally (per unit) to all accounts open on the trade and rounded down to the nearest U.S. dollar.

U.F.C. will utilize the services of one or more trading professionals which possess trading expertise in the Interbank market, the selection and retention of which is in the sole discretion of U.F.C. U.F.C. does not guarantee the success of any particular trade or trading strategy or the ability of the trading professional to meet or exceed any prior trading history.

Government Exhibit 7 at 3.

Unique would send a courier to pick up the documents and an initial investment from the investor. Patti deposited investors' funds into Unique's bank account at Southern Bank in Fort Lauderdale, Florida.

The second phase of Unique's scheme came into effect upon receipt of the investors' funds. DeAngelis and other Unique sales representatives "coached" and advised investors concerning which currencies they should invest in and how many "puts" and "calls" they should purchase. Transcript of Preliminary Injunction Hearing dated October 30, 1998, Testimony of John Miller at 39 and Testimony of Robert Lowe at 69-70; Transcript of Preliminary Injunction Hearing dated November 6, 1998, Testimony of Jose Alonso at 8.4 The sales representatives also reassured the investors that they could not lose any money. John Miller was told that he might not make money but that he "wouldn't lose by going with the call and the put" Id. at 39. Unique's sales representative told another investor, John Lowe, that he would have an exclusive relationship with Unique and they were going to "make each other some money." Testimony of Lowe at 67. When Jose Alonso asked about the risks he was told: "Don't worry about it, I told you before we cover the two sides of the coin by splitting the money..." Testimony of Alonso at 17. The investors relied upon Unique's advice because they were unfamiliar with Forex and were unsophisticated investors. Testimony of Miller at 41; Testimony of Lowe at 70; Testimony of Alonso at 13.

The next step of Unique's scheme consisted of transferring the investor to the "compliance officer," Skye Smith. Ms. Smith recorded her conversations with the investors. Transcript of Preliminary Injunction Hearing dated November 9, 1998, Testimony of Smith at 70-77 ("Testimony of Smith"). She recited the terms of the investment from a trade ticket and requested the investor's assent on tape. Id. at 77. Ms. Smith also requested that the investor acknowledge that he or she had ultimate control over the investment and understood the risks.5 Defendants' Exhibit H.

After an investor made an initial investment, Unique turned up the pressure. DeAngelis or another Unique sales representative would call the investor and request more money or indicate that there was another incredible investment opportunity in another type of currency which required immediate action. See e.g. Testimony of Miller at 42-44. The representative would send a courier to pick up the investor's check. Id. at 45.

At some point, after the investor invested thousands of dollars, Unique's tactics would change. When an investor called to monitor or alter his or her investment, the sales representative was unavailable and would not, in most instances, return the phone call. John Miller tried to call DeAngelis at least ten times. Testimony of Miller at 48. Robert Lowe called to check on his investment five times before he was connected with a sales representative. Testimony of Lowe at 75. Thereafter, the sales representative would inform the investor that he had suffered significant losses. DeAngelis told John Miller that he had incurred substantial losses because "the market didn't go the way I planned it." Testimony of Miller at 47.

From October 1997 through October 22, 1998, Unique raised approximately $6,575,714 from hundreds of investors using the aforementioned scheme.6 Government Exhibit 16, 17, 18. See also Affidavit of Mark Dowdell. Of this amount, $2,489,810 was wired to the Bahamas. The funds were allegedly sent to Nassau Bay Clearing which was responsible for executing the trades. Government Exhibits 16, 17, 18. There is, however, no independent evidence that Nassau Bay Clearing actually executed trades on behalf of Unique's clients. Unique has failed to produce any credible evidence in support of its contention that Nassau Bay Clearing, and formerly Capital Management, Inc. ("CMI") and Forex International, placed trades on behalf of its investors.7

In fact, no agreements evidencing the relationship between Unique and Nassau Bay Clearing and/or Unique and CMI or Forex International have been produced. Patti testified that neither Unique nor any of the individual Defendants have copies of any of the contracts in their possession. Transcript of Preliminary Injunction Hearing dated November 6, 1998, Testimony of Patti at 48-51 ("Testimony of Patti"). He further stated that he has been unsuccessful in his attempts to obtain copies of the agreements. Id. Patti testified that he was told by Nassau Bay Clearing, CMI and Forex International that the agreements must remain in the Bahamas in accordance with Bahamian law.8

While Unique has provided open option reports, which detail the purported trades and client accounts, there is no evidence to substantiate the veracity of said reports. Defendants' Exhibits A, B and C. There are no transaction or wire verifications indicating the disposition of the funds after they were wired to Nassau Bay Clearing. Trade confirmations were produced; however, the confirmations were mailed from Unique's office and, apparently, were not independently sent out by the clearing-house. Thus, no documents have been provided reflecting that Nassau Bay Clearing or any other clearinghouses actually placed the trades.

Skye Smith testified that she placed trades on a daily basis with Nassau Bay Clearing on behalf of Unique's clients. Testimony of Smith at 84. But, she could not recall the surnames of any of the individuals with whom she placed the trades. Testimony of Smith at 64, 120. Ms. Smith also testified that the trades were monitored utilizing green sheets. Government Exhibit 43. However, the evidence reflects that the...

To continue reading

Request your trial
3 cases
  • S.E.C. v. Ki.W. Brown and Co.
    • United States
    • U.S. District Court — Southern District of Florida
    • December 19, 2007
    ... ... BROWN AND COMPANY, 21st Century Advisors, Inc., K.W. Brown Investments, Inc., Kenneth Brown, ... Martin, Senior Trial Counsel for the SEC ...         James B. Koch, Esq., ... self-proclaimed "Nationally Recognized Financial Radio Talk Show Host" who hosts a talk show every ... March 28, 2003); SEC v. Unique Financial Concepts, 119 F.Supp.2d 1332, 1339 ... ...
  • S.E.C. v. Calvo
    • United States
    • U.S. Court of Appeals — Eleventh Circuit
    • July 27, 2004
    ... ... by the Securities and Exchange Commission ("SEC") against William A. Calvo III ("Calvo"), ... a company known as Software of Excellence, Inc., a.k.a., Systems of Excellence, Inc. ("SOE") ... Unique Fin. Concepts, Inc., 119 F.Supp.2d 1332, 1339 ... ...
  • Hodges v. Harrison, Case No. 17-81370-CV-MIDDLEBROOKS
    • United States
    • U.S. District Court — Southern District of Florida
    • February 8, 2019
    ... ... Monkey Capital, LLC, Monkey Capital, Inc., and Daniel Harrison. (DE 28 or "Amended ... with an expectation of garnering financial profit, based on Harrison's representations to ... from registration requirements from the SEC. (SUF ¶¶ 36-51). Monkey Capital also did not ... Unique Fin. Concepts, Inc. , 119 F.Supp.2d 1332, 1339 ... ...

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT