Sky Capital Affidavit in Support of Search Warrant
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Transcript of Sky Capital Affidavit in Support of Search Warrant
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK ----------------------------------x IN THE MATTER OF THE APPLICATION OF THE UNITED STATES FOR A SEARCH To Be Filed Under Seal WARRANT FOR THE PREMISES KNOWN AND DESCRIBED AS SKY CAPITAL AFFIDAVIT IN SUPPORT ENTERPRISES, INC., SKY CAPITAL OF A SEARCH WARRANT LLC, AND SKY CAPITAL HOLDINGS, LOCATED AT 110 WALL STREET, 8TH FLOOR, NEW YORK, NEW YORK, AND ANY CLOSED CONTAINERS THEREIN ----------------------------------x STATE OF NEW YORK ) COUNTY OF NEW YORK ) ss.: NORTHERN DISTRICT OF NEW YORK ) KURT F. DENGLER, being duly sworn, deposes and says:
BACKGROUND
1. I am a Special Agent with the Federal Bureau of
Investigation ("FBl”) assigned to the FBI's New York Field
Office. I have been employed by the FBI for approximately 7 1/2
years and have been a member of the FBI's Securities Fraud Squad
since Fall 2000. In my capacity as a Special Agent of the FBI, I
have been involved in numerous investigations involving
financial fraud, including investigations of schemes involving
securities fraud, false statements, and wire and mail fraud.
2. The information contained in this affidavit is based,
in part, upon personal knowledge arising from my participation
in this investigation, and, in part, upon information and
belief. The sources of my information and belief include, among
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other things, my debriefings of cooperating witnesses and of an
individual who has provided information to the Government in
hopes of receiving a cooperation agreement, two undercover
agents, and other federal agents; my review of recordings and
summaries of consensually recorded conversations, public,
regulatory and other filings; and my review of documents
relevant to the investigation. Where the statements of others or
the contents of documents and records are related herein, they
are related in substance and in part, and not verbatim.
Similarly, all assertions concerning dates, numbers and dollar
figures are approximate, based upon information and evidence
gathered to date. Since this affidavit is submitted for the
limited purpose of obtaining a search warrant, I have not set
forth each and every fact that I know concerning this
investigation.
3. This affidavit is submitted in support of an
application for a warrant to search the premises known and
described as the offices of Sky Capital Enterprises, Inc., Sky
Capital LLC, and Sky Capital Holdings (collectively "Sky
Capital"), located at 110 Wall Street, 8th Floor, New York, New
York, and any closed containers therein, as more fully described
below (the "PREMISES"), and to seize the items set forth in
paragraph 58 below.
4. This is the second affidavit that I have submitted
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in support of an application for a search warrant of the
PREMISES. On or about August 24, 2006, I submitted an affidavit
in connection with a prior application for the issuance of a
search warrant for the PREMISES. Based on that affidavit, on
August 24, 2006, United States Magistrate Judge Gabriel W.
Gorenstein signed a search warrant authorizing the FBI to
execute a search of the PREMISES. See 06 Mag. 1237. Following
the issuance of the search warrant, a broker at Sky Capital (the
"Broker") agreed to cooperate with the Government, as described
in more detail below. In light of this development, the
Government decided not to proceed with a search at that time in
order to allow the FBI to gain more information prior to any
search. Accordingly, the prior search warrant was never
executed.
5. For the reasons explained herein, there is probable
cause to believe that individuals associated with Sky Capital
have engaged in and are continuing to engage in criminal
activities, including securities, mail, and wire fraud through,
among other things, the use of materially false and fraudulent
representations, and omissions of material facts in connection
with the purchase and sale of securities, in violation of Title
15, United States Code, Sections 78j (b) and 78ff, and Title 17,
Code of Federal Regulations, Section 240.10b-5 (Securities
Fraud), and Title 18, United States Code, Sections 1341 (mail
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fraud) and 1343 (wire fraud).
6. In particular, there is probable cause to believe
that individuals associated with Sky Capital, including Ross
Mandell, the Chief Executive Officer (CEO) of Sky Capital
Holdings, have been and are continuing to disseminate and cause
to be disseminated materially false and misleading statements
about securities traded through Sky Capital in order to induce
investors to purchase such securities. Individuals associated
with Sky Capital also have participated in what is commonly
referred to as a “ponzi” scheme, a scheme to use various
purported investment opportunities, including private placement
offerings, to payoff prior investors, to keep Sky Capital afloat
as an ongoing business, and to personally enrich Ross Mandell
and others. In addition, there is probable cause to believe that
individuals associated with Sky Capital have engaged in
practices to unlawfully manipulate the market for publicly-
traded securities of companies related to Sky Capital.
THE SKY COMPANIES
7. According to publicly-available databases and filings,
Sky Capital LLC is a brokerage firm with its main office
at 110 Wall Street, 8th Floor, New York, New York. Sky Capital
LLC's parent company, Sky Capital Holdings Ltd., is a publicly-
traded company whose shares are traded on the London Stock
Exchange. Sky Capital LLC and Sky Capital Holdings Ltd. are
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affiliated with, and share the 110 Wall Street offices with, Sky
Capital Enterprises, Inc. (“Sky Capital Enterprises"), a venture
capital firm whose shares are also traded on the London Stock
Exchange.
8. Recent public records and filings have listed Ross
Mandell as Chairman and Chief Executive Officer of Sky Capital
Holdings, Sky Capital LLC and Sky Capital Enterprises. Mandell
has an office at the PREMISES. Prior to becoming involved with
the Sky Companies, Mandell was associated with a venture capital
firm called The Thornwater Company, L.P. (“Thornwater").
HISTORICAL INFORMATION RELATED TO ROSS MANDELL
9. I and other agents have conducted extensive
debriefings of a cooperating witness (“CW-1"). CW-1 has been
convicted of securities fraud in an unrelated case, and is
cooperating with the Government in the hope of receiving
leniency at sentencing. CW-1 has provided reliable information
concerning the unlawful activities of others that I and other
agents have been able to corroborate through independent
investigation, including the insertion of undercover agents,
review of pertinent records, and review of recorded
conversations.
10. CW-1 worked for Mandell at Thornwater from in or
about 1999 through in or about 2001. CW-1 has informed me that
while at Thornwater, CW-1 participated in the sale of private
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placements in at least five separate entities: St. James
Holdings LLC, Ticketplanet, Lanesborough Holdings LLC,
Chipcards, and Raleigh Holdings. CW-l stated that on Mandell's
instructions, CW-l sold several five million dollar private
placements of shares in these companies. CW-1 stated that
Mandell instructed Thornwater brokers, including CW-1, that they
were to represent to prospective private placement investors
that the invested funds were to be used to make initial public
offerings in the companies' stock - representations that the
brokers, including CW-1, conveyed to investors - but that
Mandell and Thornwater made no effort to initiate such
offerings, and instead used the money to pay the brokers
excessive undisclosed commissions and to use the proceeds for
their own benefit.
11. CW-1 informed me that Mandell then instructed
Thornwater brokers, including CW-1, to inform the larger private
placement investors that the private placements went "belly up,"
but that the investors would be made whole by being given shares
in other Thornwater private placements free of charge. These
private placements also failed to result in public offerings,
contrary to the representations of Thornwater brokers, and the
private placement stock ultimately proved to be worthless.
12. During the course of this investigation, I have
learned that the involvement of Mandell and Thornwater in the
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misuse of proceeds of private placements was the subject of
investigations by the United States Securities and Exchange
Commission ("SEC") and the National Association of Securities
Dealers ("NASD").1 CW-1 has informed me that three of his former
Thornwater clients2 each informed CW-1 that after the last
Thornwater private placement failed to produce any returns, Ross
Mandell, who by this time had begun Sky Capital Holdings,
promised these investors that they would receive shares in Sky
Capital Holdings, and other private placements being sold
through Sky Capital Holdings. The investors told CW-1 that they
had been promised these shares in return for not complaining
about the Thornwater private placements.
13. On November 2, 2006, I spoke to an investor in
Great Britain (the "UK Investor") who had previously dealt with
Ross Mandell. UK Investor's information corroborated the
1 According to a prospectus of Sky Capital Enterprises that I have reviewed, as part of Sky Capital LLC's NASD approval to act as a securities dealer, the NASD place prospectus, these restrictions were removed in March 2004. The prospectus also discusses a 1995 New York Stock Exchange ("NYSE") disciplinary action against Mandell alleging that he had effected transactions in customer accounts without the customers' knowledge or approval, as a result of which the NYSE found Mandell guilty of the charged misconduct and imposed a censure of six weeks suspension from employment or association with any NYSE member. The prospectus also notes that Mandell was the defendant in 10 customer complaints that resulted in awards in favor of the complainant, all for conduct prior to 1992.
2 After CW-1 left Thornwater in 2001, CW-1 worked at a firm called "Clover Capital," which offered the same type of bogus private placements that were being offered at Thornwater. The three investors referenced above were clients of CW-1's at Clover Capital, who were defrauded by CW-1 in private placements at Clover.
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information provided by CW-1. UK Investor stated that in or
about the mid-1990s Ross Mandell contacted UK Investor and asked
him if he was interested in investing in U.S. stocks. At the
time, Mandell represented that he was a broker with Thornwater.
UK Investor agreed to invest through Thornwater and made several
trades through Mandell. In or about Fall 1999, Mandell solicited
UK Investor to invest in a private placement in Ticketplanet,
one of the entities described by CW-1. Mandell gave UK Investor
assurances that Ticketplanet would go public and that UK
Investor would at least double his investment. Based on
Mandell's representations, UK Investor invested approximately
$100,000 in Ticketplanet. Subsequently, in or about 2000,
Mandell approached UK Investor about making an investment in
another private placement, this time with Raleigh Holdings,
another entity described by CW-1. Mandell again represented that
Raleigh Holdings would go public and that UK Investor would make
a large profit on his investment. Based on Mandell's
representations, UK Investor invested approximately $125,000 in
Raleigh Holdings. To date neither Ticketplanet nor Raleigh
Holdings has gone public.
14. In or about 2001, UK Investor began to have concerns
about his investments in Ticketplanet and Raleigh Holdings and
made inquiries with Mandell and others about those investments.
When UK Investor did not receive a satisfactory response, he
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contacted the NASD. In or about February 2002, Mandell traveled
to Great Britain to meet with UK Investor to discuss his
concerns. During this meeting, Mandell promised to "make good"
on UK Investor's investments, and offered to give him
150,000 shares each in Chipcards (another entity described by
CW1)and Sky Capital Holdings ("SKH") as compensation for UK
Investor's prior investments. Approximately one week later, in
or about March 2002, Robert Grabowski, an associate of Mandell
from Thornwater, traveled to Great Britain to meet with UK
Investor and memorialize UK Investor's agreement with Mandell.
Grabowski presented UK Investor with a written agreement, under
which UK Investor agreed to forego any claim with the NASD and
to trade in his rights to shares in Ticketplanet and Raleigh
Holdings in return for 150,000 shares each in Chipcards and SKH.
UK Investor and Grabowski each signed the agreement, with
Grabowski signing as President of Raleigh Holdings. UK Investor
had previously been told by Mandell that Raleigh Holdings had
purchased Thornwater.
15. Sky Capital Holdings subsequently went public, but
UK Investor was never given any stock in either Chipcards (which
has not gone public) or SKH. When UK Investor attempted to
contact Mandell to complain about the situation, Mandell told UK
Investor that he should talk to Mandell's attorney. To date, UK
Investor has received no compensation or value for his original
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investments of approximately $225,000.
MISREPRESENTATIONS AND UNDISCLOSED COMMISSIONS IN CONNECTION WITH THE SALE OF SKY CAPITAL ENTERPRISES STOCK
16. As part of this investigation, between in or about
December 2005 and in or about August 2006, the FBI recorded a
series of in-person and telephonic conversations between CW-1
and a broker at Sky Capital LLC (the "Broker"). The Broker has
an office at the PREMISES and is a long-time associate of Ross
Mandell dating back to their days working together at
Thornwater. (As explained in more detail below, since August
2006, the Broker has been providing information to the
Government and assisting in the investigation of Mandell and
others at Sky Capital in the hopes of receiving a cooperation
agreement.)
17. According to CW-1, in or about November 2005, the
Broker offered CW-1 the opportunity to broker sales of a private
placement of Sky Capital Enterprises stock to persons whom CW-1
knew. On December 8, 2005, at the direction of the FBI, CW-1
placed a consensually-recorded and monitored telephone call to
the Broker. During the call, CW-1 and the Broker discussed CW-1
locating investors for the Broker, to whom the Broker could sell
shares of Sky Capital Enterprises stock in private placements.
18. At approximately 4:10 PM on December 8, 2005, CW-1
met with the Broker. Prior to the meeting, CW-1 had been
equipped by the FBI with a body recording device. During this
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meeting, the Broker told CW-1 that he wanted CW-1 to provide the
Broker with his ten biggest former clients, so that the Broker
could attempt to sell these individuals private placements of
shares in Sky Capital Enterprises, or Global Secure, a company
that the Broker stated was owned by Sky Capital Enterprises. The
Broker stated that the Sky Capital LLC brokers' commission on
sales of shares of Global Secure was 7%, and that the Broker's
commission on any shares in Sky Capital Enterprises that he sold
was 50%. The Broker further stated that he would give CW-l 40%
of the Broker's 50% commission for any investors in Sky Capital
Enterprises stock provided by CW-l.
19. During December 2005, and January and February 2006,
CW-l and the Broker had several other discussions, some in
person and some over the telephone, regarding the Broker's
request to CW-l to introduce potential private placement
investors to the Broker. During a recorded meeting on February
10, 2006, the Broker stated, in sum and substance, that if CW-l
introduced him to an investor, the Broker would "start giving
you a monthly paycheck, a monthly cash deposit."
20. On February 27, 2006, CW-l placed a consensually
recorded and monitored telephone call to the Broker. During this
call, CW-l stated that he had a "whale in Florida," meaning a
potential high-volume investor, with whom CW-l had just spoken.
CW-l stated that this potential investor's name was "Reed
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Walker," and provided Walker's cellular and office telephone
numbers. In fact, "Reed Walker" was an identity that had been
assumed by an undercover agent of the FBI ("UC-1" or "Walker")
for the purposes of this investigation, and the telephone
numbers provided to the Broker by CW-1 were undercover numbers.
21. On February 28, 2006, "Walker" received a call
from the Broker, which was recorded. During the call, the Broker
offered "Walker" the opportunity to invest in shares of Sky
Capital Enterprises. "Walker" provided the Broker an address in
Coral Gables, Florida, at which "Walker" was willing to receive
prospectus information regarding Sky Capital Enterprises. In
fact, the Coral Gables address was that of an undercover mail
drop, established by the FBI for the purposes of this
investigation.
22. On or about March 1, 2006, the undercover mail
drop in Coral Gables, Florida received, via DHL Express
overnight courier service, a package from the offices of Sky
Capital, LLC, 8th Floor, 110 Wall Street, New York, New York.
The package, addressed to "Reed Walker," contained account
opening documents and various Sky Capital Enterprises prospectus
information, relating to the private placement that the Broker
had discussed with DC-1. UC-1 subsequently received the
documents, filled out the account opening documents and returned
them via First Class U.S. Mail to Sky Capital Enterprises's
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offices at 110 Wall Street. All of these documents appear to
have been created using a computer.
23. On March 3, 2006, UC-1 (a/k/a "Walker") spoke to
the Broker on the telephone. This call was recorded. During the
call, the Broker stated, in substance and in part, that the
"rule on Wall Street," is that "no one is allowed to charge more
than 5%" in commissions "per trade." The Broker further stated
that the "rule at Sky Capital" is that "no one is allowed to
charge more than 3% per trade," and "my rule, at Sky Capital, is
I will only charge 3% when I am making that person a decent
amount of money." The Broker further stated that "in this
particular case, to sort of welcome you on board, on any buying
transactions, let's say 1 and 3/4 percent on the buy," and "2%
if you make money." The Broker reiterated, "you'll never be
charged more than 3% to buy on anything."
24. On March 14, 2006, UC-1 (a/k/a "Walker") engaged
in a telephone call with the Broker, which was recorded. During
the call, the Broker discussed Global Secure and stated, "our
company and our clients own this firm outright." The Broker also
discussed Sky Capital Enterprises's ownership interest in a
company called "Advanced Spinal," which was marketing a device
to treat back pain. UC-1 (posing as "Reed Walker") asked, "do
you have the U.S. patents" for the device? The Broker stated,
"dozens, we have all the patents on the device."
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25. On March 22, 2006, at the direction of the FBI,
CW-1 engaged in a consensually-recorded and monitored telephone
conversation with the Broker. During this call, the Broker asked
CW-l if he had spoken to "Reed Walker." CW-l stated that he had,
and "Walker" wanted to know CW-l's opinion on the investment.
The Broker instructed CW-l to tell "Walker" that Sky Capital
Enterprises owned a homeland security company for which Sky
Capital Enterprises paid $27 million, and that the homeland
security company would be sold shortly (a matter of weeks) for
double or triple that amount; and that Sky Capital Enterprises
owns the patents for, and had started a company to market, a
treatment to relieve back pain. The Broker further stated that
CW-l should tell "Walker" that Sky Capital Enterprises owns 70%
of the medical treatment company, and the other 30% is owned by
the management of Sky Capital Enterprises and the inventor of
the device. The Broker also instructed CW-l to tell "Walker"
that Sky Capital Enterprises stock was undervalued, and was
about to "explode."
26. On March 23, 2006, UC-l (a/k/a "Walker") engaged
in a telephone call with the Broker, which was recorded. During
the call, the Broker told UC-l that Sky Capital Enterprises's
investment in Global Secure would probably double or triple. The
Broker also told UC-l that "we own that company outright."
27. My research of publicly-available and law enforcement
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databases reveals that Global Secure is a company that markets
security-related training and equipment. I have reviewed
shareholder records of Global Secure, and public filings
and press releases of Sky Capital Enterprises, which indicate
that Sky Capital Enterprises in fact owns no more than 20% of
Global Secure. A Global Secure filing with the SEC indicates
that Ross Mandell owns 30% of Global Secure, making him the
company's largest shareholder. A review of Global Secure's SEC
filings does not indicate that shares of the company are owned
by either Sky Capital LLC or Sky Capital Holdings.
28. On March 28, 2006, UC-l (a/k/a "Walker") engaged
in a telephone call with the Broker, which was recorded. During
the call, the Broker reiterated that Sky Capital Enterprises
owns all of the patents on the back pain treatment device that
the Broker and UC-l had previously discussed.
29. An internet search revealed that a company called
"Advanced Spinal Technologies" ("AST") markets a device known as
an "Advanced Spinal Mobilization Instrument." The company's
website indicates that Sky Capital Enterprises owns only 40% of
the company, not the 70% stated by the Broker on March 22, 2006.
I have run several queries of the patent database of the United
States Patent and Trademark Office, which revealed no patents
for "Advanced Spinal Technologies," "Advanced Spinal
Mobilization Instrument," "Advanced Spinal Mobilization Device,"
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"Advanced Spinal Device," "Spinal Mobilization Instrument,"
"Advanced Spinal Mobilization," or "Sky Capital."
30. On or about April 3, 2006, at my direction, $30,000
was wired from an FBI undercover account to Sky Capital
Enterprises, with instructions from "Reed Walker" to invest the
money in shares of Sky Capital Enterprises stock.
31. On April 6, 2006, the Broker met with CW-1 at a
restaurant in Manhattan. CW-1 was equipped with a body recording
device. During this meeting, the Broker told CW-1 not to tell
anyone about their business together.3 Later during the meeting,
the Broker reduced the amount he would pay CW-1, stating that he
would pay CW-1, in cash, $3,000 (which is 10% of $30,000) of the
money received from the "Walker" investment. Subsequently, the
Broker reduced the amount of the payment again, stating he would
pay CW-1 $1,500 in cash. Later on April 6, 2006, the Broker did
not pay the amount promised, but instead provided CW-1 with a
check for $1,000, made out to "cash."
32. On April 4, 2006, the undercover mail drop in
Coral Gables received, via First Class U.S. Mail, a package
addressed to "Reed Walker," with a return address of Sky Capital
3 The Broker, as indicated, was aware that CW-1 had been arrested by federal authorities and had been providing information to the FBI in relation to his (CW-1's) case. CW-1 has informed me, however, that he understands that the Broker does not believe that CW-1's cooperation with the FBI extends beyond providing historical information about crimes for which CW-1 was arrested.
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LLC, 110 Wall Street, 8th Floor, New York, New York 10005, and a
postmark of March 16, 2006. Included in the package were an
account opening confirmation letter addressed to "Reed Walker"
from Sky Capital LLC; a document entitled "Account Profile,"
regarding "Reed Walker": a document entitled "Investment
Objective Definitions"; a brochure from National Financial
Services LLC, dated January 2006; and a brochure from National
Financial Services LLC, dated March 2005. All of these documents
appear to have been created using a computer.
33. On April 27, 2006, at the direction of the FBI,
CW-1 engaged in a consensually-recorded and monitored telephone
conversation with the Broker. During this call, the Broker asked
CW-1 if he had heard from "Reed Walker." The Broker stated that
he wanted CW-1 to advise "Walker" to buy more shares of Sky
Capital Enterprises. The Broker told CW-1 to tell "Walker" that
his investment had already appreciated by 30%. In fact, between
April 6, 2006, the date on which "Walker" made the investment in
shares of Sky Capital Enterprises, and April 27, 2006, the date
of this call, the stock of Sky Capital Enterprises fell from
approximately 1.25 pounds per share on April 3, 2006, to 1.10
pounds per share on April 27, 2006.
34. On May 1, 2006, an undercover facsimile machine in
Florida, the number of which had been provided to the Broker by
DC-1, received a facsimile communication addressed to "Mr. Reed
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Walker" from Sky Capital Enterprises's offices at 110 Wall
Street, New York, New York. The facsimile stated, in substance
and in part, that it was "confirmation that you have invested
$30,000 into Sky Capital Enterprises (15,789 shares). An
official confirmation in the form of a share certificate will be
issued in your name shortly upon closing of this share
offering." Other facsimile communications regarding the
investments the Broker and UC-1 had discussed were sent to the
Florida undercover facsimile machine from Sky Capital
Enterprises's Wall Street offices on April 24, 2006 and June 14,
2006. The two latter facsimile communications identified the
sender as "Rose/Assistant to [the Broker]." The May 1, 2006
facsimile identified the sender - ostensibly in error - as
"Rose/Assistant to Reed Walker." All of the facsimile
communications contain cover sheets that appear to have been
prepared on a word-processor.
35. On May 11, 2006, at the direction of the FBI, CW-1
engaged in a consensually-recorded and monitored telephone
conversation with the Broker. During this call, the Broker asked
CW-1 if he could convince "Walker" to invest another $500,000 in
Sky Capital Enterprises stock. The Broker offered to pay CW~l
$25,000 if CW-l could accomplish it, and then stated he would
pay CW-1 $20,000 cash the following Monday if he could
accomplish it. Also during this call, the Broker told CW-1 to
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"guarantee" "Walker" that he would be able to sell at least half
of his stock in six months; the Broker stated that he had 700
accounts of other clients that he controlled, that the Broker
could use to buy ~Walker's" stock. Based on my training and
experience, I believe that the Broker was describing an illegal
form of securities trading, sometimes referred to as "crossing
stock," a practice whereby a broker manipulates the market for a
security by suppressing or discouraging sell orders until they
can be paired off with buy orders from other investors within
the same firm. Typically, the customer buying the stock is not
informed that the broker is soliciting the transaction not
because it is beneficial to the buyer, but instead solely to
offset sell orders from another customer. As explained below, in
subsequent meetings with the Government, the Broker admitted
that he "crossed stock" while working at Sky Capital and that he
did so at the direction of his superiors at Sky Capital in order
to prevent the share price of Sky Capital stock from falling.
The Broker advised the Government that other brokers at Sky
Capital also engaged in this conduct at the direction of Sky
Capital's principals.
36. On June 8, 2006, at the invitation of the Broker,
UC-l and a second undercover agent posing as a prospective
investor ("UC-2") visited the Broker at Sky Capital
Enterprises's offices at 110 Wall Street, on the 8th Floor. UC-1
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was equipped with a recording device and covert video camera.
UC-l and UC-2 met the Broker, who gave UC-1 and UC-2 a tour of
the PREMISES. The Broker discussed with UC-1 and UC-2 the
business of Advanced Spinal and Global Secure. The Broker
provided UC-1 with a brochure for Global Secure, which indicates
that the company was formerly known as "Virtual Alert." The
Broker also confirmed that Sky Capital Enterprises had secured
all of the patents for the Advanced Spinal Mobilization Device
through a Washington, D.C. law firm. The Broker stated that Sky
Capital Enterprises owned 40% of Advanced Spinal, Sky Capital
Holdings owned 20%, and Sky Capital Enterprises's management
owned 12%. Also during the June 8 meeting, UC-2 observed brokers
using what appeared to be sales scripts to conduct what UC-2
believed to be marketing calls. UC-1 and UC-2 did not observe
any distinction between the employees, office space and file
space assigned to the different Sky Companies. The Broker
subsequently confirmed that there currently is no separation
between the different Sky Companies within the PREMISES.
37. During the June 8, 2006 meeting, UC-1 and UC-2
observed that 110 Wall Street is a 14-story building with a
black stone facade and the number "110" in raised silver over a
revolving door. The PREMISES, consisting .of the offices of Sky
Capital Enterprises, Sky Capital LLC and Sky Capital Holdings,
occupies the entire 8th floor, which is accessible by elevator
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and fire stairs. The elevators open onto the reception area,
which contains a reception desk, behind which is a sign marked,
"Sky Capital Holdings" and "Sky Capital LLC." The reception area
opens into a trading room, which contains three banks of
cubicles, and is surrounded on three sides by offices with
windows. The office of the Broker, which UC-1 and UC-2 were
shown on June 8, is located across the floor from the entrance
to the trading room, and contained a desk where a "cold call"
salesperson was working, and a desk where another employee was
working. The Broker's office also contained a desk where the
Broker sat, and a desktop computer. Just outside the Broker's
office was a cubicle where an individual named "Rose," whom the
Broker identified as his assistant, sat. "Rose's" cubicle also
contained a desktop computer. Ross Mandell's office was located
in the corner of the floor, to the left if the person is facing
the Broker's office. Other offices for brokers, analysts and
principals line the outside of the floor.
ONGOING CONDUCT AT SKY CAPITAL BY MANDELL AND OTHERS
38. On or about August 24, 2006, federal agents approached
the Broker and advised him that he was the subject of a federal
investigation. After retaining and meeting with counsel, the
Broker agreed to cooperate with the Government in the hope of
receiving a cooperation agreement and the possibility of a
reduced sentence. Since then, the Broker has met with the
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Government on numerous occasions and assisted the Government in
recording conversations with Mandell and others at Sky Capital.
The Broker's information has proven reliable and has been
corroborated by, among other things, recorded conversations
between the Broker and others at Sky Capital, including Mandell.
39. The Broker stated that he first worked for Mandell
at Thornwater. While at Thornwater, the Broker participated in
soliciting investors for private placement deals, including St.
James Holdings (one of the private placements described by CW-1)
In or about late 2002, the Broker went to work at Sky Capital.
While at Sky Capital, the Broker participated in private
placements for Sky Capital Holdings and Sky Capital Enterprises
before either of those companies went public.
40. According to the Broker, Mandell has been receiving
salaries from several of the Sky Capital companies and has given
himself large bonuses and payments for personal expenses at a
time when Sky Capital has been losing money. As a result, the
Broker and others at Sky Capital are under constant pressure to
raise more money to keep Sky Capital afloat. Mandell and others
at Sky Capital also have pressured the Sky brokers to induce
clients to take large positions in Sky Capital stock. According
to the Broker, Mandell has instructed others at Sky Capital to
give Sky Capital stock to investors who lost money in
failed private placements from Thornwater. (This is consistent
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with information provided by both CW-1 and the UK Investor.)
41. The Broker stated that Mandell has made numerous
promises to investors over the years that did not come true. He
has made these promises himself and through brokers at Sky
Capital. For example, in the last year Mandell has made
misrepresentations about both the likelihood that Global Secure
will go public and the price of Global Secure shares if the
company does go public. In fact, Global Secure has not gone
public and even if did it would not trade at the prices Mandell
has predicted to investors.
42. The Broker is aware of other practices at Sky Capital
that based on my training and experience appear to be unlawful.
For example, the Broker told me that Sky Capital would purchase
stock of the publicly-traded Sky Capital companies into the
firm's proprietary account in order to prevent the stock from
reaching the open market and decreasing in value. When this
happened, senior employees at Sky Capital would instruct the
brokers that Sky Capital had just taken in stock and that the
brokers needed to place the stock with Sky Capital clients. The
brokers were told that they would receive large, undisclosed
commissions for placing the stock in this manner, but that the
commissions would be disguised as bonus payments for attendance
or other unrelated achievements.
24
43. According to the Broker, brokers at Sky Capital were
also instructed by Mandell and others to discourage investors
from selling their stock in Sky Capital Holdings ("SKH") or Sky
Capital Enterprises ("SKE"). If investors insisted on selling
their shares, Sky Capital brokers were told that they had to
"cross" the stock out with another Sky Capital client. The
Broker stated that Sky Capital had a "no net sales" policy,
meaning that if brokers were unable to talk a client out
of selling Sky Capital stock, they had to find- a buyer within
the firm to purchase those shares. According to the Broker, this
was done to keep up the share price of the stock and to prevent
sales of the stock from leaving the firm where they might cause
the price to drop. The brokers were given excessive commissions
as a reward for completing these types of transactions. If
brokers were unable to find a purchaser, Sky Capital itself
would buy the stock and keep it in its inventory until it could
be sold to a Sky Capital client. The brokers did not disclose
their commissions to investors. Nor did they disclose the fact
that they were soliciting investors to buy the stock because
they needed to offset a sell order from another client.
44. The Broker also stated that brokers were pressured
by Mandell and others at Sky Capital to induce Sky Capital
clients to take large positions in SKH and SKE stocks.
Oftentimes clients were induced to liquidate their positions in
25
other stocks so that they could increase their holdings of SKH
and SKE stocks. Mandell and others at Sky Capital encouraged Sky
brokers to induce their clients to take large positions in SKE
and SKH even when that was not in the clients' interests. The
brokers did not disclose to investors that they were inducing
clients to purchase SKE and SKH stock for the benefit of Sky
Capital as opposed to the benefit of the clients.
45. The Broker advised the Government that Sky Capital
is currently involved in soliciting investors in the United
Kingdom for a new private placement in Sky Capital Holdings (the
"Current Raise" or "Raise"). According to the Broker, Mandell
has said on numerous occasions that Sky Capital will go out of
business - possibly as early as this Thanksgiving - unless this
Raise is successful. Mandell has promised the brokers that they
will receive a 10% commission on any money that they raise in
connection with this deal. Mandell has further instructed the
brokers that they do not need to disclose this commission to
potential investors.
46. I have reviewed documents prepared by Sky Capital
in connection with the Current Raise. These are documents that
appear to have been computer generated. The documents are
addressed to potential investors and set forth the terms of the
Current Raise. Contrary to what Mandell has promised the Broker,
these documents represent that "No commission will be payable to
26
you [the investor] or by you in respect of your participation in
the Placing." Accordingly, there is probable cause to believe
that Mandell and others associated with Sky Capital are making
misrepresentations and misleading omissions concerning excessive
commissions to Sky Capital brokers and how the raised funds will
be used.
RECENTLY RECORDED CONVERSATIONS
47. Since the end of August 2006, the Broker has assisted
the Government in recording numerous conversations between
himself and others at Sky Capital, including Mandell. I have
reviewed recordings of these conversations and draft
transcripts. These recordings corroborate the information
provided by CW-l and the Broker and show probable cause to
believe that Mandell and others are using Sky Capital to commit
securities, wire and mail fraud through material
misrepresentations and misleading omissions to potential
investors and through the diversion of Sky Capital funds for
their personal enrichment.
48. For example, on August 28, 2006, the Broker met
with another employee ("CC-l") of Sky Capital at the PREMISES.
The Broker was wearing a recording device. During this
conversation, the Broker and CC-l discussed the fact that
Mandell uses Sky Capital as his "personal piggy bank." CC-l told
the Broker that Advanced Spinal - the company previously used by
27
the Broker and others to solicit investors to purchase Sky
Capital related stock - is a "joke." Later the same day, the
Broker met with Mandell. During this conversation, Mandell told
the Broker that Advanced Spinal had received FDA approval and
that they had "all the rights" to the "patents" Mandell
instructed the Broker to tell a client that "Advanced Spinal is
going very well."
49. On August 29, 2006, the Broker met with others at
the PREMISES The Broker was wearing a recording device. During
a private meeting with Mandell, the Broker and Mandell spoke
about SKH and SKE, and Mandell referred to customer complaints.
Mandell talked about the fact that the Broker had just received'
"an expense check," and said "where does that come from? It
certainly does not come from production. . . . If we can get
people to get in there and buy." Shortly after this meeting, the
Broker spoke to a colleague who said that Mandell uses Sky
Capital as his own "personal piggy bank." Later in the day, the
Broker spoke to another employee of Sky Capital ("CC-2"). During
this conversation, CC-2 referred to the practice at Sky Capital
of crossing stock. CC-2 asked "how many times did [another Sky
Capital employee] come to us and say there's stock at the desk,
we have to clean it up?" Based on my training and experience, I
believe that this latter reference is to the "no net sales"
policy at Sky Capital and the practice of crossing stock.
28
50. Later on August 29, 2006, the Broker met with Mandell
again. Once again, this conversation was recorded. Mandell
referred to a client who was angry about an investment in Global
Secure. Mandell said "some guys are very rich, if they lose
money, no big deal." Mandell then joked that it would be a good
idea to hire a deaf person to handle client complaints.
51. On September 5, 2006, the Broker met with several
other employees of Sky Capital at the PREMISES. This
conversation was recorded. During the meeting, the Broker and
the others talked about Sky Capital's financial situation.
Another broker ("CC-3") said "if Sky goes down, we will be
talking to lawyers for the next three years, just on customer
complaints alone, not even talking about other things like
misappropriation of funds, none of those fantasy stories, just
customer complaints." CC-l then said misappropriation is a
"management issue."
52. Later on September 5, 2006, the Broker spoke to
Steven Shea. This conversation was recorded. Shea told the
Broker that "if Sky goes out of business" they will "all be in
court for the rest of their lives." Shea mentioned that CC-3
"has unauthorized trades and numerous current complaints and
regulatory problems from Sky." Shea and the Broker then spoke
about a "big guy" that CC-3 was trying to "get out of" 300,000
shares of SKE. Shea told the Broker, "that's all done, I'm still
29
trying to clean up . . I need a little." Based on my training
and experience, and my subsequent conversations with the Broker,
I believe that Shea was talking about "crossing stock" during
this discussion.
53. On September 11, 2006, the Broker met with Mandell and
others at the PREMISES. Their conversation was recorded. During
this meeting, Mandell spoke about the Current Raise. Mandell
mentioned that things were getting worse and that Sky Capital
was almost out of money. Mandell then asked if anyone was taping
him and said that they just got a "monster” break. Mandell
explained that Sky Capital had found 30 million shares that
could be offered. Mandell said they would sell 24 million shares
at "20p” (20 pence per share). Mandell promised the brokers that
they could make "10% on this.”
54. On September 12, 2006, the Broker met with Mandell
at the PREMISES to discuss the Current Raise. This conversation
was recorded. During this meeting, the Broker asked Mandell
whether they had to disclose the 10% commission to investors.
Mandell said he did not know, but did not think it was any of
"their business.” Later the same day, the Broker met with
Michael Recca, the President of Sky Capital LLC and Sky Capital
Holdings. The Broker asked Recca how Mandell could legally pay
the brokers a 10% commission on investments received for the
Current Raise, and Recca said he did not know. Recca also told
30
the Broker that the client must know what the commission will
be.
55. On September 14, 2006, the Broker met with another
employee ("CC-4") at the PREMISES. During this meeting, the
Broker and CC-4 discussed the Current Raise and the large
commission. CC-4 noted that the commission was "an egregious
rate off the top” and that if they raised $8 million, the
company would be left with only $7 million. CC-4 asked what the
company planned to do with the money that was raised, and the
Broker said to ask Mandell.
56. On September 20, 2006, the Broker again met with
Mandell at the PREMISES to discuss the Current Raise. This
conversation was recorded. During the meeting, Mandell again
told the Broker that he did not have to disclose the 10%
commission to investors. When the Broker asked about the
information in the prospectus, which says that the investor will
pay no commission, Mandell said "[i]t just says that they don't
have to pay. You see, what . . . these guys are going to think
is they'll read this document and they're paying 20p plus a
commission, in England it's customary to pay a commission on a
deal like this." Mandell told the Broker to tell investors that
Sky Capital would not take their money unless "we know we'll be
open for at least another year.” Mandell further instructed the
Broker to tell investors that there was a "lot of interest n in
31
Global Secure and that the company might get a "good break with
Valuation.” Mandell told the Broker that he would handle the
details about the "financials.” Later in the day, the Broker
met with Recca. Once again, Recca mentioned the undisclosed
commission, noting that the client is really buying stock at
"18p, the company is getting 10% of the money, the client is
getting 90%."
57. According to the Broker, in or about late September
2006, Mandell and others from Sky Capital traveled to England to
solicit investors for the Current Raise. According to what
Mandell reported to the Broker, in connection with this trip
Mandell met with several investors, including the Broker's
clients. On or about October 3, 2006, the Broker received a call
from one of these clients who told him that his meeting with
Mandell was a "complete disaster" and that he felt that Mandell
was lying to him about the true state of Sky Capital. According
to the Broker, in or about late October 2006, Mandell again
traveled to the United Kingdom to solicit investors for the
Current Raise.
CONCLUSION
58. Based on the foregoing information, I respectfully
submit that there is probable cause to believe that the PREMISES
contain evidence, fruits and instrumentalities of violations of
32
Title 15, United States Code, Sections 78j (b) and 78ff, and
Title 17, Code of Federal Regulations, Section 240.10b-5
(Securities Fraud), and Title 18, United States Code, Sections
1341 (mail fraud) and 1343 (wire fraud), specifically:
(a) Documents4 concerning the Current Raise
involving the placement of 24 million shares of SKH at 20p/share
in the United Kingdom, Global Secure, Virtual Alert, Advanced
Spinal or Advanced Spinal Technologies, the Advanced Spinal
Mobilization System, Reed Walker, Joe Brennan (the name by which
the Broker knows UC-2), Thornwater Capital, St. James Holdings
LLC, Ticketplanet, Lanesborough Holdings LLC, Raleigh Holdings,
and Chipcards, including but not limited to share certificates,
private placement prospectuses, contracts, DTC sheets, position
reports, subscription agreements, correspondence (by letter or
email), facsimile confirmations and records, investment
agreements, patents, FDA approvals or correspondence, financial
4 As used herein, the term "documents" means any and all tangible forms of expression, in any language or format, including drafts or finished versions, originals, copies, or annotated copies, however created, produced or stored (manually, mechanically, electronically, electromagnetically, or otherwise), including without limitation: books, papers, files, writings, handwritten notes, typewritten notes, letters, correspondence, memoranda, notebooks, ledgers, term sheets, telexes, telefaxes, telephone message slips, tape recordings, magnetic tapes, digital recordings, electronic recordings, photographs, computerized records stored on computer hard-drives, computer disks, computer hard-drives, recorded telephone messages, recorded fax transmissions, electronic mail messages, voice mail messages, microform, and microfiche. As used herein, “concerning" means relating to, referring to, describing, evidencing, or constituting.
33
statements, business plans, stock issuance opinion letters,
press releases, banking and brokerage firm account records, tax
records, transaction records, wire transfer instructions and
records, receipts, notes, ledgers, checks, cash receipt
journals, Federal Reserve routing numbers, and similar documents
land items concerning the receipt, transfer, or disposition of
funds;
(b) Documents concerning private placements of shares
of Sky Capital Enterprises or Sky Capital Holdings, including
prospectuses, public and regulatory filings, subscription
agreements, share certificates, correspondence, press releases,
financial statements, business plans, stock issuance opinion
letters, transaction records, drafts of the foregoing, and wire
transfer instructions and records, receipts, notes, ledgers,
checks, cash receipt journals, Federal Reserve routing numbers,
and similar documents and items concerning the receipt,
transfer, or disposition of funds;
(c) Documents concerning clients of Sky Capital,
including but not limited to share certificates, private
placement prospectuses, contracts, DTC sheets, position reports,
correspondence (by letter or email), facsimile confirmations and
records, subscription agreements, investment agreements, stock
issuance opinion letters, banking and brokerage firm account
records, tax records, transaction records, wire transfer
34
instructions and records, receipts, notes, ledgers, checks, cash
receipt journals, Federal Reserve routing numbers, and similar
documents and items concerning the receipt, transfer, or
disposition of funds;
(d) Documents concerning the corporate
relationship(s) among any of the following corporate entities,
and documents reflecting the ownership of the entities: Sky
Capital LLC, Sky Capital Holdings, Sky Capital Enterprises,
Inc., Global Secure, Virtual Alert, Advanced Spinal or Advanced
Spinal Technologies, Thornwater Capital, St. James Holdings LLC,
Ticketplanet, Lanesborough Holdings LLC, Chipcards, and Raleigh
Holdings;
(e) Any sales scripts or similar documents;
(f) Documents concerning compensation, bonuses and
commissions paid or promised to or by Ross Mandell or any other
employee under the supervision of Ross Mandell, or acting at his
direction, including commissions and other payments made to the
Broker;
(g) Computers, hard drives, computer diskettes and
other magnetic storage media, and files, data and information
contained thereon, including email files, used to store any of
the documents referred to in clauses (a) through (f) above.
59. Based upon my training and experience, I also know
that individuals frequently maintain custody of documents and
35
records of the sort described in paragraph 58 above, within
closed and/or locked containers, briefcases, safes, boxes,
filing cabinets, desk drawers, and other containers kept within
their offices.
Procedures for Seizure of Computers and Computer Disks
60. Based on my training and experience and information
provided to me by CW-l, the Broker, and UC-l and UC-2, and from
the fact that word-processed documents were used in furtherance
of the scheme described above, I believe that the computers at
the PREMISES are used to facilitate the scheme. In order to
search the computers in the PREMISES for relevant documents,
certain computer equipment, including input/output peripheral
devices, keyboards, magnetic storage devices, related
instructions in the form of manuals and notes, as well as the
software used to operate such computers, may need to be seized
and subsequently processed by a qualified computer specialist in
a laboratory setting. This is true for the following reasons:
a. The volume of evidence. Computer storage devices (such
as hard disks, diskettes, compact disks, tapes, etc.) can store
the equivalent of thousands of pages of information. In
addition, a user may seek to conceal evidence of criminal
activity by storing it in random order with deceptive file
names.
36
Searching authorities are thus required to examine all the
stored data to determine which particular files are evidence or
instrumentalities of criminal activity. This sorting process can
take weeks or months, depending upon the volume of data stored,
and it would be impractical to attempt this kind of data
analysis “on-site."
b. Technical requirements. Analyzing computer systems for
criminal evidence is a highly technical process requiring expert
skill and a properly controlled environment.
The vast array of computer hardware and software available
requires even computer experts to specialize in some systems and
applications. Thus, it is difficult to know prior to the search
which expert possesses sufficient specialized skills to best
analyze the system and its data. No matter which system is used,
however, data analysis protocols are exacting scientific
procedures, designed to protect the integrity of the evidence
and to recover even "hidden," erased, compressed, password-
protected, or encrypted files. Since computer evidence is
extremely vulnerable to tampering or destruction (both from
external sources or from destructive codes embedded in the
system as a "booby trap"), a controlled environment is essential
to its complete and accurate analysis. Accordingly, as stated
above, it is usually necessary that the above-referenced
equipment, software, data, and related instructions be seized
37
and subsequently processed by a qualified computer specialist in
a laboratory setting. It may be the case, however, under
appropriate circumstances, that some types of computer equipment
can be more readily analyzed and pertinent data seized on-site,
thus eliminating the need for its removal from the premises.
61. The analysis of electronically stored data, whether
performed on-site or in a laboratory or other controlled
environment, may entail any or all of several different
techniques. Such techniques may include, but shall not be
limited to, surveying various file "directories" and the
individual files they contain (analogous to looking at the
outside of a file cabinet for the markings it contains and
opening a drawer believed to contain pertinent files); "opening"
or reading the first few "pages" of such files in order to
determine their precise contents; "scanning" storage areas to
discover and possibly recover recently deleted data; scanning
storage areas for deliberately hidden files; and performing
electronic "key-word" searches through all electronic storage
areas to determine whether occurrences of language contained in
such storage areas exist that are related to the subject matter
of the investigation. If possible, mirror image copies of the
computer drives and disks will be created at the PREMISES, and
the copies removed intact for later review.
62. If, after inspecting the input/output peripheral
38
devices, system software, and pertinent computer related
documentation, it becomes apparent that these items are no
longer necessary to retrieve and preserve the evidence, such
materials and/or equipment will be returned within a reasonable
time.
WHEREFORE, I pray that a warrant be issued, pursuant to
Rule 41 of the Federal Rules of Criminal Procedure, to search
the PREMISES and to seize the items set forth in paragraph 58,
above, including such items in closed containers within the
PREMISES.
Due to the ongoing nature of this confidential
investigation, I respectfully request that this Affidavit and
any search warrant issued thereon remain under seal, except as
required by Fed. R. Crim. P. 41.
I declare under penalty of perjury that the foregoing
is true and correct. 28 U.S.C. § 1746.
Dated: New York, New York November 2, 2006 ______________________________ KURT F. DENGLER Special Agent Federal Bureau of Investigation Sworn to before me this day of November, 2006
Attachment A - Items To Be Seized
39
(a) Documents5 concerning the Current Raise involving
the placement of 24 million shares of SKH at 20p/share in the
United Kingdom, Global Secure, Virtual Alert, Advanced Spinal or
Advanced Spinal Technologies, the Advanced Spinal Mobilization
System, Reed Walker, Joe Brennan (the name by which the Broker
knows UC-2), Thornwater Capital, St. James Holdings LLC,
Ticketplanet, Lanesborough Holdings LLC, Raleigh Holdings,
and Chipcards, including but not limited to share certificates,
prLvate placement prospectuses, contracts, DTC sheets, position
reports, subscription agreements, correspondence (by letter or
email), facsimile confirmations and records, investment
agreements, patents, FDA approvals or correspondence, financial
statements, business plans, stock issuance opinion letters,
press releases, banking and brokerage firm account records, tax
records, transaction records, wire transfer instructions and
records, receipts, notes, ledgers, checks, cash receipt
journals, Federal Reserve routing numbers, and similar documents 5 As used herein, the term "documents" means any and all tangible forms of expression, in any language or format, including drafts or finished versions, originals, copies, or annotated copies, however created, produced or stored (manually, mechanically, electronically, electromagnetically, or otherwise), including without limitation: books, papers, files, writings, handwritten notes, typewritten notes, letters, correspondence, memoranda, notebooks, ledgers, term sheets, telexes, telefaxes, telephone message slips, tape recordings, magnetic tapes, digital recordings, electronic recordings, photographs, computerized records stored on computer hard-drives, computer disks, computer hard-drives, recorded telephone messages, recorded fax transmissions, electronic mail messages, voice mail messages, microform, and microfiche. As used herein, "concerning" means relating to, referring to, describing, evidencing, or constituting.
40
and items concerning the receipt, transfer, or disposition of
funds;
(b) Documents concerning private placements of
shares of Sky Capital Enterprises or Sky Capital Holdings,
including prospectuses, public and regulatory filings,
subscription agreements, share certificates, correspondence,
press releases, financial statements, business plans, stock
issuance opinion letters, transaction records, drafts of the
foregoing, and wire transfer instructions and records, receipts,
notes, ledgers, checks, cash receipt journals, Federal Reserve
routing numbers, and similar documents and items concerning the
receipt, transfer, or disposition of funds;
(c) Documents concerning clients of Sky Capital,
including but not limited to share certificates, private
placement prospectuses, contracts, DTC sheets, position reports,
correspondence (by letter or email), facsimile confirmations and
records, subscription agreements, investment agreements, stock
issuance opinion letters, banking and brokerage firm account
records, tax records, transaction records, wire transfer
instructions and records, receipts, notes, ledgers, checks, cash
receipt journals, Federal Reserve routing numbers, and similar
documents and items concerning the receipt, transfer, or
disposition of funds;
41
(d) Documents concerning the corporate relationship(s)
among any of the following corporate entities, and documents
reflecting the ownership of the entities: Sky Capital LLC, Sky
Capital Holdings, Sky Capital Enterprises, Inc., Global Secure
Virtual Alert, Advanced Spinal or Advanced Spinal Technologies,
Thornwater Capital, St. James Holdings LLC, Ticketplanet,
Lanesborough Holdings LLC, Chipcards, and Raleigh Holdings;
(e) Any sales scripts or similar documents;
(f) Documents concerning compensation, bonuses and
commissions paid or promised to or by Ross Mandell or any other
employee under the supervision of Ross Mandell, or acting at his
direction, including commissions and other payments made to the
Broker;
(g) Computers, hard drives, computer diskettes and
other magnetic storage media, and files, data and information
contained thereon, including email files, used to store any of
the documents referred to in clauses (a) through (f) above.
NOTE: The analysis of electronically stored data, whether
performed on-site or in a laboratory or other controlled
environment, may entail any or all of several different
techniques. Such techniques may include, but shall not be
limited to, surveying various file "directories" and the
individual files they contain; "opening" or reading the first
few "pages" of such files in order to determine their precise
42
contents; "scanning" storage areas to discover and possibly
recover recently deleted data; scanning storage areas for
deliberately hidden files; and performing electronic "key-word"
searches through all electronic storage areas to determine
whether occurrences of language contained in such storage areas
exist that are related to the subject matter of the
investigation. If possible, mirror image copies of the computer
drives and disks will be created at the premises to be searched,
and the copies removed intact for later review.