EQUUS RESOURCES / Alleged STOCK FRAUD, SELF DEALING SEC COMPLAINT RANDY L HARRIS, 865 Angel Drive, Ellijay, GA ;Steven A. Cunningham, 3765 Banyon Lane, Alpharetta, GA
RANDY LEE HARRIS of 865 ANGEL DRIVE, ELLIJAY, GA and STEVEN ADRIAN CUNNINGHAM of 3765 BANYON LANE, ALPHARETTA, GA allegedly ORCHESTRATED AND PERPETRATED STOCK FRAUD, ENGAGED IN SELF DEALING, allegedly RAN A STOCK SCAM AND A SHAM OPERATION IN VIOLATION OF SEC REGULATIONS AS FOLLOWS:
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
EQUUS RESOURCES, INC., :
: Civil Action No.:
RANDY L. HARRIS, STEVEN A. :
CUNNINGHAM, and MOONDANCE, :
LTD, LLC. :
COMPLAINT FOR DAMAGES AND EQUITABLE RELIEF
COMES NOW PLAINTIFF EQUUS RESOURCES, INC., by and through its undersigned attorneys, and for its Complaint states as follows:
Plaintiff Equus Resources, Inc. (“Equus Resources” or the “Company”) is a Colorado corporation whose principal place of business is located in Ponte Vedra Beach, Florida.
Defendant Randy L. Harris (“Harris”) is a Georgia resident who may be served at his residence 865 Angel Drive, Ellijay, Georgia 30536, which is in Dawson County.
Defendant Steven A. Cunningham (“Cunningham”) is a Georgia resident who may be served at his residence 3765 Banyon Lane, Alpharetta, Georgia 30022, which is in Fulton County.
Defendant Moondance, Ltd., LLC (“Moondance”), purports to be a limited liability company; however, the Company has been unable to identify Moondance’s state of organization. Upon information and belief, Cunningham is the managing member of Moondance. As described above in Paragraph 3, Cunningham is a resident of Georgia.
Collectively, the individuals identified in Paragraphs 2 and 3 above shall be referred to as the “Individual Defendants.”
JURISDICTION AND VENUE
This Court has subject matter jurisdiction over this action under 28 U.S.C. § 1332 because there is complete diversity of citizenship between the plaintiff and all defendants and the matter in controversy exceeds the sum of $75, 000.00, exclusive of interest and costs.
This Court also has subject matter jurisdiction over this action under 28 U.S.C. § 1331 because a claim arises under federal law. The remaining state-law claims are properly brought pursuant to 28 U.S.C. § 1367.
Venue is proper in this Court pursuant to 28 U.S.C. § 1391(a), (b). Venue is proper in the Atlanta Division pursuant to L.R. 3.1(B)(1)(a).
Equus Resources is a publicly traded company that has structured itself as an integrated real estate management entity, which would broker its own mortgages and have a school to train its own mortgage and real estate agents.
Until September 2007, Harris and Cunningham were directors of Equus and occupied various important roles as officers for the corporation.
Although the Company has raised millions of dollars in debt and equity capital, the Company’s financial records show no assets proportionate to the investment of the stockholders and very limited explanation of where the invested moneys went or how they were spent.
In September 2007, the Company’s shareholders took the necessary actions to remove Harris and Cunningham as the company’s directors.
The shareholders voted in new directors, who terminated Individual Defendants in their management capacities and began the process of locating the company’s assets and determining the financial health of the company and its wholly owned subsidiaries.
Having investigated the affairs of the Company and reviewed the documents that it has been able to obtain and other records, the company has determined that its prior management had taken personally or given away substantial corporate assets and neglected the affairs of the Company and otherwise breached their fiduciary duties, all to the detriment of the Company and its shareholders.
The actions described herein constitute a pattern of breaches of fiduciary duty that used both the mails and wires in interstate commerce in violation of state and federal Racketeer Influenced Corrupt Organizations (“RICO”) laws.
The Company was founded in 1976 as Cripple Creek Gold Production Corp., changed its name to Hunter Petroleum Corp. in 1986, to as Hunter International Trade Corp. in 1987, which subsequently became Forst Hunter International Trade Corp. in 1997.
As of February 2, 2004, the Company was authorized to issue 100, 000 shares of common stock and zero shares of preferred stock.
In April 2004, the Company reincorporated to change the par value of its stock from $.05 to $.0001. The Company also increased the number of authorized, common shares to 100, 000, 000.
In June 2004, the Company changed its name to Equus Resources, Inc.
CORPORATE MISCONDUCT AND
BREACHES OF FIDUCIARY DUTY
On November 1, 2004, Harris and Cunningham became the sole officers and directors of the Company by virtue of a merger of Team One Mortgage Services, Inc. (“Team One Mortgage”) into Equus Resources.
As officers and directors of the Company, the Individual Defendants owed the Company and its shareholders fiduciary duties of loyalty, diligence, and good faith.
As detailed throughout this complaint, Harris and Cunningham repeatedly breached their fiduciary duties by issuing themselves and others shares without obtaining appropriate value to the Company, and thereby diluting the value of shares held by equity investors, entering into self-interested contracts, loaning themselves the company’s funds without repayment, claiming to have loaned the Company money and extracting payment when no loan was ever made, claiming to have contributed assets to the Company when none were contributed, selling corporate shares at below market prices for personal gain, selling personal shares to purchasers seeking to invest in the Company, employing family and friends and engaging in other self-interested transactions to the detriment of the Company, and neglecting the affairs of the Company and its wholly owned subsidiaries, while devoting their time and attention to other personal matters.
Given the nature and extent of these breaches of fiduciary duty, none of the funds extracted from the Company by Harris and Cunningham were legitimate.
General Corporate Inaction and Wrongful Actions
On November 29, 2004, Harris and Cunningham filed articles of amendment to the Company’s articles of incorporation that purported to increase the number of authorized, preferred shares to 50, 000, 000 (par = $.0001). Those amendments were filed through the mails with the Colorado Secretary of State’s Office.
On March 1, 2005, Harris and Cunningham filed amended and restated articles of incorporation that purported to increase the amount of authorized common stock to 750, 000, 000 shares while decreasing the par value of those shares to $.00001 and that purported to increase the value of issued and issuable preferred stock to $.01 per share. Those amendments were filed through the mails with the Colorado Secretary of State’s Office.
Both of the increases described in paragraphs 24 and 25 were inappropriate and a breach of fiduciary duty because Harris and Cunningham had previously cancelled 25 million shares held by Susan A. Englert on November 1, 2004. The Individual Defendants counted 25 million shares purportedly owned by Susan A. Englert as having been voted in favor of expanding the authorized shares of the Company, despite the fact that those 25 million shares had been previously cancelled by Harris and Cunningham on November 1, 2004.
Similarly, the Individual Defendants cancelled 9 million more shares on November 9, 2004, but nevertheless allowed some shares—owned by entities controlled by Donald F. Mintmere, including Donald F. Mintmere, PA—to be voted in favor of both of the increases in authorized stock. By using those cancelled shares to effect dramatic increase in the number of authorized shares, the Individual Defendants breached their duty of care to the corporation and its shareholders. The shareholder consents were obtained through the mails, and correspondence regarding the shareholder consent occurred over the wires.
For example, Donald F. Mintmere—now serving time after his conviction for a number of securities-related felonies—sent an email to Cunningham on November 30, 2004 congratulating Cunningham on a job well done in increasing the number of preferred shares of the company and voting six million shares in favor of the action. Mintmere sent another email to Cunningham on April 4, 2005 voting six million shares in favor of the increase of common shares, but observing that “the increase in authorized is a little extreme.” Mintmere was a resident of Florida prior to his federal convictions, so the emails were sent from Florida to Georgia.
The Company’s transfer agent, ComputerShare, Inc., is located in Golden, Colorado, so all actions of share issuances and correspondence regarding shareholder action and board resolutions were mailed to that office from Georgia and communications regarding those mailings occurred between Georgia and Colorado.
Harris and Cunningham Immediately Began a Scheme of
Deception, which Breached Their Fiduciary Duties
Harris and Cunningham issued themselves shares in return for their purported contribution of more than $220, 000 of computer equipment, and more than $100, 000 in furniture and fixtures to Equus Resources.
The Company has no log or inventory of furniture, equipment, or fixtures actually received to justify such a large purported capital contribution and has been unable to locate furniture, equipment, and fixtures even approaching that value.
Furthermore, it is clear from Team One Mortgage’s books that Harris and Cunningham had previously contributed the same furniture and equipment to Team One Mortgage on October 28, 2003, May 5, 2004, and July 18, 2003, well before their association with Equus Resources. Thus, the property that Harris and Cunningham refer to as their capital contributions to Equus Resources was not their property to begin with, as it had previously been contributed to Team One Mortgage.
Equus Resources was forced to twice pay for the likely fictitious (or at least dramatically overestimated) capital contribution, as Team One Mortgage was merged into Equus Resources in exchange for 19, 475, 652 shares, which were given to Team One Financial.
Harris and Cunningham managed to convert more shares from Equus Resources through Team One Mortgage. On December 15, 2005, the Individual Defendants’ caused Equus Resources to issue 1, 596, 500 shares to the employees of Team One Mortgage for their interests in that company. However, as noted in Paragraph 33, over 19 million shares had already been issued to Team One Mortgage’s owners in the merger.
Prior to its dissolution, Equus Resources “loaned” Team One Mortgage $370, 198.09. That loan was later “written off” as “bad debt.”
On information and belief, Team One Mortgage was sold to El Unicornio, Ltd., with no assets but including various federal payroll tax liabilities in exchange for a promise to sell and market El Unicornio’s South American goods in Georgia.
The first issuance to Cunningham was of one million shares on October 15, 2004, purportedly for his initial contribution of furniture, equipment, and fixtures. According to ComputerShare’s records, those million shares were ordered released by Equus Resources, in Alpharetta, Georgia and shipped to Donald Mintmere in Palm Beach, Florida.
The first issuances to Harris was also of one million shares on October 15, 2004, purportedly for his initial contribution of furniture, equipment, and fixtures. According to ComputerShare’s records, those million shares were ordered released by Equus Resources, in Alpharetta, Georgia and shipped to Donald Mintmere in Palm Beach, Florida.
Harris and Cunningham represented to shareholders that they were not taking salaries so as to not cause the Company that expense; yet, despite purportedly being unpaid for three years, Harris and Cunningham lived in million dollar homes and drove expensive cars. Like so many of their claims, this was also untrue, as the Individual Defendants were taking “consulting fees” in lieu of formal salaries and selling their personal shares when the Company could have taken advantage of those opportunities.
When the Company’s treasury stock was sold in the Company’s name, Harris and Cunningham sold that stock at half of the then-market price.
Harris and Cunningham failed to hold a single shareholders meeting in the last three years.
Harris and Cunningham also entered into self-dealing indemnity agreements, which purport to require the Company to indemnify them but which are prohibited by Colorado law.
Rather than pursue the Company’s stated purpose, Harris and Cunningham created and acquired numerous subsidiary and affiliate companies, many of which not only failed to add any value to the Company but also drained the Company’s limited resources.
Those entities included: Team One Financial Services, Inc., Team One Mortgage, First Team Realty, Inc., REALPROS Real Estate, Inc., Dunnotar Insurance Co., American Career Training Institute, Inc., AM/Corp Financial Services, Inc., 1st Metro Insurance, Inc., AMC-A Mortgage Co., Equus Realty Group, Inc., Equus Financial Services, Inc., Education Partners International, Inc. (“EPI”), Team One Enterprises, LLC, Equus Energy Solutions, Inc., American International Technical Institute, Inc., The Team One Financial Group, LLC, American International Education, Inc. (“AIE”), American International Education Services – Viet Nam, Inc., and The Genesis Non-profit Corp.
According to the records of the Company, Equus Mortgage Services, Inc., generated a gross profit of $351, 735.58 through August 17, 2007; REALPROS Real Estate, Inc., generated a gross profit of $282, 756.32 through August 30, 2007; 1st Metro Insurance, Inc., generated a gross profit of $83, 218.03 through August 30, 2007; Equus Realty Group, Inc., generated a gross profit of $23, 067.76 through August 30, 2007; and EPI generated a gross profit of $20, 700.74 through August 30, 2007. The sum of these gross profits is $761, 478.43.
As of the day that Harris and Cunningham were removed from their management positions with the Company, Equus Resources appears to have taken in at least $1, 081, 478.43 from the Individual Defendants’ purported capital contributions, as alleged in Paragraph 30, and from the gross profits of the business, as described in Paragraph 45.
Additionally, the Company issued $373, 000 worth of preferred stock and $787, 455.32 in common stock to raise funds.
Despite all the assets purportedly taken in, including the profits of the entities in Paragraph 45 and all debt and equity investment of others, upon information and belief the Company has less than $90, 000 in non-security assets and more than $370, 000 in total liabilities and no ongoing business operations.
This difference of several hundreds of thousands of dollars is unexplained by the Company’s records, and Harris and Cunningham were the only two individuals in the state who could authorize the expenditure of funds. Harris and Cunningham dissipated or wasted these funds.
The Company also continues to accrue expenses based on the Individual Defendants’ misfeasance and nonfeasance. For example, the Company received a phone bill for $4, 265.85 on November 11, 2007, which includes present and past expenses generated by the Individual Defendants. Their actions were not taken for the Company’s benefit, these expenses do not and have not created value for the Company’s shareholders.
Furthermore, as described below, Harris and Cunningham sold at least 16, 340, 000 of their personal shares to investors, bringing in $612, 500 that should constitute assets of the Company. It is unknown how many other unrestricted shares Harris and Cunningham sold in the market—both personally and through Moondance—as further evidence of the Individual Defendants’ manipulation of the company and its shareholders.
Cunningham also issued himself 9, 452, 273 shares on September 11, 2007 by shipping those shares to his personal address in Alpharetta. This issuances was after the effective date of his removal as a director of the Company, and there is no record of the consideration that Company received in exchange for these approximately nine and one-half million shares.
In dereliction of their duties, Harris and Cunningham deleted files from the Company’s records prior to turning those files over to new management. When the shareholders removed Harris and Cunningham as directors, Harris and Cunningham turned over the files and computer of the Company to the new management, in October 2007. Prior to this turnover, the computer had been maintained by Jennifer Harris Trastelis. The new corporate President, Bert Watson, Jr., turned on the computer and reviewed all of the relevant files. Then Mr. Watson restored the computer to the same status it was in during the early summer of 2007 and discovered a number of files the had been deleted from the computer, including files which showed where some of the Company’s money had gone.