SEC v. HGI, Inc.; Mark Hanna; Brian Scanlon; Stephen Palumbo; Angelo John Bosco; Thomas Fede, et al., No. LR-16162, Southern District of New York (May 27, 1999) — Press Release

SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 16162 / May 27, 1999 SECURITIES AND EXCHANGE COMMISSION V. HGI, INC., MARK HANNA, BRIAN SCANLON, STEPHEN PALUMBO, ANGELO JOHN BOSCO, THOMAS FEDE, SHANE FERRAS, SCOTT FOLLETT, JOSEPH TUOZZO, STEVEN AREVALO, STEVEN HANNA, PAUL KARKENNY, ROBERT PALUMBO, AND RAYMOND SAULON, 99 Civ. 3866 (S.D.N.Y.) The Securities and Exchange Commission announced that it filed an action today in federal court in Manhattan alleging that a Jericho, New York-based registered broker-dealer, and thirteen of its registered representatives, systematically defrauded investors of millions of dollars. The defendants are charged with using fraudulent "boiler-room" sales practices to induce investors to purchase highly-speculative securities that were issued in initial public offerings ("IPOs") underwritten by the brokerage firm or securities for which the firm acted as a market maker ("House Stocks"). Named in the Complaint are: HGI, Inc., a registered broker-dealer based in Jericho, New York, that was in operation from 1992 to June 1997; Mark Hanna, a 39 year old resident of Locust Valley, New York, who owned 39.75% of HGI's stock and who was the secretary and chairman of HGI; Brian Scanlon, a 32 year old resident of Boca Raton, Florida, who owned 39.75% of HGI's stock and who was a vice president of HGI; Stephen Palumbo, a 32 year old resident of Pompano Beach, Florida, who owned 2.5% of HGI's stock and who was an executive vice president and managing director of HGI; Angelo John Bosco, a 28 year old resident of Huntington, New York, who owned 2% of HGI's stock and who was a registered representative of HGI; Thomas Fede, a 31 year old resident of Huntington, New York, who was a registered representative of HGI and who was HGI's president in May and June 1997; Shane Ferras, a 34 year old resident of Bayville, New York, who owned 2% of HGI's stock and who was a registered representative of HGI; Scott Follett, a 33 year old resident of Oyster Bay, New York, who owned 2% of HGI's stock and who was a registered representative of HGI; Joseph Tuozzo, a 31 year old resident of Boca Raton, Florida, who owned 2% of HGI's stock and who was a registered representative of HGI; Steven Arevalo, a 36 year old resident of North Babylon, New York, who was a registered representative of HGI; Steven Hanna, a 37 year old resident of Brooklyn, New York, who was a registered representative of HGI; Paul Karkenny, a 38 year old resident of Old Bridge, New Jersey, who was a registered representative of HGI; Robert Palumbo, a 27 year old resident of Great Neck, New York, who was a registered representative of HGI; and Raymond Saulon, a 31 year old resident of Commack, New York, who was a registered representative of HGI. In its Complaint, the Commission seeks permanent injunctive relief, an accounting, disgorgement and prejudgment interest and civil penalties against each of the defendants. The Complaint alleges that: Between June 1994 and June 1997, Mark Hanna, Scanlon, Stephen Palumbo, Bosco, Ferras, Fede, Follett, and Tuozzo trained HGI registered representatives to use, and HGI registered representatives did use, fraudulent "boiler-room" sales practices to induce investors to purchase HGI House Stocks. Those fraudulent sales practices include: (1) soliciting customer purchases of House Stocks in the aftermarket prior to the commencement of the IPOs for such stocks -- often requiring customers who wanted IPO securities to agree to buy a certain number of aftermarket shares; (2) making baseless price predictions and other material misrepresentations or omissions to induce customers to purchase House Stocks; (3) failing to execute customer orders to sell House Stocks; and/or (4) executing unauthorized purchases of House Stocks in customer accounts. Stephen Palumbo, Bosco, Fede, Ferras, Follett, Tuozzo, Arevalo, Steven Hanna, Karkenny, Robert Palumbo, and Saulon, with the knowledge and consent of Mark Hanna and Scanlon, all committed numerous sales practice violations involving the accounts of their own customers. Such violations include: (1) executing unauthorized trades in customer accounts; (2) failing to execute customer sell orders; (3) failing to execute stop-loss orders; (4) soliciting customers to purchase House Stocks in the aftermarket prior to the completion of the IPOs for those securities; (5) making baseless price predictions; and/or (6) making other material misrepresentations to customers, including telling customers that stop-loss orders would be entered on House Stocks and that the registered representatives had important confidential information about House Stocks. In many instances HGI failed to deliver prospectuses to customers who purchased House Stocks. In addition, HGI allowed Bosco and Karkenny to act as registered representatives while they were not validly registered with the National Association of Securities Dealers, Inc. ("NASD"), because other people had taken their NASD Series 7 examinations for them. In its Complaint, the Commission alleges that HGI violated Sections 5(b) and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(b)(7) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 10b-6, and 15b7-1, and Regulation M thereunder; M. Hanna and Scanlon, both directly and as controlling persons of HGI, violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5, 10b-6, and Regulation M thereunder; S. Palumbo, Tuozzo, and Bosco violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rules 10b-5, 10b-6, and Regulation M thereunder; and Fede, Ferras, Follett, Arevalo, S. Hanna, Karkenny, R. Palumbo, and Saulon violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. In addition, Bosco and Karkenny aided and abetted HGI's violations of Section 15(b)(7) of the Exchange Act and Rule 15b7-1. The Commission thanks the NASD for its assistance in this matter. The litigation is pending.

SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 16162 / May 27, 1999 SECURITIES AND EXCHANGE COMMISSION V. HGI, INC., MARK HANNA, BRIAN SCANLON, STEPHEN PALUMBO, ANGELO JOHN BOSCO, THOMAS FEDE, SHANE FERRAS, SCOTT FOLLETT, JOSEPH TUOZZO, STEVEN AREVALO, STEVEN HANNA, PAUL KARKENNY, ROBERT PALUMBO, AND RAYMOND SAULON, 99 Civ. 3866 (S.D.N.Y.) The Securities and Exchange Commission announced that it filed an action today in federal court in Manhattan alleging that a Jericho, New York-based registered broker-dealer, and thirteen of its registered representatives, systematically defrauded investors of millions of dollars. The defendants are charged with using fraudulent "boiler-room" sales practices to induce investors to purchase highly-speculative securities that were issued in initial public offerings ("IPOs") underwritten by the brokerage firm or securities for which the firm acted as a market maker ("House Stocks"). Named in the Complaint are: HGI, Inc., a registered broker-dealer based in Jericho, New York, that was in operation from 1992 to June 1997; Mark Hanna, a 39 year old resident of Locust Valley, New York, who owned 39.75% of HGI's stock and who was the secretary and chairman of HGI; Brian Scanlon, a 32 year old resident of Boca Raton, Florida, who owned 39.75% of HGI's stock and who was a vice president of HGI; Stephen Palumbo, a 32 year old resident of Pompano Beach, Florida, who owned 2.5% of HGI's stock and who was an executive vice president and managing director of HGI; Angelo John Bosco, a 28 year old resident of Huntington, New York, who owned 2% of HGI's stock and who was a registered representative of HGI; Thomas Fede, a 31 year old resident of Huntington, New York, who was a registered representative of HGI and who was HGI's president in May and June 1997; Shane Ferras, a 34 year old resident of Bayville, New York, who owned 2% of HGI's stock and who was a registered representative of HGI; Scott Follett, a 33 year old resident of Oyster Bay, New York, who owned 2% of HGI's stock and who was a registered representative of HGI; Joseph Tuozzo, a 31 year old resident of Boca Raton, Florida, who owned 2% of HGI's stock and who was a registered representative of HGI; Steven Arevalo, a 36 year old resident of North Babylon, New York, who was a registered representative of HGI; Steven Hanna, a 37 year old resident of Brooklyn, New York, who was a registered representative of HGI; Paul Karkenny, a 38 year old resident of Old Bridge, New Jersey, who was a registered representative of HGI; Robert Palumbo, a 27 year old resident of Great Neck, New York, who was a registered representative of HGI; and Raymond Saulon, a 31 year old resident of Commack, New York, who was a registered representative of HGI. In its Complaint, the Commission seeks permanent injunctive relief, an accounting, disgorgement and prejudgment interest and civil penalties against each of the defendants. The Complaint alleges that: Between June 1994 and June 1997, Mark Hanna, Scanlon, Stephen Palumbo, Bosco, Ferras, Fede, Follett, and Tuozzo trained HGI registered representatives to use, and HGI registered representatives did use, fraudulent "boiler-room" sales practices to induce investors to purchase HGI House Stocks. Those fraudulent sales practices include: (1) soliciting customer purchases of House Stocks in the aftermarket prior to the commencement of the IPOs for such stocks -- often requiring customers who wanted IPO securities to agree to buy a certain number of aftermarket shares; (2) making baseless price predictions and other material misrepresentations or omissions to induce customers to purchase House Stocks; (3) failing to execute customer orders to sell House Stocks; and/or (4) executing unauthorized purchases of House Stocks in customer accounts. Stephen Palumbo, Bosco, Fede, Ferras, Follett, Tuozzo, Arevalo, Steven Hanna, Karkenny, Robert Palumbo, and Saulon, with the knowledge and consent of Mark Hanna and Scanlon, all committed numerous sales practice violations involving the accounts of their own customers. Such violations include: (1) executing unauthorized trades in customer accounts; (2) failing to execute customer sell orders; (3) failing to execute stop-loss orders; (4) soliciting customers to purchase House Stocks in the aftermarket prior to the completion of the IPOs for those securities; (5) making baseless price predictions; and/or (6) making other material misrepresentations to customers, including telling customers that stop-loss orders would be entered on House Stocks and that the registered representatives had important confidential information about House Stocks. In many instances HGI failed to deliver prospectuses to customers who purchased House Stocks. In addition, HGI allowed Bosco and Karkenny to act as registered representatives while they were not validly registered with the National Association of Securities Dealers, Inc. ("NASD"), because other people had taken their NASD Series 7 examinations for them. In its Complaint, the Commission alleges that HGI violated Sections 5(b) and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 15(b)(7) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 10b-6, and 15b7-1, and Regulation M thereunder; M. Hanna and Scanlon, both directly and as controlling persons of HGI, violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5, 10b-6, and Regulation M thereunder; S. Palumbo, Tuozzo, and Bosco violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rules 10b-5, 10b-6, and Regulation M thereunder; and Fede, Ferras, Follett, Arevalo, S. Hanna, Karkenny, R. Palumbo, and Saulon violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. In addition, Bosco and Karkenny aided and abetted HGI's violations of Section 15(b)(7) of the Exchange Act and Rule 15b7-1. The Commission thanks the NASD for its assistance in this matter. The litigation is pending.