SEC v. CalPacific Equity Group, LLC; Daniel R. Baker; and Demosthenes Dritsas, No. 2:14-cv-05754, Central District of California (July 24, 2014) — Complaint

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ROBERTK.LEVENSON,prohac vice
Email:Levensonr(alsec.gov
SECURITIESANDEXCHANGE
COMMISSION
801BrickellAve.,Suite1800
Miami,FL33131
Telephone:(305)982-6300
Facsimile:(305)536-4154
LOCALCOUNSEL:
JohnW.Berry,RegionalTrialCounsel
DonaldW.Searles,CalBar.No.135705
Email:[email protected]
AttorneysforPlaintiff
SECURITIESANDEXCHANGE
COMMISSION
5670WilshireBoulevard,11thFloor
LosAngeles,CA90036-3648
Telephone:  (323)965-3998
Facsimile:(323)965-3908
UNITEDSTATESDISTRICTCOURT
CENTRALDISTRICTOFCALIFORNIA
SECURITIESANDEXCHANGE
COMMISSION,
Plaintiff,
vs.
CALPACIFICEQUITYGROUP,LLC,
DANIELR.BAKER,and
DEMOSTHENESDRITSAS
Defendants.
CaseNo.
COMPLAINT
PlaintiffSecuritiesandExchangeCommissionallegesasfollows:

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I.INTRODUCTION
1.The  Commission brings this  action against CalPacific Equity  Group,
LLC, Daniel R.  Baker  andDemosthenesDritsas(collectively,"Defendants") for
violationsoftheregistrationandantifraudprovisionofthefederalsecuritieslaws.
2.From no  later thanAugust2011untilat  leastNovember2012,the
Defendants,directlyandthroughtheservicesof theirsalesagents,offeredandor
soldunregisteredThoughtDevelopment,Inc.("TDI")stockto atleast34investors
locatedthroughouttheUnitedStates,mostofwhomwereseniorcitizens,andsome
ofwhomwereunaccredited.
3.TDIdevelopedalaser-linesystemthatcanbeusedinprofessionaland
collegiatesportingevents.TheDefendantsortheirsalesagentsluredvictimsinto
investinginTDIbymakingfalsepromisesaboutinvestmentreturnsonandtimingof
apurportedlypendinginitialpublicoffering("IPO").TheDefendantsandtheirsales
agentsalsomisledinvestorsconcerningthestatusofnegotiationswith,andthe
purporteduseofTDI'sfirstdownlasertechnologyby,theNationalFootballLeague.
4.TheDefendantsand their salesagentsalsomateriallymisledinvestors
byfailingtodisclosetoinvestorstheyusedatleast50%ofinvestorproceedsfor
commissionsorotherfees.
5.As a resultofthe conductdescribedin thisComplaint,theDefendants
violatedSections5(a)and(c),and17(a)oftheSecuritiesActof1933("Securities
Act"),15U.S.C.§§77e(a),77e(c),77q(a)(l),77q(a)(2),77q(a)(3);andSections

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10(b),15(a)andRule10b-5of theSecuritiesExchangeAct of1934("Exchange
Act"),15U.S.C.§ 78j(b),15U.S.C.§78o(a)and17C.F.R.§ 240.10b-5.
6.Unless restrained andenjoined,theDefendantsarereasonablylikely to
continuetoviolatethefederalsecuritieslaws.
7.TheCommissionrespectfullyrequeststhat   the   Courtenter:(a)
permanentinjunctionsrestrainingandenjoiningtheDefendantsfromviolatingthe
federalsecuritieslaws;(b)ordersdirectingtheDefendantstopaydisgorgementwith
prejudgmentinterest;(c)ordersdirectingtheDefendantstopaycivilmoney
penalties;and(d)ordersbarringBakerandDritsasfromparticipatinginanyoffering
ofa penny stock.
II.DEFENDANTSANDRELATEDENTITY
A.Defendants
8.BakerresidesinValleyVillage,California.Bakeris,andatall
relevanttimeswas,amanagingmemberofCalPacificEquityGroup,LLC.
("CalPacific").Duringtherelevanttimeperiod,Bakerwasnotaregisteredbroker-
dealer nor affiliated with a registered broker-dealer.
9.Dritsasresides  in  Newhall,  California  and  is  a  Canadian  citizen.
Dritsasis,andatallrelevanttimeswas,amanagingmemberofCalPacific.During
therelevanttimeperiod,Dritsaswasnotaregisteredbroker-dealernoraffiliated
withone.DritsasisalsoknownasDeanDritsas.

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10.CalPacificis  a  Nevada  limited  liability  company  with  its  principal
placeofbusinessinValencia,California.It hasneverbeenregisteredwiththe
Commissionin anycapacityand has notregisteredanyofferingofsecuritiesunder
theSecuritiesActora classofsecuritiesundertheExchangeAct.
B.RelatedEntitiesandIndividual
11.TDIwasincorporatedin2010withitsprincipalplaceofbusinessin
MiamiBeach, Florida.   It  has never beenregisteredwith theCommissionin any
capacityandhasnotregisteredanyofferingofsecuritiesundertheSecuritiesActor
a class ofsecuritiesunder theExchangeAct.On October 4, 2013, in an order on a
relatedcase,a courtin theSouthernDistrictofFloridaenteredaconsentjudgment
enjoiningTDIfromfurtherviolationsofregistrationprovisionsoffederalsecurities
laws.  SEC v.ThoughtDevelopmentetaLl:13-cv-23476-JEM(S.D.Fla.).
12.Advanced EquityPartners,LLC("AEP")andPremiereConsulting,
LLC("Premiere")aretwoFloridacompanieslocatedinHollywood,Florida.AEP
andPremierewerecontrolledbyPeterD.Kirschnerandhisbusinesspartner,bothof
whomraisedapproximately$2.4millionfrominvestorsinTDIstockwhilecharging
undisclosedexorbitantfees.OnOctober3,2013,an orderofpermanentinjunction
andotherreliefwasenteredagainstAEPandPremiereorderingtheentitiesto,
amongotherthings,paydisgorgement,pre-judgmentinterestandacivilpenaltyto
bedeterminedbythecourt.SECv.AdvancedEquityPartnersetal.,13-cv-62100-
RSR(S.D.Fla.).

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13.Kirschnerresides in Delray Beach, Florida and is a former managing
memberofPremiere  and a current managing memberofAEP.   He and his business
partnerfoundedPremiereandAEP,and hired and paid sales agents to, among other
things, solicit investors to purchaseunregisteredstock in TDI.  On October 3, 2013,
in  arelatedcase,  acourtin  theSouthernDistrictofFloridaentereda  consent
judgmentwhich,amongothersthings,enjoinedKirschnerfromfurtherviolationsof
theregistrationandantifraudprovisionsoffederalsecuritieslaws.SECv.Advanced
EquityPartners.LLCetal..13-cv-64321-RSR(S.D.Fla.).
III.JURISDICTIONANDVENUE
14.The Court hasjurisdictionover thisactionpursuanttoSections20(b),
20(d)and22(a)oftheSecuritiesAct,15U.S.C.§§77t(b),77t(d)and77v(a);and
Sections21(d),21(e)and27oftheExchangeAct,15U.S.C.§§78u(d),78u(e)and
78aa.
15.TheCourthaspersonaljurisdictionovertheDefendantsandvenueis
properintheCentralDistrictofCaliforniabecausemanyoftheDefendants'acts
constitutingviolationsoftheSecuritiesActandtheExchangeActoccurredinthe
District.Morespecifically,theDefendantsofferedandsoldsecuritiesandrecruited
salesagentswhoofferedandsoldsecuritiesfromofficesinValencia,California.In
addition,proceedsfromthefraudulentsaleofsecuritiesflowedinandtransaction-
basedpaymentstosalesagentscameoutofbankaccountslocatedinValencia.
Moreover,BakerandDritsasresideintheCentralDistrictofCalifornia.
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16.In   connection  with   theconductalleged   in   thisComplaint,the
Defendants,directlyandindirectly,singlyor inconcertwithothers,madeuseofthe
means  orinstrumentalitiesofinterstate  commerce,  themeansandinstrumentsof
transportationorcommunicationininterstatecommerce,andthemails.
IV.FACTUALALLEGATIONS
A.TDIandRelationshipswithPremiereandAEP
17.TDIwasincorporatedin2010todevelopandmarketa portfolioof
productsandinventions,includingalaser-linesystemdesignedtomarkfirstdowns
inprofessionalandcollegiatefootballgames,includingtheNFL.TDIstatesthatits
lasersystemgeneratesagreenlineonthefieldwhichisvisibleinthestadiumto
players,fansandontelevision.TDIrepresentsthatuseofitstechnologywould
decreasethetimeusedbyofficialstodeterminefirstdownsandgeneratemoretime
tobesoldtotelevisionadvertisers.
18.Sometime in 2010, TDI entered into an agreement with Kirschner and
hisbusinesspartnertosolicitinvestorstoraisecapitalbysellingTDIstock.
Kirschnerand hisbusinesspartnerformedPremiere,and later AEP,which,among
other things, offered and soldunregisteredTDI stock.
19.Premiere and AEP entered into agreements with the Defendants to act
assalesagentstoofferandsellTDIstock.Pursuanttotheseagreements,the
Defendants receivedtransaction-basedcompensationin  the  formofcommissions

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andotherfees.TheDefendantsretainedapproximately50%ofinvestorproceedsas
commissionsorotherfeesontheirsaleofTDIstock.
20.Bakerand  Dritsaswereaware thatPremiereorAEPwerealsotakinga
portionofinvestorproceedsascommissionsorotherfees.
21.Bakerand Dritsasofferedand sold TDIstockdirectly to  investors  and
receivedtransaction-basedcompensationin theformofundisclosedcommissions
and other feesderivedfrominvestorproceeds.
22.Inaddition,Baker  andDritsasrecruited,hired  andsupervisedsales
agentswhowerepaidtransaction-basedcompensationinconnectionwiththeoffer
and saleofTDI  stock  from bank accounts Baker and or Dritsas controlled and held
byCalPacific.
23.Someofthesesalesagentsservedasself-described"fronters"whose
primaryresponsibilitywastouseinvestorleadlistswhichconsistedofcontact
informationofpotentialinvestors.Frontersmadeinitialcontactwithpotential
investors andreferredthoseinterestedin TDI to Baker,Dritsasor others to complete
the stockpurchasetransaction.
24.Baker orDritsasearnedapercentageofevery  stockpurchaseasa
commissionorfee,even onthosesalesmadeby thesalesagentstheyhired.
25.FromapproximatelyJuly2011untilFebruary2012,CalPacificreceived
approximately$234,000fromPremiereascompensationfortheofferandsaleof
TDIstock.

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26.FromFebruary2012untilNovember2012,CalPacificreceived
approximately$72,000fromAEPascompensationfortheofferandsaleofTDI
stock.
B.TheDefendants'SolicitationofTDIStock
27.Noregistrationstatementwasfiledor ineffectwiththeCommission
pursuanttotheSecuritiesActwithrespecttotheTDIstockthattheDefendantsand
theirsalesagentsofferedandsold,andnoexemptionfromregistrationexistedwith
respect to these securities andtransactions.
28.TheDefendantsand their sales agents made materialmisrepresentations
toinvestorsregardingcommissionsandothersfeeschargedtoinvestorsandthe
actualuseofinvestorproceeds.
29.Furthermore, the Defendants recklessly made specific representations to
investors inconnectionwith the offer and saleofTDI stockwithouttakingany basic
stepstoverifythetruthfulnessofthoserepresentations.Insomeinstancesthe
Defendantsmaderepresentationsregardingtheexpectanttimingof andreturnon a
purportedinitialpublicoffering("IPO")ofTDIstock.Onotheroccasions,the
Defendantsmaderepresentationsregardingthestatusofnegotiationswith theNFL
andthepurporteduseof TDI'sfirstdownlasersystemtechnologybycertainteams
andstadiums,or in the 2013SuperBowl.
30.TheDefendantsand their salesagentsinstructedinvestorstosend,and
investorsdidsend,allpaymentsforTDIstocktransactionstobankaccountseither

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PremiereorAEPheldorcontrolled.PremiereandAEPusedthesebankaccountsto
pay its sales agentstransaction-basedcompensation,includingCalPacific.
31.Neitherthe Defendants nor their sales agents wereregisteredas broker-
dealersor   associated  with   aregisteredbroker-dealerwhilefacilitatingand
participating in these securities sales.
C.MaterialMisrepresentationsandOmissions
32.Inconnectionwith theofferingofsecuritiesduringtherelevantperiod,
theDefendantsmade thefollowingmaterialmisrepresentationsandomissionsto
investors.
1.UndisclosedExorbitantCommissionsorOtherFees
33.TheDefendantsmaderepresentationstoinvestorsabouttheuseof
investor  funds  forTDI'sbusiness  that  were  materially misleading  because  they
failedtodisclosesalecommissionsandothersfeesthataddedup toapproximately
50%of thefundsraisedfrominvestorsinconnectionwiththe offer andsaleof
unregistered TDI stock.
34.TheDefendantsalsoknewtheirsalesagentsmateriallymisledinvestors
byfailingtodisclosetoinvestorstheexorbitantcommissionsandotherfeespaid
from theofferingproceeds.
35.Forexample,inNovember2011,Bakertoldaninvestorthatnomore
than"tencentsoneverydollarofinvestormoney"wouldbeusedasacommission
orotherfee.Dritsastold  thesameinvestorthat  hewouldnotchargeany

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commissionfor a trade -"notevena dime"when,in  fact,CalPacificreceived50%
ofthatinvestor'sproceedsascommissionsorotherfeesinconnectionwith the offer
andsaleofTDIstock.
2.UseofProceeds
36.TheDefendantsor theirsalesagentsalsomisrepresentedtheactualuse
ofinvestorproceeds.
37.Forexample,in November2011,Bakertold aninvestorthat 90percent
ofinvestorproceedswouldgo"directlytothebusiness."Dritsastoldthissame
investorthatallofthemoneyraisedwasbeingusedtoinstallthelaser-linesystemin
the 32stadiumsofthe NFL and aportionwould be usedforTDI's cashreserves.
38.Theserepresentationswerefalse.Atthetimeoftheserepresentations,
DritsasandBakerwerereceiving50%ofinvestorproceedsascommissionsorother
fees.
3.PromisesaboutPendinsIPOandInvestmentReturns
39.TheDefendantsandtheirsalesagentsrecklesslymadespecific
representationstoinvestorsconcerningthetimingofandexpectedreturnona
purportedTDIIPOwithouttakinganybasicstepstoverifythetruthfulnessofthose
representations.
40.Forexample,inNovember2011BakertoldaninvestorTDIwouldgo
publicwithinsevenmonths-inaboutMay2012.Dritsaspromisedthissame
investorthatTDIwouldgopublicwithinayearofNovember2011,butwas
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confident  it  would  be  within  six  to  eight months.Atthat  time,  TDI  had no
immediate
plansto go public andthere was no basisforthesestatements.
41.In  addition, the  Defendants and their sales agents represented that the
value
ofTDI  stock wouldincreasesignificantly from $2.50 pershareas a resultof
thepurportedIPO.Forexample,DritsastoldaninvestorthatTDIalreadyhada
booksharevalueof$8.50  and that the  expected openingsharepricewould  be
between$8.00  and$10.00.Dritsas had no  basis  forthesestatementsand  failed to
take anybasicstepsto verify thetruthfulnessoftheserepresentations.
4.UseoftheTechnology
42.Baker  andDritsasalsorecklesslymade  specificrepresentationsto
investorsregardingthestatusofnegotiationswith,andtheuseofthetechnologyby,
theNFL.
43.Forexample,Bakertoldatleastoneinvestorthat"now,currentlywe
[TDI]splitthoserevenues,theadvertisingrevenueswiththeNFL50/50."Dritsas
toldthesameinvestortheNFLalreadyhadagreedtouseTDI'stechnologyduring
theNFL's2012mini-camp.Atthattime,TDIhadnoagreementwiththeNFL,and
BakerandDritsastook   nobasicstepsto  verify  thetruthfulnessofthose
representations.
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COUNTI
ViolationofSections5(a)and5(c)oftheSecuritiesActof1933
44.TheCommissionreallegesandincorporatesparagraphs1through31of
thisComplaint.
45.Noregistrationstatementwasfiledor ineffectwiththeCommission
pursuanttotheSecuritiesActwithrespecttothesecuritiesandtransactions
describedinthisComplaintandnoexemptionfromregistrationexistedwithrespect
tothesesecuritiesandtransactions.
46.As described above, the Defendants directly or indirectly: (a) made use
of  themeansorinstrumentsoftransportationorcommunicationininterstate
commerce orofthe mails to sell, through the use or mediumofany prospectus or
otherwise,securitiesas towhichnoregistrationstatementwas ineffect;(b) for the
purposeofsaleordeliveryaftersale,carriedorcausedto becarriedthroughthe
mailsor ininterstatecommerce,bymeansorinstrumentsoftransportation,securities
as towhichnoregistrationstatementwasineffect;or (c)madeuse ofmeansor
instrumentsoftransportationorcommunicationininterstatecommerceor ofthe
mailsto  offer to  sell,throughthe use ormediumof  aprospectusorotherwise,
securities as to which no registration statement has been filed.
47.Byreasonsof  theforegoing,theDefendantsviolated,and,unless
restrainedandenjoined,arereasonablylikelytocontinuetoviolate,Sections5(a)
and 5(c) of theSecuritiesAct,15U.S.C.§§77e(a)and77e(c).
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COUNTII
FraudinViolationofSection17(a)(1)oftheSecuritiesAct
48.The Commission realleges and incorporates paragraphs 1 through 43of
thisComplaint.
49.From no  later than August2011until  at  leastNovember2012, the
Defendantsdirectlyandindirectly,byuseof  themeansorinstrumentsof
transportationorcommunicationininterstatecommerceandbyuseofthemails,in
the offer or saleofsecurities,asdescribedin thiscomplaint,knowingly,willfully or
recklesslyemployeddevices,schemesorartificestodefraud.
50.Byreasonoftheforegoing,theDefendantsdirectlyandindirectly
violated,and,unlessenjoined,arereasonablylikelytocontinuetoviolate,Section
17(a)(1)of theSecuritiesAct,15U.S.C.§ 77q(a)(l).
COUNTIII
FraudinViolationofSections17(a)(2)and17(a)(3)oftheSecuritiesAct
51.TheCommissionreallegesandincorporatesparagraphs1through43of
thisComplaint.
52.FromnolaterthanAugust2011untilatleastNovember2012,the
Defendantsdirectlyandindirectiy,byuseofthemeansorinstrumentsof
transportationorcommunicationininterstatecommerceandbytheuseofthemails,
in theofferorsaleofsecurities:(a)obtainedmoneyorpropertybymeansofuntrue
statementsofmaterialfactsandomissionstostatematerialfactsnecessarytomake
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thestatementsmade,in the light of thecircumstancesunder which they weremade,
notmisleading;or (b)engagedintransactions,practicesandcoursesofbusiness
whichoperatedandwilloperateas afraudordeceituponpurchasersandprospective
purchasersofsuch securities.
53.Byreasonoftheforegoing,theDefendantsdirectlyandindirectly
violated,and,unlessenjoined,arereasonablylikelytocontinuetoviolate,Sections
17(a)(2)and17(a)(3)oftheSecuritiesAct,15U.S.C.§§77q(a)(2)and77q(a)(3).
COUNTIV
FraudInViolationofSection10(b)andRule10b-5oftheExchangeAct
54.TheCommissionreallegesandincorporatesparagraphs1through43of
thisComplaint.
55.FromnolaterthanAugust2011untilatleastNovember2012,the
Defendantsdirectlyandindirectly,byuseofthemeansandinstrumentalitiesof
interstatecommerce,andof themailsinconnectionwiththepurchaseorsaleofthe
securities,asdescribedinthiscomplaint,knowingly,willfullyorrecklessly;(1)
employeddevices,schemesorartificestodefraud;(2)madeuntruestatementsof
materialfactsand  omitted to  statematerialfactsnecessaryin  order to  make the
statementsmade,inthelightofthecircumstancesunderwhichtheyweremade,not
misleading;or(3)engagedinacts,practicesandcoursesofbusiness,whichoperated
asafrauduponthepurchasersofsuchsecuritiesandwilloperateasafrauduponthe
purchasersofsuchsecurities.
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56.Byreasonsof  theforegoing,theDefendantsdirectlyorindirectly
violated,and,unlessenjoined,arereasonablylikelytocontinuetoviolate,Section
10(b)andRule10b-5of theExchangeAct,15U.S.C.§78j(b),and17C.F.R.§
240.10b-5.
COUNTV
ViolationofSection15(a)oftheExchangeAct
57.TheCommissionreallegesandincorporatesparagraphs1through38 of
thisComplaint.
58.FromnolaterthanAugust2011untilatleastNovember2012,the
Defendants,whileactingasorassociatedwithabrokerordealer,effected
transactionsin,orinducedorattemptedtoinducethepurchaseorsaleof,securities
whiletheywerenotregisteredwiththeCommissionasabrokerordealerorwhen
theywerenotassociatedwithanentityregisteredwiththecommissionasabroker-
dealer.
59.Byreasonsoftheforegoing,theDefendantsdirectlyorindirectly
violated,and,unlessenjoined,arereasonablylikelytocontinuetoviolate,Section
15(a)of theExchangeAct,15U.S.C.§78o(a).
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RELIEFREQUESTED
WHEREFORE,theCommissionrespectfullyrequests theCourt:
I.
DeclaratoryRelief
Declare, determine and find that the Defendants havecommittedthe violations
ofthefederalsecurities laws alleged in this Complaint.
II.
PermanentInjunctiveRelief
IssueaPermanentInjunctionrestrainingandenjoiningtheDefendants,their
officers,agents,servants,employees,attorneys,representativesandallpersonsin
activeconcertorparticipationwiththem,andeachofthem,fromviolatingSections
5(a),5(c),17(a)(1),(2)and(3)oftheSecuritiesAct,andSections10(b)and15(a)
andRule10b-5oftheExchangeAct.
III.
DisgorgementandPrejudgmentInterest
IssueanorderdirectingtheDefendantstodisgorgeallill-gottengainsasa
resultoftheconductallegedinthecomplaint,togetherwithprejudgmentintereston
alldisgorgementamounts.
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IV.
Penalties
Issue an Orderdirectingeach of theDefendantsto pay a civilmoneypenalty
pursuanttoSection20(d)oftheSecuritiesAct,15U.S.C.§77t(d),andSection21(d)
ofthe Exchange Act, 15 U.S.C. § 78u(d).
V.
PennyStockBar
IssueanOrderbarringBakerandDritsasfromparticipatinginanyofferingof
apennystock,pursuanttoSection20(g)oftheSecuritiesAct,15U.S.C.§77t(g),
andSection21(d)oftheExchangeAct,15U.S.C.§78u(d),fortheviolationsalleged
in thisComplaint.
VI.
FurtherRelief
Grant such other and further relief as may benecessaryandappropriate.
VII.
RetentionofJurisdiction
Further,theCommissionrespectfullyrequeststheCourtretainjurisdiction
overthisactioninordertoimplementandcarryoutthetermsof allordersand
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decreesthatmay beenteredor toentertainanysuitableapplicationormotionby the
Commissionfor additionalreliefwithin the jurisdictionofthis Court.
July23,2014
18
Respectfullysubmitted,
ROBERTK.LEVENSON
DirectDial:(305)982-6341
Facsimile:(305)536-4154
Email:Levensonr(g),sec.gov
AttorneyforPlaintiff
SECURITIESAND
EXCHANGECOMMISSION
801BrickellAvenue,Suite1800
Miami,Florida33131
By:
s/DonaldW.Searles
JOHNW.BERRY
Regional Trial Counsel
DONALDW.SEARLES
CalBar.No.135705
Email:[email protected]
AttorneysforPlaintiff
SECURITIESAND
EXCHANGECOMMISSION
5670WilshireBlvd.,11thFloor
LosAngeles,CA90036-3648
Telephone:(323)965-3998
Facsimile:(323)965-3908

CM/ECF - California Central District Page 1 of 1
Complaints and Other Initiating Documents

2:14-cv-05754 Securities and Exchange Commission v. CalPacific Equity Group, LLC et al
UNITED STATES DISTRICT COURT for the CENTRAL DISTRICT OF CALIFORNIA
Notice of Electronic Filing
The following transaction was entered by Searles, Donald on 7/24/2014 at 9:16 AM PDT and filed on
7/24/2014
Case Name: Securities and Exchange Commission v. CalPacific Equity Group, LLC et al
Case Number: 2:14-cv-05754
Filer: Securities and Exchange Commission
Document Number: 1
Docket Text:
COMPLAINT No Fee Required - US Government, filed by Plaintiff Securities and
Exchange Commission. (Attorney Donald W Searles added to party Securities and
Exchange Commission(pty:pla))(Searles, Donald)
2:14-cv-05754 Notice has been electronically mailed to:
Donald W Searles [email protected], [email protected], [email protected], [email protected]
2:14-cv-05754 Notice has been delivered by First Class U. S. Mail or by other means BY THE
FILER to :
The following document(s) are associated with this transaction:
Document description:Main Document
Original filename:F:\marcelom\CalPacific\Complaint.pdf
Electronic document Stamp:
[STAMP cacdStamp_ID=1020290914 [Date=7/24/2014] [FileNumber=17874652-0
] [9f85384b6a89447bc38f0cfbb1567fd00a2ccfcf96c6cbe55b2eb3a9d5f93b156d7
a81b9da2d6d9b8b9bc74ab59c46b73fa760a0dada469b9d45e957a15b7c56]]
https://ecf.cacd.uscourts.gov/cgi-bin/Dispatch.pl?259423304959818 7/24/2014

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ROBERT K. LEVENSON, pro hac vice
Email: Levensonr(alsec.gov

SECURITIES AND EXCHANGE
COMMISSION
801 Brickell Ave., Suite 1800
Miami, FL 33131
Telephone: (305) 982-6300
Facsimile: (305)536-4154

LOCAL COUNSEL:
John W. Berry, Regional Trial Counsel
Donald W. Searles, Cal Bar. No. 135705
Email: [email protected]

Attorneys for Plaintiff
SECURITIES AND EXCHANGE
COMMISSION
5670 Wilshire Boulevard, 11th Floor
Los Angeles, CA 90036-3648
Telephone: (323) 965-3998
Facsimile: (323) 965-3908

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,

vs.

CALPACIFIC EQUITY GROUP, LLC,
DANIEL R. BAKER, and
DEMOSTHENES DRITSAS

Defendants.

Case No.

COMPLAINT

PlaintiffSecurities and Exchange Commission alleges as follows:

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I. INTRODUCTION

1. The Commission brings this action against CalPacific Equity Group,

LLC, Daniel R. Baker and Demosthenes Dritsas (collectively, "Defendants") for

violations ofthe registration and antifraud provision ofthe federal securities laws.

2. From no later than August 2011 until at least November 2012, the

Defendants, directly and through the services of their sales agents, offered and or

sold unregistered Thought Development, Inc. ("TDI") stock to at least 34 investors

located throughout the United States, most of whom were senior citizens, and some

ofwhom were unaccredited.

3. TDI developed a laser-line system that can be used in professional and

collegiate sporting events. The Defendants or their sales agents lured victims into

investing inTDI by making false promises about investment returns on and timing of

apurportedly pending initial public offering ("IPO"). The Defendants and their sales

agents also misled investors concerning the status of negotiations with, and the

purported use ofTDI's first down laser technology by, the National Football League.

4. The Defendants and their sales agents also materially misled investors

by failing to disclose to investors they used at least 50% of investor proceeds for

commissions or other fees.

5. As a result of the conduct described in this Complaint, the Defendants

violated Sections 5(a) and (c), and 17(a) of the Securities Act of 1933 ("Securities

Act"), 15 U.S.C. §§ 77e(a), 77e(c), 77q(a)(l), 77q(a)(2), 77q(a)(3); and Sections

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10(b), 15(a) and Rule 10b-5 of the Securities Exchange Act of 1934 ("Exchange

Act"), 15 U.S.C. § 78j(b), 15 U.S.C. § 78o(a) and 17 C.F.R. § 240.10b-5.

6. Unless restrained and enjoined, the Defendants are reasonably likely to

continue to violate the federal securities laws.

7. The Commission respectfully requests that the Court enter: (a)

permanent injunctions restraining and enjoining the Defendants from violating the

federal securities laws; (b) orders directing theDefendants to pay disgorgement with

prejudgment interest; (c) orders directing the Defendants to pay civil money

penalties; and (d) orders barring Baker and Dritsas from participating in any offering

of a penny stock.

II. DEFENDANTS AND RELATED ENTITY

A. Defendants

8. Baker resides in Valley Village, California. Baker is, and at all

relevant times was, a managing member of CalPacific Equity Group, LLC.

("CalPacific"). During the relevant time period, Baker was not a registered broker-

dealer nor affiliated with a registered broker-dealer.

9. Dritsas resides in Newhall, California and is a Canadian citizen.

Dritsas is, and at all relevant times was, a managing member of CalPacific. During

the relevant time period, Dritsas was not a registered broker-dealer nor affiliated

with one. Dritsas is also known as Dean Dritsas.

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10. CalPacific is a Nevada limited liability company with its principal

place of business in Valencia, California. It has never been registered with the

Commission in any capacity and has not registered any offering of securities under

the Securities Act or a class of securities under the Exchange Act.

B. Related Entities and Individual

11. TDI was incorporated in 2010 with its principal place of business in

Miami Beach, Florida. It has never been registered with the Commission in any

capacity and has not registered any offering of securities under the Securities Act or

a class of securities under the Exchange Act. On October 4, 2013, in an order on a

related case, a court in the Southern District of Florida entered a consent judgment

enjoining TDI from further violations of registration provisions of federal securities

laws. SEC v. Thought Development et aL l:13-cv-23476-JEM(S.D. Fla.).

12. Advanced Equity Partners, LLC ("AEP") and Premiere Consulting,

LLC ("Premiere") are two Florida companies located in Hollywood, Florida. AEP

and Premiere were controlled by Peter D. Kirschner and his business partner, both of

whom raised approximately $2.4 million from investors in TDI stock while charging

undisclosed exorbitant fees. On October 3, 2013, an order of permanent injunction

and other relief was entered against AEP and Premiere ordering the entities to,

among other things, pay disgorgement, pre-judgment interest and a civil penalty to

be determined by the court. SEC v. Advanced Equity Partners et al., 13-cv-62100-

RSR(S.D.Fla.).

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13. Kirschner resides in Delray Beach, Florida and is a former managing

member of Premiere and a current managing member of AEP. He and his business

partner founded Premiere and AEP, and hired and paid sales agents to, among other

things, solicit investors to purchase unregistered stock in TDI. On October 3, 2013,

in a related case, a court in the Southern District of Florida entered a consent

judgment which, among others things, enjoined Kirschner from further violations of

the registration and antifraud provisions of federal securities laws. SEC v. Advanced

Equity Partners. LLC et al.. 13-cv-64321-RSR(S.D. Fla.).

III. JURISDICTION AND VENUE

14. The Court has jurisdiction over this action pursuant to Sections 20(b),

20(d) and 22(a) of the Securities Act, 15 U.S.C. §§ 77t(b), 77t(d) and 77v(a); and

Sections 21(d), 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d), 78u(e) and

78aa.

15. The Court has personal jurisdiction over the Defendants and venue is

proper in the Central District of California because many of the Defendants' acts

constituting violations of the Securities Act and the Exchange Act occurred in the

District. More specifically, the Defendants offered and sold securities and recruited

sales agents who offered and sold securities from offices in Valencia, California. In

addition, proceeds from the fraudulent sale of securities flowed in and transaction-

based payments to sales agents came out of bank accounts located in Valencia.

Moreover, Baker and Dritsas reside in the Central District of California.

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16. In connection with the conduct alleged in this Complaint, the

Defendants, directly and indirectly, singly or in concert with others, made use of the

means or instrumentalities of interstate commerce, the means and instruments of

transportation or communication in interstate commerce, and the mails.

IV. FACTUAL ALLEGATIONS

A. TDI and Relationships with Premiere and AEP

17. TDI was incorporated in 2010 to develop and market a portfolio of

products and inventions, including a laser-line system designed to mark first downs

in professional and collegiate football games, including the NFL. TDI states that its

laser system generates a green line on the field which is visible in the stadium to

players, fans and on television. TDI represents that use of its technology would

decrease the time used by officials to determine first downs and generate more time

to be sold to television advertisers.

18. Sometime in 2010, TDI entered into an agreement with Kirschner and

his business partner to solicit investors to raise capital by selling TDI stock.

Kirschner and his business partner formed Premiere, and later AEP, which, among

other things, offered and sold unregistered TDI stock.

19. Premiere and AEP entered into agreements with the Defendants to act

as sales agents to offer and sell TDI stock. Pursuant to these agreements, the

Defendants received transaction-based compensation in the form of commissions

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and other fees. The Defendants retained approximately 50% of investor proceeds as

commissions or other fees on their sale ofTDI stock.

20. Baker and Dritsas were aware that Premiere or AEP were also taking a

portion of investor proceeds as commissions orother fees.

21. Baker and Dritsas offered and sold TDI stock directly to investors and

received transaction-based compensation in the form of undisclosed commissions

and other fees derived from investor proceeds.

22. In addition, Baker and Dritsas recruited, hired and supervised sales

agents who were paid transaction-based compensation in connection with the offer

and sale of TDI stock from bank accounts Baker and or Dritsas controlled and held

by CalPacific.

23. Some of these sales agents served as self-described "fronters" whose

primary responsibility was to use investor lead lists which consisted of contact

information of potential investors. Fronters made initial contact with potential

investors and referred those interested in TDI to Baker, Dritsas or others to complete

the stock purchase transaction.

24. Baker or Dritsas earned a percentage of every stock purchase as a

commission or fee, even on those sales made by the sales agents they hired.

25. From approximately July 2011 until February 2012, CalPacific received

approximately $234,000 from Premiere as compensation for the offer and sale of

TDI stock.

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26. From February 2012 until November 2012, CalPacific received

approximately $72,000 from AEP as compensation for the offer and sale of TDI

stock.

B. The Defendants' Solicitation of TDI Stock

27. No registration statement was filed or in effect with the Commission

pursuant to the Securities Act with respect to the TDI stock that the Defendants and

their sales agents offered and sold, and no exemption from registration existed with

respect to these securities and transactions.

28. The Defendants and their sales agents made material misrepresentations

to investors regarding commissions and others fees charged to investors and the

actual use of investor proceeds.

29. Furthermore, the Defendants recklessly made specific representations to

investors in connection with the offer and sale of TDI stock without taking any basic

steps to verify the truthfulness of those representations. In some instances the

Defendants made representations regarding the expectant timing of and return on a

purported initial public offering ("IPO") of TDI stock. On other occasions, the

Defendants made representations regarding the status of negotiations with the NFL

and the purported use of TDI's first down laser system technology by certain teams

and stadiums, or in the 2013 Super Bowl.

30. The Defendants and their sales agents instructed investors to send, and

investors did send, all payments for TDI stock transactions to bank accounts either

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Premiere or AEP held or controlled. Premiere and AEP used these bank accounts to

pay its sales agents transaction-based compensation, includingCalPacific.

31. Neither the Defendants nor their sales agents were registered as broker-

dealers or associated with a registered broker-dealer while facilitating and

participating in these securities sales.

C. Material Misrepresentations and Omissions

32. In connection with the offering of securities during the relevant period,

the Defendants made the following material misrepresentations and omissions to

investors.

1. Undisclosed Exorbitant Commissions or Other Fees

33. The Defendants made representations to investors about the use of

investor funds for TDI's business that were materially misleading because they

failed to disclose sale commissions and others fees that added up to approximately

50% of the funds raised from investors in connection with the offer and sale of

unregistered TDI stock.

34. The Defendants also knew their sales agents materially misled investors

by failing to disclose to investors the exorbitant commissions and other fees paid

from the offering proceeds.

35. For example, in November 2011, Baker told an investor that no more

than "ten cents on every dollar of investor money" would be used as a commission

or other fee. Dritsas told the same investor that he would not charge any

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commission for a trade - "not even a dime" when, in fact, CalPacific received 50%

of that investor's proceeds as commissions or other fees in connection with the offer

and sale ofTDI stock.

2. Use ofProceeds

36. The Defendants or their sales agents also misrepresented the actual use

of investor proceeds.

37. For example, in November 2011, Baker told an investor that 90 percent

of investor proceeds would go "directly to the business." Dritsas told this same

investor that all of the money raised was being used to install the laser-line system in

the 32 stadiums ofthe NFL anda portion would be used for TDI's cashreserves.

38. These representations were false. At the time of these representations,

Dritsas and Baker were receiving 50% of investor proceeds as commissions or other

fees.

3. Promises about Pendins IPO and Investment Returns

39. The Defendants and their sales agents recklessly made specific

representations to investors concerning the timing of and expected return on a

purported TDI IPO without taking any basic steps to verify the truthfulness of those

representations.

40. For example, in November 2011 Baker told an investor TDI would go

public within seven months - in about May 2012. Dritsas promised this same

investor that TDI would go public within a year of November 2011, but was

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confident it would be within six to eight months. At that time, TDI had no

immediate plans to go public andtherewas no basis for these statements.

41. In addition, the Defendants and their sales agents represented that the

value of TDI stock would increase significantly from $2.50 per share as a result of

the purported IPO. For example, Dritsas told an investor that TDI already had a

book share value of $8.50 and that the expected opening share price would be

between $8.00 and $10.00. Dritsas had no basis for these statements and failed to

take anybasic steps to verify the truthfulness ofthese representations.

4. Use ofthe Technology

42. Baker and Dritsas also recklessly made specific representations to

investors regarding the status of negotiations with, and the use of the technology by,

the NFL.

43. For example, Baker told at least one investor that "now, currently we

[TDI] split those revenues, the advertising revenues with the NFL 50/50." Dritsas

told the same investor the NFL already had agreed to use TDI's technology during

the NFL's 2012 mini-camp. At that time, TDI had no agreement with the NFL, and

Baker and Dritsas took no basic steps to verify the truthfulness of those

representations.

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COUNT I

Violation of Sections 5(a) and 5(c) of the Securities Act of 1933

44. The Commission realleges and incorporates paragraphs 1 through 31 of

this Complaint.

45. No registration statement was filed or in effect with the Commission

pursuant to the Securities Act with respect to the securities and transactions

described in this Complaint and no exemption from registration existed with respect

to these securities and transactions.

46. As described above, the Defendants directly or indirectly: (a) made use

of the means or instruments of transportation or communication in interstate

commerce or of the mails to sell, through the use or medium of any prospectus or

otherwise, securities as to which no registration statement was in effect; (b) for the

purpose of sale or delivery after sale, carried or caused to be carried through the

mails or in interstate commerce, by means or instruments of transportation, securities

as to which no registration statement was in effect; or (c) made use of means or

instruments of transportation or communication in interstate commerce or of the

mails to offer to sell, through the use or medium of a prospectus or otherwise,

securities as to which no registration statement has been filed.

47. By reasons of the foregoing, the Defendants violated, and, unless

restrained and enjoined, are reasonably likely to continue to violate, Sections 5(a)

and 5(c) of the Securities Act, 15 U.S.C. §§ 77e(a) and 77e(c).

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COUNT II

Fraud in Violation of Section 17(a)(1) of the Securities Act

48. The Commission realleges and incorporates paragraphs 1 through 43 of

this Complaint.

49. From no later than August 2011 until at least November 2012, the

Defendants directly and indirectly, by use of the means or instruments of

transportation or communication in interstate commerce and by use of the mails, in

the offer or sale of securities, as described in this complaint, knowingly, willfully or

recklessly employed devices, schemes or artifices to defraud.

50. By reason of the foregoing, the Defendants directly and indirectly

violated, and, unless enjoined, are reasonably likely to continue to violate, Section

17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(l).

COUNT III

Fraud in Violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act

51. The Commission realleges and incorporates paragraphs 1 through 43 of

this Complaint.

52. From no later than August 2011 until at least November 2012, the

Defendants directly and indirectiy, by use of the means or instruments of

transportation or communication in interstate commerce and by the use ofthe mails,

in the offer or sale of securities: (a) obtained money or property by means of untrue

statements of material facts and omissions to state material facts necessary to make

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the statements made, in the light of the circumstances under which they were made,

not misleading; or (b) engaged in transactions, practices and courses of business

which operated and will operate as a fraud or deceit upon purchasers and prospective

purchasers of such securities.

53. By reason of the foregoing, the Defendants directly and indirectly

violated, and, unless enjoined, are reasonably likely to continue to violate, Sections

17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77q(a)(2) and 77q(a)(3).

COUNT IV

Fraud In Violation of Section 10(b) and Rule 10b-5 of the Exchange Act

54. The Commission realleges and incorporates paragraphs 1 through 43 of

this Complaint.

55. From no later than August 2011 until at least November 2012, the

Defendants directly and indirectly, by use of the means and instrumentalities of

interstate commerce, and of the mails in connection with the purchase or sale of the

securities, as described in this complaint, knowingly, willfully or recklessly; (1)

employed devices, schemes or artifices to defraud; (2) made untrue statements of

material facts and omitted to state material facts necessary in order to make the

statements made, in the light of the circumstances under which they were made, not

misleading; or (3) engaged in acts, practices and courses ofbusiness, which operated

as a fraud upon the purchasers ofsuch securities and will operate as a fraud upon the

purchasers of such securities.

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56. By reasons of the foregoing, the Defendants directly or indirectly

violated, and, unless enjoined, are reasonably likely to continue to violate, Section

10(b) and Rule 10b-5 of the Exchange Act, 15 U.S.C. § 78j(b), and 17 C.F.R. §

240.10b-5.

COUNT V

Violation of Section 15(a) of the Exchange Act

57. The Commission realleges and incorporates paragraphs 1 through 38 of

this Complaint.

58. From no later than August 2011 until at least November 2012, the

Defendants, while acting as or associated with a broker or dealer, effected

transactions in, or induced or attempted to induce the purchase or sale of, securities

while they were not registered with the Commission as a broker or dealer or when

they were not associated with an entity registered with the commission as a broker-

dealer.

59. By reasons of the foregoing, the Defendants directly or indirectly

violated, and, unless enjoined, are reasonably likely to continue to violate, Section

15(a) of the Exchange Act, 15 U.S.C. § 78o(a).

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RELIEF REQUESTED

WHEREFORE, the Commission respectfully requests the Court:

I.

Declaratory Relief

Declare, determine and find that the Defendants have committed the violations

ofthe federal securities laws alleged in this Complaint.

II.

Permanent Injunctive Relief

Issue a Permanent Injunction restraining and enjoining the Defendants, their

officers, agents, servants, employees, attorneys, representatives and all persons in

active concert or participation with them, and each of them, from violating Sections

5(a), 5(c), 17(a)(1), (2) and (3) of the Securities Act, and Sections 10(b) and 15(a)

and Rule 10b-5 ofthe Exchange Act.

III.

Disgorgement and Prejudgment Interest

Issue an order directing the Defendants to disgorge all ill-gotten gains as a

result of the conduct alleged in the complaint, together with prejudgment interest on

all disgorgement amounts.

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IV.

Penalties

Issue an Order directing each of the Defendants to pay a civil money penalty

pursuant to Section 20(d) ofthe Securities Act, 15 U.S.C. § 77t(d), and Section 21(d)

of the Exchange Act, 15 U.S.C. § 78u(d).

V.

Penny Stock Bar

Issue an Order barring Baker and Dritsas from participating in any offering of

a penny stock, pursuant to Section 20(g) of the Securities Act, 15 U.S.C. § 77t(g),

and Section 21(d) ofthe Exchange Act, 15 U.S.C. §78u(d), for the violations alleged

in this Complaint.

VI.

Further Relief

Grant such other and further relief as may be necessary and appropriate.

VII.

Retention of Jurisdiction

Further, the Commission respectfully requests the Court retain jurisdiction

over this action in order to implement and carry out the terms of all orders and

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decrees that may be entered or to entertain any suitable application or motion by the

Commission for additional relief within the jurisdiction ofthis Court.

July 23,2014

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Respectfully submitted,

ROBERT K. LEVENSON
Direct Dial: (305) 982-6341
Facsimile: (305) 536-4154
Email: Levensonr(g),sec.gov

Attorney for Plaintiff
SECURITIES AND

EXCHANGE COMMISSION

801 Brickell Avenue, Suite 1800
Miami, Florida 33131

By:
s/Donald W. Searles

JOHN W. BERRY

Regional Trial Counsel
DONALD W. SEARLES

CalBar.No. 135705

Email: [email protected]

Attorneys for Plaintiff
SECURITIES AND

EXCHANGE COMMISSION

5670 Wilshire Blvd., 11th Floor
Los Angeles, CA 90036-3648
Telephone: (323) 965-3998
Facsimile: (323) 965-3908

    Case 2:14-cv-05754 Document 1 Filed 07/24/14 Page 18 of 18 Page ID #:18 



 

  
 

  

 
 

 
 

 

 

 

 

 

 

   

CM/ECF - California Central District Page 1 of 1 

Complaints and Other Initiating Documents 

2:14-cv-05754 Securities and Exchange Commission v. CalPacific Equity Group, LLC et al 

UNITED STATES DISTRICT COURT for the CENTRAL DISTRICT OF CALIFORNIA 

Notice of Electronic Filing 

The following transaction was entered by Searles, Donald on 7/24/2014 at 9:16 AM PDT and filed on 
7/24/2014 
Case Name: Securities and Exchange Commission v. CalPacific Equity Group, LLC et al 
Case Number: 2:14-cv-05754 
Filer: Securities and Exchange Commission 
Document Number: 1 

Docket Text: 
COMPLAINT No Fee Required - US Government, filed by Plaintiff Securities and 
Exchange Commission. (Attorney Donald W Searles added to party Securities and 
Exchange Commission(pty:pla))(Searles, Donald) 

2:14-cv-05754 Notice has been electronically mailed to: 

Donald W Searles [email protected], [email protected], [email protected], [email protected] 

2:14-cv-05754 Notice has been delivered by First Class U. S. Mail or by other means BY THE 
FILER to : 

The following document(s) are associated with this transaction: 

Document description:Main Document 
Original filename:F:\marcelom\CalPacific\Complaint.pdf 
Electronic document Stamp: 
[STAMP cacdStamp_ID=1020290914 [Date=7/24/2014] [FileNumber=17874652-0 
] [9f85384b6a89447bc38f0cfbb1567fd00a2ccfcf96c6cbe55b2eb3a9d5f93b156d7 
a81b9da2d6d9b8b9bc74ab59c46b73fa760a0dada469b9d45e957a15b7c56]] 

https://ecf.cacd.uscourts.gov/cgi-bin/Dispatch.pl?259423304959818 7/24/2014 

https://ecf.cacd.uscourts.gov/cgi-bin/Dispatch.pl?259423304959818
mailto:[email protected]
mailto:[email protected]
mailto:[email protected]
mailto:[email protected]