34884071-0--9134

J. E. Cullens, Jr. (admitted pro hac vice) Walters, Papillion, Thomas, Cullens LLC 12345 Perkins Road, Building One Baton Rouge, LA 70810 (225) 236-3636 Patrick N. Broyles (admitted pro hac vice) Broyles Law Firm LLC 12345 Perkins Road Building Two, Suite 203 Baton Rouge, LA 70810 (225)663-2223

John C. Anderson (admitted pro hac vice) Anderson Firm, LLC Post Office Box 82982 Baton Rouge, LA 70884 (225) 252-1645 Robin E. Phelan Haynes Boone, LLC 2323 Victory Avenue Suite 700 Dallas, TX 75219 (214) 651-4512

Special Counsel for Carey Ebert, as Trustee for Latitude Solutions, Inc.

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF TEXAS FORTH WORTH DIVISION

In re: LATITUDE SOLUTIONS, INC. Chapter 11 Debtor Case No.: 12-46295-rfn-11

LATITUDE SOLUTIONS, INC. Plaintiff, v. HOWARD APPEL, ERNEST A. BARTLETT, III, MATTHEW J. COHEN, RMS ADVISORS, INC., CAPITAL GROWTH REALTY, INC., CAPITAL GROWTH INVESTMENT TRUST, DIT EQUITY HOLDINGS, KWL EXPLORATION AND DEVELOPMENT, INC., VIRGINIA DADEY, BELLCREST ADVISORS, LLC, DEBORAH COHEN, HAWK MANAGEMENT Adversary Proceeding GROUP, INC., FEQ REALTY, LLC, HARVEY KLEBANOFF A/K/A HARVEY KAYE, HELEN KLEBANOFF, MOGGLE,

Case 12-46295-rfn11 Doc 238 Filed 11/09/14 Entered 11/09/14 21:53:27 Page 1 of 94

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LLC, ISLAND CAPITAL MANAGEMENT, LLC, TSS INVESTMENTS, INC., VERNON RAY HARLOW, JEFFERY WOHLER, MICHAEL GUSTIN, WILTOMO REDEMPTION FOUNDATION, SLD CAPITAL CORP., DeROSA FAMILY TRUST, WILLIAM BELZBERG REVOCABLE LIVING TRUST, MICHAEL GARNICK, and JOHN PAUL DeJORIA Defendants

ORIGINAL ADVERSARY COMPLAINT

This action is brought by Plaintiff, Carey D. Ebert, as Trustee (Trustee) for the Chapter

11 estate of the Debtor, Latitude Solutions, Inc. (LSI) against Defendants, Howard Appel,

Earnest A. Bartlett, III, Matthew J. Cohen, Harvey Klebanoff a/k/a Harvey Kaye, Helen

Klebanoff, Vernon Ray Harlow, RMS Advisors, Inc., Capital Growth Realty, Inc., Capital

Growth Investment Trust, DIT Equity Holdings, Inc., KWL Exploration and Development, Inc.,

Moggle, LLC, Virginia Dadey, Bellcrest Advisors, LLC, Deborah Cohen, Hawk Management

Group, Inc., FEQ Realty LLC, Jeffery Wohler, Michael Gustin, Island Capital Management,

LLC, TSS Investments, Inc., Wiltomo Redemption Foundation, SLD Capital Corp., DeRosa

Family Trust, William Belzberg Revocable Living Trust, Michael Garnick, and John Paul

DeJoria.


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TABLE OF CONTENTS INTRODUCTION..........................................................................................................................6 JURISDICTION AND VENUE ....................................................................................................8 PARTIES ........................................................................................................................................9

THE PLAINTIFF .......................................................................................................................9

THE DEFENDANTS...............................................................................................................10

Howard Miller Appel ......................................................................................................10 Ernest A. Bartlett, III ......................................................................................................14 Harvey N. Klebanoff a/k/a Harvey Kaye ........................................................................16 Helen Klebanoff .............................................................................................................18 Vernon Ray Harlow ........................................................................................................18 Matthew Cohen ...............................................................................................................19 Deborah Cohen ...............................................................................................................20 Hawk Management Group, Inc. ......................................................................................20 Virginia Dadey ................................................................................................................20 Bellcrest Advisors, LLC .................................................................................................21 Jeffrey Wohler ................................................................................................................21 Michael Gustin ................................................................................................................22 John Paul DeJoria ...........................................................................................................23

APPEL AND BARTLETT RELATED ENTITIES ................................................................25

Island Capital Management, LLC ...................................................................................27

DEFINED TERMS ..................................................................................................................28

FACTUAL ALLEGATIONS ......................................................................................................29

SUMAMRY .............................................................................................................................29 ACT ONE: THE BAD COPS .................................................................................................32

The Early Years ..............................................................................................................32 LSI Subsidiaries ..............................................................................................................33 Latitude Energy Services, LLC.......................................................................................35 Cohen, Kaye, and Appel .................................................................................................36 Behind the Curtain: The Appel Show ............................................................................37 The Appel Pump-And-Dump: An Overview ..................................................................37 The Fraudulent Transfers ................................................................................................38 The Pumps ......................................................................................................................40


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The Cross-Trades ............................................................................................................40 The DTC Sheets ..........................................................................................................41

ACT TWO: THE KEYSTONE COPS ...................................................................................43

The Second Board Knowingly Partners with Nice Guys Appel, Bartlett, and Cohen..............................................................................................43 LSI is the VictimNot DeJoria .....................................................................................46 Appel Reins in Cohen for Banging the #%!@ Out of the Stock ....................................49 DeJoria Joins LSIs Board as a Non-Liable Director ..................................................50 Jose Lugo Verifies the Corruption ..................................................................................51 Wohler Plays Both Sides ................................................................................................56 Howard Appel Compensation .........................................................................................57 Cohens Sexual Harassment ...........................................................................................57 The March 14, 2012, Fax ................................................................................................58 The Keystone Cops Catch, then Excuse Cohens Insider Trading .................................62 Appel, Bartlett, and DeJoria Use LSI to Suit Their Own Interests .................................64 Wohler Claims that DeJoria Made Him Do It ................................................................65 Gross Incompetence, Lack of Internal Controls, and Oversight .....................................67

ACT THREE: THE GOOD COP ...........................................................................................70

Director and CEO Jerry J. Langdon Blows the Whistle .................................................70 The Second Board Settles on Putting LSI into Bankruptcy ............................................75 The Second Board Hopes to Cover Their Tracks ...........................................................78

CLAIMS FOR RELIEF ..............................................................................................................78

COUNT ONE: Avoidance and Recovery of Fraudulent Transfers Under Sections 544(B) and 550 of the Bankruptcy Code and The Florida Uniform Fraudulent Transfer Act, F.S.A. 726.101, et seq., or, alternatively, The Nevada Uniform Fraudulent transfer Act, Nev. Rev. Stat. Ann. 112.140, et seq.

Against the Appel/Bartlett Group and the Insider Defendants .......................................78 COUNT TWO: Avoidance and Recovery of the Fraudulent Transfers Under

Sections 548(A)(1)(A) and (B) and 550(A) of The Bankruptcy Code Against the Appel/Bartlett Group and the Insider Defendants .......................................81 COUNT THREE: Breach of Fiduciary Duty Against the Director and Officer Defendants .................................................................83


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COUNT FOUR: Aiding and Abetting Breach of Fiduciary Duty Against All Defendants ..................................................................................................85 COUNT FIVE: Fraud Against All Defendants ..................................................................................................87 COUNT SIX: Conspiracy to Commit Fraud Against All Defendants ...................................................................................................88 COUNT SEVEN: Aiding and Abetting Fraud Against All Defendants ..................................................................................................89 COUNT EIGHT: Punitive Damages and Attorneys Fee Claims Against All Defendants ...................................................................................................90

JURY DEMAND ..........................................................................................................................91 PRAYER FOR RELIEF ..............................................................................................................92

ATTACHMENT ONE

FRAUDULENT TRANSFERS FROM LSI TO APPEL/BARTLETT GROUP AND INSIDER DEFENDANTS (four page document)


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INTRODUCTION

1. This lawsuit arises out of a fraudulent pump-and-dump scheme perpetrated by

two groups of corporate insiders and co-conspirators who all misused the Debtor, Latitude

Solutions, Inc., and its subsidiaries (LSI), its shareholders, and its creditors. The first group of

insiders (the First Board), created LSI and manipulated the stock of LSI in classic pump and

dump fashion. The second group (the Second Board), corporate fiduciaries all, partnered with

them in the hope of taking the original pump-and-dump program global. Controlling both

Boards from the shadows was the Appel/Bartlett Group, a group led by Howard Appel

(Appel), a serial securities manipulator who had previously been convicted of securities fraud

and who had a lengthy track record of corporate stock manipulation. Knowing full well that LSI,

a publically traded corporation, was being run by a den of securities fraud predators, the Second

Board deliberately disregarded the plunder that was taking place, and knowingly allowed the

pillage to continue under their watch. Instead of trying to save the company from the

Appel/Bartlett Group, the Second Board acted purely in their own self-interests, grossly

mismanaged LSI's business, and squandered corporate assets, all while talking out of both sides

of their mouth. Out of one side of their proverbial mouth, the Second Board allowed Appel to

continue running LSI and praised Appel for extracting money from unsuspecting investors. The

Second Board then wasted the capital on extravagant expenses and ill-advised business prospects

designed to market LSI, not conduct legitimate business activities. Yet out of the other side their

proverbial mouth, they demonized the First Board and the Appel/Bartlett Group and went to

great lengths to investigate and document their fraudulent scheme, so that if LSI were to bleed to

death, they could lay all of the blame on Appel and the First Board, conveniently diverting

attention away from themselves. All the while LSI sank deeper in debt. When the pump-and-


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dump scheme seized up and the well ran dry, the Second Board put LSI into Chapter 7 and

submitted a dossier on Appel and his lackey, Matt Cohen (a founder of LSI and its CFO until

almost the end), to the Department of Justice, in the hope that the Second Boards allegations of

wrong-doing against Appel and Cohen would shield them from their own culpability in causing

LSI's failure. In reality, the First Board and the Second Board were partners in crime, and their

combined fraud and corporate waste caused LSI to fail, leaving creditors with potentially more

than $40 million in debt.

2. The Trustee brings claims against the Defendants (i) to recover the value of LSIs

assets awarded to purported, former consultants of LSI (the Consultant Defendants) and

others at the direction of certain LSI Directors and Officers, namely Harvey Kaye, Matthew

Cohen, and V. Ray Harlow, (the First Board); (ii) to avoid transfers pursuant to 108, 544(b),

546, 547 and 548 of the Bankruptcy Code, Fed. R. Bankr. P. 7001(1), Fla. Stat. Ann. 726.101

et seq. (or, alternatively, Nev. Rev. Stat. Ann. 112.140 et. seq; (iii) to preserve and recover

such transfers, or the value of such transfers, from the Defendants, or from any other person or

entity for whose benefit the transfers were made, pursuant to 550(a)(1) and 551 of the

Bankruptcy Code and Fla. Stat. Ann. 726.109 (or, alternatively, Nev. Rev. Stat. Ann.

112.220); (iv) equitable subordination of certain claims pursuant to 510 of the Bankruptcy

Code; and (v) for all other relief under applicable statutory and common law theories of

avoidance and recovery.

3. The Trustee brings state-law claims against the various Defendants as identified

herein, seeking all recoverable compensable and punitive damages, caused by Defendants

breach of fiduciary duty, aiding and abetting breach of fiduciary duty, gross mismanagement and


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self-dealing, fraud, aiding and abetting fraud, conspiracy, corporate waste, negligent

misrepresentation, and unjust enrichment.

4. During the course of this action, Plaintiff may learn (through discovery or

otherwise) of additional fraudulent transfers, and it is Plaintiffs intention to avoid and recover

all transfers made by the Estate of any interest of the Estate in property to, or for the benefit of,

the Insider Defendants or any other transferee. Plaintiff reserves the right to amend this

Complaint to include: (i) further information regarding the transfers described herein, (ii)

additional transfers, (iii) additional defendants, and/or (iv) additional causes of action that may

become known to Plaintiff at any time during this action, through formal discovery or otherwise,

and for such amendments to relate back to filing of this Complaint.

JURISDICTION AND VENUE

5. The United States Bankruptcy Court for the Northern District of Texas (the

Bankruptcy Court) has jurisdiction over this adversary proceeding under 28 U.S.C. 157 and

1334 and the Standing Order of the United States District Court for the Northern District of

Texas referring to the Bankruptcy Judges in this District all cases and proceedings arising under

title 11 of the United States Code (the Bankruptcy Code). The causes of action alleged herein

arise under, arise in, or are related to the above-styled and numbered Chapter 11 case.

6. This adversary proceeding constitutes a core proceeding as defined in 28 U.S.C.

157(b)(2) to the extent of certain of the causes of action alleged by the Plaintiff and is non-core

with respect to those causes of action which constitute related proceedings. Because the Plaintiff

has requested a jury trial Plaintiff consents to the entry of final orders and judgments by the

Bankruptcy Judge, pursuant to Rule 7008 of the Federal Rules of Bankruptcy Procedure only to

the extent that such consent is compatible with the jury trial rights of the Plaintiff and does not


9

consent to the exercise of such authority by the Bankruptcy Judge if the exercise of such

authority is not compatible with the jury trial rights of the Plaintiff.

7. Venue in the Northern District of Texas is proper under 28 U.S.C. 1408 and

1409 because this adversary proceeding arises under, arises in, and is related to the above-styled

and numbered case commenced under the Bankruptcy Code.

8. On November 9, 2012, LSI filed a voluntary petition under Chapter 7 of the

Bankruptcy Code. (Doc. No. 1)

9. On April 5, 2013, LSIs bankruptcy proceeding was converted from Chapter 7 to

a Chapter 11 bankruptcy. (Doc. No. 106)

10. On April 5, 2013, the Court ordered the United States Trustee to appoint a Trustee

for this case. (Doc. No. 108)

11. On April 11, 2013, the Court ordered the appointment of Carey Ebert as Trustee.

(Doc. No. 111)

PARTIES

THE PLAINTIFF

12. This action is brought by Plaintiff, Carey D. Ebert, as Trustee (Trustee) for the

Chapter 11 estate of LSI, a publically-traded corporation. LATI was the ticker symbol for

Latitude Solutions, Inc. At all pertinent times to this proceeding, LATI traded on the pink sheets.

Once LSI filed bankruptcy, the ticker symbol changed to LATIQ.

13. LSI is a Nevada corporation which, during the time of its operations relevant to

this proceeding, had its principal place of business in Boca Raton, Florida. In approximately

August 2012, LSI allegedly moved its principal executive offices to Fort Worth, Texas, just prior


10

to seeking bankruptcy protection on November 9, 2012. Upon information and belief, LSI did

not conduct extensive business from its Texas office, other than preparing for bankruptcy.

THE DEFENDANTS

HOWARD MILLER APPEL

14. Howard Miller Appel is an adult citizen of Pennsylvania. Bartletts tortious

actions alleged herein were directed at LSI and its operations in the State of Florida.

15. Mr. Appels sordid history of illegal acts in the securities arena spans roughly

twenty-five years. As more fully alleged herein, Appels fraud committed against LSI is yet

another example of history repeating itself.

16. In 1989, a brokerage firm party owned by Appel, named Bailey, Martin & Appel,

Inc. was accused of stock manipulation by acquiring 70 percent of the stock of Northgate

Industry, a shell corporation with no assets. After acquiring this Northgate Industry stock at 20

cents per share, the brokerage firm later increased the price of the stock to $3.00 per share by

buying and selling shares despite "limited wholesale and retail demand for the stock. By way of

settlement, the National Association of Securities Dealers (NASD)1 fined the brokerage

$50,000 and suspended both the brokerage and its owners from the Association.

17. In 1991, Bailey, Martin & Appel, Inc. and Howard Appel were each fined

$125,000 by the NASD for further wrongdoing. Appel was also barred from association with

any member of the NASD in any capacity. The NASD found that the brokerage firm, through

Appel, effected principal sales of equity securities, agency cross transactions, and municipal

securities to public customers at unfair prices. According to the findings, the firm, acting through

1 In 2007, the NASD became the Financial Industry Regulatory Authority (FINRA) through the consolidation of NASD and the member regulation, enforcement and arbitration operations of the New York Stock Exchange.


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Appel, failed to make certain disclosures on confirmations and sold unregistered shares of

common stock to customers. In addition, the NASD found that the firm, acting through Appel,

sold limited partnership interests on an all or none basis and caused funds to be disbursed from

the escrow account before the contingency was met. The findings also stated that the firm, acting

through Appel, failed to comply with NASD rules concerning options accounts, failed to

maintain a program of written supervisory procedures, failed to maintain accurate books and

records, and filed inaccurate FOCUS reports. Furthermore, the NASD determined that the firm

did not record on its order tickets the names of the dealers contacted and the quotations received

for transactions in non-NASDAQ securities.2

18. In 2003, Appel was implicated in another securities fraud scheme. The plaintiff

company contended that, although Appel had no official relationship with the defendant

company, Net Value Holdings, Inc., he effectively controlled it through affiliated individuals and

entities. The plaintiff further contended that Appel, and others, artificially inflated the stock

prices of companies controlled by Appel and sold their own stock at high profits and thereafter

allowed the stock prices to plummet, rendering worthless other shareholders' investments.

Although the court concluded that the plaintiffs reliance upon the defendant's representations

was not reasonable, the court provided enlightening details of some of Appel's methodology used

in prior dealings:3

Neither in negotiations leading up to plaintiff's investment in NETV nor in the stock purchase agreement itself did defendants mention any connection between NETV and Howard Appel, who since 1991 had been barred by the NASD for life from associating with any member of that organization in any capacity.

2 See NASD Disciplinary Actions Report (August 1991). 3 Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 193-194 (2d Cir. 2003) disapproved of by Glidepath Holding B.V. v. Spherion Corp., 590 F. Supp. 2d 435 (S.D.N.Y. 2007).


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Disbarment of Appel for life came about, in part, because of his sale of unregistered securities to customers. Plaintiff later learned that defendant's CEO Panzo had had a long history of collaborating with Appel in various investment schemes. Further, through a series of affiliated entities and individuals Appel played a significant role in NETV's founding, financing and particularly, in its control.

* * *

Appel, through an affiliated company, would acquire control of a public shell corporation and exercise that control to install defendant Panzo as a director or a senior officer, because Appel himself, on account of his past record, could not be a director of a public company. With Panzo in a top management position, the company would transfer substantial quantities of stock or warrants to Appel and Panzos affiliates, either in a sale transaction, or in payment for purported consulting or investment banking services, or as a finders fee in anticipation of a merger. Then the two men through extraordinarily complex corporate legal maneuvers, often by way of subsidiaries of the companies of which they were principals, such as reverse mergers, stock exchanges between public and private corporations, reverse stock splits, a bewildering list of corporate name changes, and other corporate devices would end up with large amounts of stock or warrants to purchase stock. Appel affiliates would then sell the securities at a relatively high price, generating large profits for Appel and Panzo. Subsequently, these companies' stock became virtually worthless. NETV itself was similarly created through a merger of a public shell corporation with a private company largely owned by persons who were affiliated with Appel, and who also had participated as shareholders in eight other PanzoAppel ventures. After the merger, these persons became NETV shareholders, and additional quantities of NETV stock were first transferred to and later sold by another Appel affiliate.

As will be described in greater detail below, if one were to substitute LSI for NETV and

Cohen for Panzo in the above-quotation, one would have a concise description of Appels

modus operandi, and how he manipulated LSI and its directors for his own personal gain.

19. In 2004, Appel was charged with conspiracy to commit securities fraud, and

conspiracy to commit money laundering in relation to a stock manipulation scheme of over the

counter stocks. The U.S. Attorney charged that Appel, and others, would obtain large blocks of

stock of thinly traded over the count stocks for little or no consideration and deposit them into


13

secret nominee accounts at various brokerages. Further, the U.S. Attorney charged that Appel

paid secret kickbacks to brokers, in the form of cash and free stock, in exchange for the brokers

causing their clients to purchase blocks of the stock from Appel and others at artificially inflated

prices. Mr. Appel ultimately pled guilty to both counts and received two one year and one day

sentences (concurrent) and was ordered to pay $2.8 million in restitution. In July 2011, a time

during which Appel was interacting with LSI and its stock, he paid $1.5 million in restitution to

the court. Upon information and belief, Appel obtained this money through the fraud committed

against LSI with the help of other defendants named in this suit.

20. In yet another, more recent securities fraud scheme, Appel served as an authorized

representative and secretary of Bamco Gas, LLC (Bamco), a private, manager-managed

Delaware LLC formed in 2004 to, inter alia, acquire exploration and development assets in the

Texas Gulf Coast Region. Through a number of affiliated companies controlled by Appel,

including 1025 Partners, LP; RMS Advisors; DHH Resources; RMS Gas, LLC; and PHT Gas,

LLC, Appel was the single largest Principal Member with control of Bamco, owning 27.29% of

that company.

21. Following an extensive investigation into Bamco, the Arkansas Securities

Commission found that Appel and Bartlett committed securities fraud by withholding material

facts and information necessary to render private placement memoranda relating to Bamco not

misleading. On July 9, 2013, the Arkansas Securities Commissioner issued a public Cease and

Desist Order directed to Appel and Bartlett ordering them to refrain from violating applicable

laws, rules, and regulations surrounding the sale of securities.

22. As was the case with his dealings with LSI, Appels significant involvement and

control of Bamco through numerous affiliated entities was hidden from the outside investors and


14

creditors of LSI, and certainly, Appels long-history of adverse legal and regulatory history were

not disclosed to outside investors or creditors of LSI.

23. Appel served his prison time for securities fraud violations from June 12, 2008,

through April 24, 2009. His involvement with LSI began either when he was still in prison or

shortly after his release.

24. It is the habit or routine practice of Appel to engage in conduct which violates the

laws, rules, and regulations surrounding the sale and purchase of securities.

25. Appel is a convicted felon and serial securities fraud violator.

26. Appel was, at all times relevant to this proceeding, an insider of LSI, as that

term is defined by the Bankruptcy Code, given that he was in de facto control of LSI, the Debtor.

27. Appel, Bartlett, DeJoria, and/or entities with which they are associated have been

involved in a myriad of complex securities offerings spanning an undetermined period of time; it

is the habit or routine practice of Appel, Bartlett, and DeJoria to do business together in such a

manner.

ERNEST A. BARTLETT, III

28. Earnest Ancin Bartlett, II (Bartlett) is an adult citizen of Arkansas. Bartletts

tortious actions alleged herein were directed at LSI and its operations in the State of Florida.

29. Bartlett was a broker-deal agent with E.F. Hutton & Co., Inc. from 1986-1987,

and with Prudential-Bache Securities, Inc. from 1987-1988. Through a decision rendered on

June 14, 1989, the National Association of Securities Dealers (NASD) (n/k/a FINRA),

censured Bartlett, fined him $15,000.00, and barred him from association with any NSDA-

registered broker-dealer in any capacity. NASD found that Bartlett exercised discretionary power

over three customer accounts and purchased and sold securities without the prior written consent


15

of the customers. Additionally NASDA found that Bartlett used high-pressure sales tactics and

made exaggerated and misleading statements to customers to solicit their business. Bartlett also

failed to respond to NASD requests for information pursuant to the NASD Rules of Fair

Practice.

30. At all material times herein, Bartlett served as the president and principal of FEQ

Investments, Inc. (FEQ Investments), a Delaware corporation which served as the manager of

FEQ Gas, LLC (FEQ Gas), a manager-managed Delaware LLC for which Bartlett also served

as principal. Bartlett, along with Appel, was a principal interest holder with control of Bamco,

owning some 8.32% of this company through his FEQ entities.

31. As alleged in detail supra, the Arkansas Securities Commission found that Appel

and Bartlett committed securities fraud by withholding material facts and information necessary

to render private placement memoranda relating to Bamco not misleading, and on July 9, 2013,

the Arkansas Securities Commissioner issued a public Cease and Desist Order directed to Appel

and Bartlett ordering them to refrain from violating applicable laws, rules, and regulations

surrounding the sale of securities.

32. According to the Cease and Desist Order issued by the Arkansas Securities

Commissioner in the Bamco matter, on the day that Appel entered prison in 2008, he sent an

email to individuals trying to reach him to either email him or coordinate with Bartlett, as he

would be tough to reach.

33. Bartlett is a serial securities fraud violator with close ties to Appel.

34. It is the habit or routine practice of Bartlett to engage in conduct which violates

the laws, rules, and regulations surrounding the sale and purchase of securities.


16

35. Bartlett was, at all times relevant to this proceeding, an insider of LSI, as that

term is defined by the Bankruptcy Code, given that he was in de facto control of LSI, the Debtor.




manner.

HARVEY N. KLEBANOFF

37. Harvey N. Klebanoff a/k/a Harvey Kaye (Kaye) is an adult citizen of Florida.

Kayes tortious actions alleged herein were directed at LSI and its operations in the State of

Florida.

38. Kaye was the CEO of LSI from 2009 January 18, 2012, and was instrumental in

propagating the LSI pump-and-dump.

39. Kaye served on the Board of Directors of LSI from its inception until April 22,

2012.

40. Kaye was employed by LSI and received an excessive salary during his

employment with LSI.

41. Like other defendants involved in the scheme to loot LSI, Kaye has a history of

violating securities laws and market manipulation in particular.

42. In 1974, Kaye was barred from the securities industry by the Securities and

Exchange Commission. The sanctions were based on findings that Kaye and his business

associate manipulated the prices and markets of several securities, caused an investment

company over which they had control to purchase securities to its detriment without disclosing

the adverse factors attendant to such investments, and in connection with sales of various


17

securities to customers made misrepresentations regarding their market prices and investment

qualities.4

43. Kaye was also the owner and managing member of Gulfstream Capital Group,

L.C. (Gulfstream). Upon information and belief, Gulfstream Capital Group, L.C. is the alter

ego of Kaye. In regulatory filings signed by Kaye, Gulfstream is described as a merchant

banking, consulting and financial advisory organization, which provides advisory and corporate

finance services to both public and private companies.5 Gulfstream operated out of its office

located at 190 NW Spanish River Blvd., Suite 101, Boca Raton, FL 33431 the same address as

LSI. Kaye regularly conducted LSI business and received substantial funds from LSI through

Gulfstream. For example, LSIs 2011 Form 10-KA states that during the year ending December

31, 2010, Kaye received total compensation from LSI in the amount of $183,789. Of this

amount, only $89,451 was paid to Harvey Kaye directly, whereas $94,338 was paid to

Gulfstream Capital Group, owned by Harvey Kaye. Likewise, during 2009, $154,782 of Kayes

compensation as CEO and President of LSI was paid to Gulfstream. Only $5,000 of his

compensation was paid to Kaye directly.

44. Kaye was, at all times relevant to this proceeding, an insider of LSI, as that term

is defined by the Bankruptcy Code, given that he was a director and officer of LSI, the Debtor.

4 SEC News Digest, Issue 74-60, (March 27, 1974). 5 LSI Form 10-KA, filed May 20, 2011. Gulfstream is referenced as Gulfstream Capital Group, Inc. in regulatory filings. However, emails sent by Kaye in 2099 and thereafter on LSI-related business reference Gulfstream Capital Group, L.C. Upon information and belief, Gulfstream Capital Group, Inc. is Gulfstream Capital Group, L.C.


18

HELEN KLEBANOFF

45. Helen Klebanoff is an adult citizen of Florida, and was, for all relevant times, the

spouse of Harvey N. Klebanoff. Helen Klebanoffs tortious actions alleged herein were directed

at LSI and its operations in the State of Florida.

46. Helen Kelbanoff was, at all times relevant to this proceeding, an insider of LSI,

as that term is defined by the Bankruptcy Code, given that she was a relative of Harvey N.

Klebanoff, a director and officer of LSI, the Debtor.

VERNON RAY HARLOW

47. Vernon Ray Harlow (Harlow) is an adult citizen of Florida. Harlows tortious


48. Harlow was the Chief Operating Officer of LSI and LES, from approximately

August 17, 2011, until January 16, 2012, and was instrumental in propagating the LSI pump-and-

dump.

49. Harlow was employed by LSI and received an excessive salary during his

employment with LSI and LES.

50. Prior to and during his involvement with LSI, Harlow was the CEO and Director

of Maverick Oil & Gas, Inc. (MAVO), an infamous energy business based in Fort Lauderdale,

Florida that reportedly lost over $100 million, had its securities registration revoked by the SEC

on March 4, 2013, for the protection of investors, and upon information and belief, was, not

surprisingly, partially funded by Appel and his group.


19

51. Harlow was, at all times relevant to this proceeding, an insider of LSI, as that

term is defined by the Bankruptcy Code, given that he was a director and officer of LSI, the

Debtor.

MATTHEW COHEN

52. Matthew Cohen (Cohen) is an adult citizen of Florida. Cohens tortious actions

alleged herein were directed at LSI and its operations in the State of Florida.

53. Cohen was the Chief Financial Officer (CFO), Secretary, and Treasurer of LSI

from approximately 2009 until July 3, 2012.

54. Cohn served as a director of LSI from approximately 2009 until July 3, 2012.

55. With the possible exception of Appel, Cohens fraudulent conduct described

herein was the most blatant and most instrumental in propagating the LSI pump-and-dump.

56. Cohens tenure, fraud, and breach of fiduciary duty spanned almost the entire

existence of LSI.

57. Cohen was Appels proxy, his insider at LSI who provided Appel and Bartlett all

of the inside information regarding LSI they needed to fuel the pump-and-dump.

58. Cohen was employed by LSI and received an excessive salary during his

employment with LSI.

59. During his employment with LSI, and while he served on the Board of Directors,

Cohen allegedly sexually harassed and molested a subordinate, female employee and improperly

provided inside information to Appel and Bartlett. Through the influence of Appel, Bartlett, and

DeJoria, among others, Cohen was never fired for cause because of his abhorrent conduct.

Instead, he remained as CFO and director, continued to be paid his excessive salary, and may

have even been rewarded with a favorable severance package that was negotiated on his behalf


20

by Appel. Furthermore, the well-being of the thinly-capitalized LSI was significantly damaged

by the excessive legal fees incurred and paid by LSI to defend itself and Cohen regarding this

sexual harassment suit, all to the detriment of LSI, its shareholders, and its creditors.

60. Cohen was, at all times relevant to this proceeding, an insider of LSI, as that


Debtor.

DEBORAH COHEN

61. Deborah Cohen is an adult citizen of Florida, and was, for all relevant times, the

spouse of Matthew Cohen. Deborah Cohens tortious actions alleged herein were directed at LSI

and its operations in the State of Florida.

62. Deborah Cohen was, at all times relevant to this proceeding, an insider of LSI,

as that term is defined by the Bankruptcy Code, given that she was a relative of Cohen, a director

and officer of LSI, the Debtor.

HAWK MANAGEMENT GROUP, INC.

63. Hawk Management Group, Inc. is a Florida corporation, with its principal place

of business in Florida. Hawk Management Group, Inc. is closely affiliated with and effectively

controlled, either through ownership or managerial or operational control or otherwise, by

Cohen.

VIRGINIA DADEY

64. Virginia Dadey (Dadey) is an adult citizen of New York. Dadeys tortious


65. Dadey was employed by LSI and received an excessive salary during her

employment. Upon information and belief, Dadey was LSIs Financial Representative.


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66. Dadey has known and been business associates with Howard Appel and/or

Bartlett for a long time.

67. Dadey cooperated, conspired with, and was used by Appel to acquire and exploit

inside information from Dadey which she learned through her association and/or manipulation of

Cohen.

BELLCREST ADVISORS, LLC

68. Bellcrest Advisors, LLC, is a New York Limited Liability Company, with its

principal place of business in New York. The members of this LLC are unknown at this time,

but Dadey is its registered agent, and upon information and belief, its top executive. Bellcrest

Advisors, LLC is closely affiliated with and effectively controlled, either through ownership or

managerial or operational control or otherwise, by Dadey.

JEFFREY WOHLER

69. Jeffrey Wohler (Wohler) is an adult citizen of California. Wohlers tortious


70. Wohler served on the Board of Directors of LSI from January 20, 2012 until

November 9, 2012, when LSI filed for bankruptcy protection and all of its directors resigned.

71. Wohler was President and interim CEO of LSI from January 2012 until May

2012, and served as President and CEO from July 3, 2012 until August 28, 2012.

72. Wohler was employed by LSI and received an excessive salary during his

employment.

73. Wohler has known and been a business associate of John Paul DeJoria for

approximately thirty years.


22

74. Wohler was hand-picked by DeJoria initially to conduct due diligence of LSI in

relation to DeJorias initial involvement and investment in LSI in early 2011.

75. Wohler was chosen by DeJoria to serve as the interim CEO of LSI during the

purported transition from the First Board to the Second Board.

76. Wohler was, at all times relevant to this proceeding, an insider of LSI, as that


Debtor.

MICHAEL GUSTIN

77. Michael Gustin (Gustin) is an adult citizen of Texas. Gustins tortious actions

alleged herein were directed at LSI and its operations in the State of Florida.

78. Gustin served on the Board of Directors of LSI from January 20, 2012, to

November 9, 2012, when LSI filed for bankruptcy protection and all of its directors resigned.

79. Gustin was employed by LSI and received an excessive salary during his

employment.

80. Gustin has known and been a business associate of John Paul DeJoria for

approximately thirty years.

81. Gustin was hand-picked by DeJoria initially to conduct due diligence of LSI in

relation to DeJorias initial involvement and investment in LSI in early 2011.

82. Gustin was chosen by DeJoria to serve as a director of LSI during the purported

transition from the First Board to the Second Board.

83. Gustin was, at all times relevant to this proceeding, an insider of LSI, as that


Debtor.


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JOHN PAUL DEJORIA

84. John Paul DeJoria (DeJoria) is an adult citizen of Texas. DeJorias tortious


85. DeJoria served on the Board of Directors of LSI from October 21, 2011 until

September 20, 2012, and was LSIs principal shareholder at the time of its collapse.

86. DeJoria first invested money into LSI in April 2011; at the time of LSIs

bankruptcy, he owned more that approximately 15% of LSIs outstanding stock, more than any

other single entity.

87. John Paul DeJoria (DeJoria) is a celebrity business personality with a reported

net worth of more than $3 billion. DeJoria is best known for being the co-founder and owner of

the Paul Mitchell studios and line of hair products (John Paul Mitchell Systems, Inc.); DeJoria

reportedly owns 70% of Patron Spirits Company (Patron Tequila), among other businesses.

DeJoria is also a close friend and business associate of at least Ernest Bartlett, if not Howard

Appel.

88. DeJoria has a history of investing in other companies with Bartlett and Appel.

89. In 2004, a TSX Venture Daily Bulletin reports that John Paul DeJoria purchased a

convertible debenture ($300,000 face value) and 750,000 warrants from Touchstone Resources,

Ltd. (TCH.U) for $200,000, with a finders fee of 150,000 shares being paid to Ernest

Bartlett. Touchstone Resources USA, Inc. became Cygnus Oil and Gas Corporation

(CYNS.PK), a corporation that the SEC identifies as one having connections to DeJoria,

Bartlett, and Appel

90. In 2007, an SEC Form S-3 filed by Cytomedix, Inc. (CMXI)(n/k/a Nuo

Therapeutics) lists DeJoria as the owner of 1,504,999 shares (or 4.7%), FEQ Gas, LLC (a


24

Bartlett company) as the owner of 1,156,200 shares (or 3.5%), FEQ Investments, Inc. (a Bartlett

company) as the owner of 1,037,900 shares (or 3.2%), and William F. Miller, the Goldman

Sachs financial advisor who knows DeJoria, Appel, Bartlett, and Langdon, as discussed infra, as

the owner of 632,850 shares (or 2.0%).

91. In 2009, Virtual Piggy, Inc. (VPIG.OB), went public under the name Moggle,

Inc. According to SEC filings, early shareholders of Virtual Piggy, Inc. included Capital Growth

Trust, whose trustee was Vicki Appel, a close relative of Howard Appel; and FEQ Realty, LLC

and FEQ Gas, LLC, whose president is Ernest A. Bartlett, III. DeJoria, through a family trust,

also was and may still be a major shareholder in Virtual Piggy, Inc.

92. At the October 31, 2011, Annual Shareholders Meeting of LSI, after DeJoria

became a director of the corporation, DeJoria told the audience: [What] really excited me about

this [LSI] technology [was] when my dear friend, Ernest Bartlett, first presented it to me, I

thought, Wow! Its pretty cool but is it real? So I took my friend Michael Gustin of 27-years

and sent him to check out the technology. He came back and said, J.P., it is really real. This is

the real thing. He had no second thoughts . . . I want to get involved in this because it is a good

thing.

93. DeJoria was, at all times relevant to this proceeding, an insider of LSI, as that

term is defined by the Bankruptcy Code, given that he was a director and controlling shareholder

of LSI.




manner.


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APPEL AND BARTLETT RELATED ENTITIES

Upon information and belief, each of the following corporations, company's, individuals,

and/or trusts actively and knowing participated in cross-trading shares among the Appel / Bartlett

entities in furtherance of the pump-and-dump and is closely associated with Bartlett and/or

Appel:

95. RMS Advisors, Inc. is a Nevada corporation, with its principal place of business

in Nevada. RMS Advisors, Inc. is closely affiliated with and effectively controlled, either

through ownership or managerial or operational control or otherwise, by Appel.

96. Capital Growth Realty, Inc. is a Delaware corporation, with its principal place

of business in Delaware. Capital Growth Realty, Inc. is closely affiliated with and effectively

controlled, either through ownership or managerial or operational control or otherwise, by Appel.

97. Capital Growth Investment Trust is a trust with its principal place of business

in Pennsylvania, whose Trustee is Vicki Appel, a close relative of Howard Appel. The identity

of all individuals associated with this trust is unknown. Capital Growth Investment Trust is

closely affiliated with and effectively controlled, either through ownership or managerial or

operational control or otherwise, by Appel.

98. DIT Equity Holdings, Inc. is a Delaware corporation, with its principal place of

business in Delaware. DIT Equity Holdings, Inc. is closely affiliated with and effectively

controlled, either through ownership or managerial or operational control or otherwise, by Appel.

99. KWL Exploration and Development, Inc. is a Delaware corporation, with its

principal place of business in Delaware. KWL Exploration and Development, Inc. is closely

affiliated with and effectively controlled, either through ownership or managerial or operational

control or otherwise, by Appel.


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100. Moggle, LLC is a Delaware Limited Liability Company, which upon information

and belief, is related to Moggle Investors, LLC k/n/a Virtual Piggy, Inc. (a/k/a Oink) a Delaware

corporation, with its principal place of business in Delaware. The identity of all members of

these LLCs are unknown. Moggle, LLC and Moggle Investors, LLS k/n/a Virtual Piggy, Inc.

are closely affiliated with and effectively controlled, either through ownership or managerial or

operational control or otherwise, by Appel and/or Bartlett.

101. FEQ Realty, LLC is an Arkansas limited liability company, with its principal

place of business in Arkansas. The identity of all members of this LLC is unknown. FEQ

Realty, LLC is closely affiliated with and effectively controlled, either through ownership or

managerial or operational control or otherwise, by Bartlett.

102. Wiltomo Redemption Foundation, is an unincorporated foundation with its

principal place of business in Pennsylvania. The identity of all individuals associated with this

foundation is unknown. Wiltomo Redemption Foundation is closely affiliated with and

effectively controlled, either through ownership or managerial or operational control or

otherwise, by Bartlett.

103. TSS Investments, Inc. is a Nevada corporation with its principal place of

business in Nevada. TSS Investments, Inc. is closely affiliated with and effectively controlled,

either through ownership or managerial or operational control or otherwise, by Appel and/or

Bartlett.

104. SLD Capital Corp. is a Pennsylvania corporation with its principal place of

business in Pennsylvania. SLD Capital Corp. is closely affiliated with and effectively controlled,

either through ownership or managerial or operational control or otherwise, by Appel.


27

105. DeRosa Family Trust is a trust with its principal place of business in California,

whose Trustee is currently unknown. The identity of all individuals associated with this trust is

unknown. Upon information and belief, DeRosa Family Trust is closely affiliated with and

effectively controlled, either through ownership or managerial or operational control or

otherwise, by Appel and/or Bartlett.

106. William Belzberg Revocable Living Trust is a trust with its principal place of

business in California, whose Trustee is William Belzberg. The identity of all individuals

associated with this trust is unknown. Upon information and belief, William Belzberg

Revocable Living Trust is closely affiliated with and effectively controlled, either through

ownership or managerial or operational control or otherwise, by Appel and/or Bartlett.

107. Michael Garnick is an adult citizen of Pennsylvania. Upon information and

belief, Michael Garnick is closely affiliated with and effectively controlled or otherwise

significantly influenced by Appel and/or Bartlett.

ISLAND CAPITAL MANAGEMENT, LLC

108. Island Capital Management, LLC is a Delaware Limited Liability Company

with its principal place of business in Florida. Island Stock Transfer is a division of Island

Capital Management, LLC, and Island Capital Management, LLC does business as Island Stock

Transfer. The members of this LLC are unknown at this time. Island Capital Management, LLC

d/b/a Island Stock Transfer was the transfer agent used by LSI to effectuate and record the

transfer of certificated LSI shares certificates and book entry shares in a series of convoluted,

manifestly illegal cross-trades by and between the First Board, the Appel/Bartlett Group and the

Consultant Defendants for purposes of (a) perpetrating and hiding the pump-and-dump and

market manipulation that was taking place, (b) laundering shares owned by First Board, the


28

Appel/Bartlett Group and the Consultant Defendants; (c) transferring shares to Cede and Co.

(DTC) so that the First Board, the Appel/Bartlett Group and the Consultant Defendants could sell

shares on the open market, and (d) concealing the identities of the First Board, the Appel/Bartlett

Group and the Consultant Defendants as ultimate beneficiaries of the shares.

DEFINED TERMS

As used herein, the following terms are defined as follows:

Appel/Bartlett Group shall refer to and mean Howard Appel, Earnest J. Bartlett, III, Matthew J. Cohen, Harvey Klebanoff a/k/a Harvey Kaye, Helen Klebanoff, V. Ray Harlow, Virginia Dadey, Deborah Cohen, Hawk Management Group, Inc., RMS Advisors, Inc., Capital Growth Realty, Inc., Capital Growth Investment Trust, Bellcrest Advisors, LLC, DIT Equity Holdings, Inc., KWL Exploration and Development, Inc., Moogle, LLC, FEQ Realty, LLC, Wiltomo Redemption Foundation, TSS Investments, Inc., SLD Capital Corp, DeRosa Family Trust, William Belzberg Revocable Living Trust, and Michael Garnick. Appel and Bartlett Related Entities shall refer to and mean RMS Advisors, Inc., Capital Growth Realty, Inc., Capital Growth Investment Trust, DIT Equity Holdings, Inc., KWL Exploration and Development, Inc., Moogle, LLC, FEQ Realty, LLC, Wiltomo Redemption Foundation, TSS Investments, Inc., SLD Capital Corp, DeRosa Family Trust, William Belzberg Revocable Living Trust, and Michael Garnick. Director and Officer Defendants shall refer to and mean Matthew J. Cohen, Harvey Klebanoff a/k/a Harvey Kaye, Vernon Ray Harlow, Jeffery Wohler, Michael Gustin, and John Paul DeJoria. Debtor shall refer to and mean Latitude Solutions, Inc. and its subsidiaries. Defendants shall refer to and mean all named defendants: Howard Miller Appel, Ernest A. Bartlett, III, Harvey N. Klebanoff a/k/a Harvey Kaye, Helen Klebanoff, V. Ray Harlow, Matthew Cohen, Hawk Management Group, Inc., Deborah Cohen, Virginia Dadey, Jeffrey Wohler, Michael Gustin, John Paul DeJoria, RMS Advisors, Inc., Capital Growth Realty, Inc., Capital Growth Investment Trust, Bellcrest Advisors, LLC, DIT Equity Holdings, Inc., KWL Exploration and Development, Inc., Moogle Investors, LLC k/n/a Virtual Piggy, Inc. (a/k/a Oink),FEQ Realty, LLC, Wiltomo Redemption Foundation, TSS Investments, Inc., SLD Capital Corp., DeRosa Family Trust, William Belzberg Revocable Living Trust, and Michael Garnick. First Board shall refer to and mean defendants, Matthew J. Cohen and Harvey Klebanoff a/k/a Harvey Kaye.


29

Insider Defendants shall refer to and mean Howard Appel, Earnest J. Bartlett, III, Matthew J. Cohen, Deborah Cohen, Harvey Klebanoff a/k/a Harvey Kaye, Helen Klebanoff, Vernon Ray Harlow, Jeffery Wohler, Michael Gustin and John Paul DeJoria. LSI shall refer to and mean Latitude Solutions, Inc. and its subsidiaries. Plaintiff shall refer to and mean Carey D. Ebert, as the Trustee for the Chapter 11 estate of the Debtor, LSI. Second Board shall refer to and mean Jeffery Wohler, Michael Gustin, and John Paul DeJoria. Trustee shall refer to and mean Carey D. Ebert, the Trustee for the Chapter 11 estate of the Debtor, Latitude Solutions, Inc.

FACTUAL ALLEGATIONS

Summary

109. This adversary proceeding arises out of an elaborate scheme to pillage LSI, the

wanton and reckless indifference of, and self-dealing by, those who breached their fiduciary

duties owed to LSI, and the actions of those who aided and abetted the fraudsters and/or LSIs

fiduciaries in breaching their fiduciary duties. The pump-and-dump scheme was carried out

between LSI insiders and a group of individuals with a history of securities fraud convictions;

the fleecing of LSI by the schemers, their co-conspirators and illegitimate consultants feeding

at the trough; insider trading; self-dealing; and the gross mismanagement of LSI by its Directors

and Officers.

110. In a typical pump-and-dump, corporate insiders in a micro-cap give themselves

stock in a company, intentionally manipulate the stocks price through press releases, marketing,

and illegal trades, and then unload their shares at extravagant profits before letting the company

die. Only this pump-and-dump had a twist: unlike a typical pump-and-dump where the company

is essentially a sham enterprise, LSI actually had real technology for the purification of water in

the oil and gas industry and other industries.


30

111. LSIs core products were mobile water-remediation units (housed on large

trailers) that could be transported to its customers site (either a well site, fracking site, waste-

water treatment location, etc.), and then used to purify contaminated water. According to LSIs

promotional materials, which were used throughout LSIs existence by all Defendants, LSIs

proprietary Electro-Precipitation (EP) technology provided a cost effective, highly

efficient, and environmentally sustainable means of treating the large amounts of contaminated

water resulting from various oil and gas, energy and mining extraction projects worldwide.

LSIs products were also used to purify water in the maritime industry, mining and industrial

field, food industry (e.g., poultry processing plants, seafood processing plants, etc.), and others.

112. The first generation of LSIs products were manufactured and supplied to LSI by

IP Automation, Inc., a Colorado-based engineering firm established in 1998; IP Automation, Inc.

is a significant creditor of LSI which has asserted a claim herein against the Debtor for

$1,347,113.19. The second generation of LSIs products were manufactured and supplied to LSI

by Jabil Circuit, Inc., a Delaware corporation with manufacturing employees in 90 plants in 23

countries around the world; Jabil Circuit, Inc., is a significant creditor of LSI which has asserted

a claim herein against the Debtor for $9,555,808.14.

113. By causing LSI to spend millions designing and building water-remediation units,

the Defendants brought another layer of sophistication to their scheme. By weaving their pump-

and-dump into a company with actual products and viable technology, they were better able to

cover up their fraud and sell LSI to outside investors on the open market. The technology also

gave the schemers a fall back: if despite their actions, the company were to succeed, they could

emerge from the pump-and-dump holding millions of shares in a company with global reach and

long-term promise.


31

114. But rather than focus on building a successful company based on viable

technology, the schemers used the story of LSIs proprietary Electro-Precipitation water

remediation technology to bring cash into the company only to take it for themselves. They paid

each other excessive salaries and consultant fees in the form of stock, warrants and cash for

which effectively nothing was done in return. They traded LSI stock among themselves in a

series of bewildering transactions designed to launder their shares and manipulate the stocks

price by controlling the supply and demand and trading volume. At the same time, they pumped

the stock of the company through the issuance of multiple press releases and interest blogs. All

of this was done to bleed the corporation of its cash, squander its assets, and steal stock and

warrants to the detriment of LSI. By working in concert with LSIs directors and officers, the

Appel/Bartlett Group caused LSI to pay them with millions of shares of LSI, LSI warrants and

cash despite having done nothing to deserve such lucrative payments.

115. The Second Board, who became involved in LSI in early 2011 and started to

manage LSI in early 2012 (or at least made attempts to manage it), knew of the ongoing pump-

and-dump, but did not stop it. In fact, the Second Board, led by DeJoria, allowed Cohen to

remain as the CFO of LSI until almost the very end and allowed the Appel/Bartlett Group to

control LSI every step of the way. Deliberately and through abject incompetence, the Second

Board perpetrated the pump-and-dump until an outside, independent director not affiliated with

Appel, Bartlett, or DeJoria, insisted on blowing the whistle on LSI.

116. The LSI story consists of three acts. Act One: The Bad Cops, the First Board

and the Appel/Bartlett Group create and profit from a pump-and-dump. Act Two: The

Keystone Cops, the Second Board, through their complicity and abject incompetence,

effectively partner with the Appel/Bartlett Group and allow the pump-and-dump to continue.


32

Act Three: The Good Cop, the outside, independent director, Jerry Langdon, blows the

whistle on this fraud and, in effect, forces the Second Board to put LSI in bankruptcy and blame

everything on the First Board in the hopes of covering their tracks.

117. In essence, all of the Defendants, including the First Board and the Second Board,

treated LSI as if it was their own private plaything, not the publically traded corporation it was.

ACT ONE: THE BAD COPS

THE EARLY YEARS

118. The predecessor corporation to LSI was originally incorporated in 1983 in Idaho,

purportedly to acquire and develop mineral claims located in the Miller Mountain Mining

District near Idaho City, Idaho. The original venture ultimately failed. In March 2007, the

predecessor corporation changed its corporate domicile from the State of Idaho to the State of

Nevada by effecting a change of domicile merger with a Nevada corporation named Genex

Biopharma, Inc. that was created in October 2005; the name of the surviving Nevada

Corporation was changed to GMMT, Inc. In July 2009, the Articles of Incorporation of this

entity were amended to change the corporate name to Latitude Solutions, Inc. In July 2009, a

reverse stock split of all issued and outstanding shares of common stock on a one share for

23.1975 shares basis occurred. As a result of the stock split, the number of shares of LSIs issued

and outstanding common stock was decreased to approximately 500,000 shares.

119. From mid-2008 to early-2009, GMMT sold approximately 1.8 million shares

through private placement at $0.25, raising roughly $363,000.

120. On or about March 24, 2009, GMMT entered into agreements to acquire 6709800

Canada, Inc. d/b/a GpsLatitude, Trinity Solutions, Inc. and Latitude Clean Tech Group, Inc.

(LCTG) through its wholly-owned subsidiary, GMMT Acquisitions, Inc. Under the terms of


33

the agreements, GMMT Merger, Inc. acquired 50% of the issued and outstanding shares of

6709800 Canada d/b/a GpsLatitude and 100% of all the stock in Trinity Solutions, Inc. and

Latitude Clean Tech Group, Inc. GMMT Acquisitions then merged with and into GMMT

Merger, with GMMT Merger, Inc. being the surviving corporate entity. Purportedly in

consideration for the acquisition, the stockholders of GMMT Merger were issued 19.5 million

shares of common stock, post split, to reflect the 1 share for 23.1975 shares ratio.

121. Upon completion of the acquisitions, GMMT Merger changed its corporate name

to Latitude Solutions, Inc.

LSI SUBSIDIARIES

122. Over the course of its existence, LSI created and used numerous subsidiaries

through which defendants funneled money and, in general, were used to cloud the true ownership

and operational control of LSI. LSIs complex and confusing web of subsidiary and affiliated

entities, most if not all of which did not engage in meaningful operations, is further evidence of

defendants bad faith.

123. As of January 2011, LSI had three subsidiaries: (1) Latitude Clean Tech Group,

Inc.; (2) 6709800 Canada, Inc. d/b/a GpsLatitude; and (3) Trinity Solutions, Inc.

124. In approximately February 2011, another related company, Latitude Energy

Services, LLC (LES) was formed by Appel, Bartlett, Harlow and others; 70% of LES was

originally owned by LSI, and the remaining 30% by Appel, Bartlett, Harlow and others; see

discussion, infra.

125. Upon information and belief, at or around the time that John Paul DeJoria first

became involved with LSI, in approximately mid-2011, other Latitude related companies were

either formed or renamed; specifically: Latitude Resource Group, Inc.; Latitude Industrial Water


34

Solutions, Inc.; Latitude R&D, Inc.. Prior to approximately January 2012, these Latitude

related companies were primarily run by Matthew Cohen, Harvey Kaye a/k/a Klebanoff, Warren

Blasland, and/or others. After approximately January 2012, these Latitude related companies

were primarily run by Matthew Cohen, Jeffrey Wohler, and/or others.

126. Upon information and belief, at or around the time that John Paul DeJoria first

became involved with LSI, in approximately mid-2011, several Water the World entities were

either formed or renamed; specifically: Water the World, LLC and Water the World with

Latitude. These Water the World entities were primarily run by Jeffrey Wohler, Mike Gustin,

Matthew Cohen, and/or others, and were controlled by John Paul DeJoria.

127. Beginning in the summer or fall of 2011, LSI formed a number of international

Latitude companies for the ostensible purpose of spreading and profiting from the core LSI

technology around the world; specifically: Latitude Water Solutions, B.V. (Dutch); Latitude

Worldwide, B.V. (Dutch); and WWW, UK, PLC (Frankfurt Exchange). The original and

ultimate principals of these foreign entities are unknown; however, according to various

organizational charts found within LSIs business records, and upon information and belief, the

same individuals who owned, managed, and controlled all of the other Latitude and Water the

World entities also ran these foreign entities.

128. At the end of the day, the complexity of these interrelated and affiliated

Latitude companies is staggeringespecially for a business that had a relatively modest

revenue stream.

129. Upon information and belief, none of these Latitude companies ever had

meaningful operations and no such services were ever provided worldwide.


35

LATITUDE ENERGY SERVICES, LLC

130. According to regulatory filings, Latitude Energy Services, LLC (LES) was

organized in the state of Nevada on February 8, 2011. LSI has a 70% equity ownership in LES.

In filings with the SEC, Kaye discloses that the remaining 30% equity ownership is owned by

third party entities but does not mention the identities of those third parties: FEQ Realty, LLC

(controlled by Earnest Bartlett); DIT Equity, LLC (controlled by Howard Appel); Moondog,

LLC (controlled by Ray Harlow); and Logoly Farms, LLC (controlled by Mike Teutsch). FEQ,

DIT, Moondog and Logoly Farms were four of the five managers of LES. LSI was the fifth

manager.

131. According to regulatory filings, LES was to provide water remediation services

to the Oil, Gas and Energy industries worldwide utilizing innovative and patented technologies

developed by its majority equity owner, Latitude Solutions, Inc. ("LSI") and its subsidiary

companies.

132. Upon information and belief, LES never had meaningful operations and no such

services were ever provided worldwide.

133. According to regulatory filings, LES (Nevada) was dissolved on or about January

20, 2012, by the Second Board of LSI because of the administrative expenses associated with

the subsidiary. According to records on file with the Florida Secretary of State, Latitude

Energy Services, LLC (Nevada) was converted to a Florida limited liability company on

February 6, 2012. Upon information and belief, Appel and Bartlett continued to profit from LES

well after it was converted to a Florida LLC.

134. Despite having been in existence for less than a year and having had no

meaningful operations, LES racked up at least $950,000 in payroll expense that was paid by LSI


36

from LSIs operating account to numerous employees. Harlow alone made over $160,000 in

2011. Upon information and belief, significant sums were funneled back to Appel and Bartlett

as well.

135. For example, pursuant to an employment agreement dated February 1, 2011,

between LES and Harlow, LES was to pay Harlow $12,500 per month ($150,000 per year), plus

62,500 shares of stock and 62,500 warrants. And pursuant to an employment agreement dated

June 1, 2011, between LSI and Harlow, LSI was to pay Harlow $17,500 per month ($210,000

per year), 900,000 warrants. All told, LSI and LES was to pay Harlow $30,000 per month

($360,000 per year), plus 62,500 shares of stock and 62,500 warrants. And did LSI receive

comparable value from Harlow in exchange for this generous executive salary? According to

defendant Wohler, who would become a director and CEO of LSI in 2012: Ray Harlow, as we

soon discovered, was a liar. He would tell us that he was in a particular stage of a dialogue with

[a given customer, but] . . . we would find out that Ray was lying about it, that they werent

anywhere near close to signing a deal. And it was one of the many reasons why we fired him.

COHEN, KAYE, AND APPEL

136. The connection between Kaye, Cohen and Appel goes back to at least 2008.

137. On March 27, 2008, Kaye was copied on an email from Jan Rowinski (who was

to become LSIs Executive Vice President) to Robert Gauthier attaching a teaser sheet and

executive summary for Gauthiers company, Nutraxis. Nutraxis is a Canada-based company

that sells over-the-counter dietary supplements, including one called GSH Complex which

the company markets on its website as providing protection against the Ebola virus.

138. The original email from Rowinski to Robert Gauthier instructs Gauthier to send

the Nutraxis investment packages to Howard Appel. Rowinski also tells Gauthier to send an


37

investment package to Kenneth Koock, who later became a consultant of LSI and was paid

roughly $160,000 from LSIs coffers.

139. Kaye forwarded this email four days later to Cohen to review for useful items,

presumably so that they could create similar marketing material for GMMT, Inc. (GMMT).

BEHIND THE CURTAIN: THE APPEL SHOW

140. From 2010 2012, Howard Appel ran LSI through back channels, hidden from

the public eye. His primary contact on the inside was Matt Cohen, the Chief Financial Officer of

LSI. However, Appel also knew Kaye from prior business dealings.

141. From 2010 2012, Cohen took instructions directly from Appel on all LSI-related

matters. Cohen also funneled insider information to Appel to assist him in defrauding LSI and

furthering his pump-and-dump. For his part in furthering the fraud, Cohen was rewarded with a

$215,934.00 (not less than $180,000.00) base salary paid by LSI, plus millions of shares of LSI

stock and cash paid by LSI to Cohens shell company, Hawk Management Group, Inc.

(Hawk).

142. The emails exchanged between Appel and Cohen during this time establish a

pattern of this fraud, all as more fully alleged herein.

THE APPEL PUMP-AND-DUMP: AN OVERVIEW

143. In order to control the market for LSI, manipulate stock prices, and, ultimately, to

make millions of dollars trading LATI, the Appel/Bartlett Group needed to control a large block

of LSIs stock. Beginning in 2010 and continuing through at least 2011, the Appel/Bartlett

Group aggressively acquired millions of shares of LSI. They accomplished this in at least two

ways: (a) purchasing certificated shares of LATI both from the corporation and from other

investors in private transactions, well below market prices, and (b) receiving millions of shares


38

and warrants in LATI under the guise of compensation for services rendered pursuant to bogus

consulting agreements.

THE FRAUDULENT TRANSFERS

144. In complete dereliction of their fiduciary duties, the First Board authorized LSI to

enter into written and verbal agreements, sometimes called consulting agreements, finders

agreements or employment agreements (collectively, Consulting Agreements), with the

Appel/Bartlett Group, the Insider Defendants, and others.6 Then, pursuant to these Consulting

Agreements, LSI transferred millions in LSIs cash, stock and warrants to the Appel/Bartlett

Group and the Insider Defendants without receiving reasonably equivalent value in return (the

Appel/Bartlett Group Transfers and the Insider Transfers, respectively). The Appel/Bartlett

Group Transfers and the Insider Transfers were all modes, direct or indirect, absolute or

conditional, voluntary or involuntary, of disposing of or parting with, LSIs assets or property, or

LSIs interest in an asset or property.

145. Upon information and belief, one of LSIs consultants was Evan Brent Dooley,

the infamous MF Global broker who is currently serving five years in prison for making

unauthorized trades that caused the now-defunct futures firm to lose more than $141 million in

2008.

146. The Appel/Bartlett Group Transfers and the Insider Transfers were done in

furtherance of the fraudulent pump-and-dump scheme orchestrated by the Appel/Bartlett Group

and with the actual intent to hinder, delay and defraud LSIs then present and future creditors.

LSI handed out cash, shares and warrants worth millions of dollars to the Appel/Bartlett Group

6 Several individuals have been sued by the Trustee in separate adversary proceedings for recovery of Consultant Transfers and are referred to as Consultant Defendants.


39

and the Insider Defendants like candy at Halloween7 at prices well below their value and

market price and for less than reasonably equivalent value. The Appel/Bartlett Group Transfers

and the Insider Transfers were in exchange for the Appel/Bartlett Group and the Insider

Defendants efforts in keeping the pump-and-dump alive and provided no benefit to LSI. The

Appel/Bartlett Group Transfers and the Insider Transfers were also illegal to the extent they were

commissions paid to persons and entities acting as unlicensed securities brokers for finding

investors for LSI. At the time of the Appel/Bartlett Group Transfers and the Insider Transfers,

the sum of LSIs debts exceeded its assets at a fair valuation, LSI was generally not paying its

debts as they became due, LSI was engaged or was about to engage in a business or a transaction

for which the remaining assets of LSI were unreasonably small in relation to the business or

transaction, and LSI reasonably should have believed that it would incur debts beyond its ability

to pay as they became due.

147. After the Appel/Bartlett Group and the Insider Defendants received their LSI

shares and/or warrants, they typically traded them among themselves as part of the

Appel/Bartlett Groups master plan to stockpile huge blocks of LSI shares in order to control the

market for LSI shares and manipulate the stocks price before selling them on the open market.

148. The Appel/Bartlett Group and the Insider Defendants are believed to have made

millions of dollars from the Appel/Bartlett Group Transfers and the Insider Transfers, at the

expense of LSI and its present and future creditors. Although the precise amount of cash, stock

and warrants comprising the Appel/Bartlett Group Transfers and the Insider Transfers is as of yet

unknown, Attachment One, appended hereto and referenced as if copied here in extenso, styled

7 From the draft fax dated March 14, 2012, from Wohler to DeJoria


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Fraudulent Transfers from LSI to the Appel/Bartlett Group and Insider Defendants, identifies the

Appel/Bartlett Group Transfers and the Insider Transfers, and estimates the approximate,

minimum value of these fraudulent transfers, the sum of which Plaintiff seeks to recover as

damages herein.

THE PUMPS

149. The Appel/Bartlett Group and the Insider Defendants pumped LSI to the general

public through numerous press releases, public statements and meetings, marketing, websites and

internet blogs. All of this was designed to make LSI sound like it was signing contracts and on

the brink of exploding into a world-wise leader in water remediation. In reality, many of the

newly touted business opportunities and other announcements were not true. However, the

carefully crafted news, and the timing of the dissemination of such news, was enough to cause

the public to trade LSIs shares at high prices so that the Appel/Bartlett Group could make huge

gains on the open market. LSI, on the other hand, did not benefit from the increased share

prices, as stock was not being issued at these prices. Rather, it was being issued to the

Appel/Bartlett Group and the Insider Defendants well below market price.

THE CROSS-TRADES

150. Once the certificates were in the hands of the Appel/Bartlett Group, they engaged

in a fraudulent scheme of systematic cross-trading between numerous entities and individuals

controlled by Appel, Bartlett, Kaye, Cohen and others. Typically, multiple Appel/Bartlett co-

conspirators were involved on one or both sides of the deal, causing convoluted cancellations

and issuances of multiple stock certificates in a single transaction. All of this was done by

design to accomplish at least three goals: (a) they were able to manipulate the sale price of LATI

by trading amongst themselves at pre-arranged prices; (b) they were able to hide the huge


41

positions they held in LSI from regulators and the general public among the various multi-tiered

shell corps, trusts, closely-help businesses and individuals they controlled; and (c) they were able

to hide the money trail by laundering shares in and out of issued and cancelled stock certificates.

151. Ultimately, the vast majority of the physical stock certificates acquired by the

Appel/Bartlett Group were cancelled, registered with DTC and recorded by Island Capital

Management, LLC d/b/a Island Stock Transfer in the stock transfer journal as book entries in the

name of Cede & Co. as nominee for DTC. From there, the Appel/Bartlett Groups interests in

LATI were traded electronically on the open market, with only their broker-dealers having

record of their transactions and the number of shares owned by them. This allowed them to

continue manipulating the market for LATI and put them in the perfect position to dump their

shares on unsuspecting public investors at a moments notice.

152. Some of the stock certificates acquired by the Appel/Bartlett Group had restrictive

legends and could not be DTC-eligible until the legend was removed. In these instances, the

Appel/Bartlett Group would use a lawyer out of Hawaii, Robert Deiner, who would issue opinion

letters authorizing the removal the legends from the certificates, sometimes getting the opinion

letters out the same day.

THE DTC SHEETS

153. The Depository Trust Company, or DTC, is one of the worlds largest securities

depositories and acts as a clearinghouse to process and settle trades of unrestricted book entry

securities. i.e., freely-tradable securities whose ownership is recorded electronically.

154. Appel controlled an enormous number of LATI shares and LSI investors, and

consequently, he knew which broker-dealers were holding these shares in their accounts for

various investors. But in order to better carry out his scheme to manipulate LATIs price and


42

control the market for LATIs shares, Appel needed insider information. DTC Security Position

Reports (DTC reports) were an important source of such information.

155. DTC reports provide valuable information on the position holdings of broker-

dealers in the issuers security at a specified point in time and are only available to issuers,

trustees, and authorized third-party agents. By having access to the DTC reports for LATI,

Appel was able to know how many LATI shares were being traded on a given day among

broker-dealers that held LATI shares in DTC-registered accounts. The DTC reports also could

be cross-referenced with LSIs stock transfer journal to identify investors moving shares into a

margin account. With the DTC reports, Appel was able to plan and coordinate the cross-trades

with his co-conspirators, ensure that his people were doing what they were supposed to do to

effectuate the fraud, and rein them in if they were trading without his permission.

156. Appels only access to DTC reports for LATI was from inside LSI. Cohen was

the person inside LSI that fed DTC reports to Appel, and he did so on a regular basis.

157. On April 26, 2011, Cohen emailed Appels assistant, Cecile Dibona, and asked

her for help with procuring DTC listings.

158. The next day, Dibona asked for clarification. Cohen responded to her email,

typing his answers behind her questions:

[Dibona] So Im clear are you looking to receive the DTC sheets weekly? [Cohen] Thats correct. [Dibona] If so, who at latitude do you want to receive them. [Cohen] That would be me. [Dibona] I will need their email address. [Cohen] You have it. [Dibona] Let me know and I can take care of that today. Thanks. [Cohen] THANK YOU!!!

159. Later that day, Dibona registered LSI with DTC so that Cohen could begin

collected the DTC reports.


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160. The following Monday, May 2, 2011, Dibona emailed Cohen requesting the DTC

reports; Appel was asking for them:

Matt, would you please email or fax last weeks dtc sheets to howard? His email is [email protected] and his fax is 610-828-0884. Thanks.

161. C

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