Education Comics LLC and Diane R_Comic

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					 1                                 STATE OF WASHINGTON
                            DEPARTMENT OF FINANCIAL INSTITUTIONS
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                                    SECURITIES DIVISION
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      IN THE MATTER OF DETERMINING                    )   Order Number S-08-102-10-SC01
 4    Whether there has been a violation of the       )
      Securities Act of Washington by:                )   STATEMENT OF CHARGES AND
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                                                      )   NOTICE OF INTENT TO ENTER AN
 6    Education Comics LLC and Diane                  )   ORDER TO CEASE AND DESIST AND
      Russomanno,                                     )   TO CHARGE COSTS
 7                             Respondents            )
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 9    THE STATE OF WASHINGTON TO:                             Education Comics LLC
                                                              Diane Russomanno
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11                                    STATEMENT OF CHARGES
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           Please take notice that the Securities Administrator of the State of Washington has reason
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      to believe that Respondents, Education Comics LLC and Diane Russomanno, have each
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15    violated the Securities Act of Washington and that their violations justify the entry of an order

16    of the Securities Administrator under RCW 21.20.390 against each to cease and desist from
17    such violations and to charge costs. The Securities Administrator finds as follows:
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                                   TENTATIVE FINDINGS OF FACT
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                                               Respondents
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21         1. Education Comics LLC (“Education Comics”) is a California limited liability

22    company that was formed on April 23, 2001. The company’s principal place of business is
23    located in Agoura Hills, California. From at least 2005 through 2007, Education Comics held
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      itself out to investors as the company that owned and that was developing and marketing a
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      series of educational children’s comic books called “The Adventures of Scooter McDoogal.”




     STATEMENT OF CHARGES AND NOTICE OF                             DEPARTMENT OF FINANCIAL INSTITUTIONS
                                                          1                                 Securities Division
     INTENT TO ENTER AN ORDER TO CEASE AND
                                                                                                 PO Box 9033
     DESIST AND TO CHARGE COSTS                                                       Olympia, WA 98507-9033
                                                                                                 360-902-8760
 1          2. Diane Russomanno (“Russomanno”) is the Chief Executive Officer of Education
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      Comics.
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                                         Offering of Investments
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            3. From 2005 through 2007, Respondents each offered and sold more than $500,000
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 6    worth of investments in Education Comics to more than twenty Washington investors. Most of

 7    the Washington investors were introduced to the investment by a Washington investor who
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      made significant investments in Education Comics, but was not actively involved with the
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      business operations or the management of the company. Before investing, most of the
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      Washington investors had no prior relationship with Education Comics or with Diane
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12    Russomanno.

13          4. The Washington investors did not have any control over the use of their invested
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      funds and they were relying upon Respondents to generate a return on their investment.
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      Respondents each represented that the investor funds would be pooled together to finance the
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      production and marketing of the Scooter McDoogal comic books and related merchandising.
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18    Respondents represented that the comic books would be sold to school districts and would

19    generate profits for the investors. Respondents each represented to some investors that they
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      would have an interest in the future ownership of any film, television, and/or merchandising
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      rights.
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            5. Respondents each offered and sold a percentage interest of company profits to the
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24    Washington investors. Generally, Education Comics promised to pay 1% of the company’s net

25    profits for every $10,000 invested. If the company failed to make profit sharing payments




     STATEMENT OF CHARGES AND NOTICE OF                         DEPARTMENT OF FINANCIAL INSTITUTIONS
                                                       2                                Securities Division
     INTENT TO ENTER AN ORDER TO CEASE AND
                                                                                             PO Box 9033
     DESIST AND TO CHARGE COSTS                                                   Olympia, WA 98507-9033
                                                                                             360-902-8760
 1    within 90 days of the company’s fiscal year end, then the amount of the outstanding liability
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      would accrue 8% annual interest. The investments were generally memorialized in a written
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      agreement from Education Comics. The agreements were signed by Diane Russomanno as the
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      CEO of Education Comics.
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 6                                   Misrepresentations and Omissions

 7           6. When offering and selling the investments, Respondents each represented that the
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      investors would have an interest in the profits of the company, but Respondents each failed to
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      disclose that the company had never been profitable. Respondents each failed to disclose the
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      amount of money that would be needed in order to achieve profitability. Respondents each
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12    failed to give certain investors financial statements for the company. Respondents each failed

13    to disclose that, according to financial statements that Russomanno had given to at least one
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      Washington investor, Education Comics and its predecessor, Education Comics, Inc., had a
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      total net loss of more than $4,000,000 for the period from January 23, 2001 through January
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      25, 2007. Respondents each failed to disclose the operating history of the company and the
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18    prior attempts to develop and market Scooter McDoogal comic books. Respondents each

19    failed to disclose the cost of developing and marketing related products and the cost of
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      developing film, television, and merchandising rights.
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             7. When offering and selling the investments, Respondents each failed to disclose the
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      risks of the investment, including inadequate capitalization, industry competition, the
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24    company’s reliance on a few key individuals, and unprofitability. Respondents each failed to

25    disclose the specific intended use of investor funds. Respondents each failed to disclose the

      amount of money that would be required to achieve specific goals.


     STATEMENT OF CHARGES AND NOTICE OF                          DEPARTMENT OF FINANCIAL INSTITUTIONS
                                                        3                                Securities Division
     INTENT TO ENTER AN ORDER TO CEASE AND
                                                                                              PO Box 9033
     DESIST AND TO CHARGE COSTS                                                    Olympia, WA 98507-9033
                                                                                              360-902-8760
 1                                            Registration Status
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            8. Education Comics LLC is not currently registered to sell its securities in the state of
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      Washington and has not previously been so registered.
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            9. Diane Russomanno is not currently registered as a securities broker-dealer or
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 6   securities salesperson in the state of Washington and has not previously been so registered.

 7          Based upon the Tentative Findings of Fact, the following Conclusions of Law are made:
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                                         CONCLUSIONS OF LAW
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                                                       I.
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            The offer or sale of the investments described above constitutes the offer or sale of a
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12    security as defined in RCW 21.20.005(10) and (12), whether in the form of an investment

13    contract, promissory note, evidence of indebtedness, or risk capital.
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                                                       II.
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            Respondents each violated RCW 21.20.140 because no registration for the offer or sale of
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      said securities is on file with the Securities Administrator.
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18                                                    III.

19          Diane Russomanno violated RCW 21.20.040 by offering or selling said securities while
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      not registered as a securities broker-dealer or securities salesperson in the state of Washington.
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                                                      IV.
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            Respondents each violated RCW 21.20.010 because, when offering and selling the
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24    investments, Respondents each made untrue statements of material fact or omitted to state

25    material facts necessary in order to make the statements made, in the light of the circumstances

      under which they were made, not misleading.


     STATEMENT OF CHARGES AND NOTICE OF                               DEPARTMENT OF FINANCIAL INSTITUTIONS
                                                             4                                Securities Division
     INTENT TO ENTER AN ORDER TO CEASE AND
                                                                                                   PO Box 9033
     DESIST AND TO CHARGE COSTS                                                         Olympia, WA 98507-9033
                                                                                                   360-902-8760
 1      NOTICE OF INTENT TO ORDER THE RESPONDENT TO CEASE AND DESIST
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           Based on the above Tentative Findings of Fact and Conclusions of Law, the Securities
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      Administrator intends to order pursuant to RCW 21.20.390 that Respondents, Education
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      Comics LLC and Diane Russomano, and their agents and employees, each shall cease and
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 6    desist from any violation of RCW 21.20.010, RCW 21.20.040, and RCW 21.20.140.

 7                           NOTICE OF INTENT TO CHARGE COSTS
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           Based upon the Tentative Findings of Fact and Conclusions of Law, the Securities
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      Administrator intends to order, pursuant to RCW 21.20.390, that Diane Russomanno shall pay
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      investigative costs of $5,000.
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12                                 AUTHORITY AND PROCEDURE

13         This Statement of Charges is entered pursuant to the provisions of chapter 21.20 RCW
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      and is subject to the provisions of chapter 34.05 RCW. The respondents, Education Comics
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      LLC and Diane Russomanno, may each make a written request for a hearing as set forth in the
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      NOTICE OF OPPORTUNITY TO DEFEND AND OPPORTUNITY FOR HEARING
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18    accompanying this order.

19         If a respondent fails to make a timely hearing request, the Securities Administrator
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      intends to adopt the above Tentative Findings of Fact and Conclusions of Law as final and to
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      enter a permanent order to cease and desist as to that respondent and to charge any costs that
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      are sought from that respondent.
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24                         Dated and Entered this 28th day of January, 2010

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                                                         MICHAEL E. STEVENSON
                                                         Securities Administrator

     STATEMENT OF CHARGES AND NOTICE OF                          DEPARTMENT OF FINANCIAL INSTITUTIONS
                                                        5                                Securities Division
     INTENT TO ENTER AN ORDER TO CEASE AND
                                                                                              PO Box 9033
     DESIST AND TO CHARGE COSTS                                                    Olympia, WA 98507-9033
                                                                                              360-902-8760
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      Approved by:                           Presented by:
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 5    Suzanne E. Sarason                     Janet So
      Chief of Enforcement                   Enforcement Attorney
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      Reviewed by:
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10    Martin Cordell
      Financial Legal Examiner Supervisor
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     STATEMENT OF CHARGES AND NOTICE OF             DEPARTMENT OF FINANCIAL INSTITUTIONS
                                             6                              Securities Division
     INTENT TO ENTER AN ORDER TO CEASE AND
                                                                                 PO Box 9033
     DESIST AND TO CHARGE COSTS                                       Olympia, WA 98507-9033
                                                                                 360-902-8760

				
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