IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: PITT PENN HOLDING CO., INC.

, et al.1, Debtors. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CHAPTER 11 Case No. 09-11475 (BLS) (Jointly Administered)

Industrial Enterprises of America, Inc., on behalf of itself, its estate and as assignee of its shareholders, Plaintiff, v. John Mazzuto, James Margulies, Jeffrey Levinson, Killeen & Associates, P.C., Crawford Shaw, M4 Capital LLC, George Cannan, Robert Casper, Caroline Costante, Jay 3 Corp., James Mazzuto, John Stefiuk, James Strupp, David Zazoff, ZA-Consulting LLC, Barry Margulis, Scott Margulis, Alan Berger, Mitch Seifert, Barry Honig, Lloyd Dohner, Lloyd Dohner d/b/a Donson Brooks Marketing, JG Capital, Inc., River Valley Inc. jointly and severally with Peter Vanucci, David Selmon, Steven Berger, Margulies & Levinson, Theresa Mazzuto, Berger Apple, Robert Dan Redmond, Computer Protech, Inc., and Black Nickel, Inc., Defendants.

Adv. Proc. No.

COMPLAINT Plaintiff Industrial Enterprises of America, Inc. (IEAM) on behalf of itself, its estate and as assignee of its shareholders, formerly known as Advanced Bio/Chem Inc., respectfully alleges the following as its complaint against defendants John Mazzuto, James Margulies, Jeffrey Levinson, Killeen & Associates, P.C., Crawford Shaw, M4 Capital LLC, George Cannan, Robert
1

The debtors are: Pitt Penn Holding Co. (Case No. 09-11475), Pitt Penn Oil Co. LLC (Case No. 09-11476), Industrial Enterprises of America, Inc. (Case No. 09-11508), EMC Packaging, Inc. (Case No. 09-11524), Today's Way Manufacturing LLC (Case No. 09-11586), and Unifide Industries LLC (Case No. 09-11587), all of which have been jointly administered

INSIDER COMPLAINT

Casper, Caroline Costante, Jay 3 Corp., James Mazzuto, John Stefiuk, James Strupp, David Zazoff, ZA-Consulting LLC, Barry Margulis, Scott Margulis, Alan Berger, Mitch Seifert, , Barry Honig, Lloyd Dohner, Lloyd Dohner d/b/a Donson Brooks Marketing, JG Capital, Inc., Andrew Kramer, River Valley, Inc. jointly and severally with Peter Vanucci, David Selmon, Steven Berger, Margulies & Levinson, Theresa Mazzuto, Berger Apple, Robert Dan Redmond, Computer Protech, Inc. and Black Nickel, Inc. (collectively, Defendants). JURISDICTION AND VENUE 1. 2. 3. This Court has jurisdiction over this proceeding under 28 U.S.C. 1334(b). This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). Venue of this matter is proper under 28 U.S.C. 1409. INTRODUCTION 4. This adversary proceeding arises out of a large-scale scheme to loot IEAM, a

fraud that required not only the malfeasance of miscreant corporate officers, but the willful participation of Defendants who accepted illegally-issued IEAM securities to which they were not entitled, for which they paid no consideration and which, upon information and belief, they resold for full market value to the detriment of IEAM and its shareholders. The Mazzuto Scheme 5. As is further detailed below, the affairs of IEAM became corrupted through the

illegal conduct of a conspiracy led by John Mazzuto (Mazzuto) and James Margulies (Margulies). For ease of reference, this conspiratorial effort shall be collectively referred to as the Mazzuto Scheme. The Mazzuto Scheme was a complex and deliberate association-in-fact conceived for, and dedicated to, the commission of fraud. Defendants were beneficiaries of the Mazzuto Scheme.

INSIDER COMPLAINT

6.

From 2004 to 2009, the Mazzuto Scheme set out and accomplished its basic

illegal aim: to insinuate itself into the governance and operation of a publicly-traded corporation, to undermine the business affairs of that public corporation by falsely reporting its operations as wholly successful to increase its market value and share price, to manipulate further the price of the public hosts stock higher through false operations and transactions (including, but not limited to, false stock offerings, fraudulent stock transfers and issuances, and fraudulent public statements and filings), and to cash in on the fruits of illicit labors through illegal transfer and sale of IEAMs securities. 7. In furtherance of this illegal scheme, Defendants accepted approximately

6.2 million shares of freely traded IEAM stock, which was illegally issued and for which Defendants paid nothing. In total, the stock they received was worth nearly $22.8 million. Defendants knew or should have known that their receipt of the stock was pursuant to this illegal scheme. Through this action, Plaintiff seeks, at a minimum, a return of the value of the shares received by Defendants. 8. The overall Mazzuto Scheme caused direct and proximate harm to IEAM, Moreover, IEAMs

including monetary losses and liabilities, in excess of $150 million.

shareholders lost hundreds of millions more dollars as a direct and intended result of the Mazzuto Scheme, from which Defendants benefitted. THE PARTIES 9. Plaintiff IEAM is a corporation organized under the laws of the State of Nevada,

with principal places of business located in Ohio, Pennsylvania, New Jersey and New York. IEAM is a holding company for businesses in packaging and distribution for sale of after market automotive and related products. On or about May 1, 2009, IEAM filed for bankruptcy

protection in the U.S. District Court for the District of Delaware.

10.

Upon information and belief, defendant John Mazzuto is a resident of the State of

Florida. From approximately early 2005 through February 2, 2008, Mazzuto served as IEAMs Chief Executive Officer. Mazzuto is currently under indictment and awaiting trial in the

Supreme Court of the State of New York relating to a 57 count indictment for, among other things, grand larceny, scheming to defraud and falsifying business records. 11. Upon information and belief, defendant James Margulies is a resident of the State

of Ohio. Margulies is an attorney licensed by the state of Ohio and was a partner in the law firm of Margulies and Levinson. He also controlled the Margulies Law Group. Margulies was CFO of IEAM from January 2006 until December 2006, when he became general counsel and head of compliance. Like Mazzuto, Margulies is currently under indictment and awaiting trial in the Supreme Court of the State of New York relating a 57 count indictment for, among other things, grand larceny, scheming to defraud and falsifying business records. 12. Upon information and belief, defendant Jeffrey Levinson is a resident of the State

of Ohio. Levinson was Margulies law partner in the firm of Margulies and Levinson. 13. Upon information and belief, defendant Killeen & Associates, P.C., is a

professional corporation organized under the laws of the State of Texas, with its principal place of business in Houston, Texas. 14. Upon information and belief, Crawford Shaw is a resident of the State of Texas

and a former board member and CEO of Advance Bio/Chem. 15. Upon information and belief, defendant M4 Capital LLC (M4) is a limited

liability corporation organized under the laws of the State of Florida, with its principal place of business in Palm Beach, Florida. M4 is an entity managed and controlled by Mazzuto for the benefit of his four children.

INSIDER COMPLAINT

16.

Upon information and belief, defendant George Cannan is a resident of the State

of New Jersey. He is an unindicted co-conspirator in the Mazzuto/Margulies indictment. 17. Upon information and belief, defendant Robert Casper is a resident of the State of

New Jersey. From August 2006 until September 2008, Casper was the non-Executive Chairman of the IEAM Board. 18. Upon information and belief, defendant Caroline Costante is a resident of the

State of New Jersey. 19. Upon information and belief, defendant Jay 3 Corp is a corporation organized

under the laws of the State of New Jersey, with its principal place of business in Englishtown, New Jersey. Upon information and belief, Jay 3 Corp is owned by Mazzuto, James Strupp and John Stefiuk. 20. Upon information and belief, defendant James Mazzuto is a resident of the State

of New York. James is the son of John Mazzuto. 21. Upon information and belief, defendant John Stefiuk is a resident of the State of

New Jersey. He is an owner of defendant Jay 3. 22. Upon information and belief, defendant James Strupp is a resident of the State of

New Jersey. He is an owner of defendant Jay 3 and is also an unindicted co-conspirator in the Mazzuto/Margulies indictment. 23. Pennsylvania. 24. Upon information and belief, defendant ZA-Consulting, LLC is a limited liability Upon information and belief, defendant David Zazoff is a resident of the State of

company, whose state of organization is unknown at this time, with its principal place of business in New York, New York. controlled by defendant David Zazoff.
INSIDER COMPLAINT

Upon information and belief, ZA-Consulting, LLC is

25. of New Jersey. 26. New Jersey. 27. Ohio. 28. Ohio. 29. Ohio. 30.

Upon information and belief, defendant Barry Margulis is a resident of the State

Upon information and belief, defendant Scott Margulis is a resident of the State of

Upon information and belief, defendant Alan Berger is a resident of the State of

Upon information and belief, defendant Mitch Seifert is a resident of the State of

Upon information and belief, defendant Barry Honig is a resident of the State of

Upon information and belief, defendant Lloyd Dohner is a resident of the State of

Texas. Upon information and belief he is an unindicted co-conspirator in the Mazutto/Margulies indictment. Dohner is also the step-father of Theresa Bowles who married John Mazzuto in or about March 2007. 31. Upon information and belief, from time to time defendant Lloyd Dohner did

business as Donson Brooks Marketing and LNG Associates 32. Upon information and belief, defendant River Valley, Inc. is a corporation

organized under the laws of the State of Ohio with its principal place of business in Ohio. 33. Upon information and belief, Peter Vanucci is a resident of the state of Ohio and

controlled River Valley, Inc. 34. Texas. 35. Upon information and belief, defendant Robert Dan Redmond is a resident of the Upon information and belief, defendant David Selmon is a resident of the State of

State of Missouri and was the Executive Vice President of IEAM and President of PPO.
INSIDER COMPLAINT

36.

Upon information and belief, defendant Computer Protech, Inc. is a corporation

organized under the laws of the State of Ohio with its principal place of business in Ohio. 37. Upon information and belief, defendant Black Nickel, Inc. is a corporation

organized under the laws of the State of Georgia with its principal place of business in Georgia. FACTUAL ALLEGATIONS 38. The future IEAM first came into existence in 2002, when John Mazzuto and

others acquired an interest in EMC Packaging Inc., a private New Jersey-based company. Mazzuto then caused EMC to be merged into a publicly listed shell corporation called Advanced Bio/Chem Inc., a Texas-based company with no operations. After the deal, Advanced Bio/Chem changed its name to Industrial Enterprises of America, Inc. EMC was the companys sole operating business at the time. It later acquired Unifide Industries LLC and Pitt Penn Oil Co. A. Mazzuto Becomes CEO of IEAM; Margulies Succeeds Mazzuto as CEO 39. Sometime in late 2005, IEAM announced that Mazzuto had been elected as

IEAMs Chief Executive Officer. He served in that capacity through February 2, 2008. 40. During that period, Margulies, an attorney licensed by the state of Ohio, was a

partner in the law firm of Margulies and Levinson, and he also controlled the Margulies Law Group. Margulies was CFO of IEAM from January 2006 until December 2006, when he became general counsel and head of compliance of IEAM. 41. After Mazzutos resignation as CEO in early 2008, Margulies became the

President, CEO, CFO and a director of IEAM. He served in those positions until March 2009. 42. On May 10, 2010, Mazzuto and Margulies were both indicted by the District

Attorneys Office for New York County, together with ten unindicted co-conspirators. The 57count indictment charged the pair with grand larceny, scheming to defraud and falsifying business records.
INSIDER COMPLAINT

B.

A Very Brief Overview of the Mazzuto Scheme 43. As CEO, Mazzuto and Margulies engaged in a host of fraudulent activity,

including, but not limited to, the filing of an array of fraudulent documents with securities regulators to give the appearance of a successful, well-capitalized company. 44. 45. In total, the Mazzuto Scheme resulted in losses of more than $600 million. A key component of the fraud was that IEAM sold shares of stock to the general

public without any restrictions shares that were registered and restricted under an S-8 to be distributed only to natural persons providing services to IEAM. 46. In this way, Mazzuto and Margulies essentially printed money by issuing phony

stock. While the IEAM stock was supposed to go only to people who provided value to the company, Mazzuto and Margulies sold this stock directly to members of the public. They further issued stock certificates without the required legend stating that the stocks were restricted, which made these shares freely tradeable. C. Mazzutos and Margulies Lavish Lifestyle Financed Wholly by Fraud 47. Mazzuto and Margulies used their fraudulent gains to finance luxurious lifestyles.

Among other spoils of his illegal conduct, Mazzuto owned luxury homes in New York, Southampton and Florida, purchased expensive jewelry and went on exotic vacations. 48. Similarly, Margulies and his wife received more than $7.5 million in cash as well

as proceeds of stock sales from IEAM related accounts. This cash allowed Margulies and his wife to purchase a home in the suburbs of Cleveland for the highest price ever paid in the area at that time, take luxurious domestic and foreign vacations and become members of an exclusive country club.

INSIDER COMPLAINT

D.

The IEAM Stock Option Plan and Form S-8 49. On January 24, 2005, IEAM filed a Form S-8 with the Securities and Exchange

Commission that authorized IEAM to issue stock pursuant to an employee stock option plan (the Stock Option Plan). The Form S-8 authorized the issuance of up to 15 million shares of stock. 50. Form S-8 is used to issue securities under an employee benefit plan to employees

where employee is defined as any employee, director, general partner, trustee (where the registrant is a business trust), officer, or consultant or advisor. The form is available for the issuance of securities to consultants or advisors only if (i) they are natural persons; (ii) they provide bona fide services to the registrant; and (iii) the services are not in connection with the offerors sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the registrants securities. 51. The Stock Option Plan stated that it was intended to advance the interests of the

company and its stockholders by providing long-term incentives to those persons who are largely responsible for the management and growth of the business of the Company through granting equity incentives to Employees, Outside Directors, and Consultants. To that end, the Company may, from time to time, award to Employees, Outside Directors or Consultants selected in the manner provided below, one or more Incentive Stock Options, Non-Qualified Options, Stock Appreciation Rights (SARs), or Shares of Restricted Stock subject to the conditions hereinafter set forth. 52. Pursuant to the Stock Option Plan, therefore, IEAM was only permitted to issue

shares to employees, officers, directors of IEAM, or consultants for IEAM. In other words, only natural persons who provided some service to IEAM were eligible to receive stock under the Stock Option Plan.

INSIDER COMPLAINT

53.

On their face S-8 shares are indistinguishable from publicly traded shares.

However, shares issued under S-8 are restricted if they meet the definition of restricted shares under Rule 144 which is securities acquired directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering. Such sales may not be resold unless a registration statement is filed on the S-8 by means of a separate prospectus (Reoffer Prospectus) prepared in accordance with the requirements of Part I of Form S-3 and filed with the registration statement on form S-8. 54. Finally, although the S-8 authorized the issuance of 15 million shares, a reverse 1

for 10 stock split on May 31, 2006, which should have reduced the amount of shares that could issued to 1.5 million. E. Mazzuto and Margulies Cause IEAM to Issue 16 Million Freely-Traded Shares 55. Notwithstanding the various restrictions on the issuance of S-8 shares, Mazzuto

and Margulies directed that IEAM shares be issued to various entities and individuals who did not meet the requirements of the S-8 (i.e., individuals and entities that never performed any services for IEAM). In addition, despite the fact that the S-8 shares were restricted, Mazzuto and Margulies caused IEAM shares to be issued without any restrictions. As a result, upon information and belief, most, if not all, of the IEAM shares that were issued pursuant to the Stock Option Plan were sold immediately, in violation of the restrictions of the S-8. 56. In addition, many of the shares were sold after the May 31, 2006 reverse stock

split, so as to take advantage of the enhanced prices. By doing this, Mazzuto and Margulies effectively increased the value of the IEAM shares issued by a factor of ten.

INSIDER COMPLAINT

10

F.

Mazzuto and Margulies Cause IEAM to Provide 6.2 Million Shares and Millions of Dollars to Defendants 57. Between January 2005 and October 2007, Mazzuto and Margulies caused IEAM

to transfer approximately 6.2 million shares of illegally issued stock to Defendants, as follows: a. Date 2006/08/16 2008/07/16 TOTAL b. Date 2005/11/23 2005/03/09 2005/03/09 2005/03/11 2005/07/07 2005/09/22 2005/11/10 2007/01/17 2007/01/29 2007/02/21 2007/03/01 2007/04/09 2007/06/12 JOHN MAZZUTO Shares 300,000 (300,000) 0 JAMES MARGULIES Shares 85,000 5,000 5,000 30,000 85,000 25,000 10,000 50,000 50,000 45,000 27,500 50,000 150,000 Price 1.30 5.10 5.10 5.00 2.10 2.05 1.40 5.17 5.81 6.01 6.09 6.07 5.09 Value $110,500.00 $25,500.00 $25,500.00 $150,000.00 $178,500.00 $51,250.00 $14,000.00 $258,500.00 $290,500.00 $270,450.00 $167,475.00 $303,500.00 $763,500.00 Price 7.00 .03 Value $2,100,000.00 ($9,000.00) $2,091,000.00

INSIDER COMPLAINT

11

2007/06/22 TOTAL c. Date 2006/10/26 TOTAL d. Date 2006/10/18 2007/05/03 2007/07/31 TOTAL e. Date 2006/05/26 2006/09/26 TOTAL f. Date 2005/01/27 2005/03/09 2006/09/08

100,000 717,500

5.17

$517,000.00 $3,126,175.00

JEFFREY LEVINSON Shares 30,000 30,000 Price 7.20 Value $216,000.00 $216,000.00

KILLEEN & ASSOCIATES, P.C. for Benefit of Crawford Shaw Shares 200,000 100,000 100,000 400,000 M4 CAPITAL Shares 40,000 50,000 90,000 GEORGE CANNAN Shares 50,000 20,640 50,000 Price 2.50 5.10 7.25 Value $125,000.00 $105,264.00 $362,500.00 Price 5.80 6.90 Value $232,000.00 $345,000.00 $577,000.00 Price 6.60 6.15 4.12 Value $1,320,000.00 $615,000.00 $412,000.00 $2,347,000.00

INSIDER COMPLAINT

12

2007/03/14 TOTAL g. Date 2005/09/19 TOTAL h. Date 2005/02/23 2005/03/09 TOTAL i. Date 2005/03/09 TOTAL j. Date 2005/01/27 2005/03/09 TOTAL k. Date
INSIDER COMPLAINT

30,000 150,640 ROBERT CASPER Shares 10,000 10,000

5.70

$171,000.00 $763,764.00

Price 1.70

Value $17,000.00 $17,000.00

CAROLINE COSTANTE Shares 50,000 46,080 96,080 JAY 3 CORP Shares 41,040 41,040 JAMES MAZZUTO Shares 10,000 5,000 15,000 JOHN STEFIUK Shares Price Value Price 2.50 5.10 Value $25,000.00 $25,500.00 $50,500.00 Price 5.10 Value $209,304.00 $209,304.00 Price 4.50 5.10 Value $225,000.00 $235,008.00 $460,008.00

13

2005/01/27 TOTAL l. Date 2005/01/27 2005/11/03 2006/05/26 2006/09/01 2006/11/16 2007/05/29 TOTAL m. Date 2005/03/09 2005/03/09 2005/04/14 2007/02/12 TOTAL n. Date 2005/09/07 2006/03/02 2006/03/07

30,000 30,000 JAMES STRUPP Shares 50,000 15,000 10,000 5,000 5,000 5,000 90,000 DAVID ZAZOFF Shares 5,000 100,000 22,000 22,000 147,000 BARRY MARGULIS Shares
418,800 5,000 75,000

2.50

$75,000.00 $75,000.00

Price 2.50 1.30 5.80 7.40 7.85 5.22

Value $125,000 $19,500.00 $58,000.00 $37,000.00 $39,250.00 $26,100.00 $304,850.00

Price 5.10 5.10 3.70 4.99

Value $25,500.00 $510,000.00 $81,400.00 $109,780.00 $216,680.00

Price 2.10 5.15 5.50

Value $879,480.00 $25,750.00 $412,500.00

INSIDER COMPLAINT

14

TOTAL o. Date 2005/09/07 2006/03/06 2006/03/06 2006/03/09 2006/03/09 2006/03/09 2005/09/07 2006/03/06 2006/03/06 TOTAL p. Date 2007/02/23 TOTAL q. Date 2006/10/26 2006/12/26 2007/02/21 TOTAL

498,800 SCOTT MARGULIS Shares 181,200 20,000 5,000 12,000 4,000 4,000 181,200 20,000 5,000 432,400 ALAN BERGER Shares 14,050 14,050 MITCH SEIFERT Shares 30,000 50,000 14,050 94,050 Price 7.20 4.45 6.01 Price 6.10 Price 2.10 5.30 5.30 6.10 6.10 6.10 2.10 5.30 5.30

$1,317,730.00

Value $380,520.00 $106,000.00 $ 26,500.00 $ 73,200.00 $ 24,400.00 $ 24,400.00 $380,520.00 $106,000.00 $26,500.00 $1,148040.00

Value $85,705.00 $85,705.00

Value $216,000.00 $222,500.00 $84,440.50 $522,940.50

INSIDER COMPLAINT

15

r. Date 2006/10/19 2006/12/07 2007/03/23 2007/04/03 TOTAL s. Date 2005/04/12 2005/04/15 2005/08/15 2006/03/08 2006/09/26 2007/03/08 2007/08/20 TOTAL t. Date 2005/09/07 TOTAL

BARRY HONIG Shares 100,000 25,000 200,000 40,000 365,000 LLOYD DOHNER Shares 37,500 100,000 140,000 170,000 62,500 25,000 50,000 585,000 Price 3.00 4.50 2.31 5.80 6.90 5.90 3.25 Value $112,500.00 $450,000.00 $323,400.00 $986,000.00 $431,250.00 $147,500.00 $162,500.00 $2,613,150.00 Price 6.50 3.12 5.90 6.28 Value $650,000.00 $78,000.00 $1,180,000.00 $251,200.00 $2,159,200.00

LLOYD DOHNER d/b/a Donson Brooks Marketing Shares 115,000 115,000 Price 2.10 Value $241,500.00 $241,500.00

INSIDER COMPLAINT

16

u. Date 2006/08/11 2007/02/02 2007/04/25 TOTAL v. Date 2007/02/12

JG CAPITAL, INC. Shares 25,000 63,629 50,000 138,629 ANDREW KRAMER Shares 9,361 Price 4.99 Value $46,711.39 Price 7.15 5.59 6.10 Value $178,750.00 $355,686.11 $305,000.00 $839,436.11

TOTAL w. Date 2005/01/27 2006/08/02 2006/11/28 2006/12/27 2007/03/01 2005/01/27 2006/08/02 TOTAL

9,361 RIVER VALLEY Shares 50,000 10,000 100,000 200,000 100,000 50,000 10,000 5200,000 Price 2.50 6.85 6.80 4.30 6.09 2.50 6.85

$46,711.39

Value $125,000.00 $68,500.00 $680,000.00 $860,000.00 $609,000.00 $125,000.00 $68,500.00 $2,536,000.00

INSIDER COMPLAINT

17

x. Date 2005/03/02 2006/04/03 2006/12/22 2005/09/07 2006/02/13 2006/06/22 2005/03/02 2006/04/03 TOTAL y. Date 2008/01/15 TOTAL

DAVID SELMON Shares 10,000 47,500 17,500 10,000 30,000 (30,000) 10,000 47,500 142,500 BLACK NICKEL, INC. Shares 500,000 500,000 Price 0.56 Value $280,000.00 $280,000.00 Price 4.70 5.10 4.55 2.10 4.30 8.10 4.70 5.10 Value $47,000.00 $242,250.00 $79,625.00 $21,000.00 $129,000.00 ($243,000.00) $47,000.00 $242,250.00 $565,125.00

G.

Defendants Receipt of the IEAM Shares Was Improper 58. Upon information and belief, shortly after each transfer of shares to each of the

defendants, the shares were sold at the fair market price for unrestricted shares. 59. In each case, the defendant was not entitled to receive such shares because the

defendants did not provide any services to IEAM to warrant the distribution of such stock. 60. In addition, defendants Jay 3, Killeen & Associates, M4, and River Valley are not

natural persons and therefore are ineligible to receive any IEAM stock under the terms of the Stock Option Plan.

INSIDER COMPLAINT

18

61.

Also, the S-8 authorized only the issuance of restricted shares; however, each

defendant received freely tradeable shares of IEAM. H. Defendants Immediately Sold Their Shares 62. Upon information and belief, each defendant sold their shares in the marketplace

shortly after receipt. Such sales were in violation of the securities laws because the shares issued were restricted under the S-8. I. Certain Defendants Receive Illegal Cash Gifts 63. Upon information and belief, in addition to the improper issuance of IEAM stock,

Mazzuto and Margulies also caused IEAM to make gratuitous cash transfers to certain defendants. IEAM did not receive any consideration in exchange for these payments. 64. The improper cash distributing to Defendants were as follows: a. From May 3, 2005 to January 28, 2008 Mazzuto received at least

$11,989,664. Of this amount approximately $3.5 million was paid by the Margulies Law Group IOLTA account at National Citibank of Cleveland, Ohio to a personal attorney trust account of Martin Weisberg, Esq., one of the unindicted co-conspirators in the Mazzuto/Margulies indictment, for the benefit of Mazzuto. b. $2,846,468.47. c. d. e. On June 19, 2006, Jeffrey Levinson received at least $30,000.00. On May 30, 2007, George Cannan received at least $411,000.00. Robert Casper received over $22,000 from IEAM for the payment of From January 5, 2006 to November 15, 2007 Margulies received at least

medical expenses under PPOs health plan for which he was not qualified.

INSIDER COMPLAINT

19

f.

Caroline Costante received more than $10,000 in payment for of medical

expenses under the PPO health plan for which she was not qualified because she was not an employee of PPO. g. h. On February 1, 2007 James Strupp received at least $57,000.00. From September 15, 2005 to October 24, 2006, David Zazoff received at

least $50,000.00 in consulting fees. David Zazoff was also covered by the Pitt Penn Oil health plan for which he was not qualified because he was not a full time employee. After at least January 2007 until December 2008 he received a salary of $5,000 per month from Debtor Pitt Penn Oil while doing work for IEAM. He received family medical during that time from Debtor Pitt Penn Oil. He was not a full time employee. He continued to run Zazoff & Associates with his own clients. At least one, if not two of those clients were entities run or controlled by James W. Margulies for which he was supplying Investor relations services. i. From November 2, 2005 to October 1, 2007, Barry Margulis received at

least $1,644,269.42 plus a salary from subsidiaries of IEAM. j. From November 2, 2005 to March 15, 2006, Scott Margulis received at

least $653,508.48 plus a salary from subsidiaries of IEAM. k. $117,800.00. l. On October 19, 2006, River Valley, Inc., received $26,717.50 and, upon From May 12, 2005 to December 7, 2006, Lloyd Dohner received at least

information and belief, also received additional cash payments from IEAM. m. $125,056.52. n. From August 14, 2007 to October 30, 2007, Steven Berger received at From May 19, 2005 to January 30, 2006, David Selmon received at least

least $28,000.00. Steven Berger also received salary of more than $50,000 from Debtor Pitt Penn
INSIDER COMPLAINT

20

Oil in 2008. During the period of his association with IEAM, Steven Berger held a number of ever-changing positions; he was an employee of Margulies & Levinson, LLP and/or an employee of Pitt Penn Oil. Upon information and belief, at all times during his association with Debtors, he was resident at the offices of Margulies & Levinson. o. From December 12, 2005 to April 24, 2008, Margulies & Levinson

received at least $502,582.94. p. From March 19, 2007 to April 2, 2007, Theresa Mazzuto (f/k/a Theresa

Bowles) received at least $105,000.00. q. On September 10, 2007, Berger Apple received $1,000.00 and, upon

information and belief, also received additional cash payments from IEAM. r. From January 12, 2007 to August 17, 2007, Computer Protech, Inc.

received at least $546,270.05. s. From April 14, 2005 to June 5, 2008, Mazzuto and Margulies authorized

the distribution of at least $10,081,435.06 to unknown third parties. J. Barry and Scott Margulis Cause IEAM to Pay Unlawful Kickbacks 65. From approximately July 2005 until approximately October 2008, IEAM

or its subsidiary, Pitt Penn, made annual payments of $50,000 to an entity called Baremor Consulting (Baremor Consulting). In total, approximately $200,000 was paid to Baremor Consulting. 66. These payments were made pursuant to a written consulting agreement that had

been entered into between Unifide and Baremor Consulting. Unifide was a company owned and operated by Barry Margulis, which was sold to IEAM in July 2005. At the time Unifide was sold to IEAM, Barry Margulis became an officer of IEAM.

INSIDER COMPLAINT

21

67.

Baremor Consulting did not provide any services to either Unifide or IEAM in

return for these payments. Rather, the money received by Baremor Consulting was paid over to an employee of National Wholesale Liquidators (National Wholesale). National Wholesale was the largest customer of Unifide. 68. The payments made to Baremor Consulting, therefore, were nothing more than

kickbacks to curry the favor of an employee of National Wholesale. 69. At all times, Barry Margulis knew that the payments made to Baremor

Consulting were illegal kickbacks, and yet they never disclosed this fact to IEAM management. K. David Zazoffs Role in the Mazzuto Scheme 70. Defendant David Zazoff and his company, ZA Consulting were integral

participants in the Mazzuto Scheme through their participation in a concerted public relations campaign that disseminated false and misleading information about IEAM to the public. 71. For providing these false statements to the public, Zazoff and his company were

paid more than $5,000 per month, and more than $100,000 in total. In addition, Zazoff received medical insurance paid for by IEAM, even though he was not eligible for such insurance because he was never an employee of the company. L. Robert Dan Redmonds Role in the Mazzuto Scheme 72. Defendant Robert Dan Redmond was hired as Executive Vice President of

IEAM and President of Pitt Penn Oil in April 2007, and immediately became a key player in the Mazzuto Scheme. 73. 74. Like Zazoff, Redmond made numerous false statements to the public. For example, on numerous occasions, Redmond touted positive cash flow at Pitt

Penn. In fact, Pitt Penn never had any positive cash flow during Redmonds employment. 75. Redmond knew that these statements were false when made. 22

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76.

In addition, Redmond is quoted in numerous IEAM press releases falsely stating

that Pitt Penn had positive cash flow. Once again, when Redmond issued these quotes he knew that they were false because Pitt Penn did not have positive cash flow. 77. Redmond was paid far more in compensation than justified for his position. This

excess compensation was a bribe to cause Redmond to make false statements. M. The Class Action 78. On or about November 14, 2007, a shareholder of IEAM brought a class action

against IEAM, and others, entitled Mallozzi v. Industrial Enterprises of America, et al., Case No. 07-CV-10321 (S.D.N.Y., filed Nov. 14, 2007) (the Class Action). In the Class Action, plaintiffs alleged that they suffered damages as a result of the actions perpetrated by Mazzuto, Margulies and others relating to issues other than the issuance of stock under the Stock Option Plan. 79. On December 11, 2010, IEAM agreed to terms to settle the class action by

making a payment to the class of $3.8 million. That settlement received preliminary approval of the U.S. District Court for the Southern District of New York on February 2, 2011, and is now awaiting final approval. N. IEAM Receives an Assignment of Shareholder Claims 80. As part of the Class Action settlement, IEAM received an assignment of all

claims belonging to individual class members against all third-parties. 81. All claims against the Defendants for the claims alleged herein were included in

the assignment. O. Mazzuto and Margulies are Indicted 82. Mazzuto and Margulies fraudulent scheme finally came to an end when, on

May 24, 2010, Mazzuto and Margulies were both indicted in New York County, together with
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ten yet-to-be-indicted co-conspirators. The 57-count indictment charged the pair with grand larceny, scheming to defraud and falsifying business records. 83. Mazzuto and Margulies currently await trial. CAUSES OF ACTION COUNT ONE (AVOIDANCE OF FRAUDULENT TRANSFERS UNDER 11 U.S.C. 548) Against All Defendants 84. Plaintiff repeats and realleges paragraphs 1 - 83 set forth above as if they were

fully repeated herein. 85. The shares of stock transferred from IEAM to each of the Defendants are

property belonging to IEAM. 86. Defendants did not give any value for the shares they received, which were

charitable gifts, for which no consideration was provided. 87. Defendants knew or should have known that the IEAM shares issued to them

were illegally transferred to them because of the restrictions imposed by the S-8 that such shares were could only be distributed to natural persons who had performed services for IEAM, and defendants did not meet these requirements. 88. In addition, Defendants knew or should have known that the shares were not

freely tradeable in the open market. 89. Nevertheless, Defendants sold IEAM stock almost immediately after they

received the shares. Furthermore, the Defendants knew that they had not provided value to IEAM to justify the cash payments they accepted. 90. creditors.
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The transfers were made with the actual intent to hinder, delay or defraud

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91.

At the time of each transfer of stock and cash payment to Defendants, IEAM

(i) was insolvent under 11 U.S.C. 548(a)(1)(B)(ii)(I); (ii) was engaged in business or a transaction (including the perpetration of the stock fraud scheme) for which any property remaining with IEAM was an unreasonably small capital within the meaning of 11 U.S.C. 548(a)(1)(B)(ii)(II); and (iii) intended to incur, or believed that it would incur, debts that would IEAM would not be able to repay as they matured (as IEAM generally had no intention of paying its debts) pursuant to 11 U.S.C. 548(a)(1)(B)(ii)(III). 92. To the extent that the statutory period is two years prior to the Petition Date and

the transfers of stock and cash payments occurred outside of the statutory period, it should be equitably tolled based on the unlawful conduct of IEAMs management and the Defendants fraudulent concealment and because the transfers in question were made as part of an ongoing course of fraudulent conduct. In particular, Defendants actively participated in the knowing concealment of the transfers from the public, IEAMs creditors and investors, so that the transfers were not discovered until after the Petition Date and could not, with due diligence, have been discovered earlier. 93. The stock issuances and cash transfers set forth above are avoidable transfers and

should be avoided under 11 U.S.C. 548(a). COUNT TWO (UNJUST ENRICHMENT) Against All Defendants 94. Plaintiff repeats and realleges paragraphs 1 - 93 set forth above as if they were

fully repeated herein. 95. As set forth above, Defendants were unjustly enriched by their receipt of the

illegally issued shares and cash payments.

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96.

As a result of the Defendants unjust enrichment IEAM was impoverished in the

amount of the value of the shares illegally issued and the cash illegally paid. 97. There is no justification for Defendants enjoyment of their illegally received

gains or for IEAMs impoverishment. In equity and good conscience the conveyance of the illegally issued stock from IEAM to Defendants should be rescinded, and all benefits inuring to Defendants as a result of the transfers should be returned to IEAM. 98. Accordingly, Defendants were unjustly enriched in an amount to be determined at

trial, and such amounts should be returned to Plaintiff. COUNT THREE (FRAUDULENT CONVEYANCE / 11 U.S.C. 544(b)) Against All Defendants 99. Plaintiff repeats and realleges paragraphs 1 - 98 set forth above as if they were

fully repeated herein. 100. Each transfer of stock and cash payment set forth above was part of an on-going

scheme by Mazzuto and Margulies to defraud IEAM. 101. IEAM did not receive value in exchange for the transfer of the shares set forth

above, and Defendants did not provide anything of value in exchange for the cash payments they received. 102. herein. 103. Defendants unlawfully benefitted from the on-going scheme to defraud IEAM IEAM was insolvent at the time of the stock issuance and cash transfers set forth

because they knew, or should have known, that IEAM could not issue them unrestricted stock under the S-8 or the Stock Option Plan because, among other reasons, (i) they had not performed any services to benefit IEAM; (ii) stock issued under the S-8 was, by law, restricted under
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rule 144; and (iii) only natural persons were not eligible to receive stock under the Stock Option Plan. 104. The shares issued to each Defendant were issued illegally and in violation of the

federal securities laws. 105. Knowing that the shares had been illegally issued, Defendants nevertheless

accepted the shares, and then sold them in the open market. By such acts, Defendants defrauded IEAM and its creditors. 106. IEAM received no consideration for the shares issued to defendants. By contrast,

the shares received by Defendants were sold in the open market for 100% of their value of such shares. 107. At the time the shares described above were issued to Defendants and the cash

payments made, IEAM was engaged in a business or a transaction, or was about to engage in a business or a transaction (including the perpetration of the stock fraud scheme) for which any property remaining with IEAM was unreasonably small capital. 108. At the time the stock was issued to Defendants and the cash payments were made,

IEAM intended to incur, or believe that it would incur, debts that it would not be able to repay as they matured. IEAM had no intent to repay creditors. 109. IEAM never received reasonably equivalent value for the shares described above,

Defendants did not provide anything of value in exchange for the cash payments they received. 110. Pursuant to 11 U.S.C. 544(b), the transfers of stock described above and the

cash payments described above are avoidable by creditors holding unsecured claims allowed under 11 U.S.C. 502. 111. IEAM demands the return of the fraudulent transfers, including the proceeds of

the sale of the shares in IEAM set forth above, and the cash distributed to Defendants.
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COUNT FOUR (11 U.S.C. 550) 112. Plaintiff repeats and realleges paragraphs 1 - 111 set forth above as if they were

fully repeated herein. 113. The transfers of the shares to the Defendants are avoidable under 11 U.S.C.

544 and 548. 114. Defendants each knew or should have known that such shares were not capable of

being transferred to them by virtue of the restrictions imposed in the S-8 filing with the SEC that such shares could only be transferred to natural persons who had performed services for IEAM, and that defendants did not meet these requirements. 115. Each defendant was an initial transferee, the immediate or mediate transferee of

the initial transferee and/or a person for whose benefit the transfers were made. 116. Pursuant to 11 U.S.C. 550(a), Plaintiff is entitled to avoid and to recover the

value from each Defendant of the stock transfers. COUNT FIVE (Breach of Fiduciary Duty) (Against John Mazzuto, James Margulies, Barry Margulis, Scott Margulis, Robert Dan Redmond, David Zazoff, Steven Berger, George Cannan, and James Mazzuto) 117. Plaintiff repeats and realleges paragraphs 1 - 116 set forth above as if they were

fully repeated herein. 118. Defendants John Mazzuto, James Margulies, Barry Margulis, Scott Margulis,

Robert Dan Redmond, David Zazoff, Steven Berger, George Cannan and James Mazzuto were each officers and/or employees of IEAM or its subsidiaries and thereby owed fiduciary duties to

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the company, including the duty of good faith, fair dealing, honesty and candor, or they owed such duties by virtue of their relationship with the company in other capacities. 119. By the conduct alleged above, these defendants violated those duties by the

conduct alleged herein. 120. IEAM was damaged by these defendants breaches of their fiduciary duty by,

among other things, paying inflated salaries, compensation and improper medical benefits to these defendants as the quid pro quo for their fraudulent activity. Accordingly, IEAM seeks damages against these defendants for their breaches of fiduciary duty in an amount to be determined at trial, but in no event less than the total amount of compensation and benefits received by these defendants from IEAM. WHEREFORE, Plaintiff IEAM requests that this Court award it the following relief: A. B. C. D. E. Judgment on its claims. Damages in an amount to be determined at trial. Pre- and post-judgment interest. Costs of suit, including reasonable attorneys fees. Such other and further relief as the Court deems just and proper.

DATED: April 30, 2011 /s/ Christopher D. Loizides Christopher D. Loizides (No. 3968) LOIZIDES, P.A. 1225 King Street, Suite 800 Wilmington, DE 19801 Telephone: (302) 654-0248 Facsimile: (302) 654-0728 E-mail:[email protected] - and -

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Timothy C. Walsh EPSTEIN & CRESCI, PC 7 Dey Street, 11th Floor New York, NY 10007 Telephone: (212) 233-8300 Facsimile: (212) 233-8325 Counsel to Plaintiff IEAM

PAVIA & HARCOURT LLP 590 Madison Avenue New York, NY 10022 Telephone: (212) 980-3500 Facsimile: (212) 735-7918 Of Counsel

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