CAVEAT EMPTOR
and this is all BEFORE the formal SEC lawsuit
* Editor’s Note: TheStreetSweeper first began uncovering risks at RMCP when the stock hit its peak last week. Because RMCP crashed before TheStreetSweeper could write and fact-check this investigative report – with the stock plunging another 25% after the company was emailed questions for this story – TheStreetSweeper will begin sending out early alerts about risky penny stocks that it plans to cover in the future.
Less than four years after changing its name in an effort to put its checkered past behind it, Revolutions Medical (OTC: RMCP.OB) is suspected of engaging in the same sort of stock-boosting activities that led regulators to crack down on the company in the first place.
Ever since RMCP filed the paperwork last month to clear the way for massive sales of its stock, the company has been issuing a flurry of press releases containing increasingly upbeat news. RMCP kicked things off with a couple of announcements about its MRI technology in mid-August, which proved effective enough to push the company’s stock from 28 cents to 40 cents a share. When RMCP shifted its attention to the company’s new “safety syringes,” however, the stock really started to fly. By Sept. 13 – less than a month after RMCP began churning out its steady stream of good news – the briskly trading stock had soared to an all-time high of $1.74 a share.
Three announcements, issued over a one-week span this month, fueled most of that surge.
The first two celebrated a manufacturing deal, calling for the production of 5 million safety syringes, inked with an obscure firm led by an apparent insider of the company itself. (As noted in more detail below, that firm does not seem to exist.) The third, even more powerful, announcement hinted at a looming syringe order from none other than the federal government.
With RMCP plummeting back below $1 last week, however, some investors clearly wonder – perhaps with good reason -- if those deals will turn out to be real. After all, Internet records show, RMCP announced a similar manufacturing deal for its syringes years ago but has never generated 1 cent of revenue since that time. Moreover, despite its recent announcement, RMCP has apparently yet to land a formal order from the federal government.
“It’s kind of a long process,” Deborah White, strategic communications director for the Naval Health Research Center, told TheStreetSweeper last week. But “it’s my understanding that the contract has not yet been awarded.”
The Post and Courier, a major newspaper based in RMCP’s home state of South Carolina, received a similar response from yet another government official. The newspaper also fielded an odd explanation from RMCP itself when asked about the deal. Interestingly, CEO Ron Wheet claimed that the company had “made a decision to err on the side of caution” when announcing the government contract due to suspected leaks about the powerful news.
If anything, however, that report now looks optimistic at best – and misleading at worst – to critics who suspect that the company is engaging in a familiar pattern of deceit.
During his recent interview with The Post and Courier, Wheet tried to blame RMCP’s rapid stock plunge on abusive short sellers – who’ve “been saying all kinds of crazy stuff” – rather than nervous investors who might be reacting to possible risks. In its own regulatory filings, however, RMCP had already warned that massive dilution – triggering potential sales by short sellers and regular investors alike – could hammer the company’s stock.
Timothy Sykes, a self-made millionaire who specializes in shorting overhyped penny stocks, took heavy aim at RMCP last week in a detailed investigative report on the checkered background of the company and its leaders. By then, TheStreetSweeper had already launched its own exhaustive review of RMCP and uncovered some of the same red flags identified by Sykes – in addition to others worthy of attention – when preparing for this story.
RMCP failed to respond to a list of questions for this article. The company’s stock, which opened at 91 cents on Monday, quickly plunged 25% to 69 cents a share following TheStreetSweeper’s inquiry.
Permanent Stains
Despite its lack of revenue, regulatory filings show, RMCP is actually an older company (particularly by penny-stock standards) that launched operations back in 1996.
According to the U.S. Securities and Exchange Commission, the company – then known as Maxxon – began misleading investors about its operations the very next year. Initially, the SEC claimed, Maxxon falsely stated that the company had already started manufacturing its syringes and fielding orders from interested customers. Shortly afterwards, the SEC said, then-CEO Gifford Mabie pocketed more than $1.5 million by selling the company’s overinflated stock.
A few years later, the SEC said, Maxxon began misleading the public once again. This time, the SEC claimed, Maxxon predicted imminent regulatory approval for its safety syringes even though its application had been placed on hold. All told, another seven years would pass before the U.S. Food and Drug Administration actually cleared the company’s syringes for sale.
Meanwhile, in late 2004, a federal jury found Maxxon and Mabie liable of securities fraud following a two-week trial. Four months later, the Daily Oklahoman reported, a federal judge barred Mabie – still the company’s CEO at that time – from serving as an officer or director of any publicly traded companies for the next five years.
Maxxon finally replaced Mabie with Wheet, already a company director, at that point. A longtime player in the penny-stock world, Wheet worked for at least three tainted investment firms – Cohig & Associates, Fortress Financial and Richmark Capital -- before joining the company.
Back in the 1990s, Internet records show, Cohig employed several brokers who wound up convicted on fraud charges for fleecing investors who purchased penny stocks. The Denver-based brokerage house later changed its name to Global Capital Securities, the Rocky Mountain News reported, but the firm – which once employed more than 250 stockbrokers across the country – ultimately went out of business in 2002 despite efforts to reinvent itself. (Interestingly, as outlined in more detail below, Maxxon would later set out to reinvent itself with help from a name change as well.)
More recently, in early 2006, the SEC filed charges against Fortress Financial for allegedly bilking investors who sank millions of dollars into private-placement deals. Two years later, the SEC followed up by temporarily banishing the firm’s CEO from the investment industry. By then, the National Association of Securities Dealers had already taken aim at Richmark Capital – yet another past employer of Wheet’s -- for allegedly using “fraudulent tactics” to sell risky penny stocks to the public.
Another apparent RMCP insider worked for one of those firms as well. According to a background report prepared by the Financial Industry Regulatory Authority (FINRA), Bryon Scott Key – who appears to be the same “Scott Key” currently handling investor relations for RMCP – spent two years at Richmark Capital before he was later barred from the industry. Key now operates an outfit known as “Stock Watch Alert,” regulatory filings show, which registered to sell 500,000 shares of RMPC stock just weeks before the big rally began.
Piggy Bank
Together with dozens of other investors, a recent prospectus filing shows, RMCP plans to sell up to 9.18 million shares of company stock – potentially increasing its share count by some 25% -- going forward.
RMCP itself could rank as the biggest seller in that group. The company has arranged to sell Auctus, a firm that specializes in funding deals for microcap companies, millions of shares of discounted stock in exchange for up to $10 million in cash.
With less than $300 left in the bank, regulatory filings show, RMCP clearly needed some money.
“As of March 31, 2010, the company did not have – and continues to not have – sufficient cash to pay present obligations as they become due,” RMCP stated in a regulatory filing last month. “Because we do not currently generate any cash from operations and have no credit facilities available, our only means of funding is through the sale of our common stock.”
Before turning to Auctus, records show, RMCP relied on the Wakabayashi Fund – a firm allegedly run by past targets of securities regulators – to help the company land a financing deal last year. According to a recent article by Reuters, Wakabayashi leaders Jeffery and Janette Stone still owe regulators almost half-a-million dollars for a previous pump-and-dump scheme. Although Jeffery Stone has already landed in prison once for securities fraud, Reuters said, he refuses to pay the 2009 judgment levied against him for allegedly engaging in a second penny-stock scam.
“They’ll have to beat it out of me,” Stone told Reuters this spring from his current base in Tokyo. “We did nothing wrong. We took profits – and I would do it again, for crying out loud.”
Since then, RMCP has chosen Auctus as its new financing partner. To date, filings show, RMCP has registered to sell 4 million shares of stock to Auctus under its funding deal with the firm. However, RMCP has previously estimated that it could wind up selling Auctus a total of 33.3 million shares – which would almost double its existing share count – in order to secure the entire $10 million in funds being offered under that deal. (RMCP’s share count, which shrank to 7.273 million following a reverse split less than four years ago, currently stands at 36.1 million.)
Auctus has inked similar financing agreements with more than a dozen other microcap companies over the course of the past 18 months. Still, RMCP stands out from the pack. While RMCP’s stock fetches almost 70 cents a share – even after its huge plunge – most of the companies financed by Auctus trade for less than a nickel a share if they even trade at all.
Due to its higher share price, RMCP could provide Auctus with more room for sizable returns Under a deal struck this spring, regulatory filings show, RMCP agreed to sell Auctus company stock at 97% of the recent closing price recorded for the shares. If Auctus chooses to resale that stock and pocket its built-in gains, RMCP itself has cautioned, ordinary shareholders – already diluted by a huge slug of newly issued shares – could suffer major losses in the process.
“Auctus has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price,” RMCP admitted in its prospectus filing last month. “If Auctus sells the shares, the price of our common stock could decrease.
“Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales,” RMCP continued. “By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.”
Notably, RMCP indicated that potential dilution – making more shares available to borrow – could fuel short sales of the company’s stock. Since then, however, RMCP has blamed more sinister forces (such as “crazy” rumors) for any spike in the stock’s short interest. Moreover, the company has essentially reversed course by suggesting that short sellers could actually help its stock price instead.
“The short position has grown substantially and has been a significant part of the volume on the way up,” Wheet stated when touting the company in an interview with the Wall Street Reporter earlier this month. “Now, these shorters have become more and more desperate – bringing up all kinds of negative rumors and the like – so, from a technical standpoint, the stock could see a significant short squeeze.”
RMCP announced its questionable government contract – triggering a buying frenzy in the company’s stock – the very next day.
Dress Rehearsal
RMCP has publicized other impressive deals, which never went anywhere, in the past. In November of 2003, RMCP said that it had hired an outfit called Globe Tech Medical to manufacture millions of its safety syringes. One year later, RMCP followed up by announcing that Globe had landed purchase orders – for a total of 6 million syringes – from four unnamed foreign companies.
Shortly after that, the SEC successfully convinced a federal jury that RMCP and its CEO had engaged in securities fraud by misleading investors about its business operations in the past. The company, then known as Maxxon, decided to reinvent itself as RMCP the very next year.
“For the past several years, under prior management, we were involved in various litigation-related matters, all of which have been concluded in a manner satisfactory to the company,” RMCP stated in a regulatory filing in late 2006. “Nevertheless, our board of directors believes that it would be preferable for the company to disassociate itself from these events and to mark the beginning of a new management era by changing our corporate name.”
RMCP resurfaced under its current name in early 2007 and began pursuing a new business strategy. This time, RMCP announced a manufacturing deal with a firm led by Richard Theriault – later described as the company’s own chief technology officer – following a “long, careful review.” RMCP never generated any sales from the previous deals it touted and, shortly after hiring Theriault’s firm (the vaguely named Strategic Product Development), filed a lawsuit against Globe in an effort to sever ties with its previous manufacturer.
Meanwhile, RMCP purchased a company known as Clear Image – where its own executives served as boardroom directors – with ambitious plans to branch out into the lucrative MRI business. Back in 1999, filings show, Clear Image had secured exclusive rights to a color MRI technology from the University of South Florida Research Foundation (USFRF). By 2002, however, USFRF had decided to terminate the agreement because Clear Image had allegedly not used its “best efforts” to pursue the opportunity.
RMCP bought Clear Image five years later, anyway, and continues to tout opportunities in the MRI arena.
“Although the current stage of the company’s technology uses color MRI technology, the company believes that it is sufficiently separate from the technology licensed to it by USFRF to permit it to proceed regardless of the status of the license from USFRF,” the company stated in a regulatory filing earlier this year. “The company believes that its color MRI technology does not rely on the license; however, the legal implications are uncertain.”
Meanwhile, RMCP began chasing a new opportunity in the imaging business. Last year, RMCP obtained the exclusive rights to a breast biopsy localization system – which it secured from Theriault’s firm – and began touting the technology as a major scientific breakthrough. Specifically, RMCP predicted that its new technology could be deployed “in the vast majority of more than 50,000 mammography machines that are currently in use worldwide.”
This month, RMCP turned to Theriault – now operating another vaguely named firm called Medical Investment Group – once again. On Sept. 7, RMCP announced that it had inked a binding five-year agreement with Theriault-led MIG to manufacture 5 million of the company’s safety syringes a month. When doing so, RMCP described MIG as a “Massachusetts limited liability company” with an established presence in the medical device industry.
According to corporate records compiled by the Massachusetts secretary of state, however, no LLC under that name even exists. An LLC carrying that name does show up in RMCP’s home state of South Carolina, but that firm operated as a different company – known as Big Slick Enterprises – until early last year.
Nevertheless, RMCP claims that the mysterious firm will be equipped to ship out millions of its syringes within the next six months. Moreover, the company has suggested that it will satisfy much larger orders for its syringes on down the road.
“Our RevVac syringe is the best safety syringe in the world and will eventually be the replacement of the standard high-quality syringe, in my humble opinion,” Wheet stated in his recent interview with the Wall Street Reporter. “We should be shipping – before the end of the first quarter – our first 5 million syringes, and we are very excited about the demand so far.”
In a regulatory filing issued less than a month before that interview, however, RMCP offered a far more cautious view. Specifically, RMCP stated that “it could be several more years before the company can expect to have sales.”
Royal Treatment
RMCP has treated its insiders well despite the company’s ongoing lack of success.
Several years ago, for example, RMCP awarded Wheet 1 million shares of preferred stock that left him in control of 98.8% of the shareholder votes for the entire company. Wheet owns 4.31 million shares of RMCP’s common stock as well – or 12% of the shares outstanding -- and holds options, with a strike price of just 8 cents, to purchase millions more.
Meanwhile, since 2005, RMCP has raised Wheet’s salary from $150,000 to $225,000 a year despite the company’s lack of sales and limited cash supply. The company also pays $4,500 a month to lease an office from Osprey South, a firm controlled by Wheet, although it does not disclose the arrangement among its related-party deals.
RMCP has rewarded its president, Thomas O’Brien, with a generous compensation package as well. Back in 2003, regulatory filings show, O’Brien served as the CEO of a company called Medical Online. That same year, the SEC cracked down on an outfit known as Pre-IPO Financial Group for allegedly obtaining stock in Medical Online and selling it at higher prices to its own clients. The SEC barred Pre-IPO’s leader, Charles Bayne (also known as Charles Taylor), from future association with any brokers or dealers as a result of his alleged misconduct.
O’Brien later joined forces with Wheet at Clear Image, regulatory filings show, before selling the firm to RMCP and becoming president of the surviving company. Last year, RMCP awarded O’Brien 500,000 shares of preferred stock – allowing him to join Wheet in controlling shareholder votes for the company – and promised him a generous six-figure salary for his services. The company granted O’Brien 2 million stock options, carrying a strike price of 8 cents a share, as well.
Counting Wheet and O’Brien, filings show, RMCP employs a total of three people and has no plans to hire additional workers over the course of the next year. Despite its tiny staff and limited resources, however, RMCP has announced ambitious plans to replace the standard safety syringe and deploy its imaging technology in the vast majority of mammography machines currently in use around the world. For now, however, RMCP has basically made a name for itself by issuing questionable press releases – and triggering huge volatility in its stock – instead.
“We haven’t done that much P.R. work,” Wheet insisted during a Sept. 9 interview with the Wall Street Reporter, which followed a steady string of bullish news announcements. “We have just been minding the store, getting things done fundamentally, and now we are starting to run.
“We started getting the word out there, and I think the stock has just started to move recently. So I do think,” he added presciently, “we are starting to get more eyes on us.”
* Note: No member of TheStreetSweeper’s staff or advisory board has ever taken a financial position in RMCP or received any compensation from others who have positions in the stock. As editor of the site, Melissa Davis will never take a position in any of the stocks that she covers. To contact Ms. Davis, the author of this story, please send an email to editor@thestreetsweeper.org.
