SEC v. Lisa Bershan; Barry B. Schwartz; and Joel J. Margulies, No. 1:17-cv-07793, Southern District of New York (Oct. 11, 2017) — Complaint

Lara
Shalov
Mehraban
Thomas
P.
Smith
Jr.
Richard
Hong
Cynthia
A.
Matthews
Attorneys
for
Plaintiff
SECURITIES
AND
EXCHANGE
COMMISSION
New
York
Regional
Offic
e
Brookfield
Place
200
Vesey
Street
, Room 400
New
York,
NY
10281-1022
(212)
336-0956
(Hong)
UNITED
STATES DISTRICT
COURT
SOUTHERN
DISTRICT
OF
NEW
YORK
SECURITIES
AND
EXCHANGE
COMMISSION,
Plaintiff,
-against-
LISA BERSHAN,
BARRY
B.
SCHWARTZ,
and
JOEL
J.
MARGULIES,
Defendants.
COMPLAINT
AND
JURY
DEMAND
17
Civ.
(
)
ECFCASE
Plaintiff
Securities
and
Exchange
Commission
(" Commission
") alleges
the
following
against
Defendants
Lisa
Bershan
(" Bershan
"), Barry
B.
Schwartz
(" Schwartz
"
),
and
Joel
J.
Margulies
("Margulies
") (collectively
, "Defendants
"
):
SUMMARY
OF
ALLEGATIONS
1.
Beginning in
approximately
August
2015
through June
2017
, Bershan,
Schwartz,
and
Margulies,
who
controlled
Starship
Snacks,
Corp.
(" Starship
"),  orchestrated
a fraudulent
scheme,
in
which
they
conn
ed more than
35
investors
into
investing
over
$2.2
million
in

Starship,
a company
that
purportedly
was
developing
and
marketing
a caffeinated
chocolate
snack.
2.
Bershan,
the
Chief
Executive
Officer
("CEO")
and
founder
of
Starship,
and
Margulies,
a principal
at the
company,
induced investments
by
making
various
material
misrepresentations
to
investors.
They
promised,
among
other
things,
that
Starship
was
developing
and
was
ready
to
mass
produce
its
own
caffeinated
snack;
that
Starship
would
soon
be
acquired,
at first,
by
Monster
Energy
Company ("Monster"),
and
later
The
Coca
Cola
Co.
("Coke");
and
that
investors
would
get
a one-for-one
share
exchange
of
Starship
shares
for
Monster
or Coke
shares.
Bershan
also
personally
guaranteed
investors,
with
a "Share
Price
Guarantee
," that
they
could
redeem
their
entire
investment
plus
5%
interest
after
12
months,
if
the value
of
the
purchased
shares
had
not
achieved a
substantially
higher
capitalized
value.
Bershan
and
Margulies
also
represented
to
investors,
in
writing,
that
the
investment
had
"no
down-side
risk."
3.
In
reality,
the
Defendants
knowingly,
recklessly
or
negligently
ran
an
investm
e
nt
scam.
Contrary
to
the
representations,
Starship
never
developed
or
was
ready
to
produce
for
mass
production
its
own
caffeinated
snack.
Nor
was
Starship
ever
in
negotiations
with
either
Monster
or Coke
to
be
acquired;
in
fact,
the
company
did
not
have
any
business
relationship
with
either
entity.
4 .
Moreover
, Bershan's
personal
" Share
Price
Guarantee"
was
false
and/or
misleading.
Investors
were
not
able
to
recoup
the
"guaranteed"
return
of
their
investment
plus
interest
at any
time.
Bershan
and
Schwartz
(Bershan's
husband)
had
misappropriated
and
dissipated
investor
funds,
thro
_ugh
their
withdrawal
of
over
$1
million
in
cash
and
their
use
of
the
2

remainder
to
maintain
an
extravagant
lifestyle.
In
short,
investors
in
Starship
did
not
get
what
Defendants
had
promised
them
and
they
lost
their
money.
5.
Indeed,
when
investors
began
to
question
the
timing
of
the
acquisition
and
to
ask
for
financial
documentation,
the
Defendants
sought
to
conceal
the
fraudulent
scheme
with
more
lies.
They
continued
to
misrepresent
to
investors
that
negotiations
with
Monster
and
Coke
were
ongoing
and
that
an
acquisition
by
either
Monster
or
Coke
was
imminent.
Further,
they
lied
by
saying
that
they
were
prohibited
by
nondisclosure
agreements
from
giving
investors
any
specific
information,
financial
or otherwise,
about
the
deal.
6.
By
virtue
of
the
conduct
alleged
herein,
Bershan
and
Margulies,
directly
or
indirectly,
singly
or
in
concert,
knowingly,
recklessly,
or
negligently
have
engaged
in
fraudulent
conduct
in
violation
of:
a.
Section
17(a)
of
the
Securities
Act
of
1933
("Securities
Act")
[15
U.S.C.
§
77q(a)];
and
b.
Section
lO(b)
of
the
Securities
Exchange
Act
of
1934
(the
" Exchange
Act")
[15
U.S.C.
§ 78j(b)],
and
Rule
l0b-5
thereunder
[17
C.F.R.
§
240.l0b-5].
7.
In
addition,
by
virtue
of
the
conduct
alleged
herein,
Schwartz,
directly
or
indirectly,
singly
or
in
concert,
knowingly,
recklessly,
or
negligently
has
engaged
in
fraudulent
conduct
in
violation
of:
a.
Sections
17(a)(l)
and
(3)
of
the
Securities
Act
[15
U.S.C.
§ 77q(a)];
and
b.
Section
lO(b)
of
the
Exchange
Act
[15
U.S.C.
§ 78j(b)], and
Rule
10b-5(a)
and
(c)
thereunder
[17
C.F.R.
§ 240.10b-5(a)
and
(c)].
8.
For
the
foregoing
violations,
the
Commission
seeks
a final
judgment
ordering
the
Defendants
to
disgorge
their
ill-gotten gains
on
a joint
and
several
basis
and
to
pay
prejudgment
interest
thereon,
and
ordering
the
Defendants
to
pay
civil
money
penalties
pursuant
to
Section
3

20(d)
of
the
Securities
Act
[15
U .S.C.
§
77t(d)]
and
Section
21(d)(3)
of
the
Exchange
Act
[15
U.S.C.
§ 78u(d)(3)].
9.
Unless the
Defendants
are
permanently
restrained
and
enjoined
, they will
again
engage
in
the
acts,
practices,
transactions
and
courses
of
business
set
forth
in
this
Complaint
and
in
acts,
practices
, transactions and
courses
of
business
of
similar
type
and
object.
JURI
SDICTI
ON AND
VENUE
10.
The
Commission
brings
this
action
pursuant
to
the
authority
conferred
upon
it by
Section
20(b)
of
the
Securities
Act
[15
U.S.C
.
§
77t(b)]
and
Section
21(d)(l)
of
the
Exchange
Act
[15
U.S.C.
§
78u(d)(l)].
11.
This
Court
has
jurisdiction
over
this
action
pursuant
to
Section
22(a)
of
the
Securities
Act
[15
U.S.C.
§ 77v(a)]
and
Sections
2l(e)
and
27
of
the
Exchange
Act
[15
U.S.C.
§§
78u(e)
and
78aa].
12.
Venue
lies
in
this
District
pursuant
to
Section
22(a)
of
the
Securities
Act
[15
U.S.C.
§ 77v(a)]
and
Section
27
of
the
Exchange Act
[15
U.S.C.
§ 78aa].
Certain
of
the
acts,
practices,
transactions,
and
courses
of
business
alleged
in
this
Complaint
occurred
within
the
Southern
District
of
New
York.
Among
other
things,
venue
lies
in
this
District
because
Bershan
and
Schwartz
opened
bank
accounts
in
the
name
of
Starship
in
this
District,
and
, according
to
the
bank
account
records,
investor
funds
were
wired
to
accounts
with
addresses
in
this
District.
13.
Certain
of
the
acts,
practices,
transactions,
and
courses
of
business
alleged
in
this
Complaint
were
effected,
directly
or
indirectly,
by
making
use
of
the
means,
instruments,
or
instrumentalities
of
transportation
or
communication
in
interstate
commerce,
or
of
the
mails,
or
the
facilities
of
a national
securities
exchange
.
4

DEFENDANTS
14.
Bershan,
age
60,
resides
in
San
Diego,
California.
Bershan
is  the
CEO
and
founder
of
Starship.
She
participated in
all
aspects
of
the
fraudulent
scheme
alleged
herein.
Before
forming
Starship,
Bershan
was
the
President,
Secretary
and
Director
of
All
American
Pet
Company,
Inc.
("AAPC
"
).
Bershan
is  not
and
has
never
been
registered
with
the
Commission
in
any
capacity
and
holds
no
securities
licenses.
15.
Schwartz,
age
71,
resides
in
San
Diego,
California.
He
is the
husband
of
Bershan
and
is  affiliated
with
Starship.
While
involved
with
the
fraudulent
scheme
from
the
outset,
Schwartz
became
a primary
contact
for
investors
after
the
purported
termination
of
Margulies
from
Starship
in
or
around
October
2016.
Before
becoming
involved
with
Starship,
Schwartz
was
the
CEO
and
Chairman
of
the
Board
of
AAPC.
Pursuant
to
a November
2014
order
by the
State
of
California
- Department
of
Business
Oversight,
All
American
Pet
Company,
Inc.
("AAPC")
and
Schwartz
were
ordered
to
desist
and
refrain
from
offering
the
securities
of
AAPC,
because
they
offered
the
securities
in
an
offering
that
failed
to
qualify
for
an
exemption
under
Reg.
D
and
the
offering
documents
falsely
represented
that
the
exemption
had
been
satisfied.
Schwartz
is not
and
has
never
been
registered
with
the
Commission
in
any
capacity
and
holds
no
securities
licenses.
16.
Margulies,
72,
resides
in
Murfreesboro,
Tennessee.
He
acted
and
held
himself
out
as
a principal
of
Starship,
until
he
was
purportedly
terminated
by
Starship
in
or
around
October
2016.
Margulies
was
the
primary
source
of
contact
for
investors,
whether
by
email
or
phone.
Margulies
is not
and
has
never
been
registered
with
the
Commission
in
any
capacity
and
holds
no
securities
licenses.
5

RELEVANT
ENTITIES
17.
Starship
is
a Delaware
corporation,
with
its
principal
place
of business
in
New
York
, New
York.
Starship
, a privately-held
company
, was
formed
in
or around
August
2015
and
incorporated
in
October
2015
.  Its
predecessor
company
was
The
Awake
Co
. ("Awake
"),  a
Nevada
corporation,
with
its
principal
place
of
business
in
Beverly
Hills,
California.
In
or
around
May
2016,
investors
exchanged
their
Awake
shares
for
Starship
shares.
Unless
otherwise
noted,
references
to
Starship
herein
include the
pred
ecessor
Awake.
Starship purports
to
be
a
manufacturer,
marketer
and
distributor
of
a chocolate
caffeinated
snack.
18.
AAPC
was a
Nevada
corporation
with
its
principal
place
of
business
in
Los
Angeles,
California.
AAPC
purported
to
develop
, manufacture
and
market
packaged
products
for
dogs.
As
discussed
above,
AAPC
was
the
subject
of
a State
of
California
- Department
of
Business
Oversight
Cease
and
Desist
Order.
DEFENDANTS'
FRAUDULENT
CONDUCT
How
the
Fraudulent
Scheme
Began
19.
In
the
wake
of
their
prior
business
failures,
most
notably
AAPC,
the
Defendants
started
their
new
private
company,
Starship,
in
and
around
May
2015,
as
a vehicle
for
their
fraudulent
scheme.
20.
Between
May
2015
and
August
2015
, Bershan
and
Margulies
discussed with
an
investor
who
had
invested
in
AAPC
(the
"AAPC
Investor
") an
opportunity
to
recoup
his
losses
by
investing
in
Starship
.  To
induce
his
investment,
they
knowingly,
recklessly
, or
negligently
misrepresented
that
Starship
was
in
negotiations
to
be
acquired
by
or
partner
with
Monster,
the
energy
drink
manufacturer
.  They
explained
that
Monster
was
interested
in
Starship's
caffeinated
snacks
and
that
Coke,
having
recently
acquired
a portion
of
Monster
, was
looking
for
a product
6

with which
to
compete
with
Pepsi
in
the
snack
business
.
21.
In
and
around
August
2015,
Bershan
and
Margulies
provided
the
AAPC
Investor
with
offering
documents,
including
a term
sheet,
describing
the
offering
of
securities,
and
which
included
Bershan's
personal
guarantee that
protected
investors
from
"any
downside
loss
of
principal."
Specifically,
Bershan
provided
the
AAPC
Investor
with
a written
"Share
Price
Guarantee"
in
which
she
personally
agreed
to
buy
back
the
shares
purchased,
at the
original
"discounted"
purchase
price
of
$3
.00
per
share,
if,
on
the
one-year
anniversary
of
the
investment,
the
purchased
shares
had
not
achieved
a capitalized
value
of
$23.00
to
$25.00
per
share.
In
addition,
pursuant
to
the
personal
guarantee,
Bershan
agreed
to
pay
the
AAPS
Investor
5%
interest
and
to
make
both
payments within
10
working
days
of
the
investor's
redemption
request.
Bershan
and
Margulies also
represented
in
an
email
that,
because
of
the
personal
guarantee,
the
investment
had
"no
down-side
risk."
22.
In
addition,
Bershan
and
Margulies
presented
to
the
AAPC
Investor
the
Starship
term
sheet,
which
set
the
purchase
price
at
$5
.00
per
share,
but
offered
a discount
price
of
$3
.00
per
share,
and
promised
(i)
annual
financial
statements
and
"narrative
update
reports
from
Company
management"
to
all
investors;
(ii)
quarterly
financial
and
narrative
update
reports
from
management;
and
(iii)
inspection
rights
to
"Major
Investors"
who
invested
at least $25,000.
23.
Based
on
the
foregoing
material
representations,
the
AAPC
Investor
invested
$25,000
in
Starship
on
or
about
August
21,
2015.
24.
Also,
in
or
around August
2015,
Bershan
advised
the
AAPC
Investor
that
Starship
needed
an
additional
$200,000
for
start-up
costs
and
asked
the
investor
to
share
the
Starship
investment
opportunity
with
friends
and
family.
At
Bershan's
and
Margulies'
urging,
the
AAPC
Investor
shared
Margulies'
and
Bershan's
representations
regarding
Starship
to
his
family
and
7

friends,
several
of
whom
spoke
with
Bershan
and/or
Margulies
to
confirm
the
information
before
investing.
25
.
Bershan
and/or
Margulies
also
falsely
represented
to
at
least
two
investors
that
Starship
had
a contract
with
an
Argentinian
candy
manufacturer,
and
with
the
US
Army,
7-11
stores,
and
miscellaneous
book
stores
for
distribution.
26.
In
reality,
Starship
never
developed
or
was
ready
to
mass
produce
its
own
caffeinated
snack.
Nor
was
Starship
ever
in
negotiations
with
either
Monster
or
Coke
to
be
acquired
or
to
partner;
in
truth,
the
company
did
not
have
any
business
relationship
with
either
entity
.  Also,
Bershan's
personal
"Share
Price
Guarantee"
was
false
and/or
misleading
as
she
knew,
recklessly
disregarded
or
should
have
known
.  Investors
were
not
able
to
recover the
"guaranteed"
return
of
their investment
plus
interest
at
any
time,
as
investor
funds
had
been
misappropriated
and
dissipated
by
Bershan
and
Schwartz.
Finally,
despite
the
Starship
term
sheet's
representations
that
Starship
would
provide
Major
Investors
with
quarterly
financial
reports
and
all
investors
with
annual
financial
statements,
the
Defendants
never
provided
investors
financial
information
of
any
kind,
despite
numerous
requests.
27.
These
misrepresentations
were
material
because
they
provided
information
that
was
important
to
investors
in
deciding
whether
to
invest
in
Starship,
and
they
provided
investors
with
(false)
confidence
that
Starship
was
a legitimate
business
with
serious
business
prospects
and
worthy
of
investment.
28.
By
September
15,
2015,
Bershan
represented
to
the
AAPC
Investor
that
Starship
had
reached
its
$200,000
seed
goal.
How
the
Fraudulent
Scheme
Expanded
29
.
On
or
about
October
17,
2015,
Margulies
and
Bershan
represented
to
certain
8

investors
that
Starship
had
signed
a deal
with
Monster
providing
for
a one-for-one
share
exchange
of
Starship
shares
for
Monster
shares.
When
making
that
representation,
Margulies
and
Bershan
knew,
recklessly
disregarded,
or
should
have
known
that
that
representation
was
false
as
Starship
had
no
such
deal,
or any
kind
of
deal
with
Monster.
Investors
were
provided
with a
limited
10
business
day
window
to
add
to
their
investment
in
Starship
.
30.
Through
this
material
misrepresentation,
Margulies
and
Bershan
were
able
to
solicit
investments
from
new
investors,
and
additional
investments
from
existing
investors.
From
October
18,
2015
to
October
3,
2016,
Margulies
and
Bershan
raised
$1,769,430
from
at
least
30
investors.
31.
Bershan
and
Margulies
communicated
with
individual
investors,
confirming
to
them
that
the
Starship
and
Monster
transaction
was
imminent
when
they
knew,
recklessly
disregarded
or
should
have
known
that
their
representations
were
false.
32.
Margulies
also
instructed
investors
to
write checks
or
wire
funds
initially
to
an
account
affiliated
with
AAPC,
for
which
he
was
listed
as
the
owner,
and
later
to
an
account
in
Starship's
name.
Further,
Margulies
co-signed
the
cover
letter for
the
offering
documents,
which
described
and
repeated
Bershan's
personal
guarantee,
and
provided
the
AAPC
Investor
with the
Starship
term
sheet
and
other
offering
documents
to
distribute
to
at
least
two
other
investors
(who
invested
on
or about
August
27,
2015
and
August
28,
2015).
33.
Through
mid-October
of
2016,
Bershan
and
Margulies
continued
to
solicit
investors
with
the
misrepresentations
discussed
above.
They
obtained
more
than
$2.2
million
from
over
35
investors.
In
an
August
15,
2016
email
to
an
investor,
for
example,
Margulies
falsely
stated
that
" .. . the
remaining
[Starship]
shares,
which
are
very
limited
-  will
be
acquired
by
Monster
if
not
sold
to
our
circle
[ of]
friends
and
family."
When
making
that
statement,
9

Margulies
knew,
recklessly
disregarded,
or
should
have
known,
that
that
statement
was
false
as
there
was
no
basis
to
claim
Starship
shares
would
be
acquired
by
Monster.
How
the
Fraudulent
Scheme
Was
Perpetuated
34.
Schwartz and
Margulies
extended
the
scheme
through
June
2017,
by
assuring
investors
that
the
Monster/Coke deal
was
imminent
and
that
they
could
redeem
their investments
plus interest
in
accordance
with
the
Bershan
personal
guarantee.
35.
On
a few
occasions
when
Bershan
and
Margulies,
or
Schwartz,
sent
any
form
of
investor
update,
it contained
a false
assurance
that
the
investments
were
secure,
offered
an
excuse
for
the
delay,
and/or
claimed
that
a Monster
or
Coke
deal
was
imminent.
36.
For
example,
in
November
2015,
Margulies
wrote
to
investors:
"We
want
to
assure
you
that
your
investment
is  secure.
The
[Starship]
shares
you
purchased
will
be
exchanged
one
for
one
as
promised
....
The
deal
is  on
and
your
shares
will
be
issued
shortly."
Yet
in
the
same
email,
Margulies
notified
investors
that
the
company
would
need
to
change
its
name
(purportedly
due
to
trademark
issues)
and
anticipated
that
this
change
could
cause
a six
week
and
possibly
longer
delay.
In
January
2016,
Margulies
notified
investors
that
share
certificates
had
been
issued
incorrectly, purportedly
requiring reissuance
and
an
additional
week­
long
delay.
And
in
a November
15,
2016
email
to
an
investor,
in
response
to
the
investor's
concern
that
the
deal
was
"basically
dead,"
Schwartz
wrote:
"this
is not
dead
at all"
and
in
a
second
email
to
the
investor
on
the
same
day
reiterated,
"Our
[Monster]
deal
is  far
from
dead."
When
making
these
statements
to
investors,
Margulies
and
Schwartz
knew,
recklessly
disregarded
or
should
have
known
that
their
statements
were
false.
37.
Investors
called
and
emailed
Bershan,
Schwartz
and
Margulies
on numerous
occasions
for
specific
information
as
to
when
the
Monster
deal
would
be
finalized
and
for
10

financial
documentation,
only
to
be
ignored
or
chided
for
making the
inquiries,
but
never
provided
with
the
information
they
sought.
For
example,
in
an
August
11,
2016
email
to
an
investor,
Margulies
claimed
that
he
could
not
provide
an
update,
as
"sharing
that
information
would
be
material
info1mation
and
considered
insider
trading."
38.
When
Bershan,
Schwartz
or
Margulies
did
respond,
they
falsely
claimed
they
were
unable to
provide
investors
with
such
information
because
it was
confidential,
and/or
that
they
were
subject
to
non-disclosure
agreements
("NDAs")
that
Starship
had
signed
with
Monster
and/or
Coke.
For
example,
Margulies
wrote
in
an
August
21,
2015
email
to
an
investor:
"I
understand
that
you
and
your
associates
would
like
more
information,
but
we
are
under
strict
NDA's
....
This
is secret
stuff."
In
reality,
no
such
agreements existed.
When
making
these
statements
to
investors,
Margulies
and
Schwartz
knew,
recklessly
disregarded
or
should
have
known
that
their
statements
were
false.
39.
In
or
around
October
2016,
Schwartz
took
responsibility
for
communication
with
investors,
when
he
advised
investors
that
Margulies
had
been
terminated.
40.
Shortly
thereafter,
Schwartz
held
an
investor
conference
call,
in
which
he
informed
investors
that
there
had
never
been
a deal
for
Monster
to
acquire
Starship.
On
the
call,
Schwartz
falsely
claimed
that
Bershan
was
seeking
a packaging
and
distribution
partner
for
Starship,
and
that
she
was
in
negotiations
with
both
Monster
and
Coke.
Schwartz
said
that
both
companies
were
competing
for
a deal
with
Starship,
that
they
had
already
agreed
to
most
parts
of
the
deal,
and
that
Bershan
would
take
the
better
deal.
When
making
these
statements
to
investors,
Schwartz
knew,
recklessly
disregarded
or
should
have
known
that
his
statements
were
false.
11

41.
On
the
conference
call
and
in
other
communications
with
investors,
Schwartz
blamed
Margulies
for
any
confusion
investors
might
be
feeling
and
claimed
he
would
honor
investors'
rights
to
terminate
their
investment
under
Bershan's
personal
guarantee.
In
the
same
conference
call,
Schwartz
advised
investors
to
hold
onto
their
shares,
assuring
them
that
the
deal
would
yield
a far
greater
return
than Bershan's
personal
guarantee.
42.
These
statements
were
false.
Schwartz
knew,
recklessly
disregarded
or
should
have
known
that
there
was
no
deal
(imminent
or
otherwise)
with
Monster;
and
there
were
no
funds
to
support
Bershan's
personal
guarantee.
In
fact,
when
investors
subsequently
sought
to
redeem
their shares
under
the
guarantee,
they
were
unable
to
do
so.
How
Investor
Funds
Were
Misappropriated
43.
Over
the
course
of
the
fraudulent
scheme,
Bershan,
Schwartz,
and
Margulies
took
in
at
least
$2.2
million
in
investor
funds.
44.
While
Margulies
was
listed
as
an
owner
on
the
initial
bank
account
Starship
used,
Bershan
and
Schwartz
were
the
authorized
signatories
on
that
account and
the
subsequent
Starship
bank
accounts.
They
had
control
over
the
accounts
and
access
to
the
account
information.
45.
Bershan
and
Schwartz
knowingly,
recklessly,
or
negligently
used
these
accounts
as
their
own
personal
piggy
bank;
withdrawing
cash
regularly
from
the
Starship
accounts
to
spend
on
personal,
non-business
expenses
.  Between
August
2015
and
October
2016,
they
withdrew
over
$1
million
in
cash,
and,
in
addition,
spent over
$280,000
to
rent
a Manhattan
apartment
over
an
11-month
period,
over
$150,000
on
retail
purchases,
over
$140,000
in
travel
and
restaurant
expenses,
almost
$85,000
in
medical
and
pharmaceutical
costs
and
over
$40,000
on
interior
decorating
expenses.
The
remainder
of
the
investors'
funds
was
dissipated
on
non-
12

Starship expenses.
46. Bershan and/or Schwartz also transferred investor funds among Starship bank
accounts and commingled Schwartz's social security payments with investor funds. On several
occasions, Bershan and/or Schwartz withdrew investor money in cash on the same day it was
deposited.
47. Further, Bershan and Schwartz transferred money from the Starship account to
another account they controlled in the name
of a third company, and withdrew cash or spent the
investor funds deposited therein on their personal, non-business expenses. On more than one
occasion, when an investor wired their investment to, or deposited it in, the Starship account,
Bershan and/or Schwartz withdrew it immediately thereafter.
48. Margulies knowingly, recklessly, or negligently arranged for proceeds
of the
fraudulent scheme to be used for non-business related items. He assisted Bershan on a high-end
interior decorating project that she paid for with investor funds. Margulies received over
$50,000
of the investor funds raised.
49. By October 2016, the Defendants had spent all investor funds.
FIRST CLAIM FOR RELIEF
(Violations
of Section 17(a) of the Securities Act)
(Against Bershan and Margulies)
50. The Commission realleges and incorporates by reference herein each and every
allegation contained in paragraphs 1 through 49
of this Complaint.
51. By virtue
of the foregoing, in the offer or sale of securities, by the use of any
means or instruments
of transportation or communication in interstate commerce, or of the mails,
directly or indirectly, Bershan and Margulies knowingly, recklessly or negligently: (a) employed
devices, schemes or artifices to defraud; (b) obtained money or property by means
of an untrue
13

statement of a material fact or omitted to state a material fact necessary in order to make
statements made, in light
of the circumstances under which they were made, not misleading;
and/or (c) engaged in transactions, acts, practices and courses
of business which would operate
as a fraud or deceit upon the purchaser.
52. By reason
of the conduct described above, Bershan and Margulies, directly or
indirectly violated and, unless enjoined, will again violate, Section 17(a)
of the Securities Act
[15 U.S.C. § 77q(a)].
SECOND CLAIM FOR RELIEF
(Violations
of Section l 7(a)(l) and (3) of the Securities Act)
(Against Schwartz)
53. The Commission realleges and incorporates by reference herein each and every
allegation contained in paragraphs 1 through 49
of this Complaint.
54. By virtue
of the foregoing, in the offer or sale of securities, by the use of any
means or instruments
of transportation or communication in interstate commerce, or of the mails,
directly or indirectly, Schwartz knowingly, recklessly or negligently: employed devices, schemes
or artifices to defraud; and/or engaged in transactions, acts, practices and courses
of business
which would operate as a fraud or deceit upon the purchaser.
55. By reason
of the conduct described above, Schwartz, directly or indirectly
violated and, unless enjoined, will again violate, Sections 17(a)(l) and (3)
of the Securities Act
[15 U.S.C. § 77q(a)(l) and (3)].
14

THIRD
CLAIM
FOR
RELIEF
(Violations
of
Section
lO(b)
of
the
Exchange
Act
and
Rule
lOb-5)
(Against
Bershan
and
Margulies)
56.
The
Commission
realleges
and
incorporates
by
reference
her
ein
each
and
every
allegation
contained
in
paragraphs
1 through
49
of
this
Complaint.
57.
By
virtue
of
the
foregoing,
Bershan
and
Margulies,
in
connection
with the
purchase
or
sale
of
securities,
by
the
use
of
any
means
or
instrumentality
of
interstate
commerce,
or
of
the
mails,
or
of
any
facility
of
any
national
securities
exchange,
directly
or
indirectly,
knowingly
or
recklessly:
(a)
employed
devices,
sch
emes
or artifices
to
defraud
; (b)
made
untrue
statements
of
material
fact
or
omitted
to
state
material
facts
necessary
in
order
to
make
statements
made,
in
light
of
the
circumstances
under
which
they
were
made,
not
misleading;
and/or
(c)
engaged
in
acts,
practices,
or
courses
of
business
which
operated
or
would
have
operated
as
a fraud
or
deceit
upon
persons.
58.
By
virtue
of
the
foregoing
, Bershan
and
Margulies
, directly
or
indirectly,
violated
and,
unless
enjoined,
will
again
violate,
Section
lO(b)
of
the
Exchange
Act
[15
U.S.C.
§ 78j(b)],
and
Rule
lOb-5
thereunder
[17
C.F.R.
§ 240.lOb-5].
FOURTH
CLAIM
FOR
RELIEF
(Violations
of
Section
lO(b)
of
the
Exchange
Act
and
Rule
10b-5(a)
and
(c))
(Against
Schwartz)
59.
The
Commission
realleges
and
incorporates
by
reference
herein
each
and
every
allegation
contained
in
paragraphs
1 through
49
of
this
Complaint.
60.
By
virtue
of
the
foregoing,
Schwartz
, in
connection with
the
purchase
or
sale
of
securities,
by
the
use
of
any
means
or
instrumentality
of
interstate
commerce
, or
of
the
mails,
or
of
any
facility
of
any
national
securities
exchange,
directly
or
indirectly,
knowingly
or
15

recklessly: employed devices, schemes or artifices to defraud; and/or engaged in acts, practices,
or courses
of business which operated or would have operated as a fraud or deceit upon persons.
61. By virtue
of the foregoing, Schwartz, directly or indirectly, violated and, unless
enjoined, will again violate, Section lO(b)
of the Exchange Act [15 U.S.C. § 78j(b)], and Rules
10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)].
PRAYER FOR RELIEF
WHEREFORE,
the Commission respectfully requests a Final Judgment:
I.
Permanently enjoining the Defendants from committing or otherwise engaging in conduct
that would make them liable for the violations
of the federal securities laws alleged in this
Complaint;
II.
Ordering the Defendants disgorge the ill-gotten gains they obtained as a result of the
violations alleged in this Complaint on a joint and several basis, and ordering them to pay
prejudgment interest thereon;
III.
Ordering the Defendants to pay civil monetary penalties pursuant to Section 20( d) of the
Securities Act
[15 U.S.C. § 77t] and Section 2l(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)];
and
16

IV.
Granting
such
other
and
further
relief
as
the
Court
may
deem
just
and
proper.
JURY
DEMAND
The
Commi
ssion demands
a trial
by
jury.
Dated:
New
York,
New
York
October
11,
2017
B
y:
Larahalov
Mehraban
Thomas
P.
Smith
Jr.
Richard
Hong
Cynthia
A.
Matthews
Attorney
for
Plaintiff
SECURITIES
AND
EXCHANGE
COMMISSION
Brookfield
Place,
200
Vesey
Street,
Room
400
New
York,
NY
10281-1022
(212)
336-0589
(Hong)
Email:
[email protected]
17

Lara Shalov Mehraban 
Thomas P. Smith Jr. 
Richard Hong 
Cynthia A. Matthews 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
New York Regional Office 
Brookfield Place 
200 Vesey Street, Room 400 
New York, NY 10281-1022 
(212) 336-0956 (Hong) 

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 

SECURITIES AND EXCHANGE COMMISSION, 

Plaintiff, 

-against-

LISA BERSHAN, BARRY B. SCHWARTZ, and 
JOEL J. MARGULIES, 

Defendants. 

COMPLAINT AND 

JURY DEMAND 

17 Civ. ( ) 

ECFCASE 

Plaintiff Securities and Exchange Commission ("Commission") alleges the following 

against Defendants Lisa Bershan ("Bershan"), Barry B. Schwartz ("Schwartz"), and Joel J. 

Margulies ("Margulies") (collectively, "Defendants"): 

SUMMARY OF ALLEGATIONS 

1. Beginning in approximately August 2015 through June 2017, Bershan, Schwartz, 

and Margulies, who controlled Starship Snacks, Corp. ("Starship"), orchestrated a fraudulent 

scheme, in which they conned more than 35 investors into investing over $2.2 million in 

Case 1:17-cv-07793 Document 1 Filed 10/11/17 Page 1 of 17 



Starship, a company that purportedly was developing and marketing a caffeinated chocolate 

snack. 

2. Bershan, the Chief Executive Officer ("CEO") and founder of Starship, and 

Margulies, a principal at the company, induced investments by making various material 

misrepresentations to investors. They promised, among other things, that Starship was 

developing and was ready to mass produce its own caffeinated snack; that Starship would soon 

be acquired, at first, by Monster Energy Company ("Monster"), and later The Coca Cola Co. 

("Coke"); and that investors would get a one-for-one share exchange of Starship shares for 

Monster or Coke shares. Bershan also personally guaranteed investors, with a "Share Price 

Guarantee," that they could redeem their entire investment plus 5% interest after 12 months, if 

the value of the purchased shares had not achieved a substantially higher capitalized value. 

Bershan and Margulies also represented to investors, in writing, that the investment had "no 

down-side risk." 

3. In reality, the Defendants knowingly, recklessly or negligently ran an investment 

scam. Contrary to the representations, Starship never developed or was ready to produce for 

mass production its own caffeinated snack. Nor was Starship ever in negotiations with either 

Monster or Coke to be acquired; in fact, the company did not have any business relationship with 

either entity. 

4. Moreover, Bershan's personal "Share Price Guarantee" was false and/or 

misleading. Investors were not able to recoup the "guaranteed" return of their investment plus 

interest at any time. Bershan and Schwartz (Bershan's husband) had misappropriated and 

dissipated investor funds, thro_ugh their withdrawal of over $1 million in cash and their use of the 

2 

Case 1:17-cv-07793 Document 1 Filed 10/11/17 Page 2 of 17 



remainder to maintain an extravagant lifestyle. In short, investors in Starship did not get what 

Defendants had promised them and they lost their money. 

5. Indeed, when investors began to question the timing of the acquisition and to ask 

for financial documentation, the Defendants sought to conceal the fraudulent scheme with more 

lies. They continued to misrepresent to investors that negotiations with Monster and Coke were 

ongoing and that an acquisition by either Monster or Coke was imminent. Further, they lied by 

saying that they were prohibited by nondisclosure agreements from giving investors any specific 

information, financial or otherwise, about the deal. 

6. By virtue of the conduct alleged herein, Bershan and Margulies, directly or 

indirectly, singly or in concert, knowingly, recklessly, or negligently have engaged in fraudulent 

conduct in violation of: 

a. Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 
77q(a)]; and 

b. Section lO(b) of the Securities Exchange Act of 1934 (the "Exchange 
Act") [15 U.S.C. § 78j(b)], and Rule l0b-5 thereunder [17 C.F.R. § 
240.l0b-5]. 

7. In addition, by virtue of the conduct alleged herein, Schwartz, directly or 

indirectly, singly or in concert, knowingly, recklessly, or negligently has engaged in fraudulent 

conduct in violation of: 

a. Sections 17(a)(l) and (3) of the Securities Act [15 U.S.C. § 77q(a)]; and 

b. Section lO(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5(a) 
and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)]. 

8. For the foregoing violations, the Commission seeks a final judgment ordering the 

Defendants to disgorge their ill-gotten gains on a joint and several basis and to pay prejudgment 

interest thereon, and ordering the Defendants to pay civil money penalties pursuant to Section 

3 

Case 1:17-cv-07793 Document 1 Filed 10/11/17 Page 3 of 17 



20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 

U.S.C. § 78u(d)(3)]. 

9. Unless the Defendants are permanently restrained and enjoined, they will again 

engage in the acts, practices, transactions and courses of business set forth in this Complaint and 

in acts, practices, transactions and courses of business of similar type and object. 

JURISDICTION AND VENUE 

10. The Commission brings this action pursuant to the authority conferred upon it by 

Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and Section 21(d)(l) of the Exchange 

Act [15 U.S.C. § 78u(d)(l)]. 

11. This Court has jurisdiction over this action pursuant to Section 22(a) of the 

Securities Act [15 U.S.C. § 77v(a)] and Sections 2l(e) and 27 of the Exchange Act [15 U.S.C. §§ 

78u(e) and 78aa]. 

12. Venue lies in this District pursuant to Section 22(a) of the Securities Act [15 

U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. Certain of the acts, 

practices, transactions, and courses of business alleged in this Complaint occurred within the 

Southern District of New York. Among other things, venue lies in this District because Bershan 

and Schwartz opened bank accounts in the name of Starship in this District, and, according to the 

bank account records, investor funds were wired to accounts with addresses in this District. 

13. Certain of the acts, practices, transactions, and courses of business alleged in this 

Complaint were effected, directly or indirectly, by making use of the means, instruments, or 

instrumentalities of transportation or communication in interstate commerce, or of the mails, or 

the facilities of a national securities exchange. 

4 

Case 1:17-cv-07793 Document 1 Filed 10/11/17 Page 4 of 17 



DEFENDANTS 

14. Bershan, age 60, resides in San Diego, California. Bershan is the CEO and 

founder of Starship. She participated in all aspects of the fraudulent scheme alleged herein. 

Before forming Starship, Bershan was the President, Secretary and Director of All American Pet 

Company, Inc. ("AAPC"). Bershan is not and has never been registered with the Commission in 

any capacity and holds no securities licenses. 

15. Schwartz, age 71, resides in San Diego, California. He is the husband of Bershan 

and is affiliated with Starship. While involved with the fraudulent scheme from the outset, 

Schwartz became a primary contact for investors after the purported termination of Margulies 

from Starship in or around October 2016. Before becoming involved with Starship, Schwartz 

was the CEO and Chairman of the Board of AAPC. Pursuant to a November 2014 order by the 

State of California - Department of Business Oversight, All American Pet Company, Inc. 

("AAPC") and Schwartz were ordered to desist and refrain from offering the securities of AAPC, 

because they offered the securities in an offering that failed to qualify for an exemption under 

Reg. D and the offering documents falsely represented that the exemption had been satisfied. 

Schwartz is not and has never been registered with the Commission in any capacity and holds no 

securities licenses. 

16. Margulies, 72, resides in Murfreesboro, Tennessee. He acted and held himself 

out as a principal of Starship, until he was purportedly terminated by Starship in or around 

October 2016. Margulies was the primary source of contact for investors, whether by email or 

phone. Margulies is not and has never been registered with the Commission in any capacity and 

holds no securities licenses. 

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RELEVANT ENTITIES 

17. Starship is a Delaware corporation, with its principal place of business in New 

York, New York. Starship, a privately-held company, was formed in or around August 2015 and 

incorporated in October 2015 . Its predecessor company was The Awake Co. ("Awake"), a 

Nevada corporation, with its principal place of business in Beverly Hills, California. In or 

around May 2016, investors exchanged their Awake shares for Starship shares. Unless otherwise 

noted, references to Starship herein include the predecessor Awake. Starship purports to be a 

manufacturer, marketer and distributor of a chocolate caffeinated snack. 

18. AAPC was a Nevada corporation with its principal place of business in Los 

Angeles, California. AAPC purported to develop, manufacture and market packaged products 

for dogs. As discussed above, AAPC was the subject of a State of California - Department of 

Business Oversight Cease and Desist Order. 

DEFENDANTS' FRAUDULENT CONDUCT 

How the Fraudulent Scheme Began 

19. In the wake of their prior business failures, most notably AAPC, the Defendants 

started their new private company, Starship, in and around May 2015, as a vehicle for their 

fraudulent scheme. 

20. Between May 2015 and August 2015, Bershan and Margulies discussed with an 

investor who had invested in AAPC (the "AAPC Investor") an opportunity to recoup his losses 

by investing in Starship. To induce his investment, they knowingly, recklessly, or negligently 

misrepresented that Starship was in negotiations to be acquired by or partner with Monster, the 

energy drink manufacturer. They explained that Monster was interested in Starship's caffeinated 

snacks and that Coke, having recently acquired a portion of Monster, was looking for a product 

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with which to compete with Pepsi in the snack business. 

21. In and around August 2015, Bershan and Margulies provided the AAPC Investor 

with offering documents, including a term sheet, describing the offering of securities, and which 

included Bershan's personal guarantee that protected investors from "any downside loss of 

principal." Specifically, Bershan provided the AAPC Investor with a written "Share Price 

Guarantee" in which she personally agreed to buy back the shares purchased, at the original 

"discounted" purchase price of $3 .00 per share, if, on the one-year anniversary of the investment, 

the purchased shares had not achieved a capitalized value of $23.00 to $25.00 per share. In 

addition, pursuant to the personal guarantee, Bershan agreed to pay the AAPS Investor 5% 

interest and to make both payments within 10 working days of the investor's redemption request. 

Bershan and Margulies also represented in an email that, because of the personal guarantee, the 

investment had "no down-side risk." 

22. In addition, Bershan and Margulies presented to the AAPC Investor the Starship 

term sheet, which set the purchase price at $5 .00 per share, but offered a discount price of $3 .00 

per share, and promised (i) annual financial statements and "narrative update reports from 

Company management" to all investors; (ii) quarterly financial and narrative update reports from 

management; and (iii) inspection rights to "Major Investors" who invested at least $25,000. 

23. Based on the foregoing material representations, the AAPC Investor invested 

$25,000 in Starship on or about August 21, 2015. 

24. Also, in or around August 2015, Bershan advised the AAPC Investor that Starship 

needed an additional $200,000 for start-up costs and asked the investor to share the Starship 

investment opportunity with friends and family. At Bershan's and Margulies' urging, the AAPC 

Investor shared Margulies' and Bershan's representations regarding Starship to his family and 

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friends, several of whom spoke with Bershan and/or Margulies to confirm the information before 

investing. 

25 . Bershan and/or Margulies also falsely represented to at least two investors that 

Starship had a contract with an Argentinian candy manufacturer, and with the US Army, 7-11 

stores, and miscellaneous book stores for distribution. 

26. In reality, Starship never developed or was ready to mass produce its own 

caffeinated snack. Nor was Starship ever in negotiations with either Monster or Coke to be 

acquired or to partner; in truth, the company did not have any business relationship with either 

entity. Also, Bershan's personal "Share Price Guarantee" was false and/or misleading as she 

knew, recklessly disregarded or should have known. Investors were not able to recover the 

"guaranteed" return of their investment plus interest at any time, as investor funds had been 

misappropriated and dissipated by Bershan and Schwartz. Finally, despite the Starship term 

sheet's representations that Starship would provide Major Investors with quarterly financial 

reports and all investors with annual financial statements, the Defendants never provided 

investors financial information of any kind, despite numerous requests. 

27. These misrepresentations were material because they provided information that 

was important to investors in deciding whether to invest in Starship, and they provided investors 

with (false) confidence that Starship was a legitimate business with serious business prospects 

and worthy of investment. 

28. By September 15, 2015, Bershan represented to the AAPC Investor that Starship 

had reached its $200,000 seed goal. 

How the Fraudulent Scheme Expanded 

29. On or about October 17, 2015, Margulies and Bershan represented to certain 

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investors that Starship had signed a deal with Monster providing for a one-for-one share 

exchange of Starship shares for Monster shares. When making that representation, Margulies 

and Bershan knew, recklessly disregarded, or should have known that that representation was 

false as Starship had no such deal, or any kind of deal with Monster. Investors were provided 

with a limited 10 business day window to add to their investment in Starship. 

30. Through this material misrepresentation, Margulies and Bershan were able to 

solicit investments from new investors, and additional investments from existing investors. 

From October 18, 2015 to October 3, 2016, Margulies and Bershan raised $1,769,430 from at 

least 30 investors. 

31. Bershan and Margulies communicated with individual investors, confirming to 

them that the Starship and Monster transaction was imminent when they knew, recklessly 

disregarded or should have known that their representations were false. 

32. Margulies also instructed investors to write checks or wire funds initially to an 

account affiliated with AAPC, for which he was listed as the owner, and later to an account in 

Starship's name. Further, Margulies co-signed the cover letter for the offering documents, which 

described and repeated Bershan's personal guarantee, and provided the AAPC Investor with the 

Starship term sheet and other offering documents to distribute to at least two other investors 

(who invested on or about August 27, 2015 and August 28, 2015). 

33. Through mid-October of 2016, Bershan and Margulies continued to solicit 

investors with the misrepresentations discussed above. They obtained more than $2.2 million 

from over 35 investors. In an August 15, 2016 email to an investor, for example, Margulies 

falsely stated that " .. . the remaining [Starship] shares, which are very limited - will be acquired 

by Monster if not sold to our circle [ of] friends and family." When making that statement, 

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Margulies knew, recklessly disregarded, or should have known, that that statement was false as 

there was no basis to claim Starship shares would be acquired by Monster. 

How the Fraudulent Scheme Was Perpetuated 

34. Schwartz and Margulies extended the scheme through June 2017, by assuring 

investors that the Monster/Coke deal was imminent and that they could redeem their investments 

plus interest in accordance with the Bershan personal guarantee. 

35. On a few occasions when Bershan and Margulies, or Schwartz, sent any form of 

investor update, it contained a false assurance that the investments were secure, offered an 

excuse for the delay, and/or claimed that a Monster or Coke deal was imminent. 

36. For example, in November 2015, Margulies wrote to investors: "We want to 

assure you that your investment is secure. The [Starship] shares you purchased will be 

exchanged one for one as promised .... The deal is on and your shares will be issued shortly." 

Yet in the same email, Margulies notified investors that the company would need to change its 

name (purportedly due to trademark issues) and anticipated that this change could cause a six 

week and possibly longer delay. In January 2016, Margulies notified investors that share 

certificates had been issued incorrectly, purportedly requiring reissuance and an additional week­

long delay. And in a November 15, 2016 email to an investor, in response to the investor's 

concern that the deal was "basically dead," Schwartz wrote: "this is not dead at all" and in a 

second email to the investor on the same day reiterated, "Our [Monster] deal is far from dead." 

When making these statements to investors, Margulies and Schwartz knew, recklessly 

disregarded or should have known that their statements were false. 

37. Investors called and emailed Bershan, Schwartz and Margulies on numerous 

occasions for specific information as to when the Monster deal would be finalized and for 

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financial documentation, only to be ignored or chided for making the inquiries, but never 

provided with the information they sought. For example, in an August 11, 2016 email to an 

investor, Margulies claimed that he could not provide an update, as "sharing that information 

would be material info1mation and considered insider trading." 

38. When Bershan, Schwartz or Margulies did respond, they falsely claimed they 

were unable to provide investors with such information because it was confidential, and/or that 

they were subject to non-disclosure agreements ("NDAs") that Starship had signed with Monster 

and/or Coke. For example, Margulies wrote in an August 21, 2015 email to an investor: "I 

understand that you and your associates would like more information, but we are under strict 

NDA's .... This is secret stuff." In reality, no such agreements existed. When making these 

statements to investors, Margulies and Schwartz knew, recklessly disregarded or should have 

known that their statements were false. 

39. In or around October 2016, Schwartz took responsibility for communication with 

investors, when he advised investors that Margulies had been terminated. 

40. Shortly thereafter, Schwartz held an investor conference call, in which he 

informed investors that there had never been a deal for Monster to acquire Starship. On the call, 

Schwartz falsely claimed that Bershan was seeking a packaging and distribution partner for 

Starship, and that she was in negotiations with both Monster and Coke. Schwartz said that both 

companies were competing for a deal with Starship, that they had already agreed to most parts of 

the deal, and that Bershan would take the better deal. When making these statements to 

investors, Schwartz knew, recklessly disregarded or should have known that his statements were 

false. 

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41. On the conference call and in other communications with investors, Schwartz 

blamed Margulies for any confusion investors might be feeling and claimed he would honor 

investors' rights to terminate their investment under Bershan's personal guarantee. In the same 

conference call, Schwartz advised investors to hold onto their shares, assuring them that the deal 

would yield a far greater return than Bershan's personal guarantee. 

42. These statements were false. Schwartz knew, recklessly disregarded or should 

have known that there was no deal (imminent or otherwise) with Monster; and there were no 

funds to support Bershan's personal guarantee. In fact, when investors subsequently sought to 

redeem their shares under the guarantee, they were unable to do so. 

How Investor Funds Were Misappropriated 

43. Over the course of the fraudulent scheme, Bershan, Schwartz, and Margulies took 

in at least $2.2 million in investor funds. 

44. While Margulies was listed as an owner on the initial bank account Starship used, 

Bershan and Schwartz were the authorized signatories on that account and the subsequent 

Starship bank accounts. They had control over the accounts and access to the account 

information. 

45. Bershan and Schwartz knowingly, recklessly, or negligently used these accounts 

as their own personal piggy bank; withdrawing cash regularly from the Starship accounts to 

spend on personal, non-business expenses. Between August 2015 and October 2016, they 

withdrew over $1 million in cash, and, in addition, spent over $280,000 to rent a Manhattan 

apartment over an 11-month period, over $150,000 on retail purchases, over $140,000 in travel 

and restaurant expenses, almost $85,000 in medical and pharmaceutical costs and over $40,000 

on interior decorating expenses. The remainder of the investors' funds was dissipated on non-

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Starship expenses. 

46. Bershan and/or Schwartz also transferred investor funds among Starship bank 

accounts and commingled Schwartz's social security payments with investor funds. On several 

occasions, Bershan and/or Schwartz withdrew investor money in cash on the same day it was 

deposited. 

47. Further, Bershan and Schwartz transferred money from the Starship account to 

another account they controlled in the name of a third company, and withdrew cash or spent the 

investor funds deposited therein on their personal, non-business expenses. On more than one 

occasion, when an investor wired their investment to, or deposited it in, the Starship account, 

Bershan and/or Schwartz withdrew it immediately thereafter. 

48. Margulies knowingly, recklessly, or negligently arranged for proceeds of the 

fraudulent scheme to be used for non-business related items. He assisted Bershan on a high-end 

interior decorating project that she paid for with investor funds. Margulies received over 

$50,000 of the investor funds raised. 

49. By October 2016, the Defendants had spent all investor funds. 

FIRST CLAIM FOR RELIEF 

(Violations of Section 17(a) of the Securities Act) 
(Against Bershan and Margulies) 

50. The Commission realleges and incorporates by reference herein each and every 

allegation contained in paragraphs 1 through 49 of this Complaint. 

51. By virtue of the foregoing, in the offer or sale of securities, by the use of any 

means or instruments of transportation or communication in interstate commerce, or of the mails, 

directly or indirectly, Bershan and Margulies knowingly, recklessly or negligently: (a) employed 

devices, schemes or artifices to defraud; (b) obtained money or property by means of an untrue 

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statement of a material fact or omitted to state a material fact necessary in order to make 

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

and/or (c) engaged in transactions, acts, practices and courses of business which would operate 

as a fraud or deceit upon the purchaser. 

52. By reason of the conduct described above, Bershan and Margulies, directly or 

indirectly violated and, unless enjoined, will again violate, Section 17(a) of the Securities Act 

[15 U.S.C. § 77q(a)]. 

SECOND CLAIM FOR RELIEF 

(Violations of Section l 7(a)(l) and (3) of the Securities Act) 
(Against Schwartz) 

53. The Commission realleges and incorporates by reference herein each and every 

allegation contained in paragraphs 1 through 49 of this Complaint. 

54. By virtue of the foregoing, in the offer or sale of securities, by the use of any 

means or instruments of transportation or communication in interstate commerce, or of the mails, 

directly or indirectly, Schwartz knowingly, recklessly or negligently: employed devices, schemes 

or artifices to defraud; and/or engaged in transactions, acts, practices and courses of business 

which would operate as a fraud or deceit upon the purchaser. 

55. By reason of the conduct described above, Schwartz, directly or indirectly 

violated and, unless enjoined, will again violate, Sections 17(a)(l) and (3) of the Securities Act 

[15 U.S.C. § 77q(a)(l) and (3)]. 

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THIRD CLAIM FOR RELIEF 

(Violations of Section lO(b) of the Exchange Act and Rule lOb-5) 
(Against Bershan and Margulies) 

56. The Commission realleges and incorporates by reference herein each and every 

allegation contained in paragraphs 1 through 49 of this Complaint. 

57. By virtue of the foregoing, Bershan and Margulies, in connection with the 

purchase or sale of securities, by the use of any means or instrumentality of interstate commerce, 

or of the mails, or of any facility of any national securities exchange, directly or indirectly, 

knowingly or recklessly: (a) employed devices, schemes or artifices to defraud; (b) made untrue 

statements of material fact or omitted to state material facts necessary in order to make 

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

and/or (c) engaged in acts, practices, or courses of business which operated or would have 

operated as a fraud or deceit upon persons. 

58. By virtue of the foregoing, Bershan and Margulies, directly or indirectly, violated 

and, unless enjoined, will again violate, Section lO(b) of the Exchange Act [15 U.S.C. § 78j(b)], 

and Rule lOb-5 thereunder [17 C.F.R. § 240.lOb-5]. 

FOURTH CLAIM FOR RELIEF 

(Violations of Section lO(b) of the Exchange Act and Rule 10b-5(a) and (c)) 
(Against Schwartz) 

59. The Commission realleges and incorporates by reference herein each and every 

allegation contained in paragraphs 1 through 49 of this Complaint. 

60. By virtue of the foregoing, Schwartz, in connection with the purchase or sale of 

securities, by the use of any means or instrumentality of interstate commerce, or of the mails, or 

of any facility of any national securities exchange, directly or indirectly, knowingly or 

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recklessly: employed devices, schemes or artifices to defraud; and/or engaged in acts, practices, 

or courses of business which operated or would have operated as a fraud or deceit upon persons. 

61. By virtue of the foregoing, Schwartz, directly or indirectly, violated and, unless 

enjoined, will again violate, Section lO(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rules 

10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)]. 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests a Final Judgment: 

I. 

Permanently enjoining the Defendants from committing or otherwise engaging in conduct 

that would make them liable for the violations of the federal securities laws alleged in this 

Complaint; 

II. 

Ordering the Defendants disgorge the ill-gotten gains they obtained as a result of the 

violations alleged in this Complaint on a joint and several basis, and ordering them to pay 

prejudgment interest thereon; 

III. 

Ordering the Defendants to pay civil monetary penalties pursuant to Section 20( d) of the 

Securities Act [15 U.S.C. § 77t] and Section 2l(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)]; 

and 

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IV. 

Granting such other and further relief as the Court may deem just and proper. 

JURY DEMAND 

The Commission demands a trial by jury. 

Dated: New York, New York 
October 11, 2017 

By: 
Larahalov Mehraban 
Thomas P. Smith Jr. 
Richard Hong 
Cynthia A. Matthews 
Attorney for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
Brookfield Place, 200 Vesey Street, Room 400 
New York, NY 10281-1022 
(212) 336-0589 (Hong) 
Email: [email protected] 

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