Case 4:09-cv-00256-A Document 1 Filed 05/11/2009 …Case 4:09-cv-00256-A Document 1 Filed 05/11/2009...

• ORIGINAL .fILt:O.U,S. OLSTRICTS9)~rc,{v

NORTHt8ti ,91S t. '" I i\

IN THE UNITED STATES DISTRICT COllTRl'tJ'i( In

FOR THE NORTHERN DISTRICT OF \~M~v I \ ~t.l•. q P 03FORT WORTH DIVISION: lUu, tlA I I 1\1

SECURITIES AN EXCHANGE COMMISSION,

KISELAK CAPIT L GROUP, LLC,GEMSTAR CAPIT L GROUP, INC.,MICHAEL J. KIS LAK, andJEFFREY J. SYKES,

Plaintiff,

Defendants.

v.

§§§ ",~O.M:l?L:rAI'N£f""';''"'"'''''''''''''''~§§ Civ. No.:§§

~4·09CV-256-A§§§

-------+------------§

Plaintiff Sec ities and Exchange Commission alleges:

BACKGROUND

1. From approximately June 2007 to the present, Michael J. Kiselak solicited

investments in Kisel k Capital Group, LLC ("KCG"). Kiselak raised at least $24 million from

14 investors by pro ising high returns and misrepresenting how investor funds would be

invested. For examp e, Kiselak told investors that KCG made a 2.25% per month profit trading

treasury bills. In fa t, Kiselak invested all investor funds in Gemstar Capital Group, Inc., a

California-based pri ate equity and venture capital fund. In addition, Kiselak failed to disclose

to investors that KC took a 35% performance fee on all trading profits.

2. In Ap il 2009, Kiselak requested that Gemstar provide brokerage statements

substantiating the val e ofKCG's investments. Gemstar, through its president, Jeffrey J. Sykes,

produced to Kiselak a brokerage statement showing that Gemstar, as of March 31, 2009, had

over $23 million in s gregated accounts for the benefit of KCG. Sykes fabricated this document.

As of March 31, 20 9, Gemstarhad only $20 million in its brokerage accounts. And these

Case 4:09-cv-00256-A Document 1 Filed 05/11/2009 of 10

• •monies were not se regated for the benefit of KCG investors. WBB Securities did not draft,

sign, or send the abo e-referenced account statement to Gemstar or Sykes.

3. By co duct detailed in this Complaint, Defendants violated Section 17(a) of the

Securities Act of 193 ("Securities Act") [15 U.S.C. § 77q(a)] and Section lOeb) of the Securities

Exchange Act of 19 4 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17

C.F.R. § 240.10b-5]. Unless enjoined, Defendants are likely to commit such violations again.

JURISDICTION AND VENUE

4. The ourt has jurisdiction over this action under Section 22(a) of the Securities

Act [15 U.S.C. § 77v a)] and Section 27 ofthe Exchange Act [15 U.S.C. § 78aa].

5. Defen ants, directly or indirectly, used the means or instruments of interstate

commerce, the mail , or the facilities of a national securities exchange in connection with the

acts described herein

6. is proper under Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)]

and Section 27 ofth Exchange Act [15 U.S.C. § 78aa] because certain of the transactions, acts,

practices, and course of business occurred within this judicial district.

DEFENDANTS

7. Kisel Capital Group, LLC, is a limited liability company organized in 2007

under the laws of testate of Texas. Its registered principal place of business is Kiselak's

residence in Westlak ,Texas. KCG is not registered with the Commission.

8. Gems ar Capital Group, Inc., is a corporation organized in 2003 under the laws of

the state of Nevada Its principal place of business is 19 E. Citrus, Suite 301, Redlands,

California 92373. G mstar is not registered with the Commission.

2


• •

STATEMENT OF FACTS

A.

9. Micha I J. Kiselak (CRD# 4816462), age 42, of Westlake, Texas, is the principal

of KCG. Kiselak is a former NFL player, and played for the Dallas Cowboys from 1998 to

2000. He is not c ently affiliated with a registered broker-dealer or investment adviser. He

currently holds a seri s 7 license that was termed in 2006, and has no known disciplinary history.

10. J. Sykes, age 51, of Redlands, California, is the president of Gemstar. He

does not hold any se ities licenses.

11. In or round June 2007, Kiselak formed KCG and began soliciting funds from

investors. Kiselak m keted the investment as a "friends and family" fund.

12. offering documents and communications with investors, Kiselak

(i) K G investor funds are invested with a portfolio manager that "developed a

program where he traded the 30-year T-Bill at

Ins itutionallWholesale levels, also known as agency to agency transactions.

[T e manager] left to go on his own as an independent Proprietary Trader.

[T e manager's] reputation allowed him to gain clients quickly and over the

eleven 11 years, has grown his portfolio to over $1.5 billion;"

(ii) investment is "managed through KCG in conjunction with two AA rated

cial institutions in New York City. These 'Wholesale/Institutional'

tr sactions are, at all times, overseen by the professional management of

hig ly experienced financial experts, who provide KCG with information as to

3


• •the gains achieved on a regular basis. The transaction is based on the daily

pu hase and resale of high-grade government securities;" and

(iii) "H storically, [KCG's] 10-year 'monthly average' has been better than 2% to

the client. [Kiselak's] personal experience is that since I have been involved

ov r the past 3 years, [KCG has] done a little better: averaging more than

capital company. Gemstar invested in a variety of venture capitalequity and

B. KCG's Inves or Funds Were Not Invested As Represented

13. Kisel and KCG invested over 95% ofthe investor funds with Gemstar, a private

investments, includi vineyards, a private jet, and other private investments.

14. Until allocated to a particular private equity or venture capital investment,

Gemstar maintains i vestors' funds, including KCG's investments, in money market funds and

capital reserve subac ounts.

15. Contr ry to Kiselak's offering documents and communications with investors,

KCG investor funds were not invested in T-bills or managed in conjunction with New York

based financial instit tions.

C. KCG Failed 0 Disclose Its 35% Performance Fee

16. In Ap il 2009, Gemstar provided KCG with an account statement that showed for

the first quarter of 2 09, KCG purportedly earned between 2.89% and 3.77% monthly (which is

a total of 9.61% for t e quarter, or approximately $2.7 million), and that KCG's ending balance,

as of March 31, 2009 was $26,566,981.

17. Using this account statement, Kiselak calculated quarterly returns for KCG's

investors and produ ed to them account statements reflecting profits of 6.7% for the quarter

4


• •(2.23% per month). he return on investment percentage reflected in KCG's communications to

its investors represe ed only 65% of the profit Gemstar purportedly earned investing on behalf

of KCG. Kiselak, ithout disclosure to KCG investors, took 35% of the purported Gemstar

18. records do not reflect significant profits from trading.

Gemstar invested ap roximately $20 million "on behalf' of KCG investors in money market

funds or similar se urities. During the first quarter of 2009, Gemstar's account at WBB

Securities earned ap roximately $20,000 or 0.09% on these money market-type investments.

And Gemstar's bro erage accounts at Royal Alliance Associates and Hanlon Investment

Management, totalin approximately $1.8 million, earned approximately $3,200 for the month of

March 2009.

19. Gems ar misrepresented to Kiselak that KCG investors earned approximately $2.7

million during the fir t quarter of2009, a 9.6% return on investment.

D. Sykes Falsifi d Brokerage Account Information

20. In Ap il 2009, Kiselak requested supporting documentation from Gemstar/Sykes

for the March 31, 20 9 KCG account statement. In response, Sykes sent to Kiselak a letter that

he purportedly recei ed from WBB Securities, Gemstar's broker-dealer, showing that Gemstar's

accounts at WBB Se urities held $23,462,541.11 as of March 31, 2009, and that all of the money

was held "on behalf' of KCG.

21. WBB Securities did not draft, sign, or send the above-referenced letter. Instead,

WBB Securities sent an April 23, 2009 letter to Sykes, indicating that a Gemstar account held

$20,462,541.11 as 0 March 31, 2009 - exactly $3 million less than the amount represented in

the letter Sykes provi ed to Kiselak.

5


• •22. The BB Securities' letter did not indicate that the funds were held "on behalf'

of anyone, including CG.

23. After eceiving the forged letter from Sykes, KCG reinvested in Gemstar.

E. Recent deple ion of Brokerage Account Funds

24. On A ril 21, 2009, Gemstar, at Sykes direction, transferred approximately

$759,570 from its a counts at WBB Securities to KCG. On May 7, 2009, Gemstar, at Sykes

direction, transferre approximately $220,000 from its accounts at WBB Securities to KCG

leaving, as of May 7, 2009, approximately $19 million under the control of Gemstar and Sykes at

brokerage accounts a WBB Securities as of May 7, 2009.

25. Gems ar and Sykes have been unable to account for at least $7 million of KCG

investor funds.

FIRST CLAIM

FRAUD IN CO NECTION WITH THE PURCHASE OR SALE OF SECURITIESViolation of Exchange Act Section lOeb) and Exchange Act Rule IOb-S

26. The C mmission realleges paragraphs 1 through 25.

27. Defen ants, with scienter, by use of the means or instrumentalities of interstate

commerce or of the ails, in connection with the purchase or sale of securities: (i) employed

devices, schemes, 0 artifices to defraud; (ii) made untrue statements of material fact or

omissions to state m terial facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading; and/or (iii) engaged in acts,

practices or courses f business that operated or would operate asa fraud or deceit.

28. Defen ants representations and omissions were material.

29. By re son of the actions alleged herein, Defendants violated Section 1O(b) of the

Securities Exchange ct of 1934 [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R.

6


§ 240.10b-5].

•SECOND CLAIM

•UD IN THE OFFER OR SALE OF SECURITIES

Violations of Section 17(a) of the Securities Act

30. mmission realleges paragraphs 1 through 25.

31. Defen ants, with scienter, by use of the means or instrumentalities of interstate

commerce or of the ails, in the offer or sale of securities: (i) employed devices, schemes or

artifices to defraud; ii) obtained money or property by means of untrue statements of material

fact or omissions to ate material facts necessary in order to make the statements made, in light

of the circumstances under which they were made, not misleading; and/or (iii) engaged in acts,

practices or courses f business which operated or would operate as a fraud or deceit upon the

purchasers of the sec rities offered and sold by Defendants.

32. By re son of the actions alleged herein, Defendants violated Section 17(a) of the

Securities Act [15 U.

REQUEST FOR RELIEF

For these reas ns, the Commission respectfully requests that the Court enter a judgment:

(i) findin that Defendants violated the antifraud provisions of the federal securities

laws as alleged herei

(ii) perm ently enjoining Defendants from violating Section 17(a) of the Securities

Act [15 U.S.C. § 77q a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule

10b-5 thereunder [17 C.F.R. § 240.lOb-5];

(iii) orderi g Defendants to disgorge the losses avoided as a result of the actions

alleged herein and to ay prejudgment interest thereon;

7


• •(iv) orderi g Defendants to a pay civil monetary penalty under Section 20(d) of the

Securities Act [15 U..C. § 77t(d)] and Section 21(d) ofthe Exchange Act [15 U.S.C. § 78u(d)];

and

(v) granti g such other relief as this Court may deem just and proper.

Respectfully submitted,

~Texas Bar No. 00790733J. KEVIN EDMUNDSONTexas Bar No. 24044020MICHAEL D. KINGTexas Bar No. 24032634STEVE GRAHAMTexas Bar No. 00792542

u.S. Securities and Exchange CommissionBurnett Plaza, Suite 1900801 Cherry Street, Unit #18Fort Worth, TX 76102-6882(817) 978-6447 (tmg)(817) 978-4927 (fax)

8


---- -----

..~-r-s • OiQtGINAL •JS 44

(Rev. 3/99)RECEtVE:~ ~

CIVIL COVER SHEET U.S,;. DISTRICT OfilURT 'iiiThe JS-44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service ofPleading~re11 . Tity law, except asprovided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is requi e . k of Court for thepurpose of initiating the civil docket sheet. (SE INSTRUCTIONS ON THE REVERSE OF THE FORM.)

2009 HAY II AM 11: 0II.(a) PLAINTIFF DEFENDANTS

SECURITIES AND EXCI ANGE COMMISSION Kiselak Capital Group, ~~~SIY¥~tJitw«roup, Inc.,Michael J. Kiselak, and e rey J. Sykes.

4- 0 9 CV -2 56 -A(b) COUNTY OF RESIDENCE OF FIRST LISTED P~INTIFF County of Residence of First Listed Defendant: Tarrant

(EXCEPT IN U.S. PLAINTIFF ASES) (IN U.S. PLAINTIFF CASES ONLV)NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE

TRACT OF LAND INVOLVED.

(C)ATIORNEV (FIRM NAME, ADDRESS, AND ELEPHONE NUMBER) ATIORNEYS (If known):TOBY M. GALLOWAY David B. GilesU.S. Securities & Exchange Commission, Bum( t Plaza, Ste. 1900, 8140 Walnut Hill Lane, Suite 830801 Cherry Street, Unit #18, Fort Worth, TX 7t 102-6882 Dallas, Texas 75231(817) 978-6447 (counsel for Kiselak Capital Group, LLC and Michael Kiselak)

H. Thomas FehnFields, Fehn & Sherwin11755 Wilshire Boulevard, 15th FloorLos Angeles, California 90025(counsel for Gemstar Capital Group, Inc. and Jeffrey 1. Sykes)

II. BASIS OF JURISDICTION (PLACE A "X" IN ONE BOX ONLY) III. CITIZENSHIP OF PRINCIPAL PARTIES (PLACE AN "X" IN ONE BOX FORPLAINTIFF AND ONE BOX FOR

(For Diversity Cases Only) DEFENDANT)

PTF PTF PTF PTF

1811 U.S. Government o 3 Federal Ques ion Citizen ofThis State 01 01 Incorporated or Principal Place 04 04Plaintiff (U.S. Governn ent Not a Party) of Business In This State

Citizen of Another State 02 02o 2 U.S. Government o 4 Diversity Incorporated and Principal Place 05 05Defendant (Indicate Citiz nship of Parties Citizen or Subject of a 03 03 of Business in Another State

in Item III) Foreign CountryForeign Nation 06 06

IV. NATURE OF SUIT (PLACE AN 'X" /~ ONE BOX ONL Y)

CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTESo 110 Insurance PERSONAL INJ ~RY PERSONAL INJURY o 610 Agriculture o 400 State Reapprotionmento 120Marine 0310 Airplane o 362 Personal Injury - o 620 Other Food & Drug o 422 Appeal 28 USC 156 o 410 Antitrusto 130 Miller Act o 315 Airplane roduct Med. Malpractice o 625 Drug Related Seizure of o 430 Banks and Bankingo 140 Negotiable Instrument Liability o 365 Personal Injury - Property 21 USC 881 o 423 Withdrawal o 450 Commerce/ICCo 150 Recovery of o 320 Assault, Li el& Product Liability o 630 Liquor Laws 28 USC 157 Rates/etc.Overpayment Slander o 460 Deportation

& Enforcement of Judgmento 151 Medicare Act o 330 Federal E j'lployers' o 368 Asbestos Personal o 640 R.R. & Truck PROPERTY RIGHTS o 470 Racketeer Influenced

Liability Injury Product Liability and Corrupt Organizationso 152 Recovery of Defaulted 0340 Marine PERSONAL PROPERTY o 650 Airline Regs. o 820 Copy rights o 810 Selective Service

Student Loans (Excl. Veterans) o 345 Marine Pro~uct o 370 Other Fraud o 660 Occupational Safety/Health o 830 Patient 181 850 SecuritiesLiability o 371 Truth in Lending o 690 Other o 840 Trademark Commodities/ Exchange

o 153 Recovery OF o 350 Motor Vehi Ie o 380 Other Personal LABOR SOCIAL SECURITY o 875 Customer ChallengeOverpayment Property Damage 12 USC 3410

of Veteran's Benefitso 160 Stockholders' Suits o 355 Motor Vehi Ie o 385 Property Damage 0710 Fair Labor Standards Act o 861 HIA (1395FF) o 891 Agricultural Actso 190 Other Contract Product Liabi ity Product Liability o 862 Black Lung (923) o 892 Economic Stabilizationo 195 Contract Product Liability o 360 Other Pers nal o 720 Labor/Mgmt. Relations 0863 DIWCIDIWW (405(g)) Act

Iniury

REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS o 730 Labor/Mgmt. Reporting & o 864 SSID Title XVI o 893 Environmental MattersDisclosure Act 0865 RSI (405(0)) o 894 Energy Allocation Act

o 210 Land Condemnation 0441 Voting o 510 Motions to Vacate o 740 Railway Labor Act FEDERAL TAX SUITS 0895 Freedom ofSentence Information Act

o 220 Foreclosure o 442 Employmen Habeas Corpus: o 790 Other Labor Litigation o 870 Taxes (U.S. Plaintiff or o 900 Appeal of Feeo 230 Rent Lease & Ejectment o 443 Housing/ o 530 General Defendant) Determination Undero 240 Torts to Land Accommod tions o 535 Death Penalty o 791 Empl. Ret. Inc. o 871 IRS - Third Party Equal Access to Justiceo 245 Tort Product Liability o 444 Welfare o 540 Mandamus & Other Security Act 26 USC 7609 o 950 Constitutionality ofo 290 All Other Real Property o 440 Other Civil Rights o 550 Civil Rights State Statutes

o 890 Other Statutory Actions

V. ORIGIN (PLACE AN "X" IN ONE BOX ONLY)

1811 Original o 2Re ovedfrom o 3 Remanded from o 4 Reinstated orProceeding Sta " Court Appellate Court Reopened

Sections 17(a) and 10(b) of the Securities A t of 1933, [15 U.S.C. §§ 77q(a) and 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].

VII. REQUESTED IN CHECK IF THIS IS A CLASS ACTION DEMAND $ CHECK YES only if demanded in complaint:COMPLAINT: 0 UNDER .R.C.P.23 JURY DEMAND 0 YES 181 NO26 USC 7609

VIII. RELATED CASE(S) (See Instructipns):IF ANY JUDGE DOCKET NUMBER


OF ATTORNEY OF RECORG----r--::#--_._SIGt

DATE

FOR OFFICE USReceipt # AMOUNT __--1 APPLYING IFP JUDGE MAG. JUDGE _


Case 4:09-cv-00256-A Document 1 Filed 05/11/2009 …Case 4:09-cv-00256-A Document 1 Filed 05/11/2009...

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