Mot.injunction.california.v.turan.petroleum.vanetik.febr.18.12
description
Transcript of Mot.injunction.california.v.turan.petroleum.vanetik.febr.18.12
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• PRESTON DuFAUCHARD California Corporations Commissioner ALAN S. WEINGER Deputy Commissioner ALEX CALERO (SBN 238389) Corporations Counsel
• FILED
SUPERIOR COURT OF CALIFORNIA COUNTY OF ORANGE
CE7;;;·;0~~-TER.& """'~ ,,. Co•m
JOYCE TSAI (SBN 241908) Corporations Counsel CALIFORNIA DEPARTMENT OF CORPORATIONS 1350 Front Street, Room 2034 San Diego, California 92101 Telephone: (619) 525-4043
Attorneys for the People of the State of California
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF ORANGE
THE PEOPLE OF THE STATE OF CALIFORNIA, by and through the CALIFORNIA CORPORATIONS COMMISSIONER,
Plaintiff,
vs.
TURAN PETROLEUM, INC., a Nevada corporation; NRG RESOURCES, INC., a Nevada corporation~ HIEP TRINH, aka ALEX TRINH, an individual; ANATOL Y V ANETIK, aka TONY V ANETIK, an individual; MITCH NGO, an individual; and DOES 1 through 10, inclusive,
Defendants .
Case No.: 30-2010-003 89990-CU -SL-CJC
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
Date: February 18,2011 Time: 1:30 p.m. Dept: Cll
Complaint filed: July 15,2010 Trial date: none set
MEMORANDUM OF POINTS AND AUTHORITIES
IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
I. INTRODUCTION
This case involves the offer and sale of stock in two interconnected companies, Turan
Petroleum, Inc. ("Turan Petroleum" or "Turan") and NRG Resources, Inc. ("NRG Resources" or
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• • "NRG"). Both companies are in the oil and gas business. They were formerly located at the same
address. Until at least June 2008, Defendants Anatoly Vanetik, aka Tony Vanetik ("Vanetik") and
Hiep Trinh, aka Alex Trinh ("Trinh") were control persons of both companies. Defendant Mitch
Ngo ("Ngo") offered and sold securities on behalf of both companies.
The Department of Corporations, as the regulator of securities transactions in California, is
charged with enforcing the securities laws. The Department of Corporations' investigation found
that Trinh and Vanetik, as the control persons of NRG Resources and Turan Petroleum, engaged
in schemes designed to put investor money into their own pockets and that the companies knew of
and ratified these actions. The defendants violated Corporations Code section 25110 by selling
unqualified securities and Corporations Code section 25401 by making misrepresentations and
omissions of material fact.
II. STATEMENT OF FACTS
The Department of Corporations ("Department") became aware that Turan Petroleum and
NRG Resources may be engaged in the offer and sale of unqualified, nonexempt securities in the
state of California. (Declaration of Lisa Medina ("Medina Decl.") ,-r 4.) The Department initiated
an investigation and on November 13, 2008, it issued a subpoena duces tecum to Turan and NRG.
(Medina Decl. ,-r 7.)
A. The Defendants
Defendant Turan Petroleum was originally incorporated under the laws of Nevada in
March 2001 under the name Elite Registry, Inc. ("Elite"). Elite changed its name to Turan
Petroleum, Inc. in December 2004.
From its inception until at least June 2008, Defendant Anatoly Vanetik, aka Tony Vanetik
("Vanetik") was the president of Turan. From its inception until at least .June 2008, Defendant
Hiep Trinh, aka Alex Trinh ("Trinh") was a control person ofTuran. In or about June 2008, Turan
acquired new management, replacing Trinh and Vanetik. (Medina Decl. Exh. 14.)
2001.
Defendant NRG Resources was incorporated under the laws of Nevada on November 29,
From its inception, Vanetik has been the chairman of the board of directors, CEO, co-2-
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• • founder, and a control person of NRG Resources. (Medina Decl. ~~ 21-22.) From its inception,
Trinh has been the vice president, co-founder, and a control person ofNRG Resources. (ld.)
At all relevant times, Defendant Mitch N go ("N go") has acted as a salesperson for Turan
Petroleum and NRG Resources. (Declaration of Loc Pham ('<Pham Decl. ") ~~ 3-7; Declaration of
Alain Do ("Do Decl.") ~~ 2-11.)
At all relevant times, Trinh and V anetik also controlled several other entities. These
included Capital Marketing Systems, Inc. ("Capital Marketing Systems"), a Nevada corporation,
and Valueluck, an entity of unknown form. (Medina Decl. ~ 19; Declaration of Anthony Nguyen
("A. Nguyen Decl.") Exh. 3; Do Decl. Exh. 2.)
In 1991, Defendant Vanetik was convicted by the United States District Court for the
Central District of California of a felony, subscribing to false income tax returns, in violation of
Title 26, United States Code section 7206(1). Vanetik was sentenced to probation for a period of
five years and ordered to pay a fine of$5,000.00. (Medina Decl. Exh. 13.)
In 2001, Trinh was barred by the National Association of Securities Dealers ("NASD,"
now the Financial Industry Regulatory Authority, or "FINRA"), a self-regulatory organization
empowered by Congress to regulate securities broker-dealers, from ever associating with any
member in any capacity. NASD's decision was based on the finding that Trinh had converted
$10,000.00 of customer funds for his own use. In2001, based on similar findings, Trinh was also
barred by the Office of Thrift Supervision from ever associating with certain banking institutions.
(Medina Decl. Exhs. 10, 11 and 12.)
B. Offer and Sale of Securities
In or around April 2004, Turan began distributing its stock to insiders, such as control
persons of Turan and entities controlled by them, including Valueluck. From April 2004 until
January 2009, Turan issued $12,250,996.60 worth of its stock to individuals or entities who did
not pay money for the stock. (Medina Decl. Exh. 22.)
In or around January 2005, Turan began selling its stock to the general public. From
January2005 until January 2009, Turan sold $2,612,610.00 worth of common stock to the general
public. (Medina Decl. Exh. 21.) -3-
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• • In or around June 2005, NRG began selling its stock to the general public. From June
2005 until December 2008, NRG sold $7,051,998.60 worth of common stock to 173 different
investors. (Medina Decl. Exh. 24.)
In or around June 2005! NRG began distributing stock to individuals and entities, including
Capital Marketing Systems, in exchange for services or otherwise pursuant to contracts. From
June 2005 until December 2008! NRG distributed 5,915,912 shares of common stock. (Medina
Decl. Exh. 25.)
In addition, Defendants Trinh and V anetik arranged sales of stock to be made by
Valueluck, Capital Marketing Systems, and other entities that had previously been issued Turan
stock as described above. For example, one shareholder purchased $200,000.00 worth of common
stock, but Turan's bank records do not reflect a deposit of $200,000.00 from this transaction
because the shareholder was instructed to make a $100,000.00 check payable to Valueluck and
pay the remaining $100,000.00 in cash to Trinh. (Declaration of Maria Shimohara ("Shimohara
Decl.") ~~ 7-8.) The shareholder received a handwritten receipt from Trinh for the $100,000.00
paid in cash. At the time this shareholder purchased his shares, he was not aware that he was
purchasing previously issued shares; instead, he believed he was purchasing shares from Turan,
rather than Valueluck. The shareholder was not told that he was purchasing stock that Valueluck
had not paid money for. Turan Petroleum's board of directors knew about Valueluck selling these
shares; Tony Vanetik, as President and Director, signed the Action by Written Consent of the
Directors of Turan Petroleum adopting this transfer of shares. (A. Nguyen Dec!. ~~ 8-10, Exhs. 2
and 3; Medina Dec!. Exh. 20; see also Do Dec!.~~ 6· 7.)
Another shareholder invested $100,000.00 in Turan by making a check out to Wells Fargo.
(Medina Decl. ~ 27.) The notation on the back of the canceled check shows that the check was
deposited to a 16-digit account number, rather than to Turan's bank account. (Id.; Medina Decl.
Exh. 23; Shimohara Decl. ~ 10.) The $100,000.00 investment is not reflected in Turan' s list of
stocks sold. (Medina Decl. ~ 27; Exh. 21.) Instead, according to Turan's records, the shares were
issued "for services," even though the shareholder paid $100,000.00 by check for the shares.
(Medina Decl. ~ 27; Exhs. 22, 23.) -4-
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• • Defendants solicited people by word of mouth. The stocks of NRG Resources and Turan
were sold to people who had no preexisting relationship with any of the Defendants. (A. Nguyen
Decl. ~~ 2-4; Declaration of Peter Nguyen ("P. Nguyen Decl.") ~ 3; Declaration of Alain Do ("Do
Decl.") ~~ 2-5; Declaration of Hector Salazar ("Salazar Decl.") ~ 2.) Some of these investors were
unaccredited and unsophisticated investors. (Do Decl. ~~ 14-15; P. Nguyen Decl. ~ 15.)
In order to offer and sell common stock, Turan published Private Placement Memoranda
("PPMs") dated October 30, 2005, February 21, 2007, and March 11, 2008. NRG published
PPMs dated December 2004 and July 1, 2006 and a Private Offering Memorandum dated
February 14, 2007. (Medina Decl. Exhs. 17 and 18.)
None of the PPMs published by Turan or NRG disclosed that Defendant Trinh had been
barred by the NASD and the Office of Thrift Supervision. None of the PPMs disclosed that
Defendant V anetik had been convicted of a felony in 1991. These disclosures were riot otherwise
made, orally or in writing, to people who purchased common stock of NRG or Turan. (Medina
Decl. ~~20-21; A. Nguyen Decl. ~~ 12-13; P. Nguyen Decl. ~~ 12-13; Do Decl. ~~ 12-13; Salazar
Decl. ~~ 8-9; Pham Decl. ~~ 8-9.)
In soliciting people to purchase stock, Trinh, Vanetik, and Ngo told people that each
company had taken all of the necessary steps to make an initial public offering ("IPO"), including
making necessary filings with the Securities and Exchange Commission ("SEC"). They said that
each company would make an IPO within 3-5 months. In fact, however, neither company had
filed any forms with SEC in preparation for "going public,'' and to this date, no initial public
offering has been made. (A. Nguyen Decl. ~~ 5-6; P. Nguyen Decl. ~~ 4, 7; Do Decl. ~~ 2-4;
Salazar Decl. ~~ 3, 7; Medina Decl. ~ 32.)
In an email dated November 19, 2004, discussing a 4-phase plan for Turan, the founders
had planned to "set the price on the pinks high (i.e. $10) with virtually no trading." (Medina Decl.
~ 18.) Defendants Ngo and Trinh subsequently told prospective investors that Turan's stock was
being traded at $12.50 per share. (A. Nguyen Decl. ~ 7; P. Nguyen Decl. ~ 7.) Ngo and Trinh
showed the prospective investors a screenshot of Turan's trading activity in order to convince
them this was true. {ld.) The screenshot shown to the investors was on the website of the Pink -5-
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• • Sheets, a system for trading over~the~counter securities-what the founders had referred to as "the
pinks" in the 2004 email. (A Nguyen Decl. Exh. 1.) One investor was thereby convinced that the
price he was paying, $2.50 per share, was a good deal. (A. Nguyen Decl. ~ 7.)
The California Corporations Commissioner has not issued a permit or other form of
qualification to any person to offer or sell the stock ofNRG or Turan in this state. (Medina Decl.
Exhs. 1 and 3.)
On January 31, 2005, Turan filed a Notice of Transaction Pursuant to Corporations Code
section 251 02(f) with the Department of Corporations. NRG has never filed anything with the
Department, but in 2004 it filed two Notices of Sale of Securities Pursuant to Regulation D, Rule
506, with the Securities and Exchange Commission. (Medina Decl. Exhs. 2, 27 .)
III. ARGUMENT
A. The Commissioner Has The Authority to Bring This Action to Seek An lnjundion
California Corporations Code section 25530 and Government Code section 11180 provide
the Commissioner with broad, discretionary authority to bring actions for injunctive and other
ancillary relief whenever it appears that any person has engaged in or is about to engage in any act
or practice in violation of the Corporate Securities Law. Section 25530 provides:
Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this division or any rule or order hereunder, the commissioner may in the commissioner's discretion bring an action in the name of the people ofthe State of California in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order hereunder. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted ....
(Corp. Code § 25530, subd. (a).)
The statute provides that upon a proper showing, the court "shall" grant a preliminary
injunction. Therefore, if the Court finds that Plaintiffhas made a proper showing here, the Court
"shall" grant Plaintiffs requested relief.
The availability or use by Plaintiff of other remedies is not a proper reason to deny a
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• • preliminary injunction. Section 25535, subd. (b), of the Corporations Code provides: "As
applied to the penalties for acts in violation of this division,. the remedies provided by this section
and by other sections of this division are not exclusive, and may be sought and employed in any
combination to enforce the provisions of this division." The statute provides that the
Commissioner has discretion to bring an action in superior court. (Corp. Code§ 25530(a)).
To obtain a preliminary injunction under the Corporations Code, Plaintiff only needs to
demonstrate a likelihood of success on the merits. The California Supreme Court has held that
government agencies seeking to enjoin violations of statutes, unlike private litigants, do not need
to show irreparable hann. (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 70-73 .) "Where a
governmental entity seeking to enjoin the alleged violation of an ordinance which specifically
provides for injunctive relief establishes that it is reasonably probable it will prevail on the merits,
a rebuttable presumption arises that the potential harm to the public outweighs the potential hann
to the defendant." (IT Corp., 35 Cal.3d at 72.) The California-Supreme Court in IT Corp. reached
this conclusion after a detailed discussion, citing, among other cases, Paul v. Wadler (1962) 209
Cal.App.2d 615, 625. "The theory is that when a legislative body has authorized the injunctive
remedy for the violation of a statute, it has determined as a matter of law that irreparable injury
attends the violation of the statute." (Paul v. Wadler, 209 Cal.App.2d at 625). In fact, the statute
itself states that the Commissioner may seek an injunction when any person has engaged in
violations or is about to engage in violations; it does not require a showing of both. (Corp. Code §
25530(a).)
The California Supreme Court in IT Corp. also cited several federal court cases that held
that no balancing of banns is necessary. (IT Corp., 35 Cal. 3d at 71 (citing Atchison, T &S. F. Ry.
Co. v. Lennen (1Oth Cir. 1981 ). ) Indeed, several federal courts have held that where the Securities
and Exchange Commission showed a likelihood of success on the merits, no balancing test was
necessary to grant an injunction under the federal securities laws. "In a securities case, the
injunctive relief is a creature of statute, and thus the traditional equity requirement that irreparable
injury be shown is inapplicable." (SEC v. J&B Indust., Inc., 388 F. Supp. 1082, 1084 (D. Mass.
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• • 1974).) Federal securities law, like the California Corporations Code, provides that an injunction
shall be issued upon a "proper showing," and that is all that is necessary, federal courts have held.
(!d.; SEC v. Bennett & Co., 207 F. Supp. 919, 923 (D.N.J. 1962); SEC v. R.J Allen & Assoc., Inc.,
386 F. Supp. 866, 875 (S.D. Fla. 1974).)
Once Plaintiff has made a "proper showing," an injunction shall be issued even if
Defendants argue that the illegal conduct has ceased. "Mere cessation of the unlawful conduct,
even if accompanied by expressed intent to refrain from future unlawful conduct, will not defeat
an injunction if 'there exists some cognizable danger of recurrent violation."' (SEC v. J&B Indus.,
388 F. Supp. at 1084 (internal citations omitted).) Although Plaintiff has already issued a Desist
and Refrain Order, which prohibits Defendants from violating Corporations Code sections 25110
and 25401, the statute still provides that a preliminary injunction shall be issued upon a "proper
showing." (Medina Decl. Exh. 29.)
As set forth below, it is reasonably probable that Plaintiff will prevail on the merits.
Plaintiffs motion is accompanied by evidence, in the form of declarations and exhibits, that
Defendants have violated Corp. Code sections 25110 and 25401 by offering and selling stock in
NRG and Turan. Therefore, Plaintiff has made a "proper showing." Defendants' pattern of
violations also shows a likelihood that they will continue to violate the law, unless enjoined. A
preliminary injunction should be issued to prevent Defendants from further violating the
Corporations Code.
B. Defendants Made Offers and Sales of Unqualified, Non-Exempt Securities In Violation of Section 25110
Corp. Code section 25110 provides:
It is unlawful for any person to offer or sell in this state any security in an issuer transaction . . . unless such sale has been qualified . . . or unless such security or transaction is exempted or not subject to qualification under Chapter 1 [commencing with Section 251 00] of this part.
1) Defendants Offered and Sold Securities In This State In Issuer Transactions
The common stock in NRG and Turan sold by Defendants are "securities" for the purposes
of Section 25110. Corp. Code section 25019 defines "security" to include stock.
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• • Defendants solicited the general public, targeting fellow Vietnamese residents of Orange
County in particular, to purchase their stocks. In response to Plaintiffs subpoena, Defendants
provided Plaintiff with lists of investors and amounts invested. (Medina Decl. Exhs. 21, 22, 23,
and 24.) These showed that Tutan sold at least $2,612,610.00 worth of stock and NRG sold at
least $7,051,998.60 worth of stock. (ld.) Therefore, Defendants have offered and sold securities
as those terms are defined in Corporations Code section 25017.
Under Corporations Code section 25008, an offer or sale of a security is made "in this
state" when the offer is made in California, the offer is accepted in California, or the security is
delivered to the purchaser in California. (Corp. Code § 25008, subd. (a).) At all relevant times,
Turan Petroleum and NRG Resources had their principal places of business in Orange County,
California. At all relevant times, Defendants Trinh, Vanetik, and Ngo resided and worked in
Orange County, California. Therefore, all of the offers and sales of NRG and Turan stock made
by Trinh, V anetik, and Ngo originated in California. In addition, many of the investors were
California residents, so as to those investors, the offer or sale was "in this state" for the additional
reason that the offer was accepted in California. As to out of state investors, their money was
received in California~ therefore, the sale was "in this state."
Defendants offered and sold the stocks of NRG and Turan in both issuer and nonissuer
transactions (although buyers in the nonissuer transactions were led to believe that they were
buying newly issued shares). Corp. Code section 25010 defines "issuer" as any person who issues
or proposes to issue any security. The sales of stock by Turan and NRG were issuer transactions.
Sales by other entities or individuals, such as Valueluck, are nonissuer transactions under § 25011.
Although sales of stock by Valueluck and Capital Marketing Systems are nonissuer
transactions, § 25011 provides that these sales still violate Corporations Code section 25110.
Section 25011 provides: "An offering which involves both an issuer transaction and a nonissuer
transaction shall be treated for the purposes of Chapters 2 (commencing with Section 2511 0) and 4
(commencing with Section 25130) of Part 2 of this division as an issuer transaction .... "
Defendants, without telling investors, structured these transactions so that the money would go to
Valueluck and Capital Marketing Systems (and from there, into the hands of Vanetik and Trinh), -9-
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• • but they cannot use their own wrongdoing and misrepresentation to avoid liability under Section
25110. Under Section 25011, these transactions violate Section 25110 even though the sales did
not benefit the issuer.
2) Defendants Sold Securities That Were Not Qualified Or Exempt
Because Defendants offered and sold securities in this state in issuer transactions, Section
25110 requires that the securities be qualified or exempt. The securities sold by Defendants have
not been qualified by the Commissioner.
Defendants have not shown that any exemption from qualification applies. The burden of
proving an exemption is on Defendants. (Corp. Code§ 25163.)
Turan did file a Notice of Transaction Pursuant to Corporations Code section 251 02(f) on
January 31, 2005. NRG filed a Notice of Sale of Securities Pursuant to Regulation D, Section
4(6), and/or Uniform Limited Offering Exemption with the Securities and Exchange Commission
on or around April 21, 2004 and May 17, 2004, claiming exemption under Rule 506. However,
since at least 2005 and continuing to the present, both NRG and Turan used general soliCitation, in
the form of an investor referral network, to offer and sell securities. As described above,
Defendants solicited people throughout the community in Orange County, particularly
Vietnamese-Americans. (P. Nguyen Decl. ~,-r 2-3.) Defendants solicited people with whom they
had no preexisting relationship and who were not accredited investors. (A Nguyen Decl. ,-r,-r 2-4;
P. Nguyen Decl. ,-r,-r 2-3, 15; Do Decl. ,-r,-r 3, 14; Salazar Decl. ,-r 2.) Therefore, Defendants do not
meet the requirements for exemption from registration under the Securities Act of 1933. (See 17
C.F.R. § 230.502, subd. (c) (to qualify for the federal exemption, "neither the issuer nor any
person acting on its behalf shall offer or se11 the securities by any form of general solicitation or
general advertising .... ").) The general solicitation also renders Defendant's claim of exemption
under California law invalid. (Corp. Code § 25102, subd. (f)(4); Cal. Code Regs, tit. 10, §
260.102.120).).
Defendants must raise and prove the exemption as to every person who was offered or sold
securities in Turan or NRG. Defendants cannot meet this burden. Defendant Turan received
$100,000.00 from investor Timothy Vitta in what was clearly supposed to be a purchase of Turan -10-
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• • shares with a check. However, Turan's books and records do not reflect that Vitta purchased
shares. Instead, Turan's books and records state that Vitta was issued shares in exchange "for
services." (Medina Decl. Exhs. 21, 22, and 23.) This discrepancy shows that Turan's shareholder
lists are incomplete and its records contain false and conflicting information. For this reason,
Turan will not be able to produce any reliable documents that can be used to prove that an
exemption applies. Even if Turan were to produce evidence that every single shareholder to
whom it offered or sold stock met the requirements of Corporations Code section 251 02(f), there
could be other purchasers who, like Vitta, are missing from its lists.
C. Defendants Made Material Misrepresentations and Omitted to State Material Facts to Investors In Violation of Section 25401
1) "Reasonable Investor" Standard For§ 25401
Defendants made several misrepresentations and omissions that would be considered
material to the ''reasonable investor." (SEC v. Murphy (1980) 626 F.2d 633, 643; SEC v. Todd
(S.D. Cal. 2007) No. 03CV 2230 BEN (WMc), 2007 U.S. Dist. LEXIS 38985, at *8 (citing Basic
Inc. v. Levinson (1988) 485 U.S. 224, 231-232)). The "reasonable investor" standard is an
objective standard; therefore, a plaintiff need not prove that any particular investor actually relied
on the misrepresentation or omission. (Lynch v. Cook (1983) 148 Cal. App. 3d 1072, 1081 (citing
TSC Industries, Inc. v. Northway, Inc. (1976) 426 U.S. 438, 445); see also People v. Baumgart
(1990) 218 Cal. App. 3d 1207, 1220 (citing Bowden v. Robinson (1977) 67 Cal. App. 3d 705,715,
which held that Section 25401 differs from common law negligent misrepresentation in that no
reliance is required; internal citations omitted).)
2) Failure to Disclose Vanetik's Felony Conviction
Defendants failed to disclose that Vanetik, the president of Turan and the CEO ofNRG,
had been convicted of a felony, subscribing to false tax returns. This information would clearly be
material to someone who is entrusting his or her money to Vanetik or a company controlled by
V anetik. The reasonable investor would be interested in knowing that a control person of the
company had been convicted of a crime involving fraud or deceit. (Pham Decl. ~ 9.)
3) Failure to Disclose Trinh's Bar by NASD and the Office of Thrift Supervision
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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
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• • Defendants failed to disclose that Defendant Trinh, a control person of both Turan and
NRG, had been previously barred from the securities industry. This information would obviously
be material to a person who is about to purchase securities from Trinh or a company controlled by
Trinh. Trinh was barred by NASD and the Office of Thrift Supervision based on the finding that
he had misappropriated $10,000 of client funds. Given that Trinh was accepting tens of thousands
of dollars from investors here (one investor, for example, gave him $100,000.00 in cash), any
reasonable investor would clearly be concerned that Trinh had been found to have stolen a client's
funds and barred from the securities industry. (A. Nguyen Dec!.~ 9; Pham Dec!.~ 8.)
4) Failure to Disclose That Money Invested Would Not Go To Turan Petroleum
NRG and Turan were new companies trying to raise capital by selling common stock.
Investors purchased stock thinking they were investing in the company and that their investments
would contribute to the company's growth. Investors were not told that (in some cases) their
money was going into the pockets of a third party, such as Valueluck (which was controlled by
Trinh and Vanetik), rather than Turan. For example, one investor invested $200,000 which went
to Valueluck; not one cent went to Turan. (A. Nguyen Decl. ~ 9.) The fact that his purchase of
stock was actually from a nonissuer was clearly material to this investor because he had an interest
in seeing Turan raise capital and succeed in general. He had no interest in seeing Valueluck profit
from his transaction. As a direct consequence of this misrepresentation, Turan had less capital and
its stock was worth less than it would have been had all sales been issuer transactions.
5) Misrepresentation That NRG and Turan Had Taken the Necessary Steps To
Make An Initial Public Offering Within Months
Many investors were convinced to invest because Trinh, Vanetik, and/or Ngo told them
that NRG or Turan would have an IPO within months and once that happened, the stock would be
worth much more and the investor could resell his or her shares for a sizable profit. Trinh,
Vanetik, and Ngo made specific representations about the steps that the companies had taken
(such as SEC filings) in order to prepare for the IPO. None of these representations were true; in
fact, neither company had made any filings with the SEC in preparation to go public. In
purchasing their securities, these investors relied on the statements regarding the IPO; they -12-
MEMORANDUM OF POINTS AND AUTHORJTIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
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• • thought the investment would be extremely profitable once the stock became publicly traded. This
information was material to their investment decisions. (See SEC v. Richie, No. EDCV 06-63-
VAP (SGLx), 2006 U.S. Dist. LEXIS 45853 (C.D. Cal. May 9, 2006) (denying Defendants'
Motion to Dismiss Complaint or Alternately, to Dismiss Certain of Plaintiffs Four Claims for
Relief or Alternately, for a More Definite Statement, or Alternately, to Strike Portions of the
Complaint; rejecting Defendant's argument that the statement concerning the upcoming IPO was a
"vague statement of optimism" or an "unfulfilled promise of a future event.")).
D. Defendants Should Be Enjoined From Removing, Destroying, Mutilating, Concealing, Altering, Transferring, or Otherwise Disposing of Documents
As shown above, there is evidence that shareholders, such as Timothy Vitta, may have
purchased shares, yet somehow been omitted from Turan's records of purchased shares. Needless
to say, it is important that all evidence regarding the offer and sale of Turan and NRG stock be
preserved pending this litigation.
E. Defendants' Assets Should Be Frozen In Order to Preserve Shareholder Funds
An asset freeze is a form of ancillary relief, and ancillary relief may be granted pursuant to
Corporations Code section 25530. (See, e.g., SEC v. Hickey, 322 F.3d 1123, 1131 (9th Cir. 2003)
(holding that trial courts have inherent equitable authority to issue ancillary relief, including an
asset freeze, in actions brought by the SEC to enforce securities laws (citing SEC v. Wencke, 622
F.2d 1363, 1369 (9th Cir. 1980))).
An asset freeze is authorized under California law. (Republic of the Philippines v. Marcos,
862 F.2d 1355, 1361 (9th Cir. 1988) (rejecting Marcos' argument that the freeze of assets was an
attachment that California law permits attachment only in connection with a contract claim.)).
An asset freeze is necessary here to preserve assets for the purposes of awarding restitution
and penalties. These remedies, involving the payment of money, are specifically available under
the Corporate Securities Law, and therefore an asset freeze is an appropriate provisional remedy.
(See Reebok Int '/, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 560 (9th Cir. 1991) (holding that
an asset freeze is an appropriate provisional remedy when it preserves assets for an award of
ultimate remedies)).
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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
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• • IV. CONCLUSION
Defendants made not just one, but numerous misrepresentations and omissions to induce
investors to purchase stock of NRG and Turan. Defendants omission to tell investors material
facts, as well as telling outright lies designed to deceive investors and create a false picture of
NRG and Turan. These misrepresentations and omissions were made by more than one defendant,
showing a coordinated effort to mislead investors.
Plaintiff respectfully requests that the Court issue a preliminary injunction enjoining the
Defendants from (I) violating California Corporations Code section 2511 0; (2) violating
California Corporations Code section 25401; (3) removing, destroying, mutilating, concealing,
altering, transferring, or otherwise disposing of, in any manner, books, records, documents,
correspondence, brochures, manuals, or other documents of any kind in the possession, custody, or
control of the Defendants, including but not limited to those pertaining to the above referenced
facts; and (4) withdrawing from any bank account or disposing of any real or personal property in
their possession, custody or control.
Dated: January 26, 2011 San Diego, California
PRESTON DuFAUCHARD Califomiao?'li/;ora!i.oRs-Coinmissioner
tfl 7 !l By: 7Jl!l \.)
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JOY~'l'SAI Corporations Counsel Attorney for the People of California
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION