Mot.injunction.california.v.turan.petroleum.vanetik.febr.18.12

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• PRESTON DuFAUCHARD California Corporations Commissioner ALAN S. WEINGER Deputy Commissioner ALEX CALERO (SBN 238389) Corporations Counsel

• FILED

SUPERIOR COURT OF CALIFORNIA COUNTY OF ORANGE

CE7;;;·;0~~-TER.& """'~ ,,. Co•m

JOYCE TSAI (SBN 241908) Corporations Counsel CALIFORNIA DEPARTMENT OF CORPORATIONS 1350 Front Street, Room 2034 San Diego, California 92101 Telephone: (619) 525-4043

Attorneys for the People of the State of California

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF ORANGE

THE PEOPLE OF THE STATE OF CALIFORNIA, by and through the CALIFORNIA CORPORATIONS COMMISSIONER,

Plaintiff,

vs.

TURAN PETROLEUM, INC., a Nevada corporation; NRG RESOURCES, INC., a Nevada corporation~ HIEP TRINH, aka ALEX TRINH, an individual; ANATOL Y V ANETIK, aka TONY V ANETIK, an individual; MITCH NGO, an individual; and DOES 1 through 10, inclusive,

Defendants .

Case No.: 30-2010-003 89990-CU -SL-CJC

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Date: February 18,2011 Time: 1:30 p.m. Dept: Cll

Complaint filed: July 15,2010 Trial date: none set

MEMORANDUM OF POINTS AND AUTHORITIES

IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

I. INTRODUCTION

This case involves the offer and sale of stock in two interconnected companies, Turan

Petroleum, Inc. ("Turan Petroleum" or "Turan") and NRG Resources, Inc. ("NRG Resources" or

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• • "NRG"). Both companies are in the oil and gas business. They were formerly located at the same

address. Until at least June 2008, Defendants Anatoly Vanetik, aka Tony Vanetik ("Vanetik") and

Hiep Trinh, aka Alex Trinh ("Trinh") were control persons of both companies. Defendant Mitch

Ngo ("Ngo") offered and sold securities on behalf of both companies.

The Department of Corporations, as the regulator of securities transactions in California, is

charged with enforcing the securities laws. The Department of Corporations' investigation found

that Trinh and Vanetik, as the control persons of NRG Resources and Turan Petroleum, engaged

in schemes designed to put investor money into their own pockets and that the companies knew of

and ratified these actions. The defendants violated Corporations Code section 25110 by selling

unqualified securities and Corporations Code section 25401 by making misrepresentations and

omissions of material fact.

II. STATEMENT OF FACTS

The Department of Corporations ("Department") became aware that Turan Petroleum and

NRG Resources may be engaged in the offer and sale of unqualified, nonexempt securities in the

state of California. (Declaration of Lisa Medina ("Medina Decl.") ,-r 4.) The Department initiated

an investigation and on November 13, 2008, it issued a subpoena duces tecum to Turan and NRG.

(Medina Decl. ,-r 7.)

A. The Defendants

Defendant Turan Petroleum was originally incorporated under the laws of Nevada in

March 2001 under the name Elite Registry, Inc. ("Elite"). Elite changed its name to Turan

Petroleum, Inc. in December 2004.

From its inception until at least June 2008, Defendant Anatoly Vanetik, aka Tony Vanetik

("Vanetik") was the president of Turan. From its inception until at least .June 2008, Defendant

Hiep Trinh, aka Alex Trinh ("Trinh") was a control person ofTuran. In or about June 2008, Turan

acquired new management, replacing Trinh and Vanetik. (Medina Decl. Exh. 14.)

2001.

Defendant NRG Resources was incorporated under the laws of Nevada on November 29,

From its inception, Vanetik has been the chairman of the board of directors, CEO, co-2-

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY fNJUNCTION

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• • founder, and a control person of NRG Resources. (Medina Decl. ~~ 21-22.) From its inception,

Trinh has been the vice president, co-founder, and a control person ofNRG Resources. (ld.)

At all relevant times, Defendant Mitch N go ("N go") has acted as a salesperson for Turan

Petroleum and NRG Resources. (Declaration of Loc Pham ('<Pham Decl. ") ~~ 3-7; Declaration of

Alain Do ("Do Decl.") ~~ 2-11.)

At all relevant times, Trinh and V anetik also controlled several other entities. These

included Capital Marketing Systems, Inc. ("Capital Marketing Systems"), a Nevada corporation,

and Valueluck, an entity of unknown form. (Medina Decl. ~ 19; Declaration of Anthony Nguyen

("A. Nguyen Decl.") Exh. 3; Do Decl. Exh. 2.)

In 1991, Defendant Vanetik was convicted by the United States District Court for the

Central District of California of a felony, subscribing to false income tax returns, in violation of

Title 26, United States Code section 7206(1). Vanetik was sentenced to probation for a period of

five years and ordered to pay a fine of$5,000.00. (Medina Decl. Exh. 13.)

In 2001, Trinh was barred by the National Association of Securities Dealers ("NASD,"

now the Financial Industry Regulatory Authority, or "FINRA"), a self-regulatory organization

empowered by Congress to regulate securities broker-dealers, from ever associating with any

member in any capacity. NASD's decision was based on the finding that Trinh had converted

$10,000.00 of customer funds for his own use. In2001, based on similar findings, Trinh was also

barred by the Office of Thrift Supervision from ever associating with certain banking institutions.

(Medina Decl. Exhs. 10, 11 and 12.)

B. Offer and Sale of Securities

In or around April 2004, Turan began distributing its stock to insiders, such as control

persons of Turan and entities controlled by them, including Valueluck. From April 2004 until

January 2009, Turan issued $12,250,996.60 worth of its stock to individuals or entities who did

not pay money for the stock. (Medina Decl. Exh. 22.)

In or around January 2005, Turan began selling its stock to the general public. From

January2005 until January 2009, Turan sold $2,612,610.00 worth of common stock to the general

public. (Medina Decl. Exh. 21.) -3-


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• • In or around June 2005, NRG began selling its stock to the general public. From June

2005 until December 2008, NRG sold $7,051,998.60 worth of common stock to 173 different

investors. (Medina Decl. Exh. 24.)

In or around June 2005! NRG began distributing stock to individuals and entities, including

Capital Marketing Systems, in exchange for services or otherwise pursuant to contracts. From

June 2005 until December 2008! NRG distributed 5,915,912 shares of common stock. (Medina

Decl. Exh. 25.)

In addition, Defendants Trinh and V anetik arranged sales of stock to be made by

Valueluck, Capital Marketing Systems, and other entities that had previously been issued Turan

stock as described above. For example, one shareholder purchased $200,000.00 worth of common

stock, but Turan's bank records do not reflect a deposit of $200,000.00 from this transaction

because the shareholder was instructed to make a $100,000.00 check payable to Valueluck and

pay the remaining $100,000.00 in cash to Trinh. (Declaration of Maria Shimohara ("Shimohara

Decl.") ~~ 7-8.) The shareholder received a handwritten receipt from Trinh for the $100,000.00

paid in cash. At the time this shareholder purchased his shares, he was not aware that he was

purchasing previously issued shares; instead, he believed he was purchasing shares from Turan,

rather than Valueluck. The shareholder was not told that he was purchasing stock that Valueluck

had not paid money for. Turan Petroleum's board of directors knew about Valueluck selling these

shares; Tony Vanetik, as President and Director, signed the Action by Written Consent of the

Directors of Turan Petroleum adopting this transfer of shares. (A. Nguyen Dec!. ~~ 8-10, Exhs. 2

and 3; Medina Dec!. Exh. 20; see also Do Dec!.~~ 6· 7.)

Another shareholder invested $100,000.00 in Turan by making a check out to Wells Fargo.

(Medina Decl. ~ 27.) The notation on the back of the canceled check shows that the check was

deposited to a 16-digit account number, rather than to Turan's bank account. (Id.; Medina Decl.

Exh. 23; Shimohara Decl. ~ 10.) The $100,000.00 investment is not reflected in Turan' s list of

stocks sold. (Medina Decl. ~ 27; Exh. 21.) Instead, according to Turan's records, the shares were

issued "for services," even though the shareholder paid $100,000.00 by check for the shares.

(Medina Decl. ~ 27; Exhs. 22, 23.) -4-


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• • Defendants solicited people by word of mouth. The stocks of NRG Resources and Turan

were sold to people who had no preexisting relationship with any of the Defendants. (A. Nguyen

Decl. ~~ 2-4; Declaration of Peter Nguyen ("P. Nguyen Decl.") ~ 3; Declaration of Alain Do ("Do

Decl.") ~~ 2-5; Declaration of Hector Salazar ("Salazar Decl.") ~ 2.) Some of these investors were

unaccredited and unsophisticated investors. (Do Decl. ~~ 14-15; P. Nguyen Decl. ~ 15.)

In order to offer and sell common stock, Turan published Private Placement Memoranda

("PPMs") dated October 30, 2005, February 21, 2007, and March 11, 2008. NRG published

PPMs dated December 2004 and July 1, 2006 and a Private Offering Memorandum dated

February 14, 2007. (Medina Decl. Exhs. 17 and 18.)

None of the PPMs published by Turan or NRG disclosed that Defendant Trinh had been

barred by the NASD and the Office of Thrift Supervision. None of the PPMs disclosed that

Defendant V anetik had been convicted of a felony in 1991. These disclosures were riot otherwise

made, orally or in writing, to people who purchased common stock of NRG or Turan. (Medina

Decl. ~~20-21; A. Nguyen Decl. ~~ 12-13; P. Nguyen Decl. ~~ 12-13; Do Decl. ~~ 12-13; Salazar

Decl. ~~ 8-9; Pham Decl. ~~ 8-9.)

In soliciting people to purchase stock, Trinh, Vanetik, and Ngo told people that each

company had taken all of the necessary steps to make an initial public offering ("IPO"), including

making necessary filings with the Securities and Exchange Commission ("SEC"). They said that

each company would make an IPO within 3-5 months. In fact, however, neither company had

filed any forms with SEC in preparation for "going public,'' and to this date, no initial public

offering has been made. (A. Nguyen Decl. ~~ 5-6; P. Nguyen Decl. ~~ 4, 7; Do Decl. ~~ 2-4;

Salazar Decl. ~~ 3, 7; Medina Decl. ~ 32.)

In an email dated November 19, 2004, discussing a 4-phase plan for Turan, the founders

had planned to "set the price on the pinks high (i.e. $10) with virtually no trading." (Medina Decl.

~ 18.) Defendants Ngo and Trinh subsequently told prospective investors that Turan's stock was

being traded at $12.50 per share. (A. Nguyen Decl. ~ 7; P. Nguyen Decl. ~ 7.) Ngo and Trinh

showed the prospective investors a screenshot of Turan's trading activity in order to convince

them this was true. {ld.) The screenshot shown to the investors was on the website of the Pink -5-

MEMORANDUM OF POINTS AND AUTHORITIES rN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

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• • Sheets, a system for trading over~the~counter securities-what the founders had referred to as "the

pinks" in the 2004 email. (A Nguyen Decl. Exh. 1.) One investor was thereby convinced that the

price he was paying, $2.50 per share, was a good deal. (A. Nguyen Decl. ~ 7.)

The California Corporations Commissioner has not issued a permit or other form of

qualification to any person to offer or sell the stock ofNRG or Turan in this state. (Medina Decl.

Exhs. 1 and 3.)

On January 31, 2005, Turan filed a Notice of Transaction Pursuant to Corporations Code

section 251 02(f) with the Department of Corporations. NRG has never filed anything with the

Department, but in 2004 it filed two Notices of Sale of Securities Pursuant to Regulation D, Rule

506, with the Securities and Exchange Commission. (Medina Decl. Exhs. 2, 27 .)

III. ARGUMENT

A. The Commissioner Has The Authority to Bring This Action to Seek An lnjundion

California Corporations Code section 25530 and Government Code section 11180 provide

the Commissioner with broad, discretionary authority to bring actions for injunctive and other

ancillary relief whenever it appears that any person has engaged in or is about to engage in any act

or practice in violation of the Corporate Securities Law. Section 25530 provides:

Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this division or any rule or order hereunder, the commissioner may in the commissioner's discretion bring an action in the name of the people ofthe State of California in the superior court to enjoin the acts or practices or to enforce compliance with this law or any rule or order hereunder. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted ....

(Corp. Code § 25530, subd. (a).)

The statute provides that upon a proper showing, the court "shall" grant a preliminary

injunction. Therefore, if the Court finds that Plaintiffhas made a proper showing here, the Court

"shall" grant Plaintiffs requested relief.

The availability or use by Plaintiff of other remedies is not a proper reason to deny a

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• • preliminary injunction. Section 25535, subd. (b), of the Corporations Code provides: "As

applied to the penalties for acts in violation of this division,. the remedies provided by this section

and by other sections of this division are not exclusive, and may be sought and employed in any

combination to enforce the provisions of this division." The statute provides that the

Commissioner has discretion to bring an action in superior court. (Corp. Code§ 25530(a)).

To obtain a preliminary injunction under the Corporations Code, Plaintiff only needs to

demonstrate a likelihood of success on the merits. The California Supreme Court has held that

government agencies seeking to enjoin violations of statutes, unlike private litigants, do not need

to show irreparable hann. (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 70-73 .) "Where a

governmental entity seeking to enjoin the alleged violation of an ordinance which specifically

provides for injunctive relief establishes that it is reasonably probable it will prevail on the merits,

a rebuttable presumption arises that the potential harm to the public outweighs the potential hann

to the defendant." (IT Corp., 35 Cal.3d at 72.) The California-Supreme Court in IT Corp. reached

this conclusion after a detailed discussion, citing, among other cases, Paul v. Wadler (1962) 209

Cal.App.2d 615, 625. "The theory is that when a legislative body has authorized the injunctive

remedy for the violation of a statute, it has determined as a matter of law that irreparable injury

attends the violation of the statute." (Paul v. Wadler, 209 Cal.App.2d at 625). In fact, the statute

itself states that the Commissioner may seek an injunction when any person has engaged in

violations or is about to engage in violations; it does not require a showing of both. (Corp. Code §

25530(a).)

The California Supreme Court in IT Corp. also cited several federal court cases that held

that no balancing of banns is necessary. (IT Corp., 35 Cal. 3d at 71 (citing Atchison, T &S. F. Ry.

Co. v. Lennen (1Oth Cir. 1981 ). ) Indeed, several federal courts have held that where the Securities

and Exchange Commission showed a likelihood of success on the merits, no balancing test was

necessary to grant an injunction under the federal securities laws. "In a securities case, the

injunctive relief is a creature of statute, and thus the traditional equity requirement that irreparable

injury be shown is inapplicable." (SEC v. J&B Indust., Inc., 388 F. Supp. 1082, 1084 (D. Mass.

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• • 1974).) Federal securities law, like the California Corporations Code, provides that an injunction

shall be issued upon a "proper showing," and that is all that is necessary, federal courts have held.

(!d.; SEC v. Bennett & Co., 207 F. Supp. 919, 923 (D.N.J. 1962); SEC v. R.J Allen & Assoc., Inc.,

386 F. Supp. 866, 875 (S.D. Fla. 1974).)

Once Plaintiff has made a "proper showing," an injunction shall be issued even if

Defendants argue that the illegal conduct has ceased. "Mere cessation of the unlawful conduct,

even if accompanied by expressed intent to refrain from future unlawful conduct, will not defeat

an injunction if 'there exists some cognizable danger of recurrent violation."' (SEC v. J&B Indus.,

388 F. Supp. at 1084 (internal citations omitted).) Although Plaintiff has already issued a Desist

and Refrain Order, which prohibits Defendants from violating Corporations Code sections 25110

and 25401, the statute still provides that a preliminary injunction shall be issued upon a "proper

showing." (Medina Decl. Exh. 29.)

As set forth below, it is reasonably probable that Plaintiff will prevail on the merits.

Plaintiffs motion is accompanied by evidence, in the form of declarations and exhibits, that

Defendants have violated Corp. Code sections 25110 and 25401 by offering and selling stock in

NRG and Turan. Therefore, Plaintiff has made a "proper showing." Defendants' pattern of

violations also shows a likelihood that they will continue to violate the law, unless enjoined. A

preliminary injunction should be issued to prevent Defendants from further violating the

Corporations Code.

B. Defendants Made Offers and Sales of Unqualified, Non-Exempt Securities In Violation of Section 25110

Corp. Code section 25110 provides:

It is unlawful for any person to offer or sell in this state any security in an issuer transaction . . . unless such sale has been qualified . . . or unless such security or transaction is exempted or not subject to qualification under Chapter 1 [commencing with Section 251 00] of this part.

1) Defendants Offered and Sold Securities In This State In Issuer Transactions

The common stock in NRG and Turan sold by Defendants are "securities" for the purposes

of Section 25110. Corp. Code section 25019 defines "security" to include stock.

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• • Defendants solicited the general public, targeting fellow Vietnamese residents of Orange

County in particular, to purchase their stocks. In response to Plaintiffs subpoena, Defendants

provided Plaintiff with lists of investors and amounts invested. (Medina Decl. Exhs. 21, 22, 23,

and 24.) These showed that Tutan sold at least $2,612,610.00 worth of stock and NRG sold at

least $7,051,998.60 worth of stock. (ld.) Therefore, Defendants have offered and sold securities

as those terms are defined in Corporations Code section 25017.

Under Corporations Code section 25008, an offer or sale of a security is made "in this

state" when the offer is made in California, the offer is accepted in California, or the security is

delivered to the purchaser in California. (Corp. Code § 25008, subd. (a).) At all relevant times,

Turan Petroleum and NRG Resources had their principal places of business in Orange County,

California. At all relevant times, Defendants Trinh, Vanetik, and Ngo resided and worked in

Orange County, California. Therefore, all of the offers and sales of NRG and Turan stock made

by Trinh, V anetik, and Ngo originated in California. In addition, many of the investors were

California residents, so as to those investors, the offer or sale was "in this state" for the additional

reason that the offer was accepted in California. As to out of state investors, their money was

received in California~ therefore, the sale was "in this state."

Defendants offered and sold the stocks of NRG and Turan in both issuer and nonissuer

transactions (although buyers in the nonissuer transactions were led to believe that they were

buying newly issued shares). Corp. Code section 25010 defines "issuer" as any person who issues

or proposes to issue any security. The sales of stock by Turan and NRG were issuer transactions.

Sales by other entities or individuals, such as Valueluck, are nonissuer transactions under § 25011.

Although sales of stock by Valueluck and Capital Marketing Systems are nonissuer

transactions, § 25011 provides that these sales still violate Corporations Code section 25110.

Section 25011 provides: "An offering which involves both an issuer transaction and a nonissuer

transaction shall be treated for the purposes of Chapters 2 (commencing with Section 2511 0) and 4

(commencing with Section 25130) of Part 2 of this division as an issuer transaction .... "

Defendants, without telling investors, structured these transactions so that the money would go to

Valueluck and Capital Marketing Systems (and from there, into the hands of Vanetik and Trinh), -9-


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• • but they cannot use their own wrongdoing and misrepresentation to avoid liability under Section

25110. Under Section 25011, these transactions violate Section 25110 even though the sales did

not benefit the issuer.

2) Defendants Sold Securities That Were Not Qualified Or Exempt

Because Defendants offered and sold securities in this state in issuer transactions, Section

25110 requires that the securities be qualified or exempt. The securities sold by Defendants have

not been qualified by the Commissioner.

Defendants have not shown that any exemption from qualification applies. The burden of

proving an exemption is on Defendants. (Corp. Code§ 25163.)

Turan did file a Notice of Transaction Pursuant to Corporations Code section 251 02(f) on

January 31, 2005. NRG filed a Notice of Sale of Securities Pursuant to Regulation D, Section

4(6), and/or Uniform Limited Offering Exemption with the Securities and Exchange Commission

on or around April 21, 2004 and May 17, 2004, claiming exemption under Rule 506. However,

since at least 2005 and continuing to the present, both NRG and Turan used general soliCitation, in

the form of an investor referral network, to offer and sell securities. As described above,

Defendants solicited people throughout the community in Orange County, particularly

Vietnamese-Americans. (P. Nguyen Decl. ~,-r 2-3.) Defendants solicited people with whom they

had no preexisting relationship and who were not accredited investors. (A Nguyen Decl. ,-r,-r 2-4;

P. Nguyen Decl. ,-r,-r 2-3, 15; Do Decl. ,-r,-r 3, 14; Salazar Decl. ,-r 2.) Therefore, Defendants do not

meet the requirements for exemption from registration under the Securities Act of 1933. (See 17

C.F.R. § 230.502, subd. (c) (to qualify for the federal exemption, "neither the issuer nor any

person acting on its behalf shall offer or se11 the securities by any form of general solicitation or

general advertising .... ").) The general solicitation also renders Defendant's claim of exemption

under California law invalid. (Corp. Code § 25102, subd. (f)(4); Cal. Code Regs, tit. 10, §

260.102.120).).

Defendants must raise and prove the exemption as to every person who was offered or sold

securities in Turan or NRG. Defendants cannot meet this burden. Defendant Turan received

$100,000.00 from investor Timothy Vitta in what was clearly supposed to be a purchase of Turan -10-


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• • shares with a check. However, Turan's books and records do not reflect that Vitta purchased

shares. Instead, Turan's books and records state that Vitta was issued shares in exchange "for

services." (Medina Decl. Exhs. 21, 22, and 23.) This discrepancy shows that Turan's shareholder

lists are incomplete and its records contain false and conflicting information. For this reason,

Turan will not be able to produce any reliable documents that can be used to prove that an

exemption applies. Even if Turan were to produce evidence that every single shareholder to

whom it offered or sold stock met the requirements of Corporations Code section 251 02(f), there

could be other purchasers who, like Vitta, are missing from its lists.

C. Defendants Made Material Misrepresentations and Omitted to State Material Facts to Investors In Violation of Section 25401

1) "Reasonable Investor" Standard For§ 25401

Defendants made several misrepresentations and omissions that would be considered

material to the ''reasonable investor." (SEC v. Murphy (1980) 626 F.2d 633, 643; SEC v. Todd

(S.D. Cal. 2007) No. 03CV 2230 BEN (WMc), 2007 U.S. Dist. LEXIS 38985, at *8 (citing Basic

Inc. v. Levinson (1988) 485 U.S. 224, 231-232)). The "reasonable investor" standard is an

objective standard; therefore, a plaintiff need not prove that any particular investor actually relied

on the misrepresentation or omission. (Lynch v. Cook (1983) 148 Cal. App. 3d 1072, 1081 (citing

TSC Industries, Inc. v. Northway, Inc. (1976) 426 U.S. 438, 445); see also People v. Baumgart

(1990) 218 Cal. App. 3d 1207, 1220 (citing Bowden v. Robinson (1977) 67 Cal. App. 3d 705,715,

which held that Section 25401 differs from common law negligent misrepresentation in that no

reliance is required; internal citations omitted).)

2) Failure to Disclose Vanetik's Felony Conviction

Defendants failed to disclose that Vanetik, the president of Turan and the CEO ofNRG,

had been convicted of a felony, subscribing to false tax returns. This information would clearly be

material to someone who is entrusting his or her money to Vanetik or a company controlled by

V anetik. The reasonable investor would be interested in knowing that a control person of the

company had been convicted of a crime involving fraud or deceit. (Pham Decl. ~ 9.)

3) Failure to Disclose Trinh's Bar by NASD and the Office of Thrift Supervision

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• • Defendants failed to disclose that Defendant Trinh, a control person of both Turan and

NRG, had been previously barred from the securities industry. This information would obviously

be material to a person who is about to purchase securities from Trinh or a company controlled by

Trinh. Trinh was barred by NASD and the Office of Thrift Supervision based on the finding that

he had misappropriated $10,000 of client funds. Given that Trinh was accepting tens of thousands

of dollars from investors here (one investor, for example, gave him $100,000.00 in cash), any

reasonable investor would clearly be concerned that Trinh had been found to have stolen a client's

funds and barred from the securities industry. (A. Nguyen Dec!.~ 9; Pham Dec!.~ 8.)

4) Failure to Disclose That Money Invested Would Not Go To Turan Petroleum

NRG and Turan were new companies trying to raise capital by selling common stock.

Investors purchased stock thinking they were investing in the company and that their investments

would contribute to the company's growth. Investors were not told that (in some cases) their

money was going into the pockets of a third party, such as Valueluck (which was controlled by

Trinh and Vanetik), rather than Turan. For example, one investor invested $200,000 which went

to Valueluck; not one cent went to Turan. (A. Nguyen Decl. ~ 9.) The fact that his purchase of

stock was actually from a nonissuer was clearly material to this investor because he had an interest

in seeing Turan raise capital and succeed in general. He had no interest in seeing Valueluck profit

from his transaction. As a direct consequence of this misrepresentation, Turan had less capital and

its stock was worth less than it would have been had all sales been issuer transactions.

5) Misrepresentation That NRG and Turan Had Taken the Necessary Steps To

Make An Initial Public Offering Within Months

Many investors were convinced to invest because Trinh, Vanetik, and/or Ngo told them

that NRG or Turan would have an IPO within months and once that happened, the stock would be

worth much more and the investor could resell his or her shares for a sizable profit. Trinh,

Vanetik, and Ngo made specific representations about the steps that the companies had taken

(such as SEC filings) in order to prepare for the IPO. None of these representations were true; in

fact, neither company had made any filings with the SEC in preparation to go public. In

purchasing their securities, these investors relied on the statements regarding the IPO; they -12-

MEMORANDUM OF POINTS AND AUTHORJTIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

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• • thought the investment would be extremely profitable once the stock became publicly traded. This

information was material to their investment decisions. (See SEC v. Richie, No. EDCV 06-63-

VAP (SGLx), 2006 U.S. Dist. LEXIS 45853 (C.D. Cal. May 9, 2006) (denying Defendants'

Motion to Dismiss Complaint or Alternately, to Dismiss Certain of Plaintiffs Four Claims for

Relief or Alternately, for a More Definite Statement, or Alternately, to Strike Portions of the

Complaint; rejecting Defendant's argument that the statement concerning the upcoming IPO was a

"vague statement of optimism" or an "unfulfilled promise of a future event.")).

D. Defendants Should Be Enjoined From Removing, Destroying, Mutilating, Concealing, Altering, Transferring, or Otherwise Disposing of Documents

As shown above, there is evidence that shareholders, such as Timothy Vitta, may have

purchased shares, yet somehow been omitted from Turan's records of purchased shares. Needless

to say, it is important that all evidence regarding the offer and sale of Turan and NRG stock be

preserved pending this litigation.

E. Defendants' Assets Should Be Frozen In Order to Preserve Shareholder Funds

An asset freeze is a form of ancillary relief, and ancillary relief may be granted pursuant to

Corporations Code section 25530. (See, e.g., SEC v. Hickey, 322 F.3d 1123, 1131 (9th Cir. 2003)

(holding that trial courts have inherent equitable authority to issue ancillary relief, including an

asset freeze, in actions brought by the SEC to enforce securities laws (citing SEC v. Wencke, 622

F.2d 1363, 1369 (9th Cir. 1980))).

An asset freeze is authorized under California law. (Republic of the Philippines v. Marcos,

862 F.2d 1355, 1361 (9th Cir. 1988) (rejecting Marcos' argument that the freeze of assets was an

attachment that California law permits attachment only in connection with a contract claim.)).

An asset freeze is necessary here to preserve assets for the purposes of awarding restitution

and penalties. These remedies, involving the payment of money, are specifically available under

the Corporate Securities Law, and therefore an asset freeze is an appropriate provisional remedy.

(See Reebok Int '/, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 560 (9th Cir. 1991) (holding that

an asset freeze is an appropriate provisional remedy when it preserves assets for an award of

ultimate remedies)).

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• • IV. CONCLUSION

Defendants made not just one, but numerous misrepresentations and omissions to induce

investors to purchase stock of NRG and Turan. Defendants omission to tell investors material

facts, as well as telling outright lies designed to deceive investors and create a false picture of

NRG and Turan. These misrepresentations and omissions were made by more than one defendant,

showing a coordinated effort to mislead investors.

Plaintiff respectfully requests that the Court issue a preliminary injunction enjoining the

Defendants from (I) violating California Corporations Code section 2511 0; (2) violating

California Corporations Code section 25401; (3) removing, destroying, mutilating, concealing,

altering, transferring, or otherwise disposing of, in any manner, books, records, documents,

correspondence, brochures, manuals, or other documents of any kind in the possession, custody, or

control of the Defendants, including but not limited to those pertaining to the above referenced

facts; and (4) withdrawing from any bank account or disposing of any real or personal property in

their possession, custody or control.

Dated: January 26, 2011 San Diego, California

PRESTON DuFAUCHARD Califomiao?'li/;ora!i.oRs-Coinmissioner

tfl 7 !l By: 7Jl!l \.)

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JOY~'l'SAI Corporations Counsel Attorney for the People of California


Mot.injunction.california.v.turan.petroleum.vanetik.febr.18.12

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