FC: Feds arrest "family friendly" ISP execs on $4M fraud charges

[Declan McCullagh <declan () well com>]

[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
     _________________________________________________________________




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