IN THE UNITED STATES BANKRUPTCY COURT FOR...

WFG COMPLAINT

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: ) CHAPTER 11 ) PITT PENN HOLDING CO., INC., et al.1, ) Case No. 09-11475 (BLS) ) (Jointly Administered) Debtors. ) ) ) Industrial Enterprises of America, Inc., on behalf of ) itself, its estate, and as assignee of certain of its ) shareholders, ) ) Plaintiff, ) Adv. Proc. No. ) v. ) ) Computershare Trust Co., Inc., National Financial ) Services LLC, WFG Investments, Inc., and ) Chris Cuzalina, ) ) Defendants. ) )

COMPLAINT

Plaintiff Industrial Enterprises of America, Inc., f/k/a Advanced Bio/Chem, Inc. (“IEAM”

or “Plaintiff”), for itself, its estate, and as assignee of certain of its shareholders and creditors,

alleges upon information and belief for its complaint against defendants Computershare Trust

Co., Inc. (“Computershare”), National Financial Services LLC (“NFS”), WFG Investments, Inc.

(“WFG”), and Christopher Cuzalina (“Cuzalina”) (collectively “Defendants”) as follows.

JURISDICTION AND VENUE

1. On May 1, 2009 (“Petition Date”), IEAM filed a voluntary petition pursuant to

Chapter 11 of the Bankruptcy Code.

1 The debtors are: Pitt Penn Holding Co. (Case No. 09-11475), Pitt Penn Oil Co. LLC (Case No. 09-11476), Plaintiff Industrial Enterprises of America, Inc. (Case No. 09-11508), EMC Packaging, Inc. (Case No. 09-11524), Today’s Way Manufacturing LLC (Case No. 09-11586), and Unifide Industries LLC (Case No. 09-11587), all of which have been jointly administered.

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2. Since the Petition Date, IEAM has continued in possession and the management

of its business as debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy

Code.

3. This Court has jurisdiction over these proceedings pursuant to 28 U.S.C. §§ 157

and 1334.

4. This proceeding constitutes a core proceeding pursuant to 28 U.S.C. § 157.

5. Venue is proper in this Court pursuant to 28 U.S.C. § 1409.

INTRODUCTION

6. This adversary proceeding arises out of a large-scale scheme to loot the Plaintiff

IEAM, a fraud that required not only the malfeasance of miscreant corporate officers, but the

willful participation of the Defendants: a transfer agent, a clearing firm, a broker-dealer, and a

registered representative.

The Mazzuto Scheme

7. As is further detailed below, the affairs of IEAM became corrupted through the

illegal conduct of a conspiracy led by John Mazzuto (“Mazzuto”) and James Margulies

(Margulies”). For ease of reference, this conspiratorial effort shall be collectively referred to as

the “Mazzuto Scheme.” The Mazzuto Scheme was a complex and deliberate association-in-fact

conceived for, and dedicated to, the commission of fraud in the operations and securities of

IEAM. The Defendants were members of the Mazzuto Scheme. IEAM, through its new

management, has identified at least a dozen other persons and entities of the Mazzuto Scheme

that acted in concert to perpetrate the illegal scheme to defraud IEAM.

8. From 2004 to 2009, the Mazzuto Scheme, through its members including the

Defendants, set out and accomplished its basic illegal aim: to insinuate itself into the governance

and operation of a publicly-traded corporation; to undermine the business affairs of that public

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corporation by falsely reporting its operations as wholly successful to increase its market value

and share price; to manipulate further the price of the public host’s stock higher through false

operations and transactions (including, but not limited to, false stock offerings, fraudulent stock

transfers and issuances, and fraudulent public statements and filings); and to “cash in” on the

fruits of illicit labors through illegal transfer and sale of IEAM’s securities.

9. In furtherance of this illegal Scheme, the Defendants engaged in a variety of

wrongful acts within their respective roles in the fraud. Specifically, the Defendants knowingly

participated in the illicit issuance and sale to the public of IEAM securities. Through the active

participation of the Defendants, a Stock Option Plan instituted by IEAM and detailed in an S-8

Filing with the Securities and Exchange Commission on or about January 24, 2005 (the “Plan”)

whereby Employees, Outside Directors and Consultants of IEAM were, under certain conditions,

eligible to receive restricted shares of IEAM stock, was illegally converted into the means by

which unrestricted stock could be issued to, and sold by, members of the Mazzuto Scheme.

10. The Scheme perpetrated by the Defendants and their co-conspirators caused direct

and proximate harm to IEAM, including monetary losses and liabilities, in excess of $150

million. Moreover, IEAM’s shareholders lost hundreds of millions more dollars as a direct and

intended result of the Defendants’ fraud.

PARTIES

11. Plaintiff IEAM is a corporation with an office at 651 Holiday Drive, Suite 300,

Pittsburgh, Pennsylvania 15220. Former officers Margulies and Mazzuto were arrested and

indicted for their roles in the fraud perpetrated on IEAM, its creditors and its investors, and the

fifty-seven count indictment (“Indictment”), which names ten additional co-conspirators, is

attached as Exhibit “1.” Meanwhile, on or about April 30, 2009, Robert L. Renck, Jr. was

appointed its CEO and President. IEAM is the assignee of its shareholders’ claims.

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12. Computershare Limited (“Computershare”) is, among other things, a global

market leader in transfer agency that operates in 17 different countries around the world.

Computershare has 12 offices in the United States. Its corporate headquarters in the United

States is located, upon information and belief, in Massachusetts. At all times relevant to this

Complaint, IEAM contracted with Computershare for the provision of professional services as

transfer agent for its securities.

13. National Financial Services, LLC (“NFS”) is, among other things, one of the

largest providers of securities brokerage services in the world. Through its global platform and

throughout the United States, NFS provides professional clearing services to broker/dealer firms.

NFS has offices in five cities throughout the Unites States and, upon information and belief,

maintains its headquarters in Boston, Massachusetts. At all times relevant to this Complaint,

NFS provided professional securities brokerage account clearing services for an account

maintained in the name of the Margulies Law Group “IOLTA” (“Interest on Lawyer Trust

Account”) account at WFG Investments, Inc.

14. WFG Investments, Inc. (“WFG”) is, among other things, a registered securities

broker-dealer with offices throughout the United States. Upon information and belief, WFG’s

United States headquarters is located in Dallas, Texas. At all times relevant to this Complaint,

WFG maintained a securities brokerage account in the name of the Margulies Law Group

IOLTA account.

15. Chris Cuzalina (“Cuzalina”) is, among other things, a registered representative

working out of WFG’s offices in Dallas, Texas. Additionally, Cuzalina is the Managing Partner

of Cascata Capital, a hedge fund located, on information and belief, at the same Dallas, Texas

offices. During all times relevant to this Complaint, Cuzalina was the registered representative

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on the WFG securities brokerage account maintained at WFG by the Margulies Law Group

IOLTA account.

Non-Defendant & Bad Actors

16. Mazzuto is, upon information and belief, currently a resident of the state of

Florida, having recently been released on bail from incarceration of the New York City

Department of Corrections. Mazzuto was in jail as a result of a pending indictment by the New

York County Grand Jury being prosecuted by the District Attorney for New York County (the

“Manhattan D.A.” or “DANY”). In that case, entitled People of the State of New York against

John D. Mazzuto and James W. Margulies, Ind. No. 2503/2010, Mazzuto is charged with two

counts of Grand Larceny in the First Degree (NY Penal Law § 155.42), Scheme to Defraud in

the First Degree (NY Penal Law 190.65 (1)(b)), Scheme to Defraud through Securities Fraud

(NY General Business Law of 352-c(5)), 51 counts of Falsifying Business Records in the First

Degree (NY Penal Law §175.10)), Conspiracy in the Forth Degree (NY Penal Law §105.10(1))

and Securities Fraud (NY General Business Law §352-c(6)). Mazzuto, with whom the

Defendants conspired, is charged arising out of his conduct while he held a prominent role in the

Mazzuto Scheme. Mazzuto was indicted for his role in taking over IEAM, manipulating its

stocks price higher through false and fraudulent business operations, and illegally cashing in on

this criminality through the perversion of the stock option plan. Mazzuto personally gained in

excess of $15 Million through the actions of his Scheme with the Defendants. A copy of the

Indictment of Mazzuto (and James W. Margulies) is attached hereto as Exhibit “1.”

17. Margulies is, upon information and belief, currently a resident of the state of

Ohio. Margulies, a co-conspirator of the Defendants, was indicted along with Mazzuto by the

New York County Grand Jury. He awaits trial on two counts of Grand Larceny in the First

Degree (NY Penal Law § 155.42), Scheme to Defraud through Securities Fraud (NY General

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Business Law §352.c-(5)), Securities Fraud (NY General Business Law 352-c(6)), 33 counts of

Falsifying Business Records in the First Degree (NY Penal Law §175.10) and Conspiracy in the

Fourth Degree (NY Penal Law 105.10). Margulies’ conspiracy with the Defendants is alleged to

have personally awarded him $6 million. Margulies’ Indictment is attached as Exhibit “1.”

18. “Unindicted Co-Conspirators 1-10” are persons named as such in the DANY

indictment of Mazzuto and Margulies as having been knowing recipients of the illicit issuances

of IEAM stock.

19. Others Known and Unknown to the Grand Jury, all referred to as “the schemers”

in the DANY indictment of Mazzuto and Margulies, are others who, like the Defendants here,

engaged in the conspiracy to defraud IEAM and participated in the Mazzuto Scheme.

FACTUAL BACKGROUND

20. As relevant here, IEAM (then known as Advanced BioChem, Inc.) began its life

in 2004 as a publicly-traded shell company holding a single asset: 15 million shares of restricted

stock in Power3 Medical Products (“Power3”). Although thinly-traded, those shares were valued

at $45 million. On August 1, 2004, Mazzuto was appointed a director of IEAM and set out to

determine how best to use that value.

21. First, on October 7, 2004, IEAM purchased all outstanding stock in EMC

Packaging, Inc. (“EMC”), a New Jersey-based packaging facility. In consideration for that

purchase, IEAM paid 2.2 million of its shares to EMC shareholders.

22. In connection with that combination, on October 15, 2004, Mazzuto was named

Vice Chairman of the Board of IEAM. A little more than a year later, in a December 15, 2005

Form 10-QSB, IEAM announced that its Board had elected Mazzuto as the company’s Chief

Executive Officer and President, ousting former president Crawford Shaw. Mazzuto would

remain IEAM’s chief executive officer for the next two years.

WFG COMPLAINT 7

23. Prior to its acquisition of EMC, IEAM’s value was not in operations—there were

none of any material impact. Instead, IEAM was expected to be a clean shell with no liabilities

and ownership of $45 million in assets that would attract investors in a public company.

Although IEAM’s Power3 stock did not prove to have that value, the asset was sufficient to meet

one of the goals: attracting investment.

24. In November 2004, shortly after its acquisition of EMC, IEAM promulgated its

2004 Stock Option Plan (“Plan”).

25. On or about January 25, 2005, IEAM filed with the United States Securities and

Exchange Commission a form S-8 registration statement for the Plan pursuant to the Securities

Act of 1933.

26. The Plan provided for the issuance of restricted shares to Employees, Outside

Directors and Consultants. Any issuance of shares outside of the terms of the Plan would be –

and, indeed, was – a violation of the securities law.

27. Beginning in January 2005, IEAM began to issue shares under the guise of the

Stock Option Plan. For the most part, at the outset, IEAM used the existence of the plan as an

artifice to provide an air of respectability for the issuance of shares. Under the terms of the Plan,

IEAM could issue restricted shares to Outside Directors, Employees and Consultants if properly

documented by Board minutes, option agreements or bona fide consulting agreements.

28. Then, in the spring of 2006, former CEO and director of IEAM, Crawford Shaw,

sued IEAM in Texas state court for claims relating to his ouster as CEO in favor of Mazzuto.

29. Mazzuto and his cohorts hatched a plan to craft a highly improper settlement

agreement between IEAM and Shaw using the Stock Option Plan. Under the terms of the

settlement, IEAM hired Shaw as a purported consultant and used IEAM stock to pay him

WFG COMPLAINT 8

$40,000 a week totaling $2 million in “consulting fees” in order to utilize the company’s Form

S-8 Stock Plan requirements, which allowed stock to be issued to consultants.

30. This “consulting” arrangement with Shaw was a sham—and a way for IEAM to

dispose of the Shaw litigation through an improper disbursement of IEAM stock in violation of

SEC rules—in several regards. First, the S-8 was not effective since IEAM was not current in its

filings. Second, any shares issued to Shaw should have been restricted. Third, it is highly

improper to issue newly issued stock based on a dollar amount to be paid at a rate of $40,000 a

week over 50 weeks by depositing shares, regardless of whether any actual “consulting” takes

place (which it did not).

31. The terms of the Shaw settlement were never disclosed in any public filing, nor

were the improper use of the Stock Option Plan.

32. The settlement of the Shaw litigation through the perversion of the Plan was a

watershed moment for the Mazzuto Scheme. After this improper use of the Plan’s S-8 stock as

an unrestricted artifice for the issuance of shares, the floodgates opened. Subsequent to May

2006, Mazzuto directed the issuance of some 12.5 million freely-trading shares under the S-8

with an aggregate value of over $70 million.

The Illegal Issuance of Plan Securities

33. The illegal issuance of shares generally proceeded along the following pattern in

relation to the Defendants:

-- A letter signed by either Mazzuto or Margulies was sent to Defendant

Computershare, IEAM’s transfer agent, to issue IEAM stock under the S-8

to the WFG/NFS account in the name of the Margulies Law Group

IOLTA;

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-- Computershare, despite the absence of any IEAM Board minutes or

opinion of any counsel supporting the Mazzuto/Margulies direction,

would send the number of shares directed to the WFG/NFS account in the

name of the Margulies Law Group IOLTA account;

-- Even a cursory review of the terms of the Plan would reveal that stock

issued under its terms was meant for Employees, Outside Directors, and

bona fide Consultants and that any stock so issued was to be restricted

and NOT free-trading;

-- The IEAM stock transferred by Computershare was unrestricted, free-

trading stock;

-- Once in the Margulies Law Group IOLTA account at WFG/NFS, the

securities were sold at the direction of Defendant Cuzalina;

-- The proceeds of the sale of this illegally issued and improperly sold stock

were wired from the Margulies Law Group IOLTA account at WFG/NFS

to the Margulies Law Group IOLTA account at National City Bank in

Cleveland, Ohio.

Computershare’s Participation

34. As previously noted at all times relevant to this Complaint, IEAM had contracted

with Computershare for the provision of professional transfer agency services. Far from

“exceeding and setting new standards for service excellence”, as Computershare grandiosely

bills itself, Computershare breached its duty of care to IEAM in such a fundamental, basic

manner constituting a clear departure from the standards of its profession and industry. Indeed,

this departure from any standard of reasonable care was so dramatic that ascriptions of fraud are

warranted.

WFG COMPLAINT 10

35. Attached hereto as Exhibit “2” are 19 separate examples of letters to

Computershare from Mazzuto or Margulies, in varying capacities, directing the issuance of

millions of shares of IEAM stock purportedly under the IEAM Stock Plan. In point of fact,

these letters direct the false issuance of shares, are obviously contrary to the Plan and its terms,

and violate the guidelines for transfer agent conduct as regards transfers of securities at the

direction of a company as promulgated by the Securities Transfer Association – of which

Computershare is a member.

36. The shares that Computershare issued in accordance with these bogus instructions

were free trading. The Plan dictates that the shares issued under it were to be restricted.

37. The letters themselves are wholly inadequate to justify the issuance of the shares.

There is no reliable medallion signature guarantee, there is no secretary’s certificate or bylaw

reference or board resolution, and there is no certificate of incumbency evidencing that the

signor of any of theses letters holds the office they purport to hold. See Securities Transfer

Association Guidelines §3.01 (December 2008).

38. Any single departure from the rules and processes of its industry would be

egregious misconduct on the part of Computershare. As Exhibit “2” demonstrates, however, this

fundamental departure from any standard of reasonable care occurred over and over again and

resulted in the improper issuance of millions of illegal securities.

Cuzalina’s, WFG’s, and NFS’s Participation

39. The participation of Cuzalina, WFG, and NFS in the illegal issuance of IEAM

securities was even more egregious than Computershare’s and, as such, more clearly indicative

of a conscious decision to join the conspiracy to defraud.

40. In the first instance, the facts known to date clearly suggest impropriety in

connection with the opening of the securities brokerage account in the name of the Margulies

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Law Group IOLTA. An IOLTA account represents funds that belong to a lawyer’s clients, that

are held in trust, and that the lawyer so holding must exercise extraordinary care as to any

disposition.

41. Upon information and belief, in order for this account to have been opened at all,

an account opening form reflecting certain crucial information must have been completed and

approved. In the first instance, Cuzalina would complete and sign the form as the registered

representative on the account; then it would be reviewed and executed by his WFG supervisor;

then an Anti-Money Laundering officer for WFG would review and sign off; then the account

opening form would be provided to NFS for its review and approval. This review process, if it

took place at all, violated some of the most basic rules governing the securities industry.

42. First, the opening of an account in the name of the Margulies Law Group IOLTA

violates the maxim of “Know Your Customer” that governs all firms registered in the industry

(WFG, NFS) and the persons associated with them (Cuzalina). There is, quite obviously, no way

that Cuzalina, WFG or NFS could have observed this maxim in the opening of this account – for

the nature of the account is that it represents funds and assets held on behalf of undisclosed law

firm customers. Moreover, none of the required due diligence that the industry rules require

were, on information and belief, exercised. See FINRA Regulatory Notice 09-25 (May 2009).

43. Second, the existence of this account represents a clear departure by Cuzalina,

WFG, and NFS from the industry maxim relating to “Suitability” – there can be no basis for the

belief that an account representing assets of undisclosed clients held in trust and requiring extra

care could possibly be suitable for transactions involving a thinly-traded security of a minimally

capitalized company.

44. Moreover, among the clear “red flags” that all the Defendants ignored was the

fact – as reflected in Exhibit “2” – that the brokerage account in the name of the Margulies Law

WFG COMPLAINT 12

Group IOLTA account was used by Mazzuto to distribute millions of shares in the span of

approximately 8 months!

45. And, as if this were not enough indicia of participation in the Scheme to defraud,

the securities were immediately sold out of the brokerage account in the name of the Margulies

Law Group IOLTA by Cuzalina, WFG and NFS – and the proceeds immediately transferred to

the Margulies Law Group IOLTA account at National City Bank in Cleveland, Ohio. Again, no

responsible due diligence whatsoever in the face of no indicia of to whom these monies were

actually being transferred or why.

46. In a deposition from April 20, 2010, Margulies was asked, in sum and substance,

if he was aware of any restrictions on an IOLTA account. Margulies responded, “[t]he attorney

should not take from the IOLTA account without client permission.” In addition, in the same

deposition, Margulies was asked, in sum and substance, whether he was aware if it was improper

for his client to sell shares and for the proceeds to go into his IOLTA account. Margulies

responded, “I would say under many circumstances it could be proper. And under some

circumstances it might be improper.” When prompted to describe under what circumstances it

would be improper, Margulies responded, “[i]f the company were selling illegal shares.” (April

20, 2010, Margulies Deposition, Pgs. 25-26, Pgs. 29-30).

47. This immediate sale and transfer of proceeds of millions of shares of stocks that

should not have been issued, to an account that should not have been opened, constitutes such

egregious misconduct on the part of the Defendants that the only reasonable conclusion is that

they were purposefully derelict in their clear obligations and participants in the Scheme to

defraud IEAM.

WFG COMPLAINT 13

The Collapse of IEAM

48. On May 1, 2009, IEAM declared bankruptcy, at about which time Robert L.

Renck, Jr. was appointed as President and Chief Executive Officer. During Mazzuto’s tenure as

CEO, some 133 million shares of IEAM were traded with a market value—based on the last

sale—of $450 million. By April 30, 2009, the market value of those shares was $0, representing

a cumulative loss to public shareholders of $450 million.

49. At all relevant times, IEAM’s full Board of Directors was not apprised of the

unlawful activities of the Mazzuto Scheme.

50. In particular, Jerome Davis, IEAM’s sole, wholly independent Board Member,

was appointed in July 2005. He was unaware of the unlawful issuances of stock under the Stock

Option Plan. Moreover, Mr. Davis is a victim of records fraud himself. As reflected in false

record charges from the District Attorney of New York, records reflecting Mr. Davis’s

participation in Board meetings were falsified. In fact, he never participated in or was aware of

any meeting in which unlawful activity was contemplated or agreed upon.

FIRST CAUSE OF ACTION

(FRAUD)

51. IEAM incorporates allegations 1 through 50 above as if fully set forth herein.

52. As set forth above, Defendants knowingly participated in the illicit issuance and

sale to the public of IEAM securities. Through the active participation of the Defendants, a

Stock Option Plan instituted by IEAM and detailed in an S-8 Filing with the Securities and

Exchange Commission was illegally converted into the means by which unrestricted stock could

be issued to, and sold by, members of the Mazzuto Scheme.

53. As set forth above, IEAM contracted with Defendant Computershare for the

provision of professional transfer agency services. Computershare’s fundamental departure from

WFG COMPLAINT 14

any standard of reasonable care occurred over and over again and resulted in the improper

issuance of millions of illegal securities, obviously against and contrary to the Stock Option

Plan’s terms. Computershare represented to IEAM that the improper issuances were, in fact,

proper – or omitted to identify them as improper. IEAM justifiably relied upon these material

and fraudulent misrepresentations and/or omissions.

54. As set forth above, Defendants NFS, WFG and Cuzalina were purposefully

derelict in their clear obligations to IEAM. Defendants NFS, WFG and Cuzalina represented to

IEAM that the improper receipt and sale of its securities were, in fact, proper – or omitted to

identify them as improper. IEAM justifiably relied upon these material and fraudulent

misrepresentations and/or omissions.

55. As set forth above, Defendants NFS, WFG and Cuzalina opened the securities

brokerage account in the name of Margulies Law Group IOLTA without the prerequisite crucial

information and proper approvals. Defendants knowingly violated basic rules governing

securities in order for the immediate sale and transfer of the proceeds of millions of illegally

issued shares.

56. As a direct and proximate result of Defendants Computershare, NFS, WFG and

Cuzalina’s fraud, IEAM suffered monetary loss and liability including, but not limited to, in

excess of $17 million arising out of the illegal transactions involving the Margulies Law Group

IOLTA alone.

SECOND CAUSE OF ACTION

(CIVIL CONSPIRACY)

57. IEAM incorporates paragraphs 1 through 56 above as if fully set forth herein.

58. As set forth above, Defendants were in agreement with IEAM officers to issue

IEAM stock illegally, record the issuance of the stock illegally and to direct the flow of proceeds

WFG COMPLAINT 15

from the illegally issued stock to the Margulies Law Group IOLTA account at National City

Bank in Cleveland, Ohio, resulting in damage and injury to IEAM and its shareholders.

59. As set forth above, Defendant Computershare had an agreement with IEAM

officers to illegally issue unrestricted shares of stock, contrary to the Stock Option Plan.

Defendant Computershare’s conduct constituted a knowing and intentional departure from

standards of its profession and industry in furtherance of the Mazzuto Scheme.

60. As set forth above, Defendants Computershare, NFS, WFG and Cuzalina were in

agreement with IEAM officers to open the securities brokerage account in the name of Margulies

Law Group IOLTA without the prerequisite crucial information and proper approvals.

Defendants knowingly violated basic rules governing securities in order for the immediate sale

and transfer of the proceeds of millions of illegally issued shares. Defendants Computershare,

NFS, WFG and Cuzalina knowingly agreed to engage in this intentional conduct in furtherance

of the Mazzuto Scheme.

61. As a direct and proximate result of Defendants Computershare, NFS, WFG and

Cuzalina’s participation in the conspiracy to defraud, IEAM suffered monetary loss and liability

including, but not limited to, in excess of $17million.

THIRD CAUSE OF ACTION

(BREACH OF CONTRACT)


63. As set forth above, Defendant Computershare agreed to provide professional

services as a transfer agent for IEAM securities in exchange for payment.

64. As set forth above, Defendant Computershare breached its contractual duty to

IEAM by knowingly issuing shares contrary to the Stock Plan. Moreover, Computershare’s

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conduct constituted a fundamental departure from any standard of reasonable care owed to

IEAM and to the performance of the services agreed upon.

65. As a direct and proximate result of Defendant Computershare’s breach of

contract, IEAM suffered monetary losses and liability including, but not limited to, in excess of

$80 million.

FOURTH CAUSE OF ACTION

(NEGLIGENCE)

66. IEAM incorporates allegations 1 through 65 above as if fully set forth herein.

67. As set forth above, Defendant Computershare was employed by IEAM to provide

to provide professional services as a transfer agent for its securities.

68. As set forth above, Computershare had a duty to IEAM to provide professional

service as a transfer agent for IEAM securities. Defendant Computershare breached that duty by,

contrary to the Stock Plan, blatantly, knowingly, and repeatedly issuing IEAM shares in a wholly

improper manner. As set forth above, Computershare breached its duty of care to IEAM in such

a fundamental, basic manner constituting a severe departure from the standards of its profession

and industry.

69. As a direct and proximate result of Defendant Computershare’s negligence,

IEAM suffered monetary losses and liability including, but not limited to, in excess of $80

million.

FIFTH CAUSE OF ACTION

(UNJUST ENRICHMENT)


71. As set forth above, Defendants Computershare, NFS, WFG and Cuzalina

knowingly provided services in furtherance of the illegal activities of the Mazzuto Scheme. As

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such, Defendants charged fees and received payments, by way of commissions, for hundreds of

millions of dollars of illegally issued IEAM stock.

72. By accepting commissions for the illegal services provided, Defendants were

unjustly enriched at the expense of IEAM and its shareholders.

73. It would be inequitable if Defendants were able to retain the proceeds from

illegally issuing shares to the detriment of IEAM, its creditors and its investors. IEAM is entitled

to restitution for the value of the fees charged and commissions received by Defendants for their

illicit activities in furtherance of the Mazzuto Scheme.

SIXTH CAUSE OF ACTION

(CONVERSION)


75. As set forth above, IEAM was the owner of the equity represented by the shares

that were wrongfully issued by IEAM’s agent, Defendant Computershare, in the furtherance of

the Mazzuto Scheme.

76. As set forth above, Defendants Computershare, NFS, WFG and Cuzalina

wrongfully diminished Plaintiff’s equity by knowingly issuing, accepting, and disposing of these

illicitly issued, freely traded IEAM shares.

77. As set forth above, IEAM suffered a diminution of its equity and, therefore a

detriment from Defendants’ actions.

78. As a direct and proximate result of Defendants NFS, WFG and Cuzalina’s

conversion of IEAM shares and securities, IEAM suffered monetary losses and liability

including, but not limited to, in excess of $17 million.

WFG COMPLAINT 18

RELIEF SOUGHT

WHEREFORE, Plaintiff IEAM requests that this Court award it the following relief:

(a) Judgment on its claims against each Defendant:

(b) Pre- and post-judgment interest;

(c) Compensatory and consequential damages;

(d) Punitive damages as allowed by law;

(e) Restitution for the full value of the improperly issued shares;

(f) Plaintiff’s costs and disbursements in this action including reasonable

attorney’s fees; and

(g) Such other and further relief as the Court deems just and proper.

DATED: April 30, 2011 /s/ Christopher D. Loizides Christopher D. Loizides (No. 3968) LOIZIDES, P.A. 1225 King Street, Suite 800 Wilmington, DE 19801 Telephone: (302) 654-0248 Facsimile: (302) 654-0728 E-mail: [email protected]

- and - Thomas J. Curran PECKAR & ABRAMSON, P.C. 41 Madison Avenue New York, NY 10010 Telephone: (212) 382-0909 Facsimile: (212) 382-3456 E-mail: [email protected] Counsel for Plaintiff IEAM

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK

THE PEOPLE OF THE STATE OF NEW YORK

-against- JOHN D. MAZZUTO and JAMES W. MARGULIES,

Defendants.

Indictment No. 2503/2010

THE GRAND JURY OF THE COUNTY OF NEW YORK, by this indictment, accuses

the defendants of the crime of GRAND LARCENY IN THE FIRST DEGREE, in violation of

Penal Law §155.42, committed as follows:

The defendants, in the County of New York and elsewhere, during the period from on or

about July 1, 2004 to in or about 2008, stole property from Industrial Enterprises of America,

Inc. and the value of the property exceeded one million dollars.

SECOND COUNT:

AND THE GRAND JURY AFORESAID, by this indictment, further accuses the

defendants of the crime of GRAND LARCENY IN THE FIRST DEGREE, in violation of

Penal Law §155.42, committed as follows:


about July 1, 2006 to on or about July 1, 2007, stole property from an individual known to the

Grand Jury and the value of the property exceeded one million dollars.

THIRD COUNT:


defendants of the crime of SCHEME TO DEFRAUD IN THE FIRST DEGREE, in violation

of Penal Law §190.65(1)(b), committed as follows:


about July 1, 2004 to in or about 2008, acting with others known and unknown to the Grand

Jury, all hereinafter referred to as “the schemers,” engaged in a scheme constituting a systematic

ongoing course of conduct with intent to defraud more than one person, including investors,

shareholders, regulators, securities markets and exchanges, and auditors, and to obtain property

from more than one person by false and fraudulent pretenses, representations and promises, and

so obtained property, to wit, money, with a value in excess of one thousand dollars from one or

more such persons, in that the schemers acquired a public shell company and used it as a vehicle

for larceny and fraud by illegitimately issuing millions of shares of stock and engaging in

fraudulent activity to inflate the value of the stock and deceive investors, as follows:

THE PLAYERS

• Industrial Enterprises of America, Inc. (“IEAM”). During the period of the scheme,

IEAM (formerly known as Advanced Bio/Chem, Inc.) was a public shell company

incorporated in Nevada and headquartered in New York County. IEAM acquired three

principal operating subsidiaries between 2004 and 2006, two of which manufactured and

distributed automotive after-market products (e.g., antifreeze, windshield cleaner and

oil-based lubricants), and one of which manufactured and sold aerosol gas products (e.g.,

computer cleaners). During the period of the scheme, IEAM’s stock variously was listed

on the over-the-counter market (“OTC Market” or “Pink Sheets”), the OTC Bulletin

Board (“OTCBB”) and the NASDAQ Stock Market (“NASDAQ”).

2

• John D. Mazzuto. Defendant John Mazzuto spent approximately 20 years at a

prominent New York bank, where he served as Managing Director of corporate finance.

In the decade prior to the scheme, Mazzuto acted as an entrepreneur, investor and private

investment consultant and advisor based in New York County. During the period of the

scheme, Mazzuto was the Chief Executive Officer (“CEO”), President, Assistant

Secretary, and a member of the board of directors of IEAM. Additionally, for significant

periods he also acted as Chief Financial Officer (“CFO”) of IEAM. Mazzuto filed a

personal bankruptcy petition in the United States Bankruptcy Court for the Southern

District of New York in November 2002 and was discharged from bankruptcy on May

15, 2009 – a period encompassing the entire period of the scheme, from which he

personally obtained in excess of $15 million.

• James W. Margulies. Defendant James Margulies is a Cleveland, Ohio-based attorney

with a background in business and securities who, during the period of the scheme, was

a member of the law firm of Margulies and Levinson, LLP. He also formed and utilized

a business entity called the Margulies Law Group. During the period of the scheme,

Margulies held various positions with IEAM, including outside counsel, CFO, General

Counsel, CEO, and member of the board of directors. Margulies obtained in excess of

$6 million from the scheme.

3

THE SCHEME

Origins

In 2002 John Mazzuto acquired a controlling interest in a private New Jersey-based

company called EMC Packaging, Inc. (“EMC”). He then turned his attention to merging EMC

into a publicly listed shell corporation. In July 2004, Mazzuto, with others, accomplished his

goal by gaining control over a dormant public shell corporation called Advanced Bio/Chem, Inc.

(“AVBC”) – a Texas-based company with no operations. At the time, AVBC’s stock traded on

the Pink Sheets (an over-the-counter market for penny stocks). In October 2004 Mazzuto used

AVBC to acquire EMC.

Shortly after the transaction, AVBC changed its name to Industrial Enterprises of

America, Inc. EMC was IEAM’s sole operating business at that time. Later, in 2005 and 2006,

IEAM acquired other subsidiaries, including Unifide Industries, LLC and Pitt Penn Oil

Company.

Registration of IEAM stock with the U.S. Securities and Exchange Commission

Once in control of a publicly listed corporation with an operational business, the

schemers filed a Form S-8 registration (“S-8”) with the United States Securities and Exchange

Commission (“SEC”) on January 24, 2005, along with an employee stock option plan (the

“Plan”), registering 15 million shares of IEAM stock. An S-8 is a public filing by which

companies register shares with the SEC to be issued exclusively for compensatory or incentive

purposes pursuant to an employee benefits plan. Issuing or selling shares to the public for

capital-raising purposes requires separate filings and registrations.

4

The IEAM Plan authorized the IEAM board of directors to issue securities to: (1)

employees; (2) outside members of the board of directors; and (3) consultants. Further, the Plan

authorized the board to issue three types of securities: (1) stock options; (2) restricted shares;

and (3) stock appreciation rights (SARs). Defendant James Margulies, whom Mazzuto had met

and hired in 2004 in the course of seeking to acquire a public shell, was responsible for filing

the IEAM S-8 registration and Plan.

Stock issuances

Between January 24, 2005 and March 31, 2008, Mazzuto and Margulies invoked the S-8

and Plan, but subverted them, to issue millions of shares of IEAM stock worth tens of millions

of dollars to friends, family members, alma maters, and to shell companies, entities and

accounts the schemers controlled, instead of to employees, outside members of the board of

directors or bona fide consultants. A significant number of the shares were issued illicitly for

capital-raising purposes and as gifts, instead of for compensatory or incentive purposes, as

required by the Plan.

The share recipients sold the stock immediately, converting the shares to cash. The

recipients then either kept the money for their own benefit or wired it directly back to IEAM,

where it was booked fraudulently as, among other things, revenue, or to various entities or

accounts controlled by the schemers.

The single largest recipient of IEAM shares was an attorney trust account opened and

controlled by James Margulies, which received more than 3.5 million shares of stock, which

defendant Margulies sold in the open market for approximately $17.7 million, directing more

than $13 million back to IEAM, and the remainder to accounts in the name of or controlled by

the schemers.

5

Reverse stock split

In June 2006 the schemers implemented a reverse 10-for-1 stock split, whereby every

ten shares of outstanding IEAM stock were converted to one share, and the value of every share

outstanding was increased ten-fold. This had the immediate effect of increasing by a factor of

ten the value of the shares the schemers issued pursuant to the S-8 registration and Plan.

The “pump”

To fraudulently inflate the market value of IEAM stock, and to solicit and encourage

public investment in IEAM, Mazzuto and other schemers also routinely made false or

misleading representations about the company in a series of press releases, investor meetings

and calls, and investor conferences held in New York County and elsewhere, and in various

public filings, including false and misleading information about IEAM’s financial condition,

capital structure, earnings guidance and projections, and about the number of shares

outstanding.

The cover-up

In order to conceal the unauthorized stock issuances, and the flow of proceeds back into

the corporation, the schemers engaged in a variety of fraudulent practices, including:

• Describing share recipients who performed little or no bona fide services for IEAM as

“consultants” to the company’s auditors, and creating false consulting agreements to

convey the pretense that these were legitimate recipients of shares.

6

• Arranging bogus private stock transactions, whereby the schemers solicited professional

investors to purchase stock directly from purported IEAM shareholders, when in fact

there were no actual sellers in these transactions. Rather, while the schemers instructed

the investors to wire money into a Margulies-controlled attorney trust account to be

directed to the ostensible seller, defendant Margulies instead wired the funds directly to

an IEAM account (whereupon, the true origin of the money was concealed). And

instead of delivering to the buyer pre-existing shares, Mazzuto and Margulies instructed

the transfer agent to issue new shares of IEAM stock to buyers pursuant to the S-8

registration and Plan.

• Disguising on the books and records of IEAM the flow of money back into the company

from the sale of S-8-issued shares as: (1) loans from various entities; (2) revenue from

the exercise of stock options; (3) reimbursement of legal and other professional fees;

and (4) revenue from “bulk sales” of inventory.

• Providing falsified books and records to outside auditors that contained false

information about the issuance of IEAM shares under the S-8 registration and Plan, and

false information about the source of money flowing back into the company from the

sale of such shares.

• Making misrepresentations in public filings with the SEC, or omitting material

information from public filings.

FOURTH COUNT:


defendants of the crime of a violation of General Business Law §352-c(5) (“MARTIN ACT”),

committed as follows:

7


about July 1, 2004 to in or about 2008, intentionally engaged in a scheme constituting an

ongoing course of conduct with intent to defraud ten and more persons and to obtain property

from ten and more persons by false and fraudulent pretenses, representations and promises and

so obtained property from one and more of such persons while engaged in, inducing and

promoting the issuance, distribution, exchange, sale, negotiation and purchase of securities of

Industrial Enterprises of America, Inc.

FIFTH COUNT:


defendants of the crime of a violation of General Business Law §352-c(6) (“MARTIN ACT”),

committed as follows:


about July 1, 2004 to in or about 2008, intentionally engaged in fraud, deception, concealment,

suppression, false pretense and fictitious and pretended purchase and sale, and with intent to

deceive and defraud, made material false representations and statements, while engaged in

inducing and promoting the issuance, distribution, exchange, sale, negotiation and purchase

within and from New York of a security, and thereby wrongfully obtained property with a value

in excess of $250.00.

SIXTH COUNT:


defendants of the crime of CONSPIRACY IN THE FOURTH DEGREE, in violation of

Penal Law §105.10(1), committed as follows:

8


about July 1, 2004 to in or about 2008, with intent that conduct constituting the felonies of

Grand Larceny in the First and Second Degree and Criminal Possession of Stolen Property in

the First and Second Degree be performed, did agree with one and more persons to engage in

and cause the performance of such conduct in that defendants and others agreed to issue, report

and record the issuance of shares of stock illicitly, direct the flows of proceeds from the sale of

such shares of stock, falsify documents and use nominees and nominee accounts to disguise the

flow of proceeds and avoid detection, and enlist and corrupt others to gain assistance, and

thereby sought to steal and possess millions of dollars in fraudulent stock proceeds.

The goal of the conspiracy was to steal and possess property in the form of shares of

IEAM stock and money generated from the sale thereof.

To effectuate their goal, the conspirators agreed to issue millions of shares of stock to

family members, close associates, and to shell companies and entities they controlled, and to

disguise the distribution of the proceeds back to the company and to themselves by creating

numerous false documents and records and making numerous false and misleading statements to

regulators and to the investing public. In so doing, the conspirators sought to defraud stock

transfer agents, regulators, auditors, investors and IEAM shareholders by fraudulently

conveying shares of stock and disguising the distribution of the proceeds from the sale of stock.

To further their plan, the conspirators agreed to engage in conduct designed to inflate the

value of IEAM stock and to influence investors and shareholders to purchase shares of IEAM

stock. The conspirators agreed to make false and misleading public filings and to issue false

and misleading press releases. They also agreed to make false and misleading presentations to

investors and shareholders at investor conferences, investor meetings, and on investor calls.

9

The ultimate goal of these conspirators’ efforts was to issue, inflate and convert IEAM stock

into as much money as possible, using complicit nominees and nominee accounts for channeling the

stolen proceeds back into the company and into accounts they controlled.

OVERT ACTS

In the course of and in furtherance of the conspiracy, the conspirators committed and

caused to be committed the following overt acts:

1. On or about November 12, 2004, defendant John Mazzuto caused to be created a

consulting agreement between IEAM and Regal Partners, LLC, an entity Mazzuto controlled.

2. On or about January 6, 2005, defendant John Mazzuto caused to be created and

signed a consulting agreement between IEAM and Regal Partners, LLC, an entity Mazzuto

controlled.

3. On or about January 24, 2005, defendants John Mazzuto and James Margulies

filed with the SEC a Form S-8 Registration Statement and Advanced Bio/Chem, Inc. 2004

Stock Option Plan (“Plan”), registering 15 million shares of stock to be issued pursuant to the

terms of the registration and Plan.

4. On or about January 24, 2005, John Mazzuto signed and caused to be sent a letter

to the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of

500,000 shares to Regal Partners, LLC, an entity controlled by John Mazzuto.



450,000 shares to Co-Conspirator #1, a friend and cohort of defendant James Margulies.



750,000 shares to Co-Conspirator #2, John Mazzuto’s girlfriend.

10

7. On or about January 25, 2005, John Mazzuto signed and caused to be sent three

letters to the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of

425,000 shares to members of his family.



500,000 shares to an investment entity located in Ohio and controlled by Co-Conspirator #3, a

business associate of John Mazzuto’s.



150,000 shares to Co-Conspirator #4, John Mazzuto’s attorney.



150,000 shares to his university alma mater.



150,000 shares to his high school alma mater.



500,000 shares to Co-Conspirator #5, a business associate of John Mazzuto’s.



500,000 shares to Co-Conspirator #6, a business associate of John Mazzuto’s.

14. On or about February 16, 2005, defendant John Mazzuto caused to be created

and signed a consulting agreement between IEAM and an investment entity located in Texas

and controlled by Co-Conspirator #7, a business associate of John Mazzuto’s.

11

15. On or about April 13, 2005, John Mazzuto signed and caused to be sent a letter to

the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of 1,000,000

shares to an entity controlled by Co-Conspirator #8, IEAM’s investor relations representative.

16. During the period from November 1, 2005 to October 30, 2007, James Margulies

wired approximately $2.6 million of IEAM stock proceeds from an attorney trust account he

controlled to a checking account he controlled with his wife.

17. On or about January 31, 2006, John Mazzuto and James Margulies caused to be

created falsified minutes of the meeting of the board of directors of IEAM.

18. On or about February 28, 2006, John Mazzuto caused to be created and signed a

consulting agreement between IEAM and Co-Conspirator #9, a stock promoter who arranged

sham private stock sales for IEAM.

19. On or about May 26, 2006, John Mazzuto signed and caused to be sent a letter to

the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of 400,000

shares to M4 Capital, LLC, an entity controlled by John Mazzuto.

20. On or about May 26, 2006, James Margulies signed and caused to be sent a letter


600,000 shares to Co-Conspirator #1, a friend and cohort of defendant James Margulies.

21. On or about August 1, 2006, John Mazzuto and James Margulies caused to be

created and signed a consulting agreement between IEAM and Sapphire Associates, LLC, an

entity Mazzuto controlled.

22. On or about August 25, 2006, James Margulies wired $169,800 of IEAM share

proceeds from an attorney trust account he controlled to a title company as part of a down

payment on a condominium for John Mazzuto located in Florida.

12

23. On or about September 7, 2006, John Mazzuto appeared and made a presentation

on behalf of IEAM at an investor conference in New York County, in which he made

representations about the company, including projected earnings guidance for IEAM and the

number of shares of IEAM stock outstanding.

24. On or about September 11, 2006, James Margulies wired $2.7 million of IEAM

share proceeds from an attorney trust account he controlled to an account in the name of Co-

Conspirator #4, John Mazzuto’s attorney, for the purchase of a home in Southampton, New

York for John Mazzuto.

25. During the period from October 1, 2006 to May 30, 2007, James Margulies wired

approximately $1 million of IEAM share proceeds from an attorney trust account he controlled

to an account controlled by John Mazzuto.

26. On or about October 2, 2006, John Mazzuto caused to be created and signed a

consulting agreement between IEAM and an individual who had participated in a private stock

transaction arranged by Mazzuto.

27. On or about October 4, 2006, John Mazzuto and James Margulies caused to be

created a falsified incentive stock option agreement between IEAM and Co-Conspirator #1, a

friend and cohort of defendant James Margulies.


created a falsified promissory note between IEAM and Margulies and Levinson, LLP.


created a falsified incentive stock option agreement between IEAM and Co-Conspirator #10, an

accountant located in Ohio.

30. On or about November 3, 2006, John Mazzuto caused to be created and signed a

consulting agreement between IEAM and an entity controlled by Co-Conspirator #3, a business

associate of John Mazzuto’s.

13

31. On or about November 17, 2006, John Mazzuto caused to be created a falsified

promissory note between IEAM and Sapphire Associates, LLC, an entity he controlled.

32. On or about December 27, 2006, John Mazzuto and James Margulies caused to

be created a falsified incentive stock option agreement between IEAM and Co-Conspirator #1, a

friend and cohort of defendant James Margulies.

33. On or about December 27, 2006, John Mazzuto signed and caused to be sent a

letter to the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of

407,850 shares to an attorney trust account controlled by James Margulies.

34. On or about December 31, 2006, John Mazzuto caused to be created two falsified

purchase orders.

35. During the period from December 29, 2006 to September 30, 2007 James

Margulies wired approximately $17.8 million of IEAM share proceeds from an attorney trust

account he controlled to an account in the name of IEAM.

36. On or about January 1, 2007, John Mazzuto caused to be created a falsified

promissory note between IEAM and an entity controlled by Co-Conspirator #1, a friend and

cohort of defendant James Margulies.

37. On or about January 5, 2007, John Mazzuto and James Margulies caused to be

created falsified minutes of the meeting of the board of directors of IEAM

38. On February 16, 2007, IEAM issued a press release announcing results for the

fiscal quarter ending December 31, 2006, which included false and misleading revenue figures.

39. On or about February 13, 2007, John Mazzuto and James Margulies caused to be

created three falsified sales summaries for IEAM’s subsidiaries.

40. On or about February 28, 2007, John Mazzuto caused to be created two falsified

purchase orders.

14

41. On or about March 21, 2007, James Margulies signed and caused to be sent a


99,100 shares to an attorney trust account he controlled.

42. On or about March 27, 2007, James Margulies wired approximately $900,000 of

IEAM share proceeds from an attorney trust account he controlled to a title company for the

purchase of a house for John Mazzuto located in Texas.

43. On or about March 29, 2007, James Margulies signed and caused to be sent a


100,000 shares to an attorney trust account he controlled.

44. On or about March 31, 2007, John Mazzuto caused to be created a falsified

purchase order.

45. On or about April 9, 2007, James Margulies signed and caused to be sent a letter

to the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of 40,000

shares to Co-Conspirator #9, a stock promoter who arranged sham private stock sales for IEAM.

46. On or about April 23, 2007, John Mazzuto signed and caused to be sent a letter to

the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of 100,000

shares to the wife of James Margulies.

47. On or about April 24, 2007, John Mazzuto and James Margulies caused to be

created a falsified spreadsheet detailing bank account activity of IEAM.

48. On or about April 26, 2007, James Margulies signed and caused to be sent a


800,000 shares to an entity controlled by Co-Conspirator #1, a friend and cohort of defendant

James Margulies.

49. On or about May 14, 2007, John Mazzuto and James Margulies caused to be

created falsified consolidating workbooks for IEAM.

15

50. On or about May 22, 2007, IEAM issued a press release announcing results for

the fiscal quarter ending March 31, 2006, which included false and misleading revenue figures.

51. On or about July 9, 2007, John Mazzuto and James Margulies caused to be

created falsified minutes of the meeting of the board of directors of IEAM

52. On or about July 12, 2007, IEAM issued a press release which included false and

misleading information about earnings projections and the number of shares of IEAM stock

outstanding.

53. On or about July 24, 2007, John Mazzuto and James Margulies caused to be

created falsified minutes of the meeting of the board of directors of IEAM.

54. On or about August 6, 2007, John Mazzuto caused to be created falsified minutes

of the meeting of the board of directors of IEAM.

55. On or about August 20, 2007, John Mazzuto caused to be created falsified

minutes of the meeting of the board of directors of IEAM.

56. On or about August 29, 2007, James Margulies wired approximately $1.85

million in S-8 share proceeds from an attorney trust account he controlled to a title company for

the purchase of a home for John Mazzuto located in Florida.

57. On or about September 6, 2007, John Mazzuto led an investor call in which he

made false and misleading representations about the number of IEAM shares outstanding and

earnings guidance for the company.

58. On or about September 7, 2007, John Mazzuto caused to be created falsified

minutes of the meeting of the board of directors of IEAM.

59. On or about September 27, 2007, IEAM issued a press release which included

false and misleading information about annualized savings figures for the company.

16

FALSIFIED BOARD OF DIRECTORS MEETING MINUTES

SEVENTH COUNT:


defendants of the crime of FALSIFYING BUSINESS RECORDS IN THE FIRST

DEGREE, in violation of Penal Law §175.10, committed as follows:

The defendant, in the County of New York and elsewhere, on or about January 31, 2006,

with intent to defraud and to commit another crime and to aid and conceal the commission

thereof, made and caused to be made a false entry into the business records of an enterprise,

IEAM, to wit, minutes of the meeting of the board of directors of IEAM.

EIGHTH COUNT:




The defendants, in the County of New York and elsewhere, on or about January 5, 2007,




NINTH COUNT:


defendant JOHN MAZZUTO of the crime of FALSIFYING BUSINESS RECORDS IN THE

FIRST DEGREE, in violation of Penal Law §175.10, committed as follows:

17

The defendant JOHN MAZZUTO, in the County of New York and elsewhere, on or

about February 5, 2007, with intent to defraud and to commit another crime and to aid and

conceal the commission thereof, made and caused to be made a false entry into the business

records of an enterprise, IEAM, to wit, minutes of the meeting of the board of directors of

IEAM.

TENTH COUNT:




The defendants, in the County of New York and elsewhere, on or about February 21,

2007, with intent to defraud and to commit another crime and to aid and conceal the commission



ELEVENTH COUNT:




The defendants, in the County of New York and elsewhere, on or about March 15, 2007,




18

TWELFTH COUNT:




The defendants, in the County of New York and elsewhere, on or about June 28, 2007,




THIRTEENTH COUNT:








FOURTEENTH COUNT:




19

The defendants, in the County of New York and elsewhere, on or about July 9, 2007,




FIFTEENTH COUNT:








SIXTEENTH COUNT:








20

SEVENTEENTH COUNT:





about August 6, 2007, with intent to defraud and to commit another crime and to aid and



IEAM.

EIGHTEENTH COUNT:





about August 20, 2007, with intent to defraud and to commit another crime and to aid and



IEAM.

NINETEENTH COUNT:




21


about September 7, 2007, with intent to defraud and to commit another crime and to aid and



IEAM.

FALSIFIED CONSULTING AGREEMENTS

TWENTIETH COUNT:





about November 11, 2005, with intent to defraud and to commit another crime and to aid and


records of an enterprise, IEAM, to wit, a consulting agreement between IEAM and an

investment advisor located in Texas.

TWENTY-FIRST COUNT:




22




records of an enterprise, IEAM, to wit, a consulting agreement between IEAM and a stock

promoter who arranged sham private stock sales for IEAM.

TWENTY-SECOND COUNT:




The defendants, in the County of New York and elsewhere, on or about August 1, 2006,



IEAM, to wit, a consulting agreement between IEAM and Sapphire Associates, LLC.

TWENTY-THIRD COUNT:





about October 2, 2006, with intent to defraud and to commit another crime and to aid and


records of an enterprise, IEAM, to wit, a consulting agreement between IEAM and Sapphire

Associates, LLC.

23

TWENTY-FOURTH COUNT:







records of an enterprise, IEAM, to wit, a consulting agreement between IEAM and an individual

who participated in a private stock transaction arranged by Mazzuto.

TWENTY-FIFTH COUNT:








investment entity located in Ohio.

TWENTY-SIXTH COUNT:




24


about December 18, 2006, with intent to defraud and to commit another crime and to aid and



accountant located in Texas.

FALSIFIED IEAM BOOKS AND RECORDS

TWENTY-SEVENTH COUNT:







IEAM, to wit, a sales summary.

TWENTY-EIGHTH COUNT:








25

TWENTY-NINTH COUNT:








THIRTIETH COUNT:







IEAM, to wit, cash flow and balance sheet worksheets.

THIRTY-FIRST COUNT:




26




IEAM, to wit, schedules of options and warrants.

THIRTY-SECOND COUNT:




The defendants, in the County of New York and elsewhere, on or about April 24, 2007,



IEAM, to wit, a spreadsheet detailing bank account activity of IEAM.

THIRTY-THIRD COUNT:




The defendants, in the County of New York and elsewhere, on or about May 14, 2007,



IEAM, to wit, consolidating workbooks.

27

THIRTY-FOURTH COUNT:




The defendants, in the County of New York and elsewhere, on or about May 14, 2007,



IEAM, to wit, consolidating workbooks.

THIRTY-FIFTH COUNT:







IEAM, to wit, a quarterly report.

THIRTY-SIXTH COUNT:




28




IEAM, to wit, a quarterly cash report.

THIRTY-SEVENTH COUNT:







IEAM, to wit, a quarterly cash report.

FALSIFIED DEBT INSTRUMENTS

THIRTY-EIGHTH COUNT:




The defendants, in the County of New York and elsewhere, on or about October 5, 2006,



IEAM, to wit, a promissory note between IEAM and Margulies and Levinson, LLP.

29

THIRTY-NINTH COUNT:







records of an enterprise, IEAM, to wit, a promissory note between IEAM and Sapphire

Associates, LLC.

FORTIETH COUNT:







records of an enterprise, IEAM, to wit, a promissory note between IEAM and Sapphire

Associates, LLC.

FORTY-FIRST COUNT:




30


about January 1, 2007, with intent to defraud and to commit another crime and to aid and


records of an enterprise, IEAM, to wit, a revolving credit grid note between IEAM and an entity

located in Ohio controlled by a friend and cohort of James Margulies.

FALSIFIED INCENTIVE STOCK OPTION AGREEMENTS AND LETTERS

FORTY-SECOND COUNT:




The defendants, in the County of New York and elsewhere, on or about October 4, 2006,



IEAM, to wit, an incentive stock option agreement between IEAM and a friend and cohort of

James Margulies.

FORTY-THIRD COUNT:




31

The defendants, in the County of New York and elsewhere, on or about November 1,



IEAM, to wit, an option exercise letter.

FORTY-FOURTH COUNT:




The defendants, in the County of New York and elsewhere, on or about October 20,



IEAM, to wit, an incentive stock option agreement between IEAM and an account located in

Ohio.

FORTY-FIFTH COUNT:


defendants, of the crime of FALSIFYING BUSINESS RECORDS IN THE FIRST






32

FORTY-SIXTH COUNT:




The defendants, in the County of New York and elsewhere, on or about December 27,



IEAM, to wit, an incentive stock option agreement between IEAM and an account located in

Ohio.

FORTY-SEVENTH COUNT:








FORTY-EIGHTH COUNT:




33




IEAM, to wit, an incentive stock option agreement between IEAM and an attorney located in

Ohio.

FORTY-NINTH COUNT:








FIFTIETH COUNT:







IEAM, to wit, an incentive stock option agreement between IEAM and a friend and cohort of

James Margulies.

34

FIFTY-FIRST COUNT:








FALSIFIED PURCHASE ORDERS

FIFTY-SECOND COUNT:







records of an enterprise, IEAM, to wit, a purchase order.

FIFTY-THIRD COUNT:




35





FIFTY-FOURTH COUNT:








FIFTY-FIFTH COUNT:








36

37

FIFTY-SIXTH COUNT:





about March 31, 2007, with intent to defraud and to commit another crime and to aid and



FALSIFIED STOCK PURCHASE AGREEMENT

FIFTY-SEVENTH COUNT:




The defendants, in the County of New York and elsewhere, on or about September 1,



IEAM, to wit, a stock purchase agreement.

CYRUS R. VANCE, JR. District Attorney

GJ # 8 Filed: NA

38

No.

No.

THE PEOPLE OF THE STATE OF NEW YORK

-against-

JOHN D. MAZZUTO and JAMES W. MARGULIES,

Defendants.

INDICTMENT

GRAND LARCENY IN THE FIRST DEGREE, P.L. §155.42, 2 Cts. (both defendants) VIOLATION OF G.B.L. §352-c(5) (both defendants) VIOLATION OF G.B.L. §352-c(6) (both defendants) SCHEME TO DEFRAUD IN THE FIRST DEGREE, P.L. §190.65(1)(b) (both defendants) CONSPIRACY IN THE FOURTH DEGREE, P.L. §105.10(1) (both defendants) FALSIFYING BUSINESS RECORDS IN THE FIRST DEGREE, P.L. §175.10 (defendant John Mazzuto, 51 cts.; defendant Margulies, 33 counts)

CYRUS R. VANCE, JR. District Attorney

ADA Garrett Lynch Foreperson ADA Harold Wilson Major Economic Crimes Bureau

A True Bill

Date post:	14-Apr-2018
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