UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

Case No. 04-60493-Civ

COMPLAINT

Plaintiff Securities and Exchange Commission (the "Commission") alleges:

SUMMARY

1. This action arises from a fraudulent pump-and-dump manipulation of the stock of Orex Gold Mines Corporation ("Orex"), a thinly traded, Florida-based shell company, between March and July 1999. Defendants John Surgent ("Surgent"), Barry Abrams ("Abrams"), and Warren Hemedinger ("Hemedinger") were all associated at the time with Orex, which claimed to be in the business of extracting gold from iron ore by means of an environmentally safe process. Defendant Victor Lessinger ("Lessinger") was the president of Preferred Securities Group, Inc. ("Preferred"), a broker-dealer registered with the Commission. Defendants Scott Piccininni ("Piccininni"), Paul Tahan ("Tahan"), Robert Vitale ("Vitale"), Mark Chavez ("Chavez"), and Sal Puccio ("Puccio") operated a boiler room from the Pompano Beach, Florida office of Preferred. The defendants used false promotional materials and boiler room tactics to sell more than $3 million of Orex stock to more than 100 investors nationwide.

2. By knowingly or recklessly engaging in the transactions, acts, omissions, practices, and courses of business alleged herein, the defendants violated, and are liable for the violations of, the federal securities laws and regulations as set forth below. Unless enjoined, these defendants are likely to commit similar violations in the future.

JURISDICTION

3. This Court has jurisdiction over this action pursuant to Sections 20 and 22(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77k and 77v(a)] and Sections 21(d), 21(e) and 27 of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d), (e) and 78aa]. In connection with the conduct described herein, each of the defendants, directly or indirectly, used the means or instrumentalities of interstate commerce, the mails, or the facilities of a national securities exchange. The activities complained of herein occurred primarily within this district.

DEFENDANTS

4. John W. Surgent, age 60, was the de facto principal of Orex. He is a recidivist securities law violator and a disbarred attorney. Surgent currently resides in Franklin Lakes, New Jersey and Destin, Florida. On information and belief, Surgent filed a petition for relief under chapter 7 of the Bankruptcy Code, 11 U.S.C., on November 8, 2002. However, pursuant to 11 U.S.C. § 362(b)(4), this action against Surgent is excepted from the automatic stay of 11 U.S.C. 362(a).

5. Barry Abrams, age 33, was Surgent's partner and acted as a de facto officer of Orex. On July 2, 2001, Abrams pled guilty to three counts of securities fraud charging, in part, that he participated in a conspiracy to commit securities fraud regarding Orex.

6. Warren Hemedinger, age 39, was the president of Orex until he sold the company in December 2000. Hemedinger currently resides in Coral Gables, Florida.

7. Scott Piccininni, age 35, was a de facto manager of Preferred's Pompano Beach branch office during the relevant period. On June 29, 2001, Piccininni pled guilty to five counts in three separate criminal indictments charging, in part, that he participated in a conspiracy to commit securities fraud in connection with Orex securities. Piccininni currently resides in Florida.

8. Paul Tahan, age 35, was a de facto manager of Preferred's Pompano Beach branch office during the relevant period. On July 25, 2003, Tahan was sentenced on his plea to five counts in two separate criminal indictments charging, in part, that he participated in a conspiracy to commit securities fraud in connection with Orex securities. Tahan currently resides in Brooklyn, New York.

9. Robert Vitale, age 32, supervised Preferred's cold-callers at Preferred's Pompano Beach branch office during the relevant period. Vitale currently resides in Parkland, Florida and is presently employed by L.H. Ross & Company, Inc., a registered broker-dealer, as a registered representative.

10. Mark Chavez, age 40, was a registered representative and a manager of Preferred's Pompano Beach branch office during the relevant period. Stemming from his recent failure to testify before the National Association of Securities Dealers ("NASD"), Chavez is currently barred by the NASD from associating with any NASD member firm. He currently resides in Boca Raton, Florida.

11. Salvatore Puccio, age 33, was a registered representative and a manager of Preferred's Pompano Beach branch office during the relevant period. Puccio resides in Coral Springs, Florida.

12. Victor A. Lessinger, age 57, was the president of Preferred from 1997 until it ceased operations at some time after the events complained of herein. Lessinger was one of the two shareholders of the holding company that owned Preferred. Lessinger resides in Coral Springs, and is presently employed by Vertical Capital Partners, Inc. as a registered representative.

FACTS

I. Background: Defendants Surgent and Abrams Create Orex and Secretly Control Its Publicly-Traded Stock

13. Defendant Surgent incorporated Orex in 1997 under the name "Lucky Seven Gold Mines." In February 1999, defendants Surgent and Abrams identified a dormant public shell company and orchestrated a reverse merger through which Orex became the surviving entity. Defendants Surgent and Abrams installed defendant Hemedinger as the nominal president of Orex, but they secretly controlled the company and owned or controlled most of its outstanding stock. Orex maintained its offices in Coral Gables, Florida. No registration statement was in effect as to Orex stock.

14. Beginning in March 1999, defendants Surgent, Abrams, and Hemedinger created and distributed brochures, a website, and a promotional video that falsely portrayed Orex as an active, established company with gold mines, employees, and a revolutionary gold extraction process. The promotional materials also deliberately concealed the active involvement of Surgent, a recidivist securities law violator, in Orex's business affairs. In truth, at the time, Orex did not own or possess any gold mines or gold mining equipment. Moreover, the gold extraction process touted by Orex was never tested or implemented on a commercial basis. Surgent, Abrams, and Hemedinger knew, or were reckless in not knowing, that the Orex promotional materials were false and misleading.

II. The Orex Solicitation Campaign

A. Surgent and Abrams Hire Preferred to Sell Orex Stock

15. In March 1999, defendant Lessinger, as president of Preferred, authorized the opening of Preferred's branch in Pompano Beach, ostensibly to be operated by defendant Chavez and one or more other registered representatives.

16. In fact, defendant Piccininni, who was not a registered representative, controlled Preferred's Pompano Beach branch and determined which stocks it would sell.

17. In March 1999, defendants Surgent and Abrams approached Piccininni and offered Piccininni a substantial share of the proceeds (in addition to normal commissions and markups that Preferred charged) from selling Orex stock in exchange for a sustained campaign by Preferred to solicit unsuspecting investors to purchase Orex stock. Piccininni accepted their offer, and planned to share his proceeds from the sale of Orex stock with, among others, brokers and others involved in selling Orex stock at Preferred's Pompano Beach branch, including but not limited to defendants Tahan, Vitale, Chavez and Puccio.

18. According to Preferred's written supervisory procedures, the firm prohibited the solicitation of "penny stocks" as defined under Exchange Act Rule 3a51-1, and restricted the purchase of penny stocks unless it received an unsolicited letter, signed by the investor, requesting to purchase a particular penny stock. Despite the firm's prohibition against soliciting transactions in penny stocks, Lessinger authorized the Pompano Beach branch office's request to solicit transactions in Orex. Prior to authorizing the firm's solicitation of Orex, Lessinger simply reviewed the Orex brochure, the Orex private placement memo, and an Orex press release. He did not conduct any independent research or assessment regarding Orex's officers, assets, or prospects for success. Orex quickly accounted for a high percentage of the overall transactions conducted by Preferred's Pompano Beach branch.

19. Although Lessinger retained responsibility for reviewing, authorizing, and approving customers' transactions in Orex stock, and although he was the senior official of Preferred and functioned as a compliance officer, he failed to exercise appropriate supervision and to take the necessary steps to ensure that Preferred, and the personnel operating out of Preferred's Pompano Beach branch in particular, complied with applicable procedures, securities laws and regulations in connection with transactions in Orex stock.

20. During the period from March through June 1999, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio directed the Orex solicitation campaign primarily from and through Preferred's Pompano Beach branch office, as described herein. Specifically, Piccininni and Tahan controlled the brokers' books or customer contact sheets, initiating customer calls, soliciting transactions, or directing others to solicit transactions in Orex. Defendant Vitale supervised and paid the cold-callers, in addition to soliciting transactions in Orex. Defendants Chavez and Puccio managed the daily operations of the firm, solicited transactions in Orex, and along with defendant Vitale, allowed unregistered brokers, including defendants Piccininni and Tahan, to use their names while soliciting investments in Orex.

B. Hallmarks of a Boiler Room: Abusive Sales Practices, Fraudulent Misrepresentations, and Forged Documents

21. During the period from March through June 1999, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio, operating from, through and for Preferred's Pompano Beach branch, and communicating with customers principally through telephone calls, made a number of false and misleading statements of material fact to convince their customers to either purchase Orex or refrain from selling it, including, but not necessarily limited to, the following:

a) Defendants Piccininni, Tahan, Vitale, Chavez, and Puccio typically falsely represented to customers that (1) Orex owned or possessed exclusive rights to a gold-extraction process called the "Haber Gold Process" ("HGP"), and (2) the HGP was approved by the Environmental Protection Agency ("EPA");

b) Defendants Piccininni, Tahan, Vitale, and Chavez falsely represented to customers that state governments and the EPA were outlawing traditional, cyanide-based extraction, positioning Orex as the only company able to lead and revolutionize the gold extraction industry;

c) Defendant Vitale typically orally characterized an investment in Orex as an easy decision or a "no-brainer" - baselessly predicting that the price would double by the end of the summer, and in at least one instance, baselessly predicting that the share price would reach as high as $20 within six months;

d) Defendants Piccininni, Tahan, Chavez, and Puccio predicted that investments in Orex would double within a few months; and

e) Defendants Vitale and Chavez assured customers that an investment in Orex was safe and essentially risk free, telling customers that they too were personally invested in the company.

Defendants Piccininni, Tahan, Vitale, Chavez, and Puccio knew, or were reckless in not knowing, that these claims regarding Orex were false and that their price predictions were baseless.

22. During the period from March through June 1999, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio, operating from, through and for Preferred's Pompano Beach branch, engaged in various undisclosed sales practice abuses in order to manipulate the market for Orex stock, including, but not necessarily limited to, the following:

a) Bait and Switch: Defendants Piccininni, Tahan, Chavez, and Puccio, communicating with customers principally through telephone calls, typically convinced customers to open brokerage accounts at Preferred by initially soliciting transactions in well-known, blue chip companies. Within a few days, defendants Piccininni, Tahan, Chavez, and Puccio called these customers again - often repeatedly - and relentlessly pressured the customers to sell their initial blue chip investment and use the proceeds to purchase Orex stock;

b) Refusal to Sell: When customers placed an order to sell their Orex stock, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio typically ignored or refused to execute the order; and

c) Delayed Orders: In an effort to prevent a price decline, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio would indefinitely hold orders to sell unless and until the broker could find a corresponding buy order from another customer.

23. During the period from March through June 1999, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio routinely and deliberately failed to make the required penny-stock disclosures to customers concerning Orex, including but not necessarily limited to the actual amount of compensation they received from the transactions, as required by Exchange Act Section 15(g) [15 U.S.C. §§78o(g)] and Exchange Act Rules 15g-2, 15g-4, and 15g-5 [17 C.F.R. § 240.15g-2, 15g-4, 15g-5].

24. In addition, defendants Piccininni and Tahan forged, or caused to be forged, investor's signatures on the penny stock risk disclosure forms required by Exchange Act Section 15(g), which created a false documentary record that investors had received and reviewed the forms in connection with their purchases of Orex stock.

25. During the period from March 1999 through July 1999, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio, and the boiler room they directed at Preferred, convinced over 100 customers to buy more than $3 million of Orex stock.

26. At the same time, defendant Surgent sold over 1 million shares of Orex for a total gross profit of almost $6 million and defendant Hemedinger sold approximately six hundred shares for a gross profit of over three thousand dollars.

27. The impact of the defendants' scheme is evidenced by the rise and fall of Orex's stock price. Orex began trading on March 9, 1999, at $1.53. By April 1999, after two weeks of the defendants' misrepresentations, the stock was trading at approximately $5.50 and peaked at $7.81 in late May. On June 4, 1999, however, the price collapsed to $1.75, before rebounding and closing at $4.25 per share. The price declined steadily thereafter and by late July 1999, Orex was trading for pennies a share.

28. During the decline, defendant Hemedinger issued a press release on June 7, 1999 stating that Orex had obtained "exclusive rights" to the HGP, which was "EPA approved." The release also stated that "revenue from completed gold processing could be generated within the next 60 days." In truth, Orex did not hold non-exclusive rights to the HGP, did not have the necessary equipment with which to implement the HGP, and the HGP had never been tested or approved by EPA. Hemedinger knew, or was reckless in not knowing, that such statements of material fact in the press release were false and misleading.

FIRST CLAIM
(Violations of Exchange Act Section 10(b) and Exchange Act Rule 10b-5)

29. Paragraphs 1 through 28 are re-alleged and incorporated herein by reference.

30. As described above, defendants Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, and Puccio, together with Preferred, by use of means or instrumentalities of interstate commerce or of the mails, acting knowingly or recklessly: employed devices, schemes or artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in acts, practices, or courses of business that operated or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

31. By reason of the foregoing, defendants Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, and Puccio, together with Preferred, each violated Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5].

SECOND CLAIM
(Violations of Securities Act Section 17(a))

32. Paragraphs 1 through 31 are re-alleged and incorporated herein by reference.

33. As described above, defendants Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, and Puccio, in the offer or sale of Orex securities, by use of means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly employed devices, schemes or artifices to defraud; obtained money or property by means of untrue statements of a material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaged in transactions, practices, or courses of business that operated or would operate as a fraud or deceit upon the purchaser.

34. By reason of the foregoing, defendants Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, and Puccio each violated Securities Act Section 17(a) [15 U.S.C. § 77q(a)].

THIRD CLAIM
(Violations of Securities Act Section 5(a) and 5(c))

35. Paragraphs 1 through 34 are re-alleged and incorporated herein by reference.

36. As described above, defendants Surgent, Abrams, Piccininni, Tahan, Vitale, Chavez, and Puccio, in the offer and sale of Orex securities, made use of the mails or the means or instruments of transportation or communication in interstate commerce, through the use or medium of a prospectus or otherwise, when no registration statement had been filed or was in effect as to such securities. By reason of the foregoing, defendants Surgent, Abrams, Piccininni, Tahan, Vitale, Chavez, and Puccio each violated Securities Act Sections 5(a) and 5(c) [15 U.S.C. §§77e(a) and (c)].

FOURTH CLAIM
(Aiding and Abetting Liability (Exchange Act Section 20(e) for Violations of Exchange Act Section 15(g))

37. Paragraphs 1 through 36 are re-alleged and incorporated herein by reference.

38. In connection with selling a penny stock such as Orex, Preferred was required to comply with Exchange Act Section 15(g) [15 U.S.C. §§78o(g)], which requires certain disclosures to customers and requires compliance with rules including Exchange Act Rules 15g-2, 15g-4, and 15g-5 [17 C.F.R. § 240.15g-2, 15g-4, 15g-5]. Among other things, Preferred thus was required, prior to effecting any transaction in a penny stock such as Orex, to give each customer a risk disclosure document containing the information set forth in Exchange Act Section 15(g) [15 U.S.C. §§78o(g)], and to make other disclosures as set forth in that statute and in the cited rules. Among the required disclosures was the amount of compensation the salesperson and Preferred receive. Pursuant to Exchange Act Rule 15g-2, Preferred also was required to obtain from each customer a manually signed and dated written acknowledgement of receipt of the risk disclosure document described in that rule.

39. As described above, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio, acting for and through Preferred, acting knowingly or recklessly, and using the mails or any means or instrumentality of interstate commerce, effected transactions in, or induced or attempted to induce the purchase or sale of Orex stock, which was a penny stock, without making the required disclosures, including but not necessarily limited to the amount of compensation that Preferred and the salesmen would receive for selling Orex, without first providing customers with the required risk disclosure documents, or without first obtaining a manually signed and dated written acknowledgment of receipt of the risk-disclosure document.

40. By reason of the foregoing, Preferred made use of the mails or instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of a penny stock, without complying with the requirements of Exchange Act Section 15(g) [15 U.S.C. §§78o(g)] and Exchange Act Rules 15g-2, 15g-4, and 15g-5 [17 C.F.R. § 240.15g-2, 15g-4, 15g-5].

41. By reason of the foregoing, defendants Piccininni, Tahan, Vitale, Chavez, and Puccio each aided and abetted Preferred by knowingly providing substantial assistance to Preferred in its violation of Exchange Act Section 15(g) [15 U.S.C. §§78o(g)] and Exchange Act Rules 15g-2, 15g-4, and 15g-5 [17 C.F.R. § 240.15g-2, 15g-4, 15g-5]. Accordingly, pursuant to Exchange Act Section 20(e) [15 U.S.C. § 78t(e)], such defendants are deemed in violation of such provisions to the same extent as Preferred.

FIFTH CLAIM
(Control Person Liability Under Exchange Act Section 20(a))

42. Paragraphs 1 through 41 are re-alleged and incorporated herein by reference.

43. Lessinger had the power to control the general affairs of Preferred, including its Pompano Breach branch, and the personnel who conducted the above-described activities from and through Preferred's Pompano Beach branch, including but not limited to defendants Piccininni, Tahan, Vitale, Chavez, and Puccio. Lessinger also had the requisite power to directly or indirectly control or influence the specific policies practiced by Preferred and such defendants which resulted in the violations of Exchange Act Sections 10(b) and 15(g) [15 U.S.C. § 78j(b) and 78o(g)], and Exchange Act Rules 10b-5 [17 C.F.R. § 240.10b-5], 15g-2, 15g-4, and 15g-5 [17 C.F.R. § 240.15g-2, 15g-4, 15g-5], as described in the First and Fourth Claims, above. 44. By reason of the foregoing, Lessinger controlled Preferred and defendants Piccininni, Tahan, Vitale, Chavez, and Puccio with regard to the matters described in the First and Fourth Claims. Pursuant to Exchange Act Section 20(a) [15 U.S.C. § 78t(a)], Lessinger is liable jointly and severally with and to the same extent as such controlled persons, with regard to the violations of Exchange Act Sections 10(b) and 15(g) [15 U.S.C. §§ 78j(b) and 78o(g)] and Exchange Act Rules 10b-5 [17 C.F.R. § 240.10b-5], 15g-2, 15g-4, and 15g-5 [17 C.F.R. § 240.15g-2, 15g-4, 15g-5], as described in the First and Fourth Claims, above.

SIXTH CLAIM
(Violation of NASD Conduct Rule 3010 Under Exchange Act §§ 21 (e) and (f))

45. Paragraphs 1 through 44 are re-alleged and incorporated herein by reference. 46. Preferred and Lessinger each are members of NASD, which is a registered securities association.

47. NASD Conduct Rule 3010 requires its members, among other things, to "establish and maintain" a system to supervise the activities of its registered representatives and associated persons and to "establish, maintain, and enforce" written supervisory procedures that are "reasonably designed to achieve compliance with applicable securities laws and regulations."

48. As described above, during the relevant period, Lessinger violated NASD Conduct Rule 3010 by failing to maintain a system to supervise the activities of the registered representatives and associated persons involved in selling Orex stock at Preferred, and Lessinger failed to maintain and enforce written supervisory procedures reasonably designed to achieve compliance with the securities laws and regulations cited in the First through Fourth Claims, above, including (i) the anti-fraud provisions of Securities Act section 17(a), Exchange Act section 10(b), and Rule 10b-5; (ii) the prohibition on selling unregistered stock, as provide in Securities Act section 5(a) and 5(c); and (iii) the penny stock disclosure and record requirements provided in Exchange Act section 15(g) and Rules 15g-2, 15g-4 and 15g-5.

49. By reason of the foregoing, Lessinger violated NASD Conduct Rule 3010 and, pursuant to Exchange Act § 21(e) and (f) [15 U.S.C. § 78u (e) and (f)], Lessinger should be enjoined from violating such rule.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that this Court enter a judgment that:

(i) permanently enjoins Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, Puccio and Lessinger from violating Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5];

(ii) permanently enjoins Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, and Puccio, from violating Securities Act Section 17(a) [15 U.S.C. § 77q(a)];

(iii) permanently enjoins Surgent, Abrams, Piccininni, Tahan, Vitale, Chavez, and Puccio, from violating Securities Act Sections 5(a) and 5(c) [15 U.S.C. §§77e(a) and (c)];

(iv) permanently enjoins Piccininni, Tahan, Vitale, Chavez, and Puccio from aiding and abetting violations of Exchange Act Section 15(g) [15 U.S.C. §§78o(g)] and Exchange Act Rules 15g-2, 15g-4 and 15g-5 [17 C.F.R. § 240.15g-2, 15g-4 and 15g-5];

(v) permanently enjoins Lessinger from controlling any person who violates Exchange Act Section 15(g) [15 U.S.C. §§78o(g)] and Exchange Act Rules 15g-2, 15g-4 and 15g-5 [17 C.F.R. § 240.15g-2, 15g-4 and 15g-5];

(vi) permanently enjoins Lessinger from violating NASD Conduct Rule 3010; (vii) permanently bars Surgent, Abrams, and Hemedinger from acting as an officer or director of any issuer that has a class of securities registered pursuant to Exchange Act Section 12 [15 U.S.C. § 78l] or that is required to file reports pursuant to Exchange Act Section 15(d) [15 U.S.C. § 78o(d)];

(viii) permanently bars Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, Puccio and Lessinger from participating in an offering of penny stock, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any penny stock. All equity stocks are penny stock unless exempted per Exchange Act Section 3(a)(51) [15 U.S.C. § 78c (a)(51)(A)] and Exchange Act Rule 3a51-1 [17 C.F.R. § 240.3a51-1];

(ix) orders Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, Puccio and Lessinger to pay appropriate civil penalties pursuant to Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)];

(x) orders Surgent, Abrams, Hemedinger, Piccininni, Tahan, Vitale, Chavez, Puccio, and Lessinger to provide an accounting and to disgorge, with interest, any ill-gotten gains they received in connection with the conduct described above; and

(xi) grants such other relief as the Court deems just or appropriate.

Dated: ______________, 2004

http://www.sec.gov/litigation/complaints/comp18669.htm