Vitamin Spice (fka VTMS)

[JoeySwims]

SEC Violations in Amended Complaint

Pursuant to the Court’s Order of September 20, 2012, Fed. R. Civ. P. 8, 12, 13, 18, and
20, and other governing rules and case law, Defendants, EDWARD BUKSTEL (“Bukstel”) and
VITAMINSPICE, INC. (“VitaminSpice”), by and through their attorneys, and for their Amended
Counterclaims and Third-Party Complaint against Counter-Defendants Advanced Multilevel
Concepts, Inc. (“Advanced”), Able Direct Marketing, Inc. (“Able”), Esthetics World, Inc.
(“Esthetics”), and Third Party Defendant Jehu Hand (“Hand”), hereby allege as follows:
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SUMMARY OF CASE
These Counterclaims and Third-Party Claims are based on a stock-manipulation scheme
developed, implemented and orchestrated by VitaminSpice’s former counsel Hand through the
use of his shell companies including Counter-Defendants. After engineering the reverse merger
that created VitaminSpice, Hand seized control over much of the float of VitaminSpice freetrading
shares by making false statements in violation of established securities laws and SEC
rules. At the same time, Hand took actions to prevent Bukstel and legitimate VitaminSpice
shareholders from trading their shares.
After locking up a substantial part of the float of VitaminSpice stock, Hand engaged in
manipulative trading practices and embarked upon a pump-and-dump scheme based on false
statements that artificially inflated the price of VitaminSpice stock. Then Hand dumped the stock
and crashed its price to levels from which it has never recovered, causing substantial damage to
Bukstel and other VitaminSpice shareholders.
Hand’s misconduct violates numerous laws, as well as established fiduciary duties that
preclude such self-serving and unlawful profiteering at the expense of clients and their
shareholders. This Court should hold Hand liable for all of those illegalities, and preserve the
integrity of the securities laws that Hand believes he can flout at will.
JURISDICTION AND VENUE
1. Bukstel is a Pennsylvania citizen with his residence and domicile in the State of
Pennsylvania. Bukstel has been a VitaminSpice shareholder since its inception on September 28,
2009, when he acquired 42 million shares, which he has held from that date to the present.
2. VitaminSpice is a Wyoming corporation with its principal place of business in the
State of Pennsylvania.
3. Hand is a California citizen with his residence and domicile in the State of
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California.
4. Advanced is a Nevada corporation with its principal place of business in the State
of Nevada. Advanced is Hand’s alter-ego, as alleged further below, and uses Hand’s California
address as an office.
5. Able is a Wyoming corporation with its principal place of business in the State of
Wyoming. Able is Hand’s alter-ego, as alleged further below, and uses Hand’s California address
as an office.
6. Esthetics is a Wyoming corporation with its principal place of business in the State
of Wyoming. Esthetics is Hand’s alter-ego, as alleged further below, and uses Hand’s California
address as an office.
7. International is a California corporation with its principal place of business in the
State of California. International is Hand’s alter-ego, as alleged further below, and uses Hand’s
California address as an office.
8. The Court has jurisdiction over these Counterclaims and Third-Party Claims
pursuant to 28 U.S.C. § 1331, in that this action arises under the laws of the United States. The
Court also has pendent and ancillary jurisdiction over these Counterclaims and Third-Party
Claims.
9. The Court has personal jurisdiction over Hand and Counter-Defendants, who have
engaged in continuous and systematic contacts with the State of Pennsylvania, have purposefully
availed themselves of the benefits and the laws and commerce of the State of Pennsylvania, and
have committed wrongful and tortious activities, including those giving rise to these
Counterclaims and Third-Party Claims, in the State of Pennsylvania. Hand and Counter-
Defendants also have consented to the jurisdiction of the State of Pennsylvania by filing a civil
action here.
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FACTUAL ALLEGATIONS
10. Hand is a California-based attorney. He became VitaminSpice’s counsel in June
2009. From the time of his engagement until his termination in July 2010, Hand represented
VitaminSpice in connection with all aspects of VitaminSpice’s operations.
11. In January 2010, Hand also became an officer in VitaminSpice. Hand served in
that capacity until his termination in July 2010.
12. Shortly after he became VitaminSpice’s corporate counsel, Hand developed and
engineered a plan to profit unlawfully from the sale of VitaminSpice stock through unlawful
conduct including: (a) seizing control over a substantial number of shares of VitaminSpice’s stock
issued to purported stockholders over which Hand exercised control; (b) making false statements
and concealing material information in order to seize and maintain his control over VitaminSpice
stock; and (c) implementing a pump-and-dump scheme to profit from the sale of VitaminSpice
stock by making false statements in press releases and elsewhere that artificially inflated the price
of VitaminSpice stock such that Hand was able to accomplish his scheme and profit therefrom.
Hand Engineered the VitaminSpice Reverse Merger To Seize Control Over Substantial
Amounts Of VitaminSpice Stock Held By Counter-Defendants And Others.
13. Hand’s plan involved acquiring VitaminSpice’s stock through the use of his shell
companies – Counter-Defendants – which Hand treated and used as his alter-egos. According to
Hand’s plan, Counter-Defendants would acquire large amounts of VitaminSpice’s stock through a
“reverse merger,” which is a frequently abused mechanism by which private companies are
merged into publicly traded shell companies. The purported “investors” in the publicly traded
shell company (debt holders and shareholders) then receive stock in the publicly traded merged
entity, often by issuing promissory notes rather than paying legitimate consideration. That
process allows those who control the “investors” to seize and exercise control over the ownership
and trading of the stock, which often increases in value. The “investors” (and those who control
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them) then control the outstanding shares (the “float”) of the stock, and use their control to their
financial benefit.
14. Hand specializes in reverse mergers and uses them to profit from stock acquired by
shell entities over which he exercises domination and control. Hand, however, does not disclose
that fact to others, and he did not disclose that fact to VitaminSpice or Bukstel when they hired
Hand as counsel or at any other time.
15. In September 2009, Hand proposed that VitaminSpice enter into a reverse merger
with a shell company owned by Hand’s brother, Jeremiah Learned Hand. That shell company
was called Qualsec, Inc., Symbol QLSC.OB (“Qualsec”).
16. While serving as VitaminSpice’s counsel, Hand convinced Bukstel and
VitaminSpice to proceed with the reverse merger. Hand did so in order to profit personally from
the deal. The reverse merger was completed on September 28, 2009.
Phase I of the Scheme: Hand Misrepresented And Concealed Material Facts In Order To
Seize Control Over VitaminSpice Stock.
17. The same day the reverse merger was completed, September 28, 2009, Hand was
working behind the scenes to implement a scheme in which he would control substantial shares of
VitaminSpice stock. Unbeknownst to VitaminSpice and Bukstel, Hand and his brother Jeremiah
Hand, who was the purported President (and sole officer and employee of) Qualsec, the public
shell with which VitaminSpice merged, executed a “Corporate Resolution” providing for “the
conversion” of purported “$130,0000 in promissory notes to Qualsec into 15,793,333 shares of
common stock, such shares to be issued free of any restrictive legend if so permitted by the legal
opinion of the Corporation’s legal counsel,” who was Hand. The “Corporate Resolution”
specifically resolved that Qualsec would convert these promissory notes into VitaminSpice shares
to be distributed as follows: William Wilkinson (3,644,613 shares), Doris Urueta Toro
(3,037,180), Bogdana Kovchuznaya (3,037,180 shares), Ekaterina Konushenko (3,037,180
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shares) and Esthetics World (3,037,180 shares).
18. This Corporate Resolution was false in two independent respects. First, there were
no true debts owed by these prospective shareholders to Qualsec. Instead, the “promissory
notes,” to the extent they existed at all, falsely stated that these prospective shareholders made
loans to Qualsec. They did not. Instead, Hand invented these promissory notes in order to
position Qualsec as a vehicle to undertake a reverse merger and dole out the resulting stock in the
names of persons and entities that he owned and/or controlled.
19. Second, the Corporate Resolution also was false in that these prospective
VitaminSpice shareholders were not legitimate. Instead, they were fronts for Hand – shell
companies that he incorporated and controlled, sometimes unilaterally, other times with the help
of relatives, friends or acquaintances such as his former driver in the Ukraine named Yuriy
Semenov, former spouses and/or girlfriends such as his former Russian spouses Bogdana
Kovchuznaya and Ekaterina Konushenko, and even fictional persons such as a purported person
named “William Wilkinson” who serves as the lone purported officer in many of Hand’s shell
companies. Hand, in fact, has created at least five Social Security numbers in the name of
Wilkinson, and has listed at least seven addresses for Wilkinson, including Hand’s office as well
as other addresses that Wilkinson shares with multiple of other shell companies that he controls.
Wilkinson, in fact, is the purported sole officer in a number of shell companies that own
VitaminSpice stock and are controlled entirely by Hand.
20. The same day on which Hand created the false Board Resolution, September 28,
2009, Hand sent an “Opinion Letter” to the transfer agent of VitaminSpice stock, Stalt, Inc.
(“Stalt”), stating falsely that VitaminSpice was not – and never was – a “shell company.” This
misrepresentation caused Stalt to immediately remove restrictive legends that created 15,793,333
free-trading VitaminSpice shares. If Hand would have told the truth, that the issuing company
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had been a “shell” previously, SEC Rule 144(i) would have required the shareholders to hold the
stock for one year prior to the removal of any restrictive legends. Neither VitaminSpice nor
Bukstel were aware of the false “Opinion Letter” to Stalt or Hand’s false statements therein.
21. Hand then seized control over those shares by having them transferred to himself
under the guise of transferring them to the purported shareholders who, as set forth above, were
fronts for Hand rather than legitimate shareholders with any claim to these shares.
22. Specifically, Hand’s false letter to Stalt enabled him to transfer VitaminSpice freetrading
shares to the following purported shareholders:
1. William Wilkinson 3,644.613 shares
2. Doris Urueta Toro 3,037,180 shares
3. Bogdana Kovchuznaya 3,037,180 shares
4. Ekaterina Konushenko 3,037,180 shares
5. Esthetics World 3,037,180 shares
23. Hand then ensured that all of the VitaminSpice shares issued in the name of these
purported shareholders went to him. Hand was the sole person communicating with Stalt, the
transfer agent, on behalf of these purported shareholders. In so doing, Hand misrepresented that
he was counsel for these persons and entities and, based upon that false representation of his
authority, Hand instructed Stalt to transfer all of the VitaminSpice shares to his law office. That
office, in fact, was the only address given by Hand for each and every one of these purported
shareholders.
24. Hand made other false statements to seize control over additional shares of
VitaminSpice stock. The same date on which he issued his “Opinion Letter,” September 28,
2009, Hand signed a “Seller’s Representation Letter” that released 1,783,334 shares with an
approximate value of $800,000.00. Hand signed the letter on behalf of a company called Duluth
Venture Capital Partners (“Duluth”), which was another shell company that Hand established and
controlled. In particular, Hand filed documentation with the California Secretary of State falsely
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stating that the sole officer of Duluth was “William Wilkinson” who, as set forth above, did not
exist.
25. Hand then moved the shares held by the five persons and entities set forth above,
so that they were held in the names of additional persons or entities over which he had ownership
and control. The stock held in the purported name of Ms. Ureta Toro, for example, was
transferred to the fictional Wilkinson (fabricated by Hand) and three separate entities in which the
fictional Wilkinson was the purported sole officer: Duluth Venture Capital Partners LLC
(“Duluth”), Qualsec Partners LLC (“Qualsec LLC”), and Tevarsis Corporation (“Tevarsis”). All
of these purported stockholders, which actually were Hand, used Hand’s addresses as their own,
and all of their VitaminSpice stock certificates were sent to those addresses, such that Hand had
total possession and control thereof. In fact, any certificates or other documents that were sent to
these purported stockholders at any other addresses, other than those of Hand, were returned as
undeliverable.
26. As of the end of September 2009, Hand controlled 21 million shares of
VitaminSpice stock, which constituted approximately 17.4% of the 121 million total shares issued
by VitaminSpice. The shares controlled by Hand were supposed to be restricted under SEC Rule
144(i). However, because of Hand’s misrepresentations to the transfer agent, referenced above,
all 21 million shares of Hand’s VitaminSpice stock were free-trading. VitaminSpice was
informed that there could be no more than 6 million free-trading shares in the public float. Hand,
therefore, controlled more than 15 million free-trading shares over the maximum permitted freetrading
shares, giving him control over the float of VitaminSpice stock, all because Hand evaded
Rule 144(i) by falsely informing the transfer agent that VitaminSpice was not – and never was – a
shell company.
27. On October 29, 2009, Hand signed another “Seller’s Representation Letter” (the
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“10/09 False Letter”) on the purported behalf of Duluth for the proposed sale of 1,633,334 shares
representing approximately $750,000 in value. As with the prior false letters, Hand again
misrepresented that the shares should be free trading without a restrictive legend because
VitaminSpice (including its predecessor Qualsec) was not, and never was, a “shell.”
28. Hand prepared and sent all of these false letters in order to gain control over
VitaminSpice stock and permit him to engage in his pump-and-dump scheme described below.
29. While Hand was making false statements that VitaminSpice never was a “shell
company,” which enabled him to secure free-trading shares in the name of his controlled persons
and entities, Hand used his role as VitaminSpice counsel to prevent the company from issuing
additional shares to legitimate investors (which would have reduced the float controlled by Hand.
30. For example, on March 24, 2010, Hand sent an email to Bukstel and the
VitaminSpice Board of Directors stating as follows: “Rule 144(i) (new rule) says that if the
company was a “shell” at any time in its history (as this company was for about two months prior
to the merger) …the restricted shares issued on the merger cannot use Rule 144 until 1 year after
the Form 10 … has been filed.” With this email and other similar communications, Hand
prevented legitimate VitaminSpice shareholders from trading their shares, while at the same time
Hand orchestrated his scheme to flood the market with free-trading shares issued in the name of
his shell companies, relatives, friends, and fictional persons.
31. Hand’s scheme continued through July 6, 2010, when Hand was terminated. Over
that entire timeframe, Hand increased his control over the free-trading shares of VitaminSpice
stock, using false statements to Stalt and other entities that VitaminSpice never was a shell
company (hence evading the restrictions of Rule 144(i) and persuading Stalt to issue unrestricted
shares). At the same time, Hand used his role as VitaminSpice counsel to instruct VitaminSpice’s
legitimate shareholders that they could not sell unrestricted shares given the mandates of Rule
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144(i). As he told those shareholders in yet another Opinion Letter, this one issued on June 7,
2010, directly contrary to what he was telling Stalt: “As previously discussed, the issuer was
formerly a ‘shell’ company as defined by Rule 144(i).”
32. In early July 2010, Bukstel became aware of Hand’s scheme, including his use of
shell companies and alter-egos to acquire and control VitaminSpice stock.
33. On or around July 6, 2010, as a result of this information, Bukstel terminated
Hand. Bukstel also informed the transfer agent, Stalt, Inc. (“Stalt”), about Hand’s improprieties
in connection with the stock owned by Counter-Defendants and others who received
VitaminSpice stock from Counter-Defendants through the efforts of Hand. For example, Bukstel
provided Stalt with documents showing Counter-Defendants’ bogus addresses, shareholders, and
officers, as well as additional documents (including forgeries by Hand) showing Hand’s control
over Counter-Defendants and their VitaminSpice stock.
34. Despite Bukstel’s efforts to stop Hand’s and Counter-Defendants’ wrongful and
unlawful transactions in VitaminSpice stock, Hand undertook efforts, and conspired and worked
with Stalt, to permit Counter-Defendants to continue trading VitaminSpice stock. Hand and Stalt
profited from those transactions. Hand concealed these facts from Bukstel and VitaminSpice,
which relied on the concealment in that they waited for Stalt to implement stop-hold orders on
Counter-Defendants’ transactions, expecting Stalt to act as an independent transfer agent rather
than work and conspire with Hand. Stalt, however, failed to implement the stop-hold orders, and
worked and conspired with Hand to permit Counter-Defendants to continue trading VitaminSpice
stock.
35. Hand undertook cover-up efforts to conceal the above-alleged wrongful conduct.
Those cover-up efforts including the forgery of documents, the shredding of documents, and the
destruction of evidence that would uncover his fraud and other misconduct.
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Hand’s and Counter-Defendants’ misconduct has had a substantial and detrimental impact on
VitaminSpice and its stock. After controlling the stock’s float to drive up the share price, Hand
and Counter-Defendants have sold the shares to reap the profits, leading to a substantial decrease
in the value and price of VitaminSpice stock.
Phase II of the Scheme: Hand Used Inside Information To Profit From Trading His
Improperly Controlled VitaminSpice Stock.
36. In early November 2009, Hand’s control over the float of VitaminSpice stock
increased exponentially. Hand seized control over large amounts of free-trading shares by using
false and forged documents. One such document consisted of a “Resolution” by the
VitaminSpice Board of Directors minutes stating falsely that “a meeting of the Board of Directors
of Qualsec” was “held on the 2nd Day of November 2009.” There was no such meeting. The
document included forged signatures of Board of Directors members Bukstel and Richard Seelig.
The document also identified Hand as an “Assistant Secretary to the Board of Directors,” which
he never was. The document was signed by Kimberly Peterson, Hand’s Assistant, purportedly as
“Assistant Secretary to the Board,” which she never was.
37. The Resolution authorized the issuance of 637,180 shares for Esthetics World,
another shell company created and controlled by Hand. The lone purported officer of Esthetics
World was Karen Campo, who is identified in SEC documents filed by Hand as a “special events
entertainer” from Panama. As with the shares in the names of his other shell companies, Hand
controlled these shares, which were sent to his office, and he was the sole person engaging in the
sale of these shares.
38. Hand created additional false “Corporate Resolutions” in order to seize control
over additional large amounts of VitaminSpice stock. Hand forged the signatures of Bukstel and
Seelig again on a “Resolution” authorizing the issuance of 3,037,180 shares in the name of a
company called Bio-Clean Products, which was another shell created and controlled by Hand.
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On November 3, 2009, Hand created other false “Resolutions” authorizing 3,037,180 shares to be
issued to Cylogic Aerospace and 637,180 to Able Direct Marketing, additional shells he created
and controlled. The metadata for these resolutions establishes that they were created by Hand in
mid-November 2009 and then backdated by Hand. The Esthetics World resolution was signed by
Hand’s assistant as purported “Assistant Secretary” of VitaminSpice, which she was not, and
included a forged signature of Mr. Bukstel. That resolution also falsely stated that Hand was
“Assistant Secretary” to the Board of Directors of VitaminSpice, which he was not (which, in
fact, would have required him to notify the SEC under Form 8k).
39. Following his prior pattern, after Hand secured these shares, he again made false
representations in order to evade Rule 144(i) and secure free-trading stock certificates. Hand
provided opinion letters to Stalt falsely stating that VitaminSpice never was a “shell” company.
This false statement caused Stalt to issue free-trading stock certificates, which would not have
occurred if Hand truthfully represented that VitaminSpice’s predecessor was a shell company.
40. Hand, therefore, made false representations to the transfer agent as a sham
designed to evade the registration requirements of federal securities laws and secure control over
free-trading shares that should have been restricted. Hand’s intent and purpose was to secure the
issuance of free-trading shares in violation of federal securities laws.
41. These improper stock transactions – which Hand consummated through false
statements and concealments – increased Hand’s stranglehold over the float of VitaminSpice’s
stock. Because of Hand’s false representations and forged resolutions, he was able to sell over
6.7 million additional shares of VitaminSpice stock over a period of time, doubling the shares in
the float and commensurately increasing his dominating share thereof.
42. Hand then undertook actions that were intended to – and did – profit by dumping
the stock at strategically chosen points. This was a class pump-and-dump scheme, and it was
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initiated and engineered by the person who had fiduciary and ethical duties to act in accordance
with VitaminSpice’s best interests.
43. One of the most significant events in the short history of VitaminSpice as a public
company was the pending announcement that Mr. William Fields, the former President of
Walmart Stores division and close associate of Sam Walton, was joining the VitaminSpice Board
of Directors. Mr. Fields was credited with bringing Walmart from a $60 million entity to a $240
billion company (in revenues) during his tenure. Mr. Fields was impressed with the products
developed by VitaminSpice and the wholesale and retail opportunities associated with the concept
of utilizing condiments to deliver vitamins for nutrition.
44. Before the announcement was made public (which did not occur until November
30, 2009), Hand enlisted the help of stock promoters to aggressive market, and increase the price
of, VitaminSpice stock. Hand enlisted the help of RedChip Companies (“RedChip”), which Hand
compensated with VitaminSpice stock. In order to secure these as free-trading shares and evade
Rule 144(i), Hand again made false statements to Stalt that VitaminSpice never was a “shell”
company. Hand also arranged for a wire transfer of $110,000.00 from the account of his
purported client Esthetics World, supposedly a Wyoming-based land-development company,
which he owned and controlled, to James Farinella and Gerard Adams of Wall Street Grand, who
were stock promoters. Hand’s purpose was to undertake an aggressive promotion of
VitaminSpice stock, so that Hand could profit from the sale of that stock by his controlled persons
and entities. No disclosure of this transaction was made to VitaminSpice or Bukstel or to the
public.
45. The stock promotions paid off for Hand. Because of RedChip’s promotional
efforts, the price of VitaminSpice stock rose from 32 cents on November 1, 2009 to 47 cents on
November 10, 2009. During this price rise, and to profit therefrom, Hand sold shares held by his
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shell companies. On November 4th and 5th 2009, Hand traded VitaminSpice stock, through the
guise of Esthetics World, which brought in $140,000.00 on those two days alone, based on
information from only one stock clearinghouse (and there were others used by Hand, which will
be revealed in discovery).
46. VitaminSpice then issued its press release on November 30, 2009. As a result of
that press release, the price of VitaminSpice stock rose to 67 cents on December 2, 2009. Hand
then traded stock held by his controlled persons and entities in order to reap substantial profits.
From December 2, 2009 through December 22, 2009, Hand sold stock under the guise of William
Wilkinson and Esthetics World that yielded a profit of $296,307.00.
Phase III of the Scheme: Hand Launched Pump-And-Dump Schemes To Profit From
Trading His Improperly Controlled VitaminSpice Stock.
47. Having seized control over much of VitaminSpice’s stock float, Hand then
embarked upon a pump-and-dump scheme in which he profited through the sale of his unlawfully
controlled VitaminSpice stock.
48. On January 6, 2010, Hand enlisted the help of one of his cohorts, John Ballard, to
whom Hand sent wire-transfer information for a stock-promotion company called Tritos, Inc.,
d/b/a Market Advisors, Inc. (hereinafter “Tritos”). Hand’s purpose and effect of this wire transfer
was to undertake a pump-and-dump scheme using Tritos to convey false information to the
investment community about VitaminSpice, causing the stock price to inflate artificially and
enabling Hand to sell his shares and reap the improper proceeds therefrom.
49. Hand paid Tritos $3,500.00 to prepare a report with multiple false representations
about VitaminSpice. For example, Hand made the following misrepresentations about
VitaminSpice, each and every one of which was featured in the false report:
? “The company currently offers six different spices coupled with six
different vitamin/mineral formulations resulting in 36 total product
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offerings.” This was false. VitaminSpice offered only four vitamininfused
spices, and there were no “vitamin-mineral formulations” for each.
Accordingly, VitaminSpice has only four (4) products, not (36), as Hand
falsely told the public and investment community.
? “Indications of interest above $10 million from various health food stores,
retain outlets, major grocery chains, and home shopping companies.” This
was false. Hand totally made this up.
? “MOU with major European distributor, final agreement TBA end of first
quarter.” This was false. There were email exchanges about a potential
business relationship with a European distributor, but nothing that was
close to an understanding.
? “Partnered with single largest Chinese public sector JV in China,
Intersource, for product list throughout China.” This was false. There was
an initial agreement with Intersource, but there was nothing close to a
distribution relationship at that time. The timeframe for any such
distribution was not even established. Moreover, by no means was
Intersource the “single largest Chinese public sector JV in China.”
? “Finalizing aqusition [sic] of key technology related to the
microencapsulation process.” This was false. VitaminSpice was in the
discussion phase, and was considering the general prospects of entering
into an asset-purchase agreement, but the company was nowhere close to
“finalizing” the acquisition of such technology.
? “Canada and Australia distribution expected to be signed by beginning 2nd
quarter.” This was false. There were no such distribution relationships.
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? “The Company expects to see products coming to stores such as Target
Corporation (TGT),… while going head-to-head with McCormick & Co.,
Inc. (MKC), the single largest spice company in the world.” These
statements were false. The Target statement was a total fabrication. And
the statement about going “head-to-head with McCormick & Co., Inc.,”
which had $3.7 billion in revenues, was a gross misrepresentation about
where VitaminSpice was at that point and in the foreseeable future.
50. In January 2010, Hand once again paid $3,500 for yet another newsletter issued by
Tritos. As with the prior effort, Hand made numerous additional misrepresentations in this
newsletter with the intent and effect of misleading the investment community and pumping up the
price of VitaminSpice stock, so that he could realize substantial unlawful windfalls when he sold
the stock owned and controlled by his puppet VitaminSpice stockholders.
? “The company currently offers six different spices coupled with six
different vitamin/mineral formulations resulting in 36 total product
offerings.” This repeats the false statement referenced above.
? Hand reiterates the false statement that VitaminSpice had “ndications of
interest above $10 million from various health food stores, retain outlets,
major grocery chains, and home shopping companies.” As before, this was
totally false.
? “Calivate International M.O.U. to market through International MLM
distribution.” This also was false. Hand made this up completely.
? “Currently in talks with a nutritional performance sports company to
develop post-workout recovery formulas and utilize celebrity athlete
endorsements.” No such talks occurred of any substantive nature.
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? “”International distributor interest in Europe, Canada, and Australia.” This
was false. There were no active talks with such distributors.
? “MOU with major European distributor, final agreement TBA end of first
quarter.” This was false. There were email exchanges about a potential
business relationship with a European distributor, but nothing that was
close to an understanding.
51. These false statements caused the price of VitaminSpice stock to inflate
dramatically. The false reports, set forth above, were released on January 13, 2010. On that date,
VitaminSpice stock was trading at 47 cents. By January 14, 2010, the very next day, the
VitaminSpice stock price increased to as high as 58 cents, an increase of more than 20%.
52. Hand then seized on this artificial leap to dump massive amounts of his ill-gotten
VitaminSpice shares. Between January 14, 2010 and February 1, 2020, Hand sold over 260,000
shares of VitaminSpice stock in the name of his fictional character Wilkinson, which yielded
proceeds in the amount of $131,946.00, much of which represents improper profits from the
artificially enhanced price caused by Hand’s false reports.
53. The data in the preceding paragraphs are from only one clearinghouse. There are
other clearinghouses through which Hand traded his VitaminSpice stock. The shares improperly
traded by Hand, as part of his pump-and-dump scheme, will be unveiled during the course of
discovery in this case, and the above represents a small window into the magnitude of his
improperly gained profits.
54. Emboldened by his profits from the first pump-and-dump scheme, Hand then
engaged in another. On May 5, 2010, Hand, along with his brother Jeremiah, Farinella, and
Kevin Lee Woodbridge (a convicted felon incarcerated for SEC Violations and a close associate
of Hand) conspired together to create their own press release to pump up the price of
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VitaminSpice stock without any knowledge or consent of the company or anyone its Board of
Directors.
55. Specifically, they drafted a release falsely stating that VitaminSpice was one of the
“headliners” of an upcoming show in Las Vegas. The release also falsely stated that
VitaminSpice’s “online sales are growing exponentially,” and that “VitaminSpice’s success in
expanding their reach through traditional distribution channels continues with national and
specialty shop agreements.” VitaminSpice’s “online sales” were not “growing exponentially,”
and there were no such “national and specialty shop agreements.”
56. As of April 29, 2010, the price of VitaminSpice stock was 45 cents, the vast
majority of which was artificially inflated due to Hand’s false statements referenced above as
well as additional false reports to media outlets both in writing and verbally by Hand and his
cohorts.
57. When Bukstel learned about this false press release on May 5, 2010, he confronted
Hand and his cohorts and insisted that they withdraw the press release and correct the record.
Hand and his cohorts reacted by retaliating and dumping their VitaminSpice stock. They sold
millions of shares of VitaminSpice stock, causing the price to drop to 20 cents as of May 14,
2010. Their sales continued and crashed the stock, causing it to drop to 6 cents on April 1, 2011.
58. Because of the schemes orchestrated and implemented by Hand, including his
false statements to Stalt and the investing public, VitaminSpice’s stock has crashed and never
recovered. After acquiring VitaminSpice stock for no consideration, and controlling almost all
the float of VitaminSpice stock, Hand was able to manipulate the stock’s price and market,
artificially inflating its levels and crashing the price when it became in his strategic and economic
interests to do so. As a result, VitaminSpice has suffered a devastating decrease in its market
value, from $52 million at the time of the reverse merger to less than $1 million today. In
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addition, Hand’s misconduct has caused devastating losses to Bukstel, whose shares were valued
at approximately $22 million, and now they are worth approximately $277,200.00.
59. In early July 2010, Bukstel became aware of Hand’s scheme, including his use of
shell companies and alter-egos to acquire and control VitaminSpice stock.
60. On or around July 6, 2010, as a result of this information, Bukstel terminated
Hand. Bukstel also informed the transfer agent, Stalt, Inc. (“Stalt”), about Hand’s improprieties
in connection with the stock owned by Counter-Defendants and others who received
VitaminSpice stock from Counter-Defendants through the efforts of Hand. For example, Bukstel
provided Stalt with documents showing Counter-Defendants’ bogus addresses, shareholders, and
officers, as well as additional documents (including forgeries by Hand) showing Hand’s control
over Counter-Defendants and their VitaminSpice stock.
61. On or around July 8, 2010, Adam Hand (Hand’s brother) sent an email to Farinella
stating that “if ed would step down I could get the team back together and this thing back 2 40
(cents) in a week.” This statement reflects the conspiracy between Hand, his brother, Farinella
and others to manipulate the price of VitaminSpice stock through Hand’s control over its float.
This statement also reflects their knowledge of their ability to artificially inflate VitaminSpice
stock’s price at will through gross market manipulation.
62. Despite Bukstel’s efforts to stop Hand’s and Counter-Defendants’ wrongful and
unlawful transactions in VitaminSpice stock, Hand undertook efforts, and conspired and worked
with Stalt, to permit Counter-Defendants to continue trading VitaminSpice stock. Hand and Stalt
profited from those transactions. Hand concealed these facts from Bukstel and VitaminSpice,
which relied on the concealment in that they waited for Stalt to implement stop-hold orders on
Counter-Defendants’ transactions, expecting Stalt to act as an independent transfer agent rather
than work and conspire with Hand. Stalt, however, failed to implement the stop-hold orders, and
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worked and conspired with Hand to permit Counter-Defendants to continue trading VitaminSpice
stock.
63. Hand undertook cover-up efforts to conceal the above-alleged wrongful conduct.
Those cover-up efforts including the forgery of documents, the shredding of documents, and the
destruction of evidence that would uncover his fraud and other misconduct.
Hand Consistently Concealed His Control Over Counter-Defendants Able, Esthetics and
International As Well As Other VitaminSpice Shareholders.
64. Hand concealed, and failed to disclose to Bukstel and/or VitaminSpice, that Hand
controlled Counter-Defendants, which acquired VitaminSpice stock as a result of the reverse
merger. Able, Esthetics and International received such shares as debt holders and/or
shareholders in Qualsec, and Advanced purchased its shares from Qualsec’s shareholders.
65. Hand created, incorporated, controlled, and ran each of the Counter-Defendants.
Purporting to serve as their “counsel,” Hand incorporated Counter-Defendants and enlisted the
help of persons under his control to serve as Counter-Defendants’ purported shareholders and
officers. The same persons, in fact, were enlisted repeatedly by Hand to serve as purported
shareholders and officers for various Counter-Defendants, including Yuriy Semenov and others
who live overseas and take their direction and instruction from Hand with regard to Counter-
Defendants’ business operations. Hand also used names of persons who were either fictitious or
deceased to serve as Counter-Defendants’ purported shareholders and officers, such as “William
Wilkinson,” who is listed as a shareholder and/or officer for multiple companies controlled by
Hand including Counter-Defendants.
66. Because of Hand’s control over Counter-Defendants, Hand had control over, and
legal and beneficial ownership of, the VitaminSpice stock purportedly owned by Counter-
Defendants.
67. Hand was able to trade staggering amounts of VitaminSpice stock and reap
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extraordinary profits by selling that stock through his bogus controlled persons and entities. From
the reverse merger to March 29, 2011, Hand pocketed $1,284,138.23 from the sale of
VitaminSpice stock through Esthetics World and Wilkinson alone. These staggering numbers,
moreover, are based on information from only one clearinghouse – Penson Financial, Inc. It is
expected that Hand’s trading activities were far broader than that, and discovery will reveal the
true magnitude of Hand’s scheme and the unlawful profits resulting therefrom.
68. Hand concealed, from Bukstel and VitaminSpice, his ownership and control over
Counter-Defendants and the VitaminSpice stock purportedly owned by Counter-Defendants. In
addition, Hand misrepresented, to Bukstel and VitaminSpice, that Counter-Defendants were
distinct and viable entities.
69. Hand undertook various measures to misrepresent that Counter-Defendants were
distinct and viable entities rather than shells and his alter-egos. Hand used invalid addresses for
Counter-Defendants; Hand used deceased or non-existent persons, and/or persons over whom
Hand exercised control, as purported officers of Counter-Defendants, and Hand executed forged
and fraudulent documents in order to give the misimpression that Counter-Defendants were
controlled by other persons.
70. Hand also exercised control over Counter-Defendants to transfer VitaminSpice
shares to other shell entities that Hand used as his alter-egos. For example, Hand controlled
Counter-Defendants to transfer VitaminSpice shares to an entity called Duluth Venture Capital
Partners, LLC, which is controlled solely by Hand, not the purported “Managing Partner,”
William Wilkinson, who is either a fictitious person or someone who, according to Hand, was at a
hospice, and about to pass away, years ago. Indeed, the non-existent or deceased Wilkinson also
is Qualsec Partners, LLC’s purported “President.”
71. Hand used his control over Counter-Defendants and their VitaminSpice stock to
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profit and enrich himself through the trading of such stock. Hand orchestrated hundreds of
transactions with VitaminSpice stock, including public sales of such stock as well as private
transactions in which he transferred such stock between and among Counter-Defendants. Hand
profited from these efforts by receiving monies that were deposited into bank accounts over
which he exercised total control, including Hand’s “client-trust” account, which Hand used as a
clearinghouse for transfers of monies by and to Counter-Defendants and other companies over
which Hand exercised control. Hand actually used his “client-trust” account as his own personal
bank account, and Hand treated, used and profited from the funds therein as though they were his
own. Hand’s profits resulted in the diversion of substantial funds from VitaminSpice, which was
damaged thereby.
72. Hand made additional misrepresentations in order to exact his control over large
amounts of VitaminSpice stock issued to persons and entities he controlled.
73. Hand concealed and misrepresented all of the above-alleged facts with the
intention of inducing Bukstel and VitaminSpice to work with Hand, execute contracts, and
undertake other efforts that allowed Counter-Defendants to own and trade VitaminSpice stock.
And Bukstel and VitaminSpice did rely on Hand’s misrepresentations and misrepresentations by
working with Hand, executing contracts, and undertaking other efforts that allowed Counter-
Defendants to own and trade VitaminSpice stock.
74. At all times relevant to Bukstel’s and VitaminSpice’s allegations, Counter-
Defendants were Hand’s alter-egos. Counter-Defendants were grossly undercapitalized; they
failed to abide by corporate formalities; they have not had shareholder meetings; they have been
controlled by Hand at his discretion; and they have been used to accomplish wrongful and unjust
purposes and schemes of the person controlling it. In particular, Counter-Defendants were
Hand’s alter egos because, among other things:
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a. Counter-Defendants are influenced and governed by Hand. This is established by,
among other things, facts showing that: Hand has exercised complete dominance
and control over Counter-Defendants, such Counter-Defendants are mere shells
and instrumentalities for the conduct of Hand’s personal business activities; Hand
used Counter-Defendants as a mere shell for Hand’s business activities, including
the purchase and sale of VitaminSpice’s stock over which Hand asserted
ownership, domination, and control; Hand directed and guided Counter-
Defendants’ decisions and conduct in connection with the VitaminSpice stock at
issue as well as other decisions and conduct; Hand, not Counter-Defendants’ lone
“officers” and/or employees, controlled and directed the funding, purchase and
sale of VitaminSpice stock at issue; Counter-Defendants deferred to Hand in
connection with their decisions and operations; Hand had control over Counter-
Defendants’ monies and operations; and Counter-Defendants did not undertake
any substantive business activities without Hand’s direction, instruction and
control.
b. There is a unity of interest and ownership such that Counter-Defendants and Hand
are inseparable and the separate personalities of Counter-Defendants and Hand
never existed. This unity of interest and ownership is established by, among other
things, facts showing that: Hand commingled Counter-Defendants’ alleged funds
with Hand’s own funds in his client-trust account and personal account; Hand
profited personally from Counter-Defendants’ business transactions, including
Counter-Defendants’ purported purchase of VitaminSpice stock, which was
secured through funds deposited into Hand’s bank account rather than Counter-
Defendants’ own funds or assets; Hand failed to attempt to distinguish Counter-
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Defendants’ funds from his own funds; Hand used Counter-Defendants’ funds to
pay debts and satisfy obligations owed by Hand personally and/or by his other
shell companies that he uses as alter-egos; Counter-Defendants failed to maintain
adequate and legitimate minutes, failed to maintain adequate corporate records,
and failed to document and/or memorialize significant or substantive corporate
decisions in any manner; Hand used his address as Counter-Defendants’ alleged
business address; at Hand’s direction and instruction, there was no capital invested
in Counter-Defendants; at Hand’s direction and instruction, Counter-Defendants
had no corporate assets; Hand concealed and misrepresented to Bukstel,
VitaminSpice and others that Counter-Defendants were distinct, viable entities;
Hand concealed his personal business through the artifice of Counter-Defendants,
including the purchase and sale of VitaminSpice stock and other corporate stock
over which Hand asserted ownership, domination, and control; Hand disregarded
legal formalities in his dealings with Counter-Defendants, including exercising
total control over Counter-Defendants’ decision-making and failing to take
direction or guidance from anyone at Counter-Defendants with regard to decisions
made by Hand in connection with Counter-Defendants; Counter-Defendants had
no legitimate business purpose, function, or focus; and Hand failed to maintain
arms-length relationships between and among Counter-Defendants and Hand’s
other related entities, including the use by Hand of such other entities’ funds for
purposes of purchasing stock purportedly on behalf of Counter-Defendants.
75. Fraud or injustice, including harm and damage to Bukstel and VitaminSpice,
would result if Counter-Defendants were permitted to maintain the fiction of a separate identity.
Hand used Counter-Defendants in order to conduct Hand’s personal business in violation of
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securities laws and his ethical duties to VitaminSpice and Bukstel. For example, Hand used
Counter-Defendants as a front to purchase and control VitaminSpice stock, in violation of
disclosure and ownership requirements under securities laws. Moreover, it would be inequitable
and unfair if Counter-Defendants were permitted to recover from Bukstel or VitaminSpice in this
case, as though Counter-Defendants were separate entities. Accordingly, the Court should find
that Counter-Defendants are Hand’s alter egos in order to avoid such inequitable results.
FIRST CAUSE OF ACTION
By Bukstel and VitaminSpice
Against Counter-Defendants and Third-Party Defendant Hand_
Fraud in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5
False Statements To Secure Free-Trading Shares
76. Bukstel and VitaminSpice reallege paragraphs 1 through 75 of their Counterclaims
and Third-Party claims as though they were fully set forth herein.
77. Counter-Defendants and Third-Party Defendant, directly and indirectly, with
scienter, including with reckless disregard, in connection with the purchase and sale of securities,
by use of any means or instruments of transportation or communication in interstate commerce, or
of the mails:
a. employed devices, schemes or artifices to defraud;
b. obtained money or property by means of any untrue statements of material
fact, or have omitted to state material facts necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading; and/or;
c. engaged in transactions, practices, or courses of business which operated or
would operate as a fraud or deceit upon the purchasers of securities.
78. Rule 144, promulgated by the SEC under the 1933 Act, permits the sale of
restricted and uncontrolled securities without registration under limited circumstances. Effective
on February 15, 2008, the SEC amended Rule 144(i) to, among other things, preclude the use of
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Rule 144 for the resale of securities initially issued by an issuer that is – or ever was – a shell
company. Under amended Rule 144(i), no shareholder could utilize Rule 144 as an exemption
from registration if the issuer is, or ever was, a shell company, unless the issuer met certain
specified requirements to cure its shell status, which VitaminSpice never did.
79. Amended Rule 144(i) ensured that Counter-Defendants’ and Hand’s VitaminSpice
shares were restricted. Nevertheless, Counter-Defendants and Hand secured free-trading
VitaminSpice shares by lying to the transfer agent, Stalt, and misrepresenting that VitaminSpice
is not – and never was – a shell company. Counter-Defendants and Hand made these
misrepresentations in order to secure free-trading shares of VitaminSpice stock that they could
use to reap substantial profits given Hand’s control over Counter-Defendants and the float of
VitaminSpice stock.
80. These false statements by Counter-Defendants and Hand caused Counter-Plaintiffs
to suffer economic losses. For example, as a result of Counter-Defendants’ and Hand’s
misrepresentations, they were able to secure and exert control over the float of VitaminSpice
stock, which was dominated by Hand’s improperly gained unrestricted shares, enabling him to
manipulate the price thereof and exact substantial profits therefrom.
81. These actions by Counter-Defendants and Hand were part of a scheme designed to
defraud Counter-Plaintiffs and the public and enrich Counter-Defendants and Hand, and which
operated as a fraud on Counter-Plaintiffs and Third-Party Plaintiff.
82. Counter-Defendants and Hand made these material misstatements and
concealments with scienter – either with knowledge of the falsity or with deliberate, reckless
disregard of the truth.
83. By reason of the foregoing conduct, Counter-Defendants have violated Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
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84. As a direct and proximate cause of Hand’s and Counter-Defendants’
misrepresentations and concealments, Bukstel and VitaminSpice have suffered damages far in
excess of $75,000.00. Under Section 10b and Rule 10-b5, Counter-Plaintiffs are also entitled to
treble damages.
SECOND CAUSE OF ACTION
(Against Counter-Defendants and Third-Party Defendant Hand_
Fraud in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5
Hand’s Control Over Counter-Defendants and Others
85. Bukstel and VitaminSpice reallege paragraphs 1 through 84 of their Counterclaims
and Third-Party claims as though they were fully set forth herein.
86. Counter-Defendants and Third-Party Defendant, directly and indirectly, with
scienter, including with reckless disregard, in connection with the purchase and sale of securities,
by use of any means or instruments of transportation or communication in interstate commerce, or
of the mails:
a. employed devices, schemes or artifices to defraud;
b. obtained money or property by means of any untrue statements of material
fact, or have omitted to state material facts necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading; and/or;
c. engaged in transactions, practices, or courses of business which operated or
would operate as a fraud or deceit upon the purchasers of securities.
87. Hand owned and/or controlled a substantial part of the float of VitaminSpice
shares, by and through his control over Counter-Defendants and their VitaminSpice shares.
Furthermore, Hand and Counter-Defendants misrepresented to Bukstel and VitaminSpice that
Counter-Defendants were independent and viable entities, and failed to disclose Hand’s beneficial
and legal ownership and/or control over Counter-Defendants and their VitaminSpice stock.
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88. Hand’s misrepresentations, or omissions of material facts, also were made in
VitaminSpice’s Registration Statement and Prospectus, which Hand prepared. In those
documents, Hand made material misrepresentations regarding the ownership and control of
Counter-Defendants and other stockholders that he owned or controlled, which gave him control
over a substantial portion of the public float.
89. Governing law requires disclosure in the prospectus of the natural persons who
had “beneficial ownership” of the VitaminSpice shares. Without such disclosure, the SEC would
not clear a registration statement, and the OTC Bulletin Board would not approve VitaminSpice’s
application to list its shares. The same information is required for shares owned by executive
officers, directors, and holders of more than 5% of issued common stock. “Beneficial ownership”
means the right to vote, to direct the disposition of, or to enjoy the other benefits of ownership
including receiving the proceeds of sales of the shares. Under the beneficial ownership rules, if
shares are held by a corporation or other entity, the individual (natural person) beneficial owner
has to be supplied. If a natural person controls shares held by more than one entity, the
ownership of the two entities has to be aggregated.
90. The information in the VitaminSpice prospectus regarding Counter-Defendants,
and the other shareholders owned or controlled by false, is false and materially misleading, or
omits to state a fact necessary to make the statements not misleading, in that the information
misrepresents the beneficial ownership of the shares by those persons and entities, and fails to
disclose that Hand was the true beneficial owner of such shares.
91. Hand and Counter-Defendants undertook these concealments and made these
misrepresentations with knowledge of their falsity or with deliberate and reckless disregard for
the truth. Hand and Counter-Defendants also intended to undertake these concealments and make
these misrepresentations in order to induce Counter-Plaintiffs and Third-Party Plaintiffs to work
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with Hand, sign contracts, and permit Counter-Defendants to own and trade VitaminSpice stock.
92. Bukstel and VitaminSpice reasonably relied on the concealments and
misrepresentations by Hand and Counter-Defendants by, among other things, retaining Hand,
agreeing to proceed with the reverse merger, allowing Hand to engineer the various transactions
in which Counter-Defendants secured their shares of VitaminSpice stock, and allowing Counter-
Defendants to trade and own VitaminSpice stock. If Counter-Plaintiffs and Third-Party Plaintiffs
would have known the truth, they would never had retained Hand as VitaminSpice’s counsel
and/or proceeded with the reverse merger and transactions with Hand and Counter-Defendants.
93. As a direct and proximate cause of Hand’s and Counter-Defendants’
misrepresentations and concealments, Bukstel and VitaminSpice have suffered damages far in
excess of $75,000.00. Under Section 10b and Rule 10-b5, Counter-Plaintiffs are also entitled to
treble damages.
THIRD CAUSE OF ACTION
By Bukstel
Against Third-Party Defendant Hand_
Fraud in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5
Pump-and-Dump Schemes
94. Bukstel realleges paragraphs 1 through 93 of his Counterclaims and Third-Party
claims as though they were fully set forth herein.
95. Third-Party Defendant Hand, directly and indirectly, with scienter, including with
reckless disregard, in connection with the purchase and sale of securities, by use of any means or
instruments of transportation or communication in interstate commerce, or of the mails:
a. employed devices, schemes or artifices to defraud;
b. obtained money or property by means of any untrue statements of material
fact, or have omitted to state material facts necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading; and/or;
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c. engaged in transactions, practices, or courses of business which operated or
would operate as a fraud or deceit upon the purchasers of securities.
96. The false statements and material omissions by Hand, or omissions of material
facts, were made in press releases, which were intended to – and did – artificially inflate the price
of VitaminSpice stock. Hand then dumped the stock by unloading millions of shares over which
he exercised control, causing the stock price to plummet far below the value at which Bukstel
acquired the stock in connection with the reverse merger.
97. Because of Hand’s misconduct, VitaminSpice’s stock has fallen dramatically, and
it has never recovered. Hand’s actions in dumping the stock have harmed Bukstel and other
shareholders by rendering the value of their shares as a fraction of the amounts that those shares
were valued when they were acquired.
98. The false statements and material omissions by Counter-Defendants and Hand
caused Counter-Plaintiffs to suffer substantial economic losses as set forth above.
99. These actions by Hand were part of a scheme designed to defraud Bukstel and
other VitaminSpice shareholders, and operated as a fraud on them.
100. Hand made these material misstatements and concealments with scienter – with
knowledge of the falsity or with deliberate, reckless disregard of the truth.
101. By reason of the foregoing conduct, Hand has violated Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
102. As a direct and proximate cause of Hand’s and Counter-Defendants’
misrepresentations and concealments, Bukstel and VitaminSpice have suffered damages far in
excess of $75,000.00. Under Section 10b and Rule 10-b5, Third-Party Plaintiffs are also entitled
to treble damages.
FOURTH CAUSE OF ACTION
(Against Counter-Defendants and Third-Party Defendant Hand_
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Fraud in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5
Hand’s Control Over Float And Unlawful Participation In Stock Sales
103. Bukstel and VitaminSpice reallege paragraphs 1 through 102 of their
Counterclaims and Third-Party claims as though they were fully set forth herein.
104. Counter-Defendants and Third-Party Defendant Hand, directly and indirectly, with
scienter, including with reckless disregard, in connection with the purchase and sale of securities,
by use of any means or instruments of transportation or communication in interstate commerce, or
of the mails:
a. employed devices, schemes or artifices to defraud;
b. obtained money or property by means of any untrue statements of material
fact, or have omitted to state material facts necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading; and/or;
c. engaged in transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon the purchasers of securities.
105. With his control over the float of VitaminSpice stock, Hand could and did
manipulate the price of VitaminSpice stock by giving the false impression of an active market and
artificially inflating the price thereof. As alleged above, the drop in the price of VitaminSpice
stock was caused by the winding down of the price-manipulation and pump-and-dump scheme
engaged in by Hand. Hand also violated Regulation M, which was adopted by the SEC under
Section 10b in order to preclude manipulative conduct by persons with an interest in the outcome
of an offering. It generally prohibits activities and conduct that could artificially influence the
market for an offered security. Rule 102 of Regulation M prohibits selling stockholders, and their
affiliates, or persons involved in the selling stockholder’s acquisition of its securities, from
bidding for, purchasing, or attempting to induce any other person to bid for or purchase the
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security that is the subject of the distribution during a specified “restricted period.” “Restricted
period” is defined in Rule 101 to commence five days before the selling shareholder can sell to
the time the selling shareholder has completed selling its shares.
106. As alleged above, Counter-Defendants and Third-Party Defendant Hand were
involved in the purchase of VitaminSpice stock by other persons or entities controlled by Hand,
and/or induced such purchases, during the course of the “restricted period.”
107. As a direct and proximate cause of Hand’s and Counter-Defendants’ manipulation
and unlawful misconduct, Counter-Plaintiffs have suffered damages far in excess of $75,000.00.
FIFTH CAUSE OF ACTION
(Against Counter-Defendants and Third-Party Defendant Hand_
Common Law Fraud
108. Bukstel and VitaminSpice reallege paragraphs 1 through 107 of their
Counterclaims and Third-Party claims as though they were fully set forth herein.
109. Hand and Counter-Defendants made false statements of material facts to Bukstel
and VitaminSpice in connection with the purchase and sale of VitaminSpice securities. In
particular, Hand and Counter-Defendants made false statements that Hand was an objective and
independent attorney who would work on behalf of, and in the interest of, VitaminSpice; that
Hand had no direct relationship with Counter-Defendants; that Hand did not have control over
Counter-Defendants; and that Hand was not involved in the control and trading of VitaminSpice
stock.
110. Hand and Counter-Defendants also concealed material facts from Bukstel and
VitaminSpice in connection with the purchase and sale of VitaminSpice stock. In particular,
Hand and Counter-Defendants concealed the facts that Hand did not work on behalf of, and in the
interest of, VitaminSpice; that Hand had a direct relationship with Counter-Defendants; that Hand
had control over Counter-Defendants; that Hand was involved in the control and trading of
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VitaminSpice stock; that Hand profited from Counter-Defendants’ VitaminSpice transactions;
and that Hand worked and conspired with Stalt to allow Counter-Defendants to continue trading
VitaminSpice stock.
111. Bukstel and VitaminSpice reasonably relied on the misrepresentations and
concealments by Hand and Counter-Defendants by, among other things, retaining Hand, agreeing
to proceed with the reverse merger, allowing Hand to engineer the various transactions in which
Counter-Defendants secured their shares of VitaminSpice stock, and allowing Counter-
Defendants to trade and own VitaminSpice stock. If Bukstel and VitaminSpice would have
known the truth, they would never had retained Hand as VitaminSpice’s counsel and/or
proceeded with the reverse merger and transactions with Hand and Counter-Defendants.
112. Hand and Counter-Defendants undertook these concealments and made these
misrepresentations with knowledge of their falsity or with deliberate and reckless disregard for
the truth. Hand and Counter-Defendants also intended to undertake these concealments and make
these misrepresentations in order to induce Bukstel and VitaminSpice to work with Hand, sign
contracts, and permit Counter-Defendants to own and trade VitaminSpice stock.
113. As a direct and proximate cause of Hand’s and Counter-Defendants’
misrepresentations and concealments, Bukstel and VitaminSpice have suffered damages far in
excess of $75,000.00.
SIXTH CAUSE OF ACTION
(Against Counter-Defendants and Third-Party Defendant Hand_
Negligent Misrepresentation
114. Bukstel and VitaminSpice reallege paragraphs 1 through 113 of their
Counterclaims and Third-Party claims as though they were fully set forth herein.
115. Hand and Counter-Defendants made false statements of material facts to Bukstel
and VitaminSpice in connection with the purchase and sale of VitaminSpice securities. In
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particular, Hand and Counter-Defendants made false statements that Hand was an objective and
independent attorney who would work on behalf of, and in the interest of, VitaminSpice; that
Hand had no direct relationship with Counter-Defendants; that Hand did not have control over
Counter-Defendants; and that Hand was not involved in the control and trading of VitaminSpice
stock.
116. Hand and Counter-Defendants also concealed material facts from Bukstel and
VitaminSpice in connection with the purchase and sale of VitaminSpice stock. In particular,
Hand and Counter-Defendants concealed the facts that Hand did not work on behalf of, and in the
interest of, VitaminSpice; that Hand had a direct relationship with Counter-Defendants; that Hand
had control over Counter-Defendants; that Hand was involved in the control and trading of
VitaminSpice stock; that Hand profited from Counter-Defendants’ VitaminSpice transactions;
and that Hand worked and conspired with Stalt to allow Counter-Defendants to continue trading
VitaminSpice stock.
117. Bukstel and VitaminSpice reasonably relied on the misrepresentations and
concealments by Hand and Counter-Defendants by, among other things, retaining Hand, agreeing
to proceed with the reverse merger, and allowing Hand to engineer the various transactions in
which Counter-Defendants secured their shares of VitaminSpice stock. If Bukstel and
VitaminSpice would have known the truth, they would never had retained Hand as
VitaminSpice’s counsel and/or proceeded with the reverse merger and transactions with Hand and
Counter-Defendants.
118. Hand and Counter-Defendants made these concealments and misrepresentations
negligently, since they knew or should have known and disclosed the truth.
119. As a direct and proximate cause of Hand’s and Counter-Defendants’
misrepresentations and concealments, Bukstel and VitaminSpice have suffered damages far in
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excess of $75,000.00.
SEVENTH CAUSE OF ACTION
(Against Third-Party Defendant Hand)_
Breaches of Fiduciary Duties
120. Bukstel and VitaminSpice reallege paragraphs 1 though 119 of their
Counterclaims and Third-Party claims as though they were fully set forth herein.
121. As VitaminSpice’s attorney, Hand owed a fiduciary duties to VitaminSpice,
including without limitation the duty to act loyally and/or to avoid conflicts of interest.
122. Hand breached his fiduciary duties in multiple independent respects. First, Hand
breached his fiduciary duties by acting in his interests, which were opposed to the interests of
VitaminSpice, Bukstel, and other company officers and shareholders. Hand did so by ensuring
that only he – and/or his other “clients,” who were shell companies with VitaminSpice stock
issued in their name – could freely trade VitaminSpice stock whereas other VitaminSpice
shareholders could not. Hand accomplished this gross breach of his fiduciary duty by falsely
informing Stalt, the transfer agent, that VitaminSpice was not – and never was – a shell company.
That falsity caused Stalt to issue free-trading VitaminSpice shares to Hand’s controlled
VitaminSpice shareholders, but not to his client VitaminSpice or Bukstel, ensuring that only the
former could trade and profit from VitaminSpice stock.
123. Hand also breached his fiduciary duties by exacting control over the float of
VitaminSpice stock and trading the stock on behalf of his controlled persons and entities. Hand
also engaged in a pump-and-dump scheme that caused the price of VitaminSpice stock – and
VitaminSpice’s market value – to drop drastically to levels from which it has never recovered.
This misconduct breached Hand’s fiduciary duties to VitaminSpice, Bukstel and other officers
and shareholders, and caused them to suffer substantial damages.
124. Hand also breached his fiduciary duties by, among other things, acting on behalf of
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himself and Counter-Defendants rather than VitaminSpice; engaging in and concealing numerous
conflicts of interest from VitaminSpice; working with Counter-Defendants to profit from the
acquisition and sale of VitaminSpice stock; shredding VitaminSpice’s documents; and using
VitaminSpice’s confidential information and attorney-client communications improperly,
including to file this action, in gross violation of his ethical duties.
125. As a direct and proximate cause of Hand’s breaches of fiduciary duties, Bukstel
and VitaminSpice have suffered damages far in excess of $75,000.00.
WHEREFORE, for the reasons set forth above, Bukstel and VitaminSpice respectfully
request that the Court enter judgment in their favor and against Hand and Counter-Defendants for
compensatory damages in an amount to be proven at trial, but in excess of $75,000.00, and such
other relief as the Court deems just and appropriate under the circumstances.
Dated: October 11, 2011