UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK ----------------------------------x IN THE MATTER OF THE APPLICATION OF THE UNITED STATES

FOR A SEARCH WARRANT FOR THE PREMISES KNOWN AND DESCRIBED AS SKY CAPITAL ENTERPRISES, INC., SKY CAPITAL 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 NORTHERN DISTRICT OF NEW YORK ) ) ) ss.: To Be Filed Under Seal AFFIDAVIT IN SUPPORT OF A SEARCH WARRANT

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

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 publiclytraded 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 publiclytraded 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
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. 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

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.

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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

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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

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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

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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.

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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

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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

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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

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Global Secure and that the company might get a "good break with Valuation.” Mandell told the Broker that he would handle the Later in the day, the Broker

details about the "financials.”

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

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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
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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 harddrives, 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.

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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

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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) (f) Any sales scripts or similar documents; 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

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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.

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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, passwordprotected, 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

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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

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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

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(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
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.
5

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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;

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(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

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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.

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