DD Support Board and Research Team

[scion]

54. Third, the Defendants retained attorneys to draft opinion letters stating that the transfer agents could issue the penny stock certificates without a restrictive legend, enabling an immediate resale to the public. The premise of these letters was incorrect, as discussed below, for a variety of reasons. Most of all, neither the Defendants nor the transactions had any connection to Minnesota, Texas, or Delaware. Moreover, the state law exemptions that the Defendants relied upon did not satisfy the requirements of Rule 504(b )(1 )(iii) and, with respect to Texas, the Defendants failed even to satisfy the Texas rules.

55. The opinion letters were based on the Defendants' false representations, which were reiterated from the subscription agreements. Specifically, the subscription agreements misstated that the purchaser had investment intent, would not use the shares in a distribution and, often, misstated the nominal purchaser's nexus to the state. For example, an attorney stated in an August 2008 opinion letter for Rio Sterling's purchase of 10 million shares pursuant to Rule 504(b)(1 )(iii) and Texas state law that: Rio Sterling will "not use the shares in a distribution," has "investment intent," has its "principal place of business .. . within the State of Texas and has business interests [other than this offering August 2008 opinion letter for Rio Sterling's purchase of 10 million shares pursuant to Rule 504(b)(1 )(iii) and Texas state law that: Rio Sterling will "not use the shares in a distribution," has "investment intent," has its "principal place of business .. . within the State ofTexas and has business interests [other than this offering] within the State ofTexas." All of these representations were false.

56. The attorney opinion letters were also misleading because they portrayed Perlinda and other entity Defendants as based in whatever state suited the transaction at hand. As an example, within a two-week period in 2007, and for the purpose of acquiring stock from various Penny Stock Companies, Manis and his attorney described Perlinda as "an accredited New York investor;" Garber signed a subscription agreement describing Perlinda as "an entity formed pursuant to the laws of Minnesota and maintain[ing] its principal place of business within the state of Minnesota;" an attorney opinion letter described Perlinda as a shareholder "formed or incorporated pursuant to the laws of the State of Minnesota with its principal place of business in the State of Minnesota;" and another attorney opinion letter from the same attorney described Perlinda as a shareholder "formed or incorporated pursuant to the laws of the State of Texas with its principal
place of business in the State of Texas."

57. The Defendants knew that the opinion letters were provided to transfer agents in order to obtain un-legended stock certificates. (The Penny Stock Companies used transfer agents to, among other things, handle the issuance of stock certificates.) The Defendants also knew, or recklessly disregarded, that statements in the opinion letters were false when made.

58. Fourth, the Defendants caused the opinion letters to be submitted to the transfer agents in order to obtain unregistered shares. After reviewing the attorney opinion letters, which falsely stated that Rule 504(b )( l )(iii) was satisfied, the transfer agents issued stock certificates
without restrictive legends, in the names of the nominal purchasing entity Defendants. In almost every instance, the shares were delivered to the individual Defendants at their homes or offices, or to their brokerage firms in New York or New Jersey, regardless ofthe supposed principal address of the nominal purchasing entity in Texas, Minnesota or Delaware.

59. Fifth, the Defendants frequently deposited the stock certificates into numerous brokerage accounts in the names of the New York entities OGP, Azure, Leonidas, Spartan and Perlinda.

60. These brokerage accounts were often in the name of a different entity than the one listed on the stock certificate (and named in the subscription agreement). For example, on more than 100 occasions, the subscription agreement was signed by Perlinda (at least 75 times in its guise as a Minnesota entity and at least 25 times in its guise as a Texas entity) and the shares were issued to Perlinda. On these occasions, the Defendants did not deposit Perlinda' s stock certificates into a Perlinda brokerage account or even into the account of a Minnesota or Texas entity. In nearly every instance, the shares issued to Perlinda were deposited directly into Azure's and Leonidas's accounts, both of which are New York corporations with no connection to Minnesota or Texas, not even a mail drop.

Extract -
SEC Complaint
http://www.sec.gov/litigation/complaints/2012/comp-pr2012-278.pdf