Case 1:10-cr-00600-DLI Document 284 Filed 01/08/13 Page 1 of 6 PageID #: 1718 U.S.

Department of Justice

United States Attorney Eastern District of New York SMC/JPN:PSS F.#2010R00609

271 Cadman Plaza East Brooklyn, New York 11201

January 8, 2013 BY HAND DELIVERY AND ECF The Honorable Dora L. Irizarry United States District Court Eastern District of New York 225 Cadman Plaza East Brooklyn, New York 11201 Re: United States v. Michael Metter Docket Number 10-CR-600 (DLI)

Dear Judge Irizarry: The government writes to provide the Court with the enclosed superseding information, waiver of indictment form and proposed plea agreement in the above-referenced case.1 Pursuant to the Courts November 25, 2012 Order, the government provides herein the facts and circumstances justifying the terms of the plea agreement, which both parties request the Court approve pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C). The parties are scheduled to appear before the Court on January 14, 2013 for a plea hearing. In short, according to the parties proposed agreement, the government will be relieved of its burden of proof at trial and the defendant will plead guilty to a serious felony and be punished in accordance with the guiding principles of Title 18, United States Code, Section 3553(a). The Plea Agreement According to the plea agreement, the defendant would plead guilty to a one-count superseding information alleging a violation of Title 15, United States Code, Section 78ff and the government would agree to dismiss the charges against the defendant contained in the August 4, 2010 indictment and the

The government will not file the attachments on ECF, but will separately provide copies to the Court by hand.

Case 1:10-cr-00600-DLI Document 284 Filed 01/08/13 Page 2 of 6 PageID #: 1719

2 October 14, 2010 superseding indictment in this case. In the plea agreement, the parties agree that the appropriate sentence would be a period of probation not to exceed five years and a $100.00 special assessment; the amount of any fine and the conditions of probation are left open for the Court to decide. The government has extended this plea offer for the following reasons. First, the Court has suppressed a substantial amount of electronic data that was seized pursuant to lawfully obtained search warrants because the Court determined that the materials were not searched in a timely fashion following the seizure. While the government is currently pursuing an appeal of this suppression, it cannot anticipate the result in the Second Circuit and may, in the end, be without this significant source of evidence at trial. Second, during the course of the investigation, the government obtained certain electronic data by subpoena rather than by warrant (i.e., the Tabush Drives), and then failed to disclose the drives in a timely fashion consistent with Federal Rule of Criminal Procedure 16. In recognition of the potential issues that might have resulted from the governments action, the government agreed not to access or review these materials, but made them available to the defense. This imbalance of available information could potentially impede the governments ability to prepare for and prevail at trial. Third, the governments ability to call a cooperating witness potentially would be impaired by the fact that the witness conducted recorded meetings with the defendant following their indictment. The government properly used a taint team and turned the recordings over to the defense. Nevertheless, under the circumstances, the governments trial team would likely not have access to these recordings before trial and, accordingly, would be unable to anticipate fully cross examination and properly prepare the cooperating witness. It is against this unique backdrop that the government offered the plea agreement pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C). For the reasons set forth in the balance of this letter, including the sentencing factors referenced below, the government respectfully requests that the Court accept the defendants guilty plea pursuant to this plea agreement. Law Rule 11(c)(1)(C) makes the parties' recommended sentence binding on the court once the court accepts the plea

Case 1:10-cr-00600-DLI Document 284 Filed 01/08/13 Page 3 of 6 PageID #: 1720

3 agreement. According to the advisory federal Sentencing Guidelines (U.S.S.G.) Section 6B1.2(c): In the case of a plea agreement that includes a specific sentence (Rule 11(c)(1)(C)), the Court may accept the agreement if the Court is satisfied either that: (1) the agreed sentence is within the applicable guideline range; or (2) (A) the agreed sentence is outside the applicable guideline range for justifiable reasons; and (B) those reasons are set forth with specificity in the statement of reasons form. U.S.S.G. 6B1.2(c). The Guidelines Commentary provides further: The Court may accept an agreement calling for the dismissal of charges or an agreement not to pursue potential charges if the remaining charges reflect the seriousness of the actual offense behavior. This requirement does not authorize judges to intrude upon the charging discretion of the prosecutor. If the governments motion to dismiss charges or statement that potential charges will not be pursued is not contingent on the disposition of the remaining charges, the judge should defer to the governments position except under extraordinary circumstances. U.S.S.G. 6B1.2 (Commentary). The Superseding Information Pursuant to the plea agreement, the defendant would plead guilty to a one-count superseding information charging him with making false statements in a Form 10-KSB filed with the Securities and Exchange Commission (SEC) in violation of Title 15, United States Code, Section 78ff. As set forth in the superseding information, the defendant was Chief Executive Officer (CEO) of Spongetech Delivery Systems, Inc. (Spongetech or the Company) and received compensation of at least $250,000 from the sale of Spongetech securities, but falsely stated in the Companys August 25, 2008 Form 10-KSB filed with the SEC that he received no compensation. More specifically, between 2007 and 2009, the defendant solicited investors to buy shares of Spongetech stock, which had been issued to RM Enterprises International Ltd. (RM Enterprises). Investors who bought Spongetech stock from RM Enterprises in response to the defendants solicitations paid RM

Case 1:10-cr-00600-DLI Document 284 Filed 01/08/13 Page 4 of 6 PageID #: 1721

4 Enterprises for the stock and RM Enterprises then directed approximately one third of the purchase price to a company located at the defendants home and owned by his wife. The defendant failed to disclose this income and caused the Company to make affirmative false statements that he had not received any compensation when indeed, he had received approximately $250,000 in compensation. Statute and Sentencing Guidelines A violation of Title 15, United States Code, Section 78ff carries no minimum term of incarceration and the maximum term of incarceration is 20 years; the maximum fine permitted under the statute is $5,000,000. 15 U.S.C. 78ff. According to the advisory Guidelines, the following analysis would apply: Base Offense Level ( 2B1.1(a)(1)) Plus: Loss > $200,000 ( 2B1.1(b)(1)(G)) Plus: Officer of Company Commits Securities Fraud ( 2B1.1(b)(18)(A)(i)) Less: Acceptance of Responsibility ( 3E1.1(a) & (b)) Total: U.S.S.G. Sentencing Range 7 +12 +4 -3 20 33-41 months

For the reasons set forth below, along with those outlined above, however, the parties believe that a probationary sentence is appropriate in this case. Sentencing Justifications: 18 U.S.C. 3553(a)

Under Title 18, United States Code, Section 3553(a), a sentence should reflect the nature and circumstances of the offense and the history and characteristics of the defendant and be: sufficient but not greater than necessary . . . (A) to reflect the seriousness of the offense, to promote respect for the law and to provide just punishment for the offense; (B) to afford adequate deterrence to criminal conduct; (C) to protect the public from further crimes of the defendant; and (D) to provide the

Case 1:10-cr-00600-DLI Document 284 Filed 01/08/13 Page 5 of 6 PageID #: 1722

5 defendant with needed education or vocational training, medical care, or other correctional treatment in the most effective manner. 18 U.S.C. 3553(a). First, regarding the nature and circumstances of the offense, the count of conviction relates to a single isolated filing with the SEC constituting a discrete act and not a continuing course of criminal conduct. Second, regarding the history and characteristics of the defendant, it should be noted that during a substantial duration of the relevant events, Metter was suffering from ocular cancer and was undergoing treatment for that disease. Moreover, the defendant has no criminal history and is not a likely recidivist. Third, regarding deterrence, the public will be protected against any future fraudulent conduct by Metter. As the Court is aware, the defendant has entered into an agreement with the SEC whereby he agreed to be barred from ever serving as an officer or director of a public company and further agreed to be barred from the penny stock industry entirely. Moreover, the defendant will be financially punished. The agreement with the SEC permits the Court, with full information from the SEC, to order disgorgement of any and all ill-gotten gains, civil penalties and reimbursements pursuant to Section 304 of the Sarbanes-Oxley Act. See Securities and Exchange Commission v. Spongetech Delivery Systems, Inc., et al., 10 CV 2031 (DLI), Docket Entry 255. The Court may, in its discretion, make compliance with any disgorgement order or civil penalties a special condition of the defendants probation in the event the Court approves the proposed plea agreement. Fourth, regarding just punishment, as a result of the criminal action and the SEC proceeding, the defendant has suffered collateral consequences. Namely, he had been president of Business Talk Radio (BTR) since 2002 and received compensation from that job ranging from $160,000 to $200,000 per annum. He has been removed from that position in the wake of the SECs enforcement proceedings. Fifth, a probationary sentence will not result in unwarranted sentencing disparities among defendants with similar records who have been found guilty of similar conduct. In the originally charged case, the Court sentenced three other defendants. Defendants Thomas Cavanagh and Frank Nicolois pleaded guilty to structuring and were sentenced to 24 months and

Case 1:10-cr-00600-DLI Document 284 Filed 01/08/13 Page 6 of 6 PageID #: 1723

6 16 months, respectively. See Docket Entries 198 and 223. Cavanagh and Nicolois sold Spongetech securities to European investors and structured their commissions in a way to avoid detection from the authorities and to avoid paying multi-million dollar judgments held by the SEC in connection with an earlier fraud led by Cavanagh and Nicolois. This criminal activity is unrelated to Metters false statements to the SEC charged in the superseding information. George Speranza was a low-level operative who created websites and virtual offices for Spongetechs non-existent customers and then lied to the SEC. Speranza pleaded guilty to perjury and was sentenced to probation. See Docket Entry 167. * * *

For all these reasons, the parties request that the Court approve the attached proposed plea agreement as contemplated by Federal Rule of Criminal Procedure 11(c)(1)(C). Respectfully submitted, LORETTA E. LYNCH United States Attorney By: /s/ Patrick Sean Sinclair Assistant U.S. Attorney (718) 254-6402

cc:

Maranda Fritz, Esq. (w/ attachments via e-mail) Clerk of the Court (DLI) (w/ attachments via hand and w/o attachments via ECF)