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FC: Feds arrest "family friendly" ISP execs on $4M fraud charges
From: Declan McCullagh <declan () well com>
Date: Tue, 13 Mar 2001 11:33:26 -0500
[What is it about these filtering companies? Since I started writing about them in 1996, (1) I've been threatened with FBI prosecution by CyberSitter's Brian Milburn, along with my co-author Brock Meeks (2) Attacked via civil suit by another company for exposing a portion of its blacklist (3) Sent a subpoena by CyberPatrol's lawyers for writing an article about how it censored alt.journalism newsgroups and more (http://www.politechbot.com/cyberpatrol/). Certainly not all executives at filtering companies act like that -- NetNanny is a rare exception -- but it seems like too many act less like upstanding Net-citizens and more like Sanford Wallace. --Declan] --- http://www.newsbytes.com/news/01/163038.html Web Filtering Firm Execs Arrested For Wire, Stock Fraud By Brian Krebs, Newsbytes WASHINGTON, DC, U.S.A., 12 Mar 2001, 1:23 PM CST Internet content filtering company Families On Line was hit with a double whammy on Friday by securities regulators and federal authorities, who charged the South Florida company with wire and bank fraud, and allegedly defrauding investors of nearly $4 million. Following an indictment handed down last Friday by the US Attorney's Office for the Southern District of Florida, Families On Line executives Mark Cecil Thurman, 42, and Robert Fiene, 30, were arrested for raising $3.7 million from 410 individual investors in a fraudulent stock offering. According to the US Attorney's Office, Thurman and Fiene spent half of the money for their own personal uses, including $5,000 on a Hawaiian vacation and another $5,000 of investor funds at adult novelty and drug paraphernalia stores. The two also reportedly bought other luxury items, including a motorcycle, a new BMW, and posh living quarters in South Florida. [...] http://www.sec.gov/litigation/litreleases/lr16930.htm SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 16930 / March 9, 2001 SEC SUES INTERNET COMPANY AND TWO OFFICERS FOR OFFERING FRAUD TARGETING FUNDAMENTALIST CHRISTIANS. U.S. ATTORNEY'S OFFICE SIMULTANEOUSLY UNSEALS INDICTMENTS AGAINST THE TWO OFFICERS FOR SECURITIES FRAUD. SECURITIES AND EXCHANGE COMMISSION V. FAMILIES ON LINE CORPORATION, MARK C. THURMAN, AND ROBERT D. FIENE, Case No. 01-6369-CIV-LENARD (S.D. Fla., filed March 9, 2001) The Securities and Exchange Commission (SEC) announced that on March 9, 2001, it filed a complaint against a company and two individual defendants for allegedly fraudulently raising $3.9 million in an unregistered securities offering. The SEC's complaint alleges that Families On Line Corp. (FOL), Mark Thurman, and Robert Fiene conducted an affinity fraud designed to raise money from fundamentalist Christian investors. Along with its complaint, the SEC sought and obtained an asset freeze against FOL, Thurman, and Fiene. At the same time, the United States Attorney's Office for the Southern District of Florida announced that it had indicted the two individuals sued by the SEC for securities fraud and other criminal conduct. According to the SEC's complaint, FOL is a Ft. Lauderdale, Florida based company that purports to offer subscribers "filtered" access to the Internet. FOL claims that its subscribers receive access to the Internet in a manner that filters out content involving, among other things, sexual or violent material or gambling. FOL, through Thurman and Fiene, raised $3.9 million from approximately 410 investors during the period from about July 1999 through December 2000, through unregistered sales of FOL stock and warrants. During that period, Thurman was FOL's Chief Executive Officer and Fiene was the company's Chief Operating Officer. Both Thurman and Fiene reside in Ft. Lauderdale. The SEC's complaint alleges that the defendants used false and misleading information in FOL's private placement memoranda and on FOL's Internet web site to raise investor funds. Among other things, the SEC's complaint alleges that * FOL falsely claimed that it was affiliated with the Trinity Broadcasting Network (TBN) and provided investors with a purported letter from the President of TBN stating that TBN was committed to helping FOL build its customer base and had over 322,000 "signed requests" by people willing to switch to FOL. In fact, FOL had no affiliation with TBN and the letter was a forgery. * FOL distributed a prospectus and business plan to prospective investors stating that it expected "a first year customer base in excess of 2.5 million subscribers which will realize in excess of $330 million dollars in revenue," projecting that it would earn in excess of $120 million in net profits in its first year of operation, and that its "accumulated five year earnings" would exceed $1 billion. These projections were baseless - in fact, FOL's subscriber base never exceeded 150 users. * FOL falsely told investors that FOL had selected Dean Witter as the lead underwriter for an initial public offering (IPO), that investors could sell up to 50% of their FOL shares at the purported $158.50 per share offering price, that FOL had filed applications with the SEC for approval of its purported IPO and, later, that the SEC had "conditionally approved" that application. According to the SEC, each of these claims was an outright lie. * FOL told investors that their funds would be used for the company's business. In fact, however, Thurman and Fiene have taken at least $1.8 million in investor funds for their own use. Among other things, the SEC's complaint alleges that Thurman and Fiene used a debit card linked to FOL's bank account to pay for items from adult novelty and drug paraphernalia stores, and they used investor funds to purchase boating lessons, a BMW automobile, a custom motorcycle, and jewelry, and to pay for their household and living expenses and to retain a criminal attorney to represent them in matters unrelated to FOL. * FOL's offering materials misleadingly tout the background and experience of FOL's "co-founders," Thurman and Fiene. The offering materials describe Thurman as having a professional background in "banking, accounting, and finance related matters" combined with "proven marketing and management abilities." Thurman's resume, included in FOL's business plan, also touted Thurman as a religious leader and author. The offering materials state that Fiene's professional background includes "construction, management, and mortgage brokering" coupled with "extensive marketing skills." The offering materials fail to disclose, however, that Thurman and Fiene are convicted felons. Upon the SEC's motion, the Honorable Joan Lenard of the United States District Court of the Southern District of Florida entered an order freezing the assets of all of the named defendants. The SEC's complaint charges all of the defendants with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 [15 U.S.C. §§ 77e(a), 77e(c) and 77q] and Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 240.10b-5]. Those sections and rules prohibit certain transactions in securities not registered with the Commission and prohibit fraud in the offer and sale, and in connection with the purchase and sale, of securities. Investors are advised to read the SEC's "Affinity Fraud" Investor Alert and the SEC's "Pump&Dump.con" Investor Alert, which provide tips on how to avoid being a victim in an affinity fraud or Internet fraud. These and other investor alerts can be found on the SEC's web site, at www.sec.gov. The SEC appreciates the cooperative efforts of the United States Attorney's Office for the Southern District of Florida and the Federal Bureau of Investigation in this coordinated action. http://www.sec.gov/litigation/litreleases/lr16930.htm _________________________________________________________________ ------------------------------------------------------------------------- POLITECH -- Declan McCullagh's politics and technology mailing list You may redistribute this message freely if it remains intact. 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- FC: Feds arrest "family friendly" ISP execs on $4M fraud charges Declan McCullagh (Mar 13)