UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. DECISION AND ORDER 08-CV-361S WATERMARK FINANCIAL SERVICES GROUP, INC., WATERMARK M-ONE HOLDINGS, INC., M-ONE FINANCIAL SERVICES, LLC, WATERMARK CAPITAL GROUP, LLC, GUY W. GANE, JR., LORENZO ALTADONNA, DEBORAH GALAS, THOMAS BRICK, Defendants, GUY W. GANE, III, JENNA GANE, DENKON, INC., Relief Defendants. I. INTRODUCTION Presently before this Court is the Securities and Exchange Commission’s (“the Commission”) Motion for Summary Judgment and for Determination of Civil Penalties and Disgorgement. (Docket No. 110.) For the following reasons, the Commission’s motion is granted in part and denied in part. II. BACKGROUND Guy W. Gane, Jr. (“Gane”) was the president and principal of the Watermark Defendants 1 . (Plaintiff’s Statement of Undisputed Material Facts (“Plaintiff’s Statement”), 1 The Watermark Defendants are Watermark Financial Services Group, Inc., Watermark M-One Holdings, Inc., M-One Financial Services, LLC, and Watermark Capital Group, LLC. Case 1:08-cv-00361-WMS-HKS Document 201 Filed 02/14/12 Page 1 of 21
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UNITED STATES DISTRICT COURT WESTERN …...Case 1:08-cv-00361-WMS-HKS Document 201 Filed 02/14/12 Page 5 of 21 that. (Plaintiff’Statement, 70, 71.) Samouilidis, in turn, told Gane
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UNITED STATES DISTRICT COURTWESTERN DISTRICT OF NEW YORK
Presently before this Court is the Securities and Exchange Commission’s (“the
Commission”) Motion for Summary Judgment and for Determination of Civil Penalties and
Disgorgement. (Docket No. 110.) For the following reasons, the Commission’s motion is
granted in part and denied in part.
II. BACKGROUND
Guy W. Gane, Jr. (“Gane”) was the president and principal of the Watermark
Defendants1. (Plaintiff’s Statement of Undisputed Material Facts (“Plaintiff’s Statement”),
1The W atermark Defendants are W atermark Financial Services Group, Inc., W atermark M-One
Holdings, Inc., M-One Financial Services, LLC, and W atermark Capital Group, LLC.
Case 1:08-cv-00361-WMS-HKS Document 201 Filed 02/14/12 Page 1 of 21
Docket No. 123, ¶ 1.2) Gane held Series 7 and 24 securities licenses and operated a
broker-dealer office from July 2007 through 2008, at the M-One Financial Services, Inc.
(“M-One”) offices in Amherst, N.Y., but was not a registered representative at that broker-
dealer. (Id.) Previously, Gane was a registered representative associated with a series
of registered-broker dealers and operated branch offices of those dealers in the M-One
offices from October 2002 to April 2007. (Id.) Since April 2007, Gane has not been a
registered representative associated with any broker-dealer. (Id.)
Defendant Lorenzo Altadonna worked for Gane at the M-One offices. He held
Series 6 and 63 securities licenses. (Plaintiff’s Statement, ¶ 2.) The Commission’s case
against Altadonna has concluded. Altadonna has consented to a judgment permanently
enjoining him from violating the securities laws specified therein and requiring him to pay
disgorgement of $1,866,867.90 and prejudgment interest of $205,486.37. (Docket Nos.
185, 196.)
Thomas Brick and Deborah Galas worked for Gane at the M-One offices. They
have both consented to judgments permanently enjoining them from violating the securities
laws specified therein and have agreed that the allegations against them contained in the
amended complaint may be deemed true for purposes of this motion. (Plaintiff’s
Statement, ¶¶ 3, 4; Docket Nos. 96, 97.) Their liability has therefore been established and
all that remains is to determine the amount of disgorgement and what, if any, civil penalties
they must pay. (Docket Nos. 96, 97.)
2This Court has confirmed and is satisfied that the record evidence cited in Plaintiff’s statement
supports the assertions therein. Cf. Holtz v. Rockefeller & Co., Inc., 258 F.3d 62, 74 (2d Cir. 2001)(holding that factual allegations contained in a Rule 56.1 Statement that find no support in the recordevidence must be disregarded and the record reviewed independently).
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The relief defendants are Denkon, Inc., a Florida corporation owned by
Konstantinos Samouilidis; Guy W. Gane, III, who is Gane’s son; and Jenna Gane, who is
Gane’s daughter.3 (Plaintiff’s Statement, ¶¶ 9-11, 15.) They are each alleged to have
received money derived from the scheme detailed below.
A. The Scheme
In January 2006, Gane met with Altadonna, Brick, and Galas in the M-One offices
and advised them of his plan to purchase and develop waterfront property by selling
debentures and promissory notes that would pay a 10% sales commission and would earn
investors a 10% return. (Plaintiff’s Statement, ¶¶ 16, 19, 21, 22, 28.) Gane signed the
debentures and notes and set the 10% interest rate. (Plaintiff’s Statement, ¶¶ 17, 18, 24.)
The debentures were not registered with the Commission. (Plaintiff’s Statement, ¶ 56.)
Gane, Altadonna, Brick, and Galas induced investors to purchase debentures by
guaranteeing them that they would earn 10% interest per year. (Plaintiff’s Statement, ¶¶
Altadonna sold more than $1 million in debentures or promissory notes from 2007 to May
2008 and personally guaranteed the investments to his clients, telling them that it was
impossible for them to lose money and by promising them a one-week time-share in the
real estate project that the debentures were supposed to fund. (Plaintiff’s Statement, ¶¶
23, 28, 34.) Galas sold $1.3 million dollars in debentures. (Galas Aff., ¶ 21.)
In addition, Altadonna made exaggerated claims in written communications to his
3Relief defendants are those persons who “hold the subject matter of the litigation in a
subordinate or possessory capacity as to which there is no dispute.” S.E.C. v. Colello, 139 F.3d 674, 676(9th Cir. 1998). Relief defendants may be joined in a securities enforcement action “to aid the recovery ofrelief,” provided the relief defendant “has no ownership interest in the property which is the subject oflitigation.” S.E.C. v. George, 426 F.3d 786, 798 (6th Cir. 2005).
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debenture and promissory note clients, such as “[t]he words risk and loss are not in my
vocabulary” and “you have done an 11% return in 8 months guaranteed through my
company.” (Plaintiff’s Statement, ¶ 35 (emphasis in original exhibit).) And both Altadonna
and Gane told investors that their money was in Greece, that lawyers were converting the
Euros into dollars, that their money had been deposited in a Florida bank, and that the
money was being held up by U.S. Customs. (Plaintiff’s Statement, ¶ 54.)
Gane and Altadonna targeted long-time clients, friends, neighbors, and family
members. (Plaintiff’s Statement, ¶ 25.) They also urged investors to transfer their
investments from secure IRA accounts and certificates of deposit into debentures, without
disclosing the risks of doing so. (Plaintiff’s Statement, ¶ 26.)
Despite the promises and guarantees, no investor funds were ever used to
purchase waterfront property, and Gane and Altadonna knew that no such purchases were
being made. (Plaintiff’s Statement, ¶¶ 32, 33.) Instead, Gane used investor funds for
personal and general operating expenses, including paying commissions to Altadonna,
Brick, and Galas. (Plaintiff’s Statement, ¶¶ 33, 52.) Gane, Altadonna, Brick, and Galas
knew or should have known that the investment return on the debentures was not
guaranteed, because proceeds from the sales of the debentures and promissory notes
were the only source of funds, and the obligations to investors were significantly larger than
the available funds. (Plaintiff’s Statement, ¶ 29.)
By way of example, a local church invested $200,000 in debentures that matured
in December 2007. (Plaintiff’s Statement, ¶ 36.) With interest, Gane owed the church
$220,000. (Plaintiff’s Statement, ¶ 37.) Knowing that they could not pay the church, Gane
and Brick met with church officials to persuade them to roll over the debentures so that no
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payment would be required. (Plaintiff’s Statement, ¶ 38.) When the officials insisted on
cashing out, Gane convinced them to remain invested by promising them a monthly
interest payment and assuring them that they could liquidate their investment at any time.
(Plaintiff’s Statement, ¶ 39.) Later, in January 2008, when the church sought to liquidate
its investment, Altadonna sold a $200,000 debenture to a different investor, the proceeds
from which were used to pay the church. (Plaintiff’s Statement, ¶¶ 40-43.)
M-One never had sufficient cash available to pay the amounts due under the
debentures. (Plaintiff’s Statement, ¶ 30.) The gap between the cash on hand to pay the
debenture obligations and the obligations themselves grew exponentially from the time the
first debenture was sold. (Id.) By August 2006, the gap was more than $1 million, and it
grew to more than $6 million by April 2008. (Id.) The only way to raise money to pay the
existing debenture obligations was to sell more debentures, which is what Gane and
Altadonna did. (Plaintiff’s Statement, ¶¶ 31, 45. 52.) The total amount raised and
deposited from the sale of debentures was $5,378,399.99. (Plaintiff’s Statement, ¶ 66.)
The total amount raised from the sale of promissory notes was $1,254,937. (Plaintiff’s
Statement, ¶ 66.)
Some of the money raised by the sale of the promissory notes and debentures went
to the Relief Defendants — Denkon, Inc., Guy W. Gane, III, and Jenna Gane.
In 2007, Gane and Altadonna met with Samouilidis, the owner of Denkon, Inc., to
discuss Samouilidis investing in M-One. (Plaintiff’s Statement, ¶ 69.) Samouilidis was
reportedly expecting to receive $5 million from Greece that he wanted to invest in the
United States. (Plaintiff’s Statement, ¶ 68.) Gane and Altadonna wanted the Samouilidis
investment to repay the debenture and noteholders, although they did not tell Samouilidis
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that. (Plaintiff’s Statement, ¶ 70, 71.) Samouilidis, in turn, told Gane and Altadonna that
he needed financial assistance from them until he received the $5 million from Greece.
(Plaintiff’s Statement, ¶¶ 72, 74.) Gane and Altadonna thereafter transferred $200,000 to
Samouilidis, which Altadonna secured by convincing his father to invest $200,000, and
promising him that it would pay 10% interest guaranteed by M-One and Gane. (Plaintiff’s
Statement, ¶¶ 73, 75.) Gane and Altadonna subsequently transferred an additional