Interlink Pitch Barred After SEC Complaint : Courts: Costa Mesa company is accused of fraudulently raising $10 million in video phone network investments.

Just hours after federal authorities accused a Costa Mesa company of raising about $10 million fraudulently, a federal judge on Thursday temporarily barred the company, Interlink Data Network of Los Angeles Inc., from selling investments in a video telephone network.

U.S. District Judge Manuel Real in Los Angeles granted the order after the Securities and Exchange Commission filed a complaint against Interlink alleging that the company raised the money through the sale of unregistered securities and unregistered limited partnership interests.

The SEC alleged that Interlink representatives misled investors when it said that it held patents and licenses on video phone technology and that a fiber-optic cable network was under construction. More than 450 investors were involved.

Since 1991, Interlink has used televised infomercials and a force of telephone solicitors to raise funds for the construction of a 21-mile fiber-optic network, which the company said would use $3,995 video phones that it would manufacture to transmit images of callers between buildings in downtown Los Angeles and along Wilshire Boulevard.

Last week, 50 law-enforcement agents confiscated company records and computers from Interlink’s Costa Mesa and Century City offices. Agents from the Postal Inspection Service, the state Department of Corporations, the state Department of Insurance’s fraud division and the Costa Mesa Police Department joined in the search.

Interlink President Michael Gartner could not be reached Thursday. Gartner, along with related firms Interlink Fiber Optic Partners and Interlink Video Phone Partners, also were named in the SEC complaint.

Robert C. Rosen, an attorney for Interlink Data, called the SEC’s action “overkill and Draconian relief.” The company stopped selling securities on May 7, he said, and pledged to cooperate with authorities. He added that the raid stripped Interlink of its records and computer databases, making further sale of investments next to impossible.

“There’s no need to do it,” Rosen said of Thursday’s court action, “because the company already stopped selling securities. . . . They physically cannot do it even if they wanted to.”

But Rory Flynn, assistant chief litigation counsel for the SEC, said that “this kind of emergency relief is not unusual.”

“It’s not overkill,” he said. “We are doing what we need to do.”

Federal authorities also are seeking unspecified fines, which could total as much as three times the amount obtained in violation of securities laws, Flynn said. The SEC is still determining the amount in Interlink’s case, he said. A hearing is scheduled for June 7.

The SEC alleges that Interlink used Portfolio Asset Management/USA Financial Group Inc. of El Paso, a broker-dealer registered with the commission, as an “alter ego” to sell the securities. Interlink paid brokers’ commissions, and investors made payments for partnerships directly to Interlink as well, the SEC said.

A former Portfolio Asset Management broker, who spoke only on condition that his name not be used, said Thursday that the operations of the company have been virtually shut down since the raid.

The SEC also alleges that Interlink representatives told investors that their holdings in the network were secure and that investors would get high rates of return ranging from 12% to 18% annually, payable in monthly increments.

“Interlink had no revenue-generating operations and no source of funds other than funds raised from investors,” the SEC stated. “Interlink made interest payments to investors from funds raised from other investors in the defendant issuers’ offerings.”

On Thursday, Judge Real also froze the assets of Interlink and related businesses, and he ordered an accounting of Interlink funds to obtain restitution for investors. The SEC, in its complaint, said that Interlink’s accounts at Bank of America have been depleted, falling from somewhere around $2 million to $3 million in February to about $20,000 in May.

The SEC also alleges that Gartner failed to substantiate to his company’s chief financial officer the uses of at least $1.5 million in funds. The money was part of $2 million that was transferred, without investors’ knowledge, to Photonic Industries Inc. and Photonic Technologies Inc., two companies owned or partly owned by Gartner, the SEC said. Gartner also wrote $200,000 in checks for which the payee was never recorded in Interlink records, the agency said.