(a) From approximately 2015 to 2017, he worked as a broker soliciting investments in LottoNet;(b) He frequently used the alias of "Donovan Kelly" when speaking to potential investors in LottoNet;(c) He sent out the LottoNet private placement memorandum to prospective investors, which explicitly stated that: "[n]o commissions or any other form of remuneration will be paid on sales made directly to the public by the company";(d) In or around December 2016, Vitale met with a Federal Bureau of Investigation cooperating witness ("CW") regarding LottoNet and told the CW that he received 35% commissions on investor money raised. On a conference call with an undercover agent posing as a potential investor, Vitale instructed the CW to falsely represent that no commissions were paid to CW as a broker;(e) At least one investor that Vitale solicited mailed a $250,000 check to LottoNet's offices for an investment in LottoNet. Vitale did not tell the investor that he was receiving a 35% commission on the transaction and the investor would not have invested had he known of this commission;(f) LottoNet made at least $700,000 in payments to Vitale or his companies; and(g) Vitale was responsible for soliciting more than ten investors who made investments in LottoNet.
The SEC has obtained an emergency court order freezing the assets of LottoNet Operating Corp., David Gray, and Joseph A. Vitale. The SEC's complaint alleges that they misrepresented to investors that their money would be used to develop and market LottoNet and that sales agents did not receive commissions. At least 35 percent of investor proceeds were allegedly paid to boiler room sales agents in the form of commissions, and LottoNet allegedly siphoned investor funds for personal spending on clothing, wedding-related expenses, and strip clubs.According to the SEC's complaint, which was unsealed in federal court today, among the pitches used in sales agent scripts prepared for cold calls to investors was "you're looking at a monthly dividend payout of $8,500 every month" on a $25,000 investment if LottoNet reaches 1 percent market share. The scripts also allegedly touted the purported safety of the investment, noting a 60 percent return as a "worst case" scenario if the company was ever sold. The SEC alleges that while LottoNet has raised a total of approximately $4.8 million from investors, the company had only paid $10,525.43 in investment returns to investors through the end of February. Sales agents allegedly have been paid more than $1.1 million out of investor funds.The SEC's complaint further alleges that Vitale, who personally raised at least $1.4 million from investors, used the alias Donovan Kelly in an apparent attempt to hide from investors that he is permanently barred by the Financial Industry Regulatory Authority (FINRA). . .
[B]efore the conference, the Division represented that it received a voicemail from a counselor at Vitale's correctional facility indicating that Vitale "refuse[d] to call in or otherwise appear" at the prehearing conference. Div. Notice Concerning Jan. 24, 2018 Telephonic Prehearing Conference. Although the Division previously reported that Vitale said he was represented by counsel-and that he would not speak to Division counsel without his attorney-no attorney has filed a notice of appearance for Vitale or otherwise participated in this proceeding. Based on Division counsel's representations, U.S. postal service tracking information, and a legal mail log obtained by the Division from the correctional facility, I find that Vitale was served with the order instituting proceedings (OIP) on October 27, 2017. Therefore, Vitale's answer was due November 20, 2017. OIP at 3; 17 C.F.R. §§ 201.160(a)-(b), .220(b). Vitale has not filed an answer.I deem Vitale to be in default for failing to file an answer to the OIP or appear at the prehearing conference, of which he had been notified, and at which he expressly refused to appear. 17 C.F.R. § 201.155(a)(1)-(2). In addition, I deem the allegations of the OIP to be true. Id. Vitale may move to set aside the default. . .
Bill Singer's Comment[D]ivision counsel mentioned that the Florida Bar advised her not to communicate with Respondent, even to serve papers on him, because he had told her he was represented by counsel. However, the commentary to Rule 4-4.2 of the Rules Regulating the Florida Bar states that the "prohibition on communications with a represented person only applies in circumstances where the lawyer knows that the person is in fact represented in the matter to be discussed. This means that the lawyer has actual knowledge of the fact of the representation." F.S.A. Bar Rule 4-4.2, cmt. (emphasis added). Here, no attorney has appeared on Vitale's behalf in this proceeding in accordance with Commission Rule of Practice 102(d)(2), 17 C.F.R. § 201.102(d)(2), nor has he provided his purported attorney's name or contact information.Florida Bar Rule 4-4.2(a) provides that "[n]otwithstanding" the prohibition on direct communication with a represented individual, "a lawyer may, without . . . prior consent, communicate with another's client to meet the requirements of any court rule . . . requiring notice or service of process directly upon a person." Under Commission Rule of Practice 150, service shall be made upon a party unless that party is represented by counsel who has filed a notice of appearance, which has not occurred here. 17 C.F.R. § 201.150(a)-(b). In any event, to alleviate the Division's concern, I ORDER the Division to continue serving papers on Vitale in the usual manner until an attorney files a notice of appearance on his behalf. See 17 C.F.R. § 201.150(b).