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MoneyTV and Don Baillargeon put Dean and Imaging3 on the SEC's radar the first time around

You can draw a straight line between the SEC investigation of Imaging3 and Don being busted by the SEC TWICE


http://thestreetsweeper.org/undersurveillance/Are_Those_Dark_Spots_on_That_X_Ray_of_Imaging3_

Under Surveillance
Are Those Dark Spots on That X-Ray of Imaging3?

by Melissa Davis - 11/22/2009 10:34:19 PM

Based on comments made in a spring episode of “Health This Week with Don Baillargeon” – a program hosted by a repeat target of securities regulators – Imaging3 CEO Dean Janes has been waiting six months for an urgent phone call from the U.S. Food and Drug Administration that he will probably never receive.

Janes appeared on the show in May with high hopes that the FDA was finally nearing approval of IMGG’s Dominion 3-D imaging device. Although two years had passed since IMGG first submitted the Dominion for FDA review, using a speedy 510(k) process that often takes just months to complete, Janes acted as though the agency’s long-awaited blessing might come at any moment.

In fact, Baillargeon joked that he had allowed Janes to keep his cell phone turned on during the interview because the FDA might call before the show even concluded.

“Your phone hasn’t rung yet,” Baillargeon admitted at the end of the five-minute news clip. “But I know that’s just about as imminent as imminent can be.”

Since the FDA delivers its regulatory decisions by mail, rather than phone, that discussion created a false sense of drama for viewers watching the show. The program clearly had a lasting impact, however, reaching a potential audience of millions and later attracting more than 2,000 hits on YouTube alone. In fact, viewers were still watching the YouTube segment – and banking on the Dominion’s “imminent” approval – as recently as last week.

IMGG’s stock, which fetched mere pennies in thin trading before that show and subsequent Baillargeon interviews, has rocketed past $1 on massive volume in the meantime. It peaked near $2 earlier this month, temporarily giving IMGG a market value of $700 million – the same value currently assigned to Nasdaq-traded Wright Medical – based on mere hopes for FDA clearance of the company’s first breakthrough device.

Investors who purchased IMGG’s highflying stock after watching Baillargeon’s shows obviously placed real faith in his interviews. In the past, however, Baillargeon has twice been sanctioned by the U.S. Securities and Exchange Commission for issuing misleading information about publicly traded companies. Moreover, he pockets generous payments from companies that he promotes on his current show.

IMGG investors apparently trusted Janes’ great show of confidence in the company’s future prospects as well. In the months leading up to his May television interview, however, Janes was selling big blocks of IMGG stock for as little as 6 cents a share – suggesting a market value for IMGG of roughly $15 million at the time -- in an effort to raise money for the company. After that, through a series of private placements, IMGG itself would go on to sell more than 100 million shares of company stock at just a fraction of that price.

By doing so, IMGG essentially sold about one-third of the company – which currently boasts a market value of $500 million -- for just $3 million.

Following those transactions, IMGG issued a new quarterly report emphasizing a refocused business strategy for the company. With its stock trading at an all-time high of $1.95 a share, fueled by FDA-related hype, IMGG expressed a renewed commitment to focus on its traditional – but dwindling – business of selling historical products and services. Unlike its upbeat press releases, IMGG’s quarterly report barely mentioned the company’s FDA application at all.

IMGG’s stock lost almost half of its value, dipping below $1 a share, the week after that report first appeared. It bounced back above $1.35 in heavy trading Friday, however, following Janes’ latest televised interview with Baillargeon.

The Street Sweeper left phone messages and emailed questions to both IMGG and Baillergeon seeking their input for this story. Neither one of them responded.

Rising from the Ashes

IMGG is no startup company despite its lingering penny-stock status.

Founded by Janes in 1993, the company – originally known as Imaging Services – has spent the past 16 years upgrading and servicing medical equipment manufactured by others. Six months after a 2002 fire destroyed its headquarters and wiped out its (somewhat obsolete) inventory, however, Imaging Services suddenly announced plans to change its name to Imaging3 and develop a breakthrough device of its own.

Four years later, IMGG proudly announced that it had unveiled the first prototype of its new Dominion imaging device at a November 2006 trade show. Although IMGG identifies a later completion date of April 2007 for that prototype in its regulatory filings, the company was already laying out ambitious plans to seek FDA approval for the device even before that time.

“Given the spate of accomplishments in 2006, the new year is projected to be a time of lucrative growth and change,” IMGG stated in a February 2007 press release. “Looking forward, 2007 strategy anticipates … beta testing of the Dominion at university hospitals in first quarter, FDA application in second quarter and production to begin in late 2007 moving into 2008.”

In June of 2007, as IMMG prepared to submit its device for FDA review, the company noted that the approval process could take “six months or more to complete.” IMGG expressed hope that it could secure FDA approval by the end of the year, however, while leaving the door open for a final decision in 2008.

The FDA came through with very limited approval for the device, though. In April of 2008, the agency cleared the device for “investigational purposes” only. Nevertheless, Janes insisted that the action represented important progress and brought the device “one step closer to full approval” by the agency.

Four months later, however, IMGG suffered a major regulatory setback. The company fielded new requests from the FDA that could signal serious delays for its device. Even so, the company attempted to soften the blow by downplaying the negative development.

“Currently, we are working through issues with device classification and substantial equivalency, and we may be asked to re-file our 510(k) submission deleting or adding devices to compare the Dominion Vi Scanner as substantially equivalent,” Janes acknowledged in an August 2008 letter to IMGG shareholders. “This is neither good nor bad news … We know this process has continued longer than anticipated, though we feel as confident as ever that we will eventually receive approval.”

Soon afterwards, even as he sold cut-rate stock to raise money for the company, Dean began appearing on “MoneyTV” – another paid program anchored by Baillargeon – in an effort to broadcast his upbeat message to the masses.

Looking on the Bright Side

Baillargeon is a master when it comes to positive spin. Just look at his take on an SEC investigation of Alliance Industries in 1996, when he served as vice president of corporate development for the penny-stock company.

“The phenomenal success of our company this year has obviously sparked the inquiry,” Baillargeon proclaimed, adding that the results of the probe would equal a “seal of approval” from the SEC and provide the company with extra credibility in the future.

Instead, the SEC permanently halted trading in Alliance Industries shares and later sanctioned the company’s CEO and Baillargeon himself for allegedly duping investors who lost more than $1.4 million on the stock.

“Some of the misleading statements, the SEC charges, included claims about several new business ventures for the company – including the breeding of goats and the development of a chain of chiropractic clinics,” SmartMoney noted when reviewing Baillargeon’s checkered past in mid-2000. “The SEC complaint says the two men claimed the new businesses would boost Alliance’s revenues from $20 million in 1997 to $1.2 billion in 2006. That’s a lot of goats.”

As it turns out, the SEC claimed, Alliance Industries was a “foundering company” that owned no goats or chiropractic clinics at all. Without admitting or denying any wrongdoing, Baillargeon settled the SEC’s charges in 2002 by paying a fine and agreeing to refrain from violations of securities laws in the future.

By then, Baillargeon had made similar promises to the SEC already. Less than six months after the SEC began scrutinizing Alliance Industries, Baillargeon had launched a new television program – known as “Emerging Company Report” – that publicized companies it was paid to promote. During its first 16 months of operation, the SEC claims, “Emerging Company Report” touted more than 50 different companies without disclosing that it had received payments for those televised promotions.

When settling that case in 1998, Baillargeon also pledged to abstain from violating federal securities laws.

Comparing Apples to Oranges

Meanwhile, Janes has turned to Baillargeon repeatedly when seeking television exposure for his company. He appeared on Baillargeon’s programs at least six times from March to June alone.

More recently, with the stock on an unprecedented rise, Janes opted for a more unusual strategy to communicate directly with investors. In a practice normally shunned by company CEOs, Janes actually turned to an Internet chat room in an effort to deliver his message.

Posting under his own name, Janes took specific aim at IMGG critics who had raised questions about the company’s massive – and growing -- share count.

“Dilution primarily hurts my position,” Janes insisted. “It boggles my mind how people holding less than a million shares get so worked up about it.

“Google has over 300 million shares outstanding,” he added, “and it doesn’t seem to affect their PPS (price per share).”

IMGG shares little in common with Google, however, aside from its gigantic share count. Unlike Google, IMGG has reported plunging sales – and mounting losses – for the current year. At this point, some experts say, IMGG critically needs a favorable FDA ruling that’s already more than priced into the company’s shares.

Meanwhile, Janes continues to express great faith in the company’s chances. During IMGG’s latest conference call, held three months after he carried his cell phone onto Baillargeon’s TV show, Janes was still confidently holding his breath.

“I don’t think it would be an ‘hours’ kind of thing, but it could be,” Janes said when asked about possible timing for FDA approval. “It’s more likely going to take them days or weeks … I’ll be happy to get it – no matter what -- whenever it happens.”

But “I feel very confident,” he added, “that we’re very close.”

* Editor's Note: The Street Sweeper hired an independent fact-checker to verify the accuracy of this story. Whenever possible, it has also included links to the actual documents used during the course of its research. To contact Melissa Davis, the author of this story, please send an email to [e-mail].
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