S.E.C. v. Global Telecom Services, L.L.C.

• Citation: 325 F.Supp.2d 94
• Decision Date: 19 July 2004
• Docket Number: No. CIV.3:03 CV 418 PCD.,CIV.3:03 CV 418 PCD.
• Parties: SECURITIES AND EXCHANGE COMMISSION Plaintiff, v. GLOBAL TELECOM SERVICES L.L.C. d/b/a Medical Disposal Services, Albert D. Latouche, and Salvatore J. Cartelli, Jr., Defendants.
• Court: U.S. District Court — District of Connecticut

325 F.Supp.2d 94

SECURITIES AND EXCHANGE COMMISSION Plaintiff, v. GLOBAL TELECOM SERVICES L.L.C. d/b/a Medical Disposal Services, Albert D. Latouche, and Salvatore J. Cartelli, Jr., Defendants.

No. CIV.3:03 CV 418 PCD.

United States District Court, D. Connecticut.

July 19, 2004.

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Gerald A. Gross, William Finkel, Securities & Exchange Commission, New York City, for Plaintiff.

William H. Paetzold, Moriarty & Paetzold, Glastonbury, CT, Jonathan J. Einhorn, New Haven, CT, for Defendants.

Salvatore J. Cartelli, Jr., Portland, CT, Defendant Pro Se.

RULING ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

DORSEY, District Judge.

Pursuant to Fed. R. Civ. P. 56 and Local Rule 56(a) Plaintiff moves for summary judgment. For the reasons stated herein, Plaintiff's motion is granted.

I. Background¹

In the early 1990s, the Needlyzer, a device that allegedly safely destroys hypodermic needles, was manufactured. In connection with the device Defendant Medical Disposal Services ("Medical Disposal") used the slogan "Don't get stuck with someone else's problem." In 1992, Defendant Albert D. LaTouche's ("LaTouche") brother Brian LaTouche contracted with the Needlyzer's manufacturer for the rights to market and sell the device in certain areas, including Tennessee. In 1993 or 1994 LaTouche and his brother contracted for the rights for LaTouche to sell the Needlyzer in the New England area. In 1994, LaTouche asked Defendant Salvatore J. Cartelli, Jr. ("Cartelli"), a car salesman, to help him sell the Needlyzer and manage Medical Disposal's business. In early 1994 Cartelli asked Joseph A. Scafidi ("Scafidi") to assist with selling and marketing the device, telling Scafidi that the Needlyzer was in the process of receiving Food and Drug Administration ("FDA") approval. Between September and December 1994 Scafidi worked with Cartelli to sell the Needlyzer, including demonstrations of the device at hospitals and healthcare companies. Because the FDA had not approved the Needlyzer, no hospital, healthcare company, or other entity purchased the device from LaTouche, Cartelli, or Scafidi.

Between 1992 and 1994, LaTouche unsuccessfully attempted to sell the Needlyzer in the New England area. A lawsuit between LaTouche's brother and the Needlyzer manufacturer prevented the brother from supplying LaTouche with more demonstration Needlyzers, and LaTouche temporarily ceased his efforts to sell the device.

In approximately 1996, LaTouche and Cartelli agreed to attempt to manufacture and sell the Needlyzer without LaTouche's brother being involved. Since December 1995, LaTouche has been President of Global Telecom Services, LLC, a Connecticut company claiming two lines of business. One business purportedly was the sale of "900" telephone numbers, and the other business purportedly involved the planned manufacture and sale of the Needlyzer. Cartelli worked as LaTouche's partner at Medical Disposal and was in charge of Medical Disposal's business.

Medical Disposal planned to retain a company in New York to manufacture the Needlyzer. In or around 1996, LaTouche and Cartelli asked Scafidi if the company where Scafidi worked, Dayton Brown, Inc. ("Dayton Brown"), was interested in manufacturing the Needlyzer after Medical Disposal obtained patent rights and FDA approval. In the summer of 1997 LaTouche and Cartelli went to Dayton Brown to discuss with Scafidi the possibility of Dayton Brown manufacturing the Needlyzer for Medical Disposal. Scafidi informed them that he needed approval from Dayton Brown's Board of Directors before the company could agree to manufacture the device. Although Scafidi presented the idea to the Board of Directors, they would not even consider manufacturing the Needlyzer until Medical Disposal obtained FDA approval and patent rights, and even then only if Medical Disposal provided all the Needlyzer parts. Scafaldi informed Cartelli of the Board of Directors' concerns. Consequently, Cartelli no longer pursued the issue, and Dayton Brown never contracted with Medical Disposal to manufacture the Needlyzer. Moreover, Medical Disposal never contracted with any company to manufacture the Needlyzer.

Scafidi referred Cartelli to a patent attorney, Robert Faber, to assist Medical Disposal with acquiring the Needlyzer patent. Between December 1996 and September 1997, Medical Disposal unsuccessfully attempted to purchase patent rights for the Needlyzer, and Cartelli informed Scafidi that he was unable to obtain the patent rights.

LaTouche knew that Medical Disposal never acquired the patent rights, and his brother told him it was unclear who owned the Needlyzer patent. In November and December 1996, LaTouche and his brother discussed the marketing rights and FDA approval of the Needlyzer. Around this time, LaTouche told his brother that Scafidi and Cartelli, or their attorneys, had signed a contract with the Needlyzer's patent owners. On or about December 5, 1996, LaTouche's brother called one of the Needlyzer patent owners, who told the brother that no contract was signed between Cartelli, Scafidi, or their attorney, and the brother communicated this to LaTouche. His brother also told LaTouche that the Needlyzer was not approved by the FDA. In November 1994, LaTouche and his brother discussed that they were not allowed to sell the Needlyzer as FDA approved.

On November 26, 1996, LaTouche told his brother that Cartelli was planning to meet with an FDA official named John Lucas at Lucas's vacation home to discuss obtaining FDA approval for the Needlyzer. When LaTouche's brother called the FDA, an FDA official informed him that there were no pending requests for FDA approval of the Needlyzer, and that no FDA member would meet with someone who is applying for approval. The FDA official also informed LaTouche's brother that Lucas was not on vacation. LaTouche's brother told LaTouche about the conversation.

Cartelli was involved with creating a brochure for Medical Disposal describing the Needlyzer. Cartelli supervised Mary Beth Mackin at Global Telecom Services. In late 1997 or early 1998, Mackin asked Global Telecom Services employees to create a brochure for the Needlyzer. Cartelli and Mackin provided the employees with information for the brochure, including directions to include "FDA approval." The brochure stated that the Needlyzer was FDA approved, even though the FDA had not approved it.

Both LaTouche and Cartelli solicited investors, who were friends of LaTouche, to invest in Medical Disposal. From approximately January 1997 through July 2000, at least 47 investors invested a total of approximately $742,000 in Medical Disposal. LaTouche demonstrated the Needlyzer to various investors, and Cartelli demonstrated it to one investor. Both LaTouche and Cartelli gave investors brochures describing the Needlyzer, including the Medical Disposal brochure falsely describing that the Needlyzer was FDA approved. LaTouche told investors that Medical Disposal was raising capital for the manufacturing of the Needlyzer, and that the investors' contributions would be used for that purpose. LaTouche told investor Gaetan Roy that the Needlyzer was FDA approved and that Cartelli was his partner in Medical Disposal. LaTouche told investors that Medical Disposal had acquired the patent rights to the Needlyzer.

LaTouche told various investors, including Robert Nettleton and Louis Fabri, that a company in New York manufactured the Needlyzer for Medical Disposal. Except for one visit to Dayton Brown, LaTouche never spoke to Scafidi about Dayton Brown manufacturing the device.

As noted earlier, Cartelli was Medical Disposal's contact person with Scafidi and Dayton Brown. Cartelli told investors, including Gaetan Roy, that Medical Disposal would use investor funds to manufacture Needlyzers. At a meeting with Roy where LaTouche was present, Cartelli told Roy that the following: (1) Medical Disposal then currently involved 41 salespersons to sell the Needlyzer, (2) the FDA had approved the Needlyzer, (3) Medical Disposal owned the patent rights to market and build the Needlyzer, (4) Medical Disposal had enough parts stored in a Florida warehouse to assemble 10,000 Needlyzer units, (5) Pfizer, a large pharmaceutical company, was testing 25 units and might order 200 additional units, and (6) Medical Disposal had an agreement with Dayton Brown, which would begin manufacturing Needlyzers once Medical Disposal had orders for the device.

LaTouche and Cartelli attended various investor meetings, including a meeting in 1998 for approximately ten persons who invested in Medical Disposal, including Gaetan Roy and Raymond Flavell. During this meeting Cartelli informed the investors that he ran Medical Disposal's business, that running the business was expensive, and that the investors' funds were being used to run Medical Disposal's business. Cartelli also informed the investors that Medical Disposal had negotiated several deals with foreign companies to purchase Needlyzers.

At other times, LaTouche and Cartelli told investors about contracts with foreign companies. In approximately August 1999, LaTouche informed an investor that Medical Disposal had large orders for the Needlyzer from companies in England and India, despite the fact that no company from anywhere, let alone England or India, ever entered into a contract to purchase Needlyzers from Medical Disposal.

Cartelli gave LaTouche a letter purportedly from Archbishop Zenon Grocholewski to Cartelli using the Vatican's letterhead (the "Vatican letter"). The Vatican letter stated, in part, that "[w]e will give you the support that you require to sell this product of safety [Needlyzer] to all interested Healthcare Facilities under the Vatican jurisdiction." The Vatican letter was a forgery, and Archbishop...