updated 9/27/2006 6:56:54 PM ET 2006-09-27T22:56:54

The Children’s Internet Inc., a company that promises to protect children from inappropriate Internet content, bilked more than $5 million from investors and used their money to pay gambling debts, according to a lawsuit filed Wednesday by the Securities and Exchange Commission.

In addition to charging the Pleasanton, California, company, the SEC sued its 39-year-old chief executive, Sholeh Hamedani, and her father, Nasser Hamedani, 68.

The Hamedanis “chose to treat The Children’s Internet like their own piggy bank and then tried to cover up the scheme,” Helane Morrison, head of the SEC’s San Francisco office, said.

“They’re living the good life off of investors,” said Michael Dicke, an assistant district administrator in the SEC’s San Francisco office.

Among other things, the SEC’s civil suit claims the Hamedanis used investors’ money to pay for a new Corvette sports car and a Mercedes sedan, lavish $250,000 on themselves and family members, and cover $300,000 of gambling debts.

Company revenue were less impressive, totaling less than $300, according to the firm’s latest financial statement filed with the SEC.

The Hamedanis’ lawyer was not immediately available to comment.

Investors who bought shares in the company between 2002 and 2004 were falsely told the stock would be listed soon on a national market and could be freely traded, even though trading didn’t begin until early in 2005, regulators said.

The SEC claims the Hamedanis also failed to tell investors that up to 25 percent of the funds the company received were paid to two Florida stock promoters, with other funds being secretly funneled back to the Hamedanis and their privately held company, Two Dog Net Inc.

The CEO, Sholeh Hamedani, faces other charges, including lying to accountants, making false SEC filings and issuing a mid-2005 restatement of previous financial reports which the SEC claims was done “to cover up” the alleged scheme.

Stock promoters Peter Perez, 40, and Cort Poyner, 37, were charged with helping to sell millions of shares of unregistered Children’s Internet stock, making false statements and omitting material facts to induce investors to buy stock.

Perez’s lawyer had no immediate comment and Poyner’s lawyer, Gary Klein, declined to comment.

The SEC’s lawsuit seeks the return of all investor funds, with interest and penalties, along with orders barring the Hamedanis from serving as corporate officers or directors, and banning them and the stock promoters from any involvement in future penny-stock offerings.

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