UNITED STATES SECURITIES AND EXCHANGE COMMISSION LITIGATION RELEASE NO. 15739 / May 14, 1998 SECURITIES AND EXCHANGE COMMISSION V. PAUL J. MONTLE, LS CAPITAL CORPORATION, PAUL V. CULOTTA, CAROL C. MARTINO, CMA NOEL, LTD., MARIO J. IACOVIELLO, ILAN ARBEL, AND EUROPE AMERICAN CAPITAL CORPORATION, 98-CIV- 3446 (MP) (S.D.N.Y) The Securities and Exchange Commission announced the filing of a complaint on May 14, 1998 in the United States District Court for the Southern District of New York, alleging fraud and other violations of the securities laws concerning three public companies, Viral Testing Systems, Inc. ( VTS ); LS Capital Corporation ( Lone Star ); and RMS Titanic, Inc. ( Titanic ). Named as defendants were: Paul J. Montle, 50, a resident of Katy, Texas, who is Lone Star s CEO, Chairman of the Board, and President, was at one time VTS CEO and President, and was a promoter for Titanic; Paul V. Culotta, 49, a resident of Houston, Texas, who was at one time an officer of each of Lone Star, VTS, and Titanic; Carol Martino, 39, a resident of Palm Beach, Florida; CMA Noel, a New York corporation owned and controlled by Martino; Ilan Arbel, 45, a resident of New York, New York; Europe American Capital Corp., a British Virgin Islands corporation controlled by Arbel; Mario Iacoviello, 41, a resident of Chicago, Illinois; and Lone Star, a publicly traded company whose stock is traded on the over-the- counter bulletin board. The Commission's Complaint alleges as follows regarding the three corporations: VTS: VTS, whose stock traded on the American Stock Exchange, was in the business of selling an HIV test kit. From December 1992 through at least June 1993, Montle knowingly or recklessly made materially false and misleading statements regarding VTS past sales of the test kit and made projections regarding VTS future performance without any reasonable basis for making those projections. LONE STAR: During the relevant time period, Lone Star was in the business of developing casinos. Its stock trades on the over-the-counter bulletin board. From February through June 1993, Montle and Culotta made a series of misstatements and omissions in Lone Star s registration statement and in ======END OF PAGE 1====== VTS and Lone Star s public filings regarding the ownership of Lone Star at the time VTS spun off Lone Star by failing to disclose sales of stock pursuant to Regulation S, including the sales in January 1993 of 1 million shares to entities Arbel controlled, and falsely representing that Lone Star was a wholly-owned subsidiary of VTS prior to the spin-off. The shares Arbel purchased in January 1993, coupled with shares he received at the time of the spin-off meant that Arbel owned more than 10% of Lone Star s outstanding stock in May 1993. Arbel never made the required filings with the Commission regarding his share ownership. Lone Star first disclosed that it had made sales pursuant to Regulation S in its Form 10-Q filed on June 4, 1993, but falsely represented that all those sales occurred after the spin-off. Between May and December 1993, Arbel sold approximately 1.4 million shares of Lone Star stock into the United States market without that stock being registered or there being an exemption from registration. TITANIC: Titanic s stock trades in the over-the-counter market. During the relevant time period, Titanic was engaged in conducting salvage operations and exhibitions concerning the RMS Titanic. Martino and Montle engaged in a scheme to manipulate the price of Titanic stock from May through July 1993. They did so by, among other things, controlling the initial supply of stock and agreeing to restrict the supply; protecting the initial market maker from substantial loss; and by compensating brokers with money or inexpensive stock to generate artificial demand for Titanic stock. One of those brokers, Iacoviello, failed to disclose to clients to whom he recommended Titanic stock that he was being compensated for making the recommendation. For all of the Issuers, Martino, who previously had been barred from associating with a broker-dealer, both personally and through her company CMA Noel, acted as an unregistered broker-dealer. As a result of the conduct described above (1) Montle, Culotta, Martino, Iacoviello, and Lone Star violated Section 17(a) of the Securities Act of 1933 ( Securities Act ), Section 10(b) of the Securities Exchange Act of 1934 ( Exchange Act ) and Rule 10b-5 thereunder; (2) Montle and Culotta, as controlling persons pursuant to Section 20 of the Exchange Act are liable for VTS violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20; (3) Montle and Culotta violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1; (4) Arbel and Europe American violated Sections 5(a) and 5(c) of the Securities Act and Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1, 16a-2, and 16a-3 thereunder; (5) Martino and CMA Noel violated Section 15(a) of the Exchange Act; and (6) Martino violated Section 15(b)(6)(B)(i) of the Exchange Act and the prior Commission bar order against her. The Commission seeks permanent injunctive relief, disgorgement of ill- gotten gains, civil money penalties, an order barring Montle from positions as an officer or director of public companies, and other relief. Simultaneously with the filing of the Complaint, the Commission filed judgments on consent against Arbel and Europe American. Without admitting ======END OF PAGE 2====== or denying the allegations of the Complaint, Arbel and Europe American consented to (1) permanent injunctions against violating Sections 5(a) and 5(c) of the Securities Act and Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1, 16a-2, and 16a-3 thereunder; (2) a joint and several disgorgement obligation of $218,118 plus prejudgment interest. Arbel also consented to pay a penalty of $100,000 pursuant to Sections 20(d) of the Securities Act and 21(d)(3) of the Exchange Act. ======END OF PAGE 3======