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SEC sues pair of pump and dump penny stock spammers
2007-07-16 13:59 ET - Street Wire
Also Street Wire (C-*BCSC) BC Securities Commission
by Lee M. Webb
The U.S. Securities and Exchange Commission (SEC) is suing a pair of Texas-based securities law recidivists, Darrel T. Uselton and his uncle Jack E. Uselton, for an alleged pump-and-dump scheme involving spamming 13 companies quoted on the wild and wooly pink sheets.
In the lawsuit filed in the U.S. District Court for the Southern District of Texas on July 9, the SEC claims that from May of 2005 through December of 2006 the Useltons obtained cheap stock from at least 13 pink sheet companies and then scalped those shares into an artificial market they created through manipulative trading, direct mailers, Internet-based promotional activities and spam e-mail campaigns.
According to the U.S. regulator, the spamming duo pocketed more than $4.6-million in the serial scalping and market manipulation scheme. (All amounts are in U.S. dollars.)
Neither of the Useltons has yet filed an answer to the SEC complaint and the allegations have not been proven.
The SEC securities fraud case is not the only legal difficulty facing the Useltons.
On the same day the U.S. regulator filed its lawsuit, Texas Attorney General Greg Abbott announced that the pair face criminal charges in connection with their allegedly fraudulent scheme.
A Harris County grand jury indicted 40-year-old Darrel Uselton and 69-year-old Jack Uselton on money laundering and organized criminal activity charges on July 3.
"Investors will not tolerate scam artists who use the Internet to illegally manipulate stock prices," Mr. Abbott declared in a July 9 news release. "Together with several states and the SEC, we have uncovered an elaborate scheme to defraud unwitting investors.
"The Office of the Attorney General will aggressively prosecute market manipulators, spammers and con artists whose illegal schemes defraud unsuspecting citizens."
Investigators from Mr. Abbott's office have seized more than $4.2-million from bank accounts associated with the defendants.
The grand jury indictment was unsealed on July 6 and Darrel Uselton was arrested at his residence without incident on the same day.
Wearing sandals and dressed in shorts and a tee shirt that gave full effect to his rather large belly, the rotund promoter was in his garage when approached by investigators from the attorney general's office. He quickly placed his hands behind his back where his wrists were fitted with metal handcuffs.
Accompanied by four police officers, Mr. Uselton seemingly calmly flip-flopped a short distance down the street to the awaiting state-supplied transportation for the ride to the Harris County jail where he is still being held in lieu of an $8-million bond.
An arrest warrant was issued for Jack Uselton, who turned himself in on July 11. The elder Mr. Uselton is now also a guest at the Harris County jail pending $8-million bail.
Engaging in organized crime and money laundering are first-degree felonies in Texas and carry punishment of five to 99 years in state prison, as well as fines of up to $10,000, upon conviction.
Darrel and Jack Uselton, of course, enjoy the presumption of innocence with respect to the criminal charges.
North and south
The explosive proliferation of e-mail spam touting penny stocks, primarily skunky OTC Bulletin Board and pink sheet promotions, has been of concern to regulators on both sides of the border for some time now.
Canada does not have a national securities regulator, so responsibility for efforts to combat stock spam falls upon the individual provincial and territorial jurisdictions that make up this country's pastiche of regulatory regimes.
Recently, the chairman of the British Columbia Securities Commission (BCSC), Doug Hyndman, has been touting the perceived success of the regulator's SpamWatch initiative, which was launched in May.
As part of the effort to combat spam, the BCSC has issued a few trading halts that last only three days and have absolutely no effect outside of the province.
In a June 25 speech to the Vancouver Board of Trade, however, Mr. Hyndman served up a rather grandiose assessment of SpamWatch.
"To date, we have imposed five halt trading orders, and surprise, surprise, the volume of spam has dropped dramatically," Mr. Hyndman told the Board of Trade listeners. "What this told us is that the people responsible for the spam are well aware that we are now watching and acting."
As noted by Stockwatch, the real surprise for some market followers is that Mr. Hyndman seems to believe, or at least claimed, that the few relatively inconsequential three-day trading halts, which are effective only within B.C. and have no impact on OTC-BB or pink sheet trading, have dramatically reduced the amount of stock-touting e-mail spam.
If there has in fact been a dramatic drop in the amount of spam, it seems likely that the SEC's Operation Spamalot and subsequent investigative actions deserve a significant portion of the credit.
In unveiling Operation Spamalot in March, two months before the BCSC chimed in with its initiative, the SEC immediately suspended trading in 35 companies and has since suspended a number of other spam stocks.
Unlike a provincial three-day BCSC trading halt, when the SEC issues a 10-day suspension the targeted stock does not trade anywhere.
Moreover, it has been clear for some time that the U.S. regulator has been investigating the people behind spam campaigns, something undoubtedly of more concern to spammers than the possibility of falling under the baleful eye of B.C.'s comparatively toothless securities regulator.
The securities fraud suit against the Useltons and the related criminal charges brought by the state of Texas represent at least some of the fruits of the SEC's investigation of stock spamming.
The cast
According to the SEC, stock promoter, former broker and repeat securities violator Darrel Uselton "was the mastermind of the scheme."
The younger Mr. Uselton's previous regulatory woes, resulting in multiple fines, censures and suspensions, trace back to at least early 2004.
In March of 2004, he was sanctioned by the National Association of Securities Dealers (NASD) for violating minimum net capital requirements, failing to provide required financial information and acting as a general securities principal without being registered.
In that action, Darrel Uselton was fined $15,000, suspended from acting as a general securities principal for one year and suspended from association with any NASD member for six months.
(Darrel's brother, Mark Uselton, was also sanctioned in that particular NASD disciplinary proceeding. As it happens, that was not Mark Uselton's first brush with NASD. In 2003, he was fined $7,500 suspended for six months.)
In April of 2005, NASD sanctioned Darrel Uselton again, this time for selling a member firm without seeking prior approval. He was fined $10,000 and suspended for six months.
That evidently marked the end of Darrel Uselton's career as a broker, but he clearly kept his hand in the securities business. According to the U.S. regulator, however, his subsequent participation in the industry was as a serial fraudster.
While the SEC tags Darrel Uselton as being the principal architect of the alleged fraud, the regulator claims that his uncle, Jack Uselton, "was a full partner with his nephew."
Interestingly, Jack Uselton reportedly helped to raise his nephew after Darrel's father died 20 years ago. It is not clear whether that help included teaching Darrel Uselton the ropes regarding the stock business.
In any event, Jack Uselton ran afoul of the SEC for a 1998 pump-and-dump scheme involving Mountain Energy Inc., an OTC-BB promotion that ran from four cents per share to a high of $1.75 per share in a matter of approximately three weeks based on false and misleading press releases and oral misrepresentations made by the elder Mr. Uselton.
While the short-lived pump was under way, insiders dumped millions of unregistered shares on unsuspecting investors before the price collapsed.
As it happens, at least $3.6-million worth of those shares were dumped through controversial Toronto-based brokerage Merit Investment Corp. and its equally troubled successor, now-defunct Rampart Securities.
The SEC suspended trading in Mountain Energy in July of 1998 and the company ceased operations the following month.
In September of 2001, the U.S. regulator filed a securities fraud lawsuit against Jack Uselton and several other Mountain Energy players.
On Oct. 10, 2002, Mr. Uselton settled with the SEC, agreeing to a permanent ban from acting as an officer or director of any public company and consenting to being enjoined from future violations of the anti-fraud provisions of securities laws.
Based on Jack Uselton's sworn financial statements demonstrating that he was essentially broke, the U.S. regulator did not seek a civil penalty.
Apparently the elder Mr. Uselton's financial position improved considerably, though perhaps only temporarily, as a result of his more recent participation in the allegedly fraudulent scheme he ran with his nephew.
According to the U.S. regulator, the Useltons conducted their affairs through a number of Texas-based corporate entities that they controlled.
Among other companies, the defendants controlled Ablaze Technologies Inc., Firemark Capital LLC, IBIS Energy LLC, OTC Services Inc., Protrading.com, the Valores Fund LLC and Warrior Capital LLC.
By a coincidence, Warrior Capital may be familiar to readers following Stockwatch's coverage of another smelly promotion, Conversion Solutions Holdings Corp., headed by semi-literate Georgia promoter Rufus Paul Harris.
As reported in a Nov. 7, 2006, Stockwatch article, Warrior Capital picked up 400,000 unrestricted shares of Conversion for consulting services under a Regulation D exemption on March 5, 2005.
While Conversion has a large contingent of Texas shareholders, it is not clear whether the Useltons managed to acquire any more shares before the promotion orchestrated by Mr. Harris ramped up last year.
In a case unrelated to the action against the Useltons, the SEC filed a securities fraud lawsuit against Conversion and Mr. Harris last October. That case is still working its way through the court.
Among the relevant players in the serial scalping and market manipulation scheme attributed to the Useltons, is "a principal spammer" who remains unidentified in the 31-page SEC complaint.
Presumably the unnamed principal spammer was responsible for operating the "botnets" or proxy bot networks typically comprised of personal computers connected to the Internet that have been infected with malicious viruses or malware that forward the stock spam.
While the SEC does not name the principal spammer in its lawsuit, it is clear that his identity is known to the regulator.
According to the SEC, in return for disseminating massive amounts of spam e-mail touting the penny stocks, the Useltons paid the spammer approximately $1.5-million.
It is likely that the spammer's name will surface at some point during the proceedings.
In order to run a pump-and-dump scheme, of course, the operators must use one or more brokerage accounts to unload their shares.
Darrel and Jack Uselton reportedly controlled more than 30 separate brokerage accounts that were cleared through various firms around the U.S.
Among others, the Useltons controlled accounts at TD Ameritrade; Scottrade Financial Services; Penson Financial Services; Leeb/Pershing Securities; E*Trade Securities; Fidelity Investments; Barron Moore/Computer Clearing Services Inc.; and Basic Investors/NF Clearing Inc.
The SEC does not provide any breakdown of just how many shares the Useltons dumped through each of those brokerage firms, but as is the case with Vancouver firms, say, some brokers are more accommodating than others when it comes to unloading rather large amounts of shares of penny stocks.
By another coincidence, Basic Investors and Computer Clearing Services are probably familiar to readers who followed Stockwatch's extensive coverage of Saskatchewan native Urban Casavant's now-revoked pink sheet woofer, CMKM Diamonds Inc.
Long before the SEC finally revoked CMKM's registration in October of 2005, Mr. Casavant had his company peel off a staggering 703.5 billion shares, many of which were issued to family, friends and business associates.
In the subpenny promotion's heyday, a Basic broker actively touted CMKM and an associated company, U.S. Canadian Minerals Inc., to gullible investors and his firm executed a rather hefty number of CMKM trades.
While perhaps just an unwitting conduit, CMKM's master shareholder list indicates that a whopping 165 billion shares of the pink sheet dog of dogs passed through Computer Clearing Services before the promotion was shut down.
Returning to the Useltons, the SEC claims that their pump-and-dump scheme involved spamming 13 pink sheet stocks.
Those stocks allegedly include Oretech Inc., Intelligent Sports Inc., Advanced Powerline Technologies Inc., Notch Novelty Corp., Avondale Resources Corp., Spooz Inc., ESPRE Solutions Inc., Grifco International Inc., Leatt Corp., Adrenaline Nation Entertainment Inc., Equipment and Systems Engineering Inc., Gulf Petroleum Exchange Inc. and Wentworth Energy Inc.
The scheme
According to the SEC, each of the market manipulations orchestrated by Darrel and Jack Uselton followed a similar pattern, which may be testament to the fact that the spamming scheme was effective.
Typically, after locating a penny stock outfit desperate for cash, the Useltons negotiated to obtain unrestricted shares from the company for little or no money in return for providing purported financing or promotional activities.
Almost immediately, the free trading stock was transferred into various brokerage accounts controlled by Darrel and Jack Uselton.
In the next step, known as "lighting up" a company, the Useltons allegedly created the appearance of an active market through "in and out trading," buying and selling their shares from one account to another at baseless and inflated prices.
With the market primed, the schemers encouraged the pink sheet outfits to issue fluffy press releases and then launched their spam e-mail campaigns using an array of botnets.
"Hundreds of millions of spam e-mails flooded the inboxes of American investors touting the Useltons' near-worthless penny stocks with bases price projections and other grandiose claims," the SEC alleges.
According to the regulator, the Useltons paid their principal spammer a fee based upon a percentage of the gross dollar trading volume of the stock for each day of the spamming campaign.
The SEC says that the principal spammer often subcontracted the actual e-mailing out to spammers in Russia and Israel, sometimes enlisting additional support from spammers in California and Arizona.
The crafty Useltons generally tried to avoid large price spikes during the pump-and-dump spamming campaigns in attempt to avoid drawing the attention of the SEC.
The e-mail spam dragged in gullible investors while Darrel and Jack Uselton dumped their shares through the various entities they controlled.
"Once the e-mail campaigns ended, the small business owners of the penny stock companies were left with the hardship of erasing the negative stigma of being the subject of spam campaigns and several were inundated with angry calls, letters and e-mails," the SEC says.
"The Useltons and their principal spammer simply moved on to spam other companies," the regulator continues. "Meanwhile, investors were left with virtually worthless securities."
The SEC wants the court to order Darrel Uselton and Jack Uselton to provide an accounting and disgorge the ill-gotten gains from their fraudulent scheme.
The regulator is also seeking a civil money penalty and wants the spamming duo effectively booted out of the market for good.
If the Texas attorney general has his way, Darrel and Jack Uselton will be spending a considerable amount of time in prison.
In a following article, Stockwatch will examine the 13 spam campaigns allegedly orchestrated by the Useltons in more detail.
Comments regarding this article may be sent to lwebb@stockwatch.com.
Mark FAULK is not listed in the Internet Off-BROADWAY database.
http://www.lortel.org/LLA_archive/index.cfm?keyword=<font%20color=
He must have meant "high school productions"
Mark FAULK, CEO & President of TOGI Entertainment
Mark FAULK has over 25 years experience in management, as the owner and president of a successful business with a client list that includes the biggest names in the music and film industry, major BROADWAY producers, high-ranking political leaders at all levels, and CEOs of Fortune 500 companies. He has written and produced theatrical productions that have run off-BROADWAY, has an extensive background in music management, and has helped launch the careers of numerous musical artists currently with major record labels.
http://www.theownersgroupinc.com/management.php
Client References & Projects
ARSC - American Securities Resources Corporation
Promoted company and technology to investor group
Filmed investment event for future media streaming on the Internet
Hosted PowerPoint presentation
Due Diligence on investors and companies looking to do business with ARSC
Real time distribution of Press Release and filing events to investment group
Review and comment on future press releases
Host ARSC Due Diligence Report on our Website
DMOI - Diamond I, Incorporated
Promoted company and technology to group of investor group
Real time distribution of Press Release and filing events to investment group
Host DMOI Due Diligence Report on our Website
Play the DMOI Poker Demo
Play the DMOI Slots Demo
Data Flow Technologies Incorporated
Potential investment contact referrals
Investment by The Owners Group, Inc. to pay for creation of technology prototype and daily operations
OGI legal services assisting DFT attorney with necessary legal actions to keep moving forward
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Due Diligence on prospective investors where information obtained helped management to take necessary precautions
Due Diligence on past and present employees and consultants
Marketing Services
Consult and assist in writing license agreement
Consult and assist in strategic marketing to industry players
TopRank Networks Incorporated
Acquired by The Owners Group, Inc. as a subsidiary company to offer in house IT services to company clients.
Web design Services
Hosting Services
Database Services
LAN/WAN/WIFI Networking Services
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NUFCED, there is also a disclaimer for The Owners Group Inc at the bottom of the explosive stock picks web site. http://explosivestockpicks.com/dmoi.htm
click on it. The link does not work.
THe Owners Group inc" disclaimer at the bottom of this web site does not work BTW http://explosivestockpicks.com/dmoi.htm
"THe Owners Group inc" disclaimer at the bottom of this web site does not work BTW http://explosivestockpicks.com/dmoi.htm
"The Owners Group Inc" seal of approval http://explosivestockpicks.com/dmoi.htm
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(b), The Owners Group Inc, has recieved 1,000,000 shares of restricted common stock from American Security Resources Corporation. (ARSC), 2,000,000 of restricted common stock from Diamond I Inc. (DMOI)
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People can sign on to receive news and e-mail updates regarding The Owners Group's picks, currently consisting of two OTC-BB companies that have reportedly passed muster with the venture's "initial due diligence check."
In a boilerplate disclaimer similar to what can be found on other stock touting sites, The Owners Group discloses that it has received one million restricted shares from American Resources Corp. and two million restricted shares from its other pick, Diamond I Inc.
Meanwhile, Mr. Frizzell and the other two members of the CMKM liquidating task force are making some progress with respect to the "cert pull" fax campaign.
A downloadable fax cover sheet and instructions are now available on the task force website and two fax lines are being set up.
The saga continues.
Comments regarding this article may be sent to lwebb@stockwatch.com.
http://www.stockwatch.com/swnet/newsit/newsit_newsit.aspx?bid=B-498344-U:CMKX&symbol=CMKX&ne...
Company Information: ACTIVREPORT INC
602 S BROADWAY AVE
TYLER, TX 75701-1601
Status: IN GOOD STANDING NOT FOR DISSOLUTION OR WITHDRAWAL through October 22, 2007
Registered Agent: BILL FRIZZELL
602 SOUTH BROADWAY
TYLER, TX 75701
Registered Agent Resignation Date:
State of Incorporation: TX
File Number: 0800685016
Charter/COA Date: July 25, 2006
Charter/COA Type: Charter
Taxpayer Number: 32020269125
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602 SOUTH BROADWAY
TYLER , TX 75701
Questions were raised, though, after Fire Mountain Beverage Co., a publicly traded company in Valencia, announced it had received a large order to supply bottled water to a large Southern California grocery chain.
In an interview, Anthony K. Miller, president and chief executive officer, said a wholly-owned subsidiary of Fire Mountain called Mika Agua International had received the order and was bottling the water in Redlands for Stater Bros.
But in a letter dated March 30 to Stater Bros., James D. Huss Jr., identifying himself as the president of Mika Agua International in Redlands, said the company "is not affiliated with Fire Mountain in any way whatsoever," said Jack H. Brown, Stater's chairman and chief executive.
Brown confirmed that the grocery chain's deal was with Huss and Mika Agua in Redlands.
Reached by phone in April, Huss would not comment on the letter or his business deal with Stater Bros.
http://www.pe.com/localnews/sanbernardino/business/PE_Biz_D_mikaagua18.3a8b273.html
Bottler of Stater Bros. water remains a mystery
10:00 PM PDT on Thursday, May 17, 2007
By JOSH BROWN
The Press-Enterprise
Following a Valencia-based company's announcement that it had reached a deal to sell bottled water to Stater Bros. Markets, a Redlands-based bottler cried foul, saying it was the one with the deal.
Just who operates Mika Agua International -- the company selling to Stater Bros. -- is mired in conflicting statements to investors, the media and Stater Bros.
Stater Bros. said it has bought water to sell in its stores from the same Redlands plant for years and still does.
Questions were raised, though, after Fire Mountain Beverage Co., a publicly traded company in Valencia, announced it had received a large order to supply bottled water to a large Southern California grocery chain.
In an interview, Anthony K. Miller, president and chief executive officer, said a wholly-owned subsidiary of Fire Mountain called Mika Agua International had received the order and was bottling the water in Redlands for Stater Bros.
But in a letter dated March 30 to Stater Bros., James D. Huss Jr., identifying himself as the president of Mika Agua International in Redlands, said the company "is not affiliated with Fire Mountain in any way whatsoever," said Jack H. Brown, Stater's chairman and chief executive.
Brown confirmed that the grocery chain's deal was with Huss and Mika Agua in Redlands.
Reached by phone in April, Huss would not comment on the letter or his business deal with Stater Bros.
Huss also wouldn't comment on the nature of the relationship between Fire Mountain and Mika Agua, but said the relationship was "not too complicated."
Huss asked that further questions be submitted in writing, but after five weeks he has not responded.
Donald C. Key, a manager at Mika Agua in Redlands, said the letter sent to Stater Bros. was the company's official position.
Miller in February incorporated the name Mika Agua International with the state of California, but as early as April 2002 Huss registered Mika Agua with San Bernardino County as a fictitious business name.
Dennis McIntyre, Stater Bros. vice president of marketing, said Miller in April denied saying that company's water-bottling deal was with Stater Bros.
When reached by phone in April, Miller said he was not surprised that Stater Bros. didn't know who owned Mika Agua. He did not return calls for comment on this report.
Reach Josh Brown at 909-806-3074 or jbrown@PE.com
Mark Faulk's "The Owners Group inc." through their Activreport division profiles another pink sheet penny stock gem.
Subj: New Report Available!
Date: 7/16/2007 11:01:03 A.M. Eastern Daylight Time
From: info@activreport.com
To: xxxxxxxxxxxxxxxxx
Sent from the Internet (Details)
A New Activreport Specialty Report for Fire Mountain Beverage is Now Available!
Check it out at: http://www.activreport.com/members.php
We just thought you might like to know,
The ActivReport Management
If you are experiencing problems registering for our site, please send an email to info@activreport.com or call us at 903-595-4249.
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People can sign on to receive news and e-mail updates regarding The Owners Group's picks, currently consisting of two OTC-BB companies that have reportedly passed muster with the venture's "initial due diligence check."
In a boilerplate disclaimer similar to what can be found on other stock touting sites, The Owners Group discloses that it has received one million restricted shares from American Resources Corp. and two million restricted shares from its other pick, Diamond I Inc.
Meanwhile, Mr. Frizzell and the other two members of the CMKM liquidating task force are making some progress with respect to the "cert pull" fax campaign.
A downloadable fax cover sheet and instructions are now available on the task force website and two fax lines are being set up.
The saga continues.
Comments regarding this article may be sent to lwebb@stockwatch.com.
http://www.stockwatch.com/swnet/newsit/newsit_newsit.aspx?bid=B-498344-U:CMKX&symbol=CMKX&ne...
I am sure Frizzel, Faulk and Martin can explain to the devotes why The Owners Group Inc. where paid in shares penny stock promoters.
It because penny stock promters get the pump and dump seal of approval.
http://explosivestockpicks.com/dmoi.htm
A noval idea
re: Darrel T. Uselton/Owners Group, Inc
http://www.sec.gov/Archives/edgar/data/1085069/000137219806000087/form10ksba.htm
On September 8 and 27, 2005 the Company issued 60,000 shares and 40,000 shares to B&B Marketing Communications, pursuant to a consulting services agreement. Also on September 27, the Company issued 1,000,000 shares to the Owners Group, Inc. pursuant to a Consulting Services Agreement.
On December 8 and 12, 2005, pursuant to a consulting services agreement with OTC Services, Inc., the Company issued 1,400,000 shares to OTC Services, Inc. and 1,400,000 shares to Darrel T. Uselton.
AMERICAN SECURITY RESOURCES CORPORATION 10KSB/A 1 form10ksba.htm FORM 10K SBA
Diamond I, Inc.
(DMOI is a fully reporting OTCBB stock)
has passed The Owners Group Inc. initial due diligence Check!
http://explosivestockpicks.com/dmoi.htm
"In other news, Joe Grace, President of ARSC, announced that The Owners' Group Inc. has picked up coverage of ARSC after a thorough due diligence review. The Owners' Group Inc."
http://216.239.51.104/search?q=cache:UctVFyuc9YsJ:www.fuelcellsworks.com/Supppage3689.html+%22The+Ow...
Patent Attorneys Approve ARSC Fuel Cell Acquisition
Publication Date:13-October-2005
11:20 AM US Eastern Timezone
Source:FuelCellWorks
HOUSTON-- American Security Resources Corp. (ARSC) announced today that its patent and trademark counsel, Ms. Wendy Buskop, of the Buskop Law Group (www.buskoplaw.com), after reviewing the patent claims of EGO Design, had recommended that ARSC complete its contemplated fuel cell technology transaction with the privately held firm.
ARSC has created a wholly owned subsidiary, Hydra Fuel Cell Corporation, to develop, manufacture and license the exclusive rights to the Hydra hydrogen fuel cell which it is acquiring from EGO Design. ARSC expects to close the transaction this month.
In other news, Joe Grace, President of ARSC, announced that The Owners' Group Inc. has picked up coverage of ARSC after a thorough due diligence review. The Owners' Group Inc. (www.theownersgroupinc.com) is a shareholders' advocacy group which selects companies that meet its standards for "Honesty, Integrity and Transparency" and helps them achieve their development goals with PR to existing and potential shareholders. "We're happy to be on the same team," said Grace.
About American Security Resources Corporation
American Security Resources Corporation is a holding company actively seeking to acquire companies which have products or services for homeland defense and national security. The company is in active discussions to acquire several companies.
For more information please see: www.americansecurityresources.com
DISCLAIMER from The Owners Group Inc site
(b), The Owners Group Inc, has recieved 1,000,000 shares of restricted common stock from American Security Resources Corporation. (ARSC), 2,000,000 of restricted common stock from Diamond I Inc. (DMOI)
So are the ActivReport(s), which are touted as 'the most rigorous Due Diligence in the Industry', on companies that issue shares to The Owners Group?? If so has anyone seen copies of their Due Diligence Reports on ARSC and DMOI? If there is a Due Diligence Report on DMOI what information from SEC filings is included in report?
And since I'm always interested in improving on ways to check out thinly traded stocks, does anyone know how these folks went from being CMKM investors to forming a company that 'just wanted assurance that they and others could invest money without fear of fraud or scam' and 'which is almost like an oasis out there for people to be involved in without worry and fear of scam.' (NOTE: Quoted material from article posted by Monkey). Of course this all begs the question -- can such ambitions even be realized when it comes to highly risky thinly traded stocks??
Diamond I/Inc - 10KSB - For 12/31/05
4.
(a)
Securities Sold. In October 2005, 2,000,000 shares of our common stock were issued.
(b)
Underwriter or Other Purchasers. These shares of common stock were issued to The Owners Group, Inc.
(c)
Consideration. These shares of common stock were issued in payment of consulting services and were valued at $.037 per share, the closing price of our common stock, as reported by the OTC Bulletin Board, on the date immediately preceding their issue, an aggregate value of $74,000.
(d)
Exemption from Registration Claimed. These securities are exempt from registration under the Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving a public offering. This purchaser was a sophisticated investor capable of evaluating an investment in the company.
http://alabamaagainstfraud.com/phpBB/viewtopic.php?t=854&view=next&sid=399d8e7cbed90bf439b3a...
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"Mr. Frizzell obtained the data for delivery failures in CMKM for April of 2005. Setting aside the observation that not all delivery failures represent naked short sales, the information provided to Mr. Frizzell shows that the failures in CMKM were insignificant and transient."
"Indeed, the delivery failures topped out at approximately 186 million shares on April 22, 2005, a trifling amount for a company with 703.5 billion shares outstanding. Moreover, even that insignificant number of fails was settled a few days later. At the end of the month the delivery failures amounted to only approximately 3.1 million shares worth a picayune $300.
"In any event, the vaunted task force perpetuated the fantasy about a massive naked short position, to the evident delight of many of CMKM's loyal followers."
========================================================
CMKM Diamonds makes the big time in NYT article
2006-10-04 10:55 ET - Street Wire
by Lee M. WEBB
CMKM Diamonds Inc., Saskatchewan native Urban Casavant's revoked pink sheet woofer, has made the big time, if that can be measured by an unflattering article in The New York Times and an equally biting follow-up blog entry by chief financial correspondent Floyd Norris.
The hook for Mr. Norris's Sept. 29 New York Times column was a National Association of Securities Dealers (NASD) enforcement action against Nevada-based NevWest Securities Corp. and its two senior officers, president Sergey Rumyantsev and vice-president Antony M. Santos.
As previously reported by STOCKWATCH, the NASD complaint alleges that the respondents violated anti-money laundering rules, failed to file suspicious activity reports with the U.S. Treasury Department's Financial Crimes Enforcement Network and basically looked the other way as a client with 32 accounts dumped a staggering 259 billion shares of CMKM for proceeds of $53-million. (All amounts are in U.S. dollars.)
The respondents have not yet filed a response to the complaint and no findings have been made regarding the allegations.
The NevWest client, identified only by the initials "JE" in the complaint is actually John Edwards, who is not a party to the NASD action.
As part of his column headlined "Selling Shares by the Billions to Racing Fans," Mr. Norris sketched some of the background of the wild CMKM sub-penny promotion.
The column
"Was this stock being traded by crooks?" Mr. Norris asks in his opening. "Should the brokers have noticed?
"How about the regulators, who now charge that the brokers missed 'red flags' but may have missed a few themselves."
According to Mr. Norris, who does not identify Mr. Edwards in his column, the NevWest client unloaded the vast majority of his 259 billion CMKM shares "before the company had bothered to let investors know so many shares existed."
In fact, while not mentioned by Mr. Norris, Mr. Casavant did what he could to keep investors in the dark about the massive dilution, including gagging the company's transfer agent.
Moreover, while he was peeling off hundreds of billions of shares that ended up in the hands of family, friends and business associates as well as his own, Mr. Casavant had his investor relations lackey Melvin O'Neil spread the word to the company's cult-like following that, far from diluting the company, he was retiring shares.
Much to the dismay and even continued disbelief among some of the CMKM fanatics, by the time the printing press was turned off there were an incredible 703.5 billion shares issued and outstanding.
Touching on CMKM's purported business, Mr. Norris goes on to say that CMKM claimed to be in the diamond business in Canada.
In fact, CMKM did scoop up some moose pasture in Saskatchewan and, along with a couple of Canadian joint venture partners, did manage to poke a few holes into the previously discovered and abandoned Smeaton kimberlite. That provided some promotional mileage.
CMKM's limited exploration also included drilling a hole at the Smeaton town dump, which at least provided a few laughs in the absence of any toutable results.
According to Mr. Norris, while the company could not come up with the money to work its claims, "it did spend $4 million to promote itself at 'funny car' races by sponsoring the CMKXtreme car, which had a drawing of a diamond and a miner on its side."
Given that CMKM has not filed any financial statements, the $4-million may be a best guess based on the letter of an auditor who was fired after reporting that he had uncovered possible criminal activities at the company.
Among other things, ousted auditor Brad Beckstead disclosed to CMKM and subsequently the SEC a possibly illegal transfer of $4-million to CMKXtreme Inc., a company controlled by Mr. Casavant.
In any event, CMKM at one time sponsored two funny cars, including one with a caricature of what appeared to be a construction worker wielding a jackhammer on some substance from which fully cut diamonds bounced into the air. CMKM also sponsored a speed truck and a motorcycle as part of its racy promotion.
As noted by Mr. Norris, the U.S. Securities and Exchange Commission (SEC) finally pulled the plug on CMKM. However, the revocation did not become final until Oct. 28, 2005, more than seven months after the regulator filed its administration proceeding against Mr. Casavant's dog of dogs and long after hundreds of billions of shares had been dumped on gullible investors.
After sketching the NASD complaint against NevWest and its two officers, Mr. Norris offers some final thoughts.
"What does all this prove?" Mr. Norris asks nearing the end of his column. "It may indicate that the Patriot Act gives regulators an unexpected tool to force brokers to tell the government when they see funny business. It may also reflect the fact that regulators do not even look at many filings.
"And it shows that this can go on and on. CMKM has reached a deal to sell what assets it has to Entourage Mining, a penny stock company based in Vancouver, British Columbia, which will pay with shares that will be distributed to CMKM holders."
Indeed, in a peculiar deal announced last year as CMKM dropped its appeal of the SEC ruling, paving the way for the regulator to finalize the revocation order last October, Entourage issued 45 million shares to the pink sheet promotion for some Saskatchewan claims under the control of Mr. Casavant's business associate Emerson Koch.
Entourage, which changes hands for less than 30 cents per share in light trading on the OTC Bulletin Board, has seen the majority of the claims acquired in the deal with CMKM expire, many of them before the 45 million shares were even issued.
"Looks like a hot stock to me," Mr. Norris remarks at the end of his column.
It remains to be seen whether the 45 million shares of that "hot stock" are eventually distributed to CMKM's shareholders.
In a rare SEC filing on Oct. 24, 2005, CMKM disclosed that it was in default on all of its mineral property agreements, did not have the money to continue operations and would be winding up its affairs.
As part of the winding up, the company announced that the 45 million Entourage shares would be distributed to CMKM shareholders.
To effect the liquidating distribution, CMKM struck a "task force" consisting of the company's former trophy co-chairman, 87-year-old Robert Maheu, corporate counsel Donald Stoecklein and Texas lawyer Bill Frizzell.
As previously reported by STOCKWATCH, Mr. Frizzell, a CMKM shareholder, represented about 5,000 other shareholders who anted up $25 each for his services during the administrative proceeding against the company.
Mr. Frizzell was among the company's cult-like followers convinced that the massively diluted pink sheet woofer's woes could be largely attributed to naked short selling.
The vaunted CMKM task force insisted that shareholders take physical delivery of their shares and fax copies to Mr. Frizzell's office in order to qualify for the Entourage distribution.
While the certificate pull was ostensibly instituted as part of the "orderly and verifiable pro rata liquidating distribution" of Entourage shares, the cockamamie scheme was underpinned by the belief that it would disclose a huge short position in CMKM.
Indeed, the task force, effectively spearheaded by Mr. Frizzell, proclaimed on its website that it had "credible information" indicating that there was a potential short position of two trillion shares.
As previously reported by STOCKWATCH, a review of CMKM's trading data debunks the incredible claim of a potential short position of two trillion shares.
From the time Mr. Casavant took control of CMKM in November of 2002 until the SEC yanked the company's stock registration in October of 2005, approximately 1.77 trillion CMKM shares changed hands.
It should be clear to most people that it is impossible to have a short position of two trillion shares when only 1.77 trillion shares have traded.
Interestingly, the impossible notion of a possible naked short position of two trillion shares was also DEBUNKED by information regarding delivery failures that was provided to Mr. Frizzell by the SEC.
Mr. Frizzell obtained the data for delivery failures in CMKM for April of 2005. Setting aside the observation that not all delivery failures represent naked short sales, the information provided to Mr. Frizzell shows that the failures in CMKM were insignificant and transient.
Indeed, the delivery failures topped out at approximately 186 million shares on April 22, 2005, a trifling amount for a company with 703.5 billion shares outstanding. Moreover, even that insignificant number of fails was settled a few days later. At the end of the month the delivery failures amounted to only approximately 3.1 million shares worth a picayune $300.
In any event, the vaunted task force perpetuated the fantasy about a massive naked short position, to the evident delight of many of CMKM's loyal followers.
Alas, the "cert pull" further DEBUNKED the notion of a massive naked short position and, as the scheme was winding down, Mr. Frizzell removed the claim about a potential short position of two trillion shares from the task force website.
The cert pull kicked off in November of 2005 and officially ended on May 15 of this year. According to the task force website, 39,648 CMKM shareholders faxed copies of their share certificates.
While that it is certainly a remarkable achievement, those certificates represented only approximately 633.3 billion shares, according to the task force's tally. That is approximately 70 billion shares less than CMKM's 703.5 billion issued and outstanding shares.
The ballyhooed task force officially dissolved on June 6, but the liquidating distribution of Entourage shares still has not taken place.
Reportedly, the task force recommended that CMKM proceed with an interpleader action in a U.S. District Court. In effect, CMKM would hand the 45 million Entourage shares over to the court and let a judge decide who has a legitimate claim to them and how they should be divided up.
So far, CMKM has not taken up the task force's recommendation and the liquidating distribution remains in limbo.
Meanwhile, some of CMKM's shrinking band of cult-like followers still believe that there is a massive naked short position in the revoked pink sheet dog of dogs.
Apparently some of the CMKM fanatics decided to set Mr. Norris straight on the matter.
Mr. Norris responded with what was essentially another article on his New York Times blog.
The blog
Evidently a quick study, by the time Mr. Norris posted his blog article on the evening of Sept. 29, he had identified Mr. Edwards as the NevWest client who dumped 259 billion CMKM shares for proceeds of $53-million.
"According to the NASD, many of the shares sold by J.E. had been registered in the name of the stock transfer agent used by the company, a rather unusual procedure," Mr. Norris wrote.
In fact, the NASD alleges that from August of 2004 and continuing into 2005, Mr. Edwards began depositing CMKM certificates in the name of NevWest's clearing firm, not the company's stock transfer agent.
As it happens, during that period, NevWest used Computer Clearing Services Inc. as its clearing agent.
A review of information from the master shareholders list as of Dec. 31, 2004, reveals that approximately 165 billion shares were issued in the name of Computer Clearing Services.
Interestingly, Computer Clearing Services routed almost all of its non-directed trades through subsidiaries of Knight Trading Group Inc., now known as Knight Capital Group.
During CMKM's racy promotion as billions of shares regularly traded on a daily basis, many of the company's cultish followers were stridently claiming that Knight was one of the firms shorting the stock. Of course, there was no evidence to back up the shorting claims.
Some of CMKM's loyal fans took the purported shorting issue up with Mr. Norris, who was clearly surprised at the choice of concerns.
In his blog article, Mr. Norris notes that Mr. Casavant invoked his Fifth Amendment right not to incriminate himself and refused to testify at the SEC administrative hearing in May of 2005.
He also notes that Mr. Maheu, then the company's touted co-chairman, knew nothing about CMKM's financial condition and had never even visited the company's office.
"So who are shareholders mad at?" Mr. Norris asks. "The management? The man who sold more than a third of the shares outstanding without ever filing a form saying he owned more than 5 percent, and who may have been an insider?
"The S.E.C. for letting this go on for a couple of years before revoking the company's registration, or for having not yet brought any charges against J.E. for selling them shares that may well be worthless?
"No, not any of them.
"A few shareholders who contacted me today were furious about my column because it failed to identify the real villains, as they saw it -- the naked short sellers who they say sold the shares without borrowing them."
Rounding out his blog entry, Mr. Norris reproduced a bit of correspondence from one of the CMKM "get shorty" fanatics.
"What possibly could be the reason you wrote about a worthless little pennystock CMKM Diamonds..and placed it on the first page of the NY Times business section," the writer wanted to know.
"Could it possibly be that the company has just about implicated every major brokerage firms in the country in the systematic rape of the American people due to the insidious practice of NAKED SHORT SELLING...COUNTERFEITING," the fantasizing correspondent continued.
"Your boss's (sic) on Wall Street will have to do some heavy spin on this one Floyd," the writer added.
Mr. Norris's blog response clearly did not satisfy some of the company's faithful followers.
"I will guilt this SOB into action!" an Internet poster identified as Jim Farn declared, pasting a copy of another message to Mr. Norris.
"You might be interested to know that Harvey Pitt would be disappointed that you have chosen to focus your efforts on 259 billion shares and John Edwards," Mr. Farn wrote.
It is not clear why the posited disappointment of Mr. Pitt, who was essentially forced out as SEC chairman in November of 2002 after only a 15-month stint, might be of any interest at all to Mr. Norris.
"IMO this is a naked short selling sting led by Mr. Bob Maheu," Mr. Farn continued. "You focussed on some questionable aspects of this story. I respectfully ask you to do some digging with regards to Maheu and 'forced communication'. You might find some similarity with Hughes planes and Casavants cars.
"You are grossly underestimating what you are discussing.
"As a Times subscriber and avid fan, I expect more and I simply do not understand your simplistic analysis and angle."
Ah, yes; welcome to the wild and woolly world of CMKM and its remaining gullible cult-like followers, Mr. Norris.
Meanwhile, CMKM has a new "interim" chief executive officer, Kevin West, who was appointed on Sept. 19. Mr. West, who has been a CMKM shareholder for a long time, worked on the certificate pull scheme initiated by the vaunted CMKM task force.
Mr. West also served as vice-president of The Owners Group Inc., a budding stock touting service that grew out of Mr. Frizzell's representation of CMKM shareholders during the SEC administrative proceeding against the company.
CMKM's new interim chief executive officer has been an ardent crusader against naked short selling, as he understands it.
Among other things, Mr. West circulated a letter written to U.S. President George Bush, SEC chairman William Donaldson and others in which he natters about collusion between the Depository Trust and Clearing Corp. and the SEC regarding short selling and suggests that journalists are paid to deceive people "into believing that there is no corruption."
"There are literally tens of thousands of average Americans who are now aware of the SEC's complicity in the sordid tale of abusive and illegal naked shorting," Mr. West wrote. "The DTCC 'earns' hundreds of millions of dollars annually by facilitating this violation of the small investor, and moreover we know the SEC gets a 'commission' on every violation."
Mr. West, who did a fair amount of Internet touting of CMKM, also once served up a "conservative" valuation of the company, pegging it at a modest $64-billion and suggesting that it could realistically be worth many times that amount.
CMKM's new leader also offered a rather interesting assessment of Mr. Casavant in a message to so-called bashers as the promotion was stumbling in October of 2004.
"No matter what you believe, Urban Casavant is a Godly man and God is using him to re-distribute the wealth on this earth," Mr. West wrote. "If you are one that try (sic) to mess with this plan, may God have mercy on your soul."
Since his appointment as interim chief executive officer, Mr. West has asked CMKM shareholders to help out with prayers.
The silly saga continues.
Comments regarding this article may be sent to lWEBB@STOCKWATCH.com.
(Further information regarding CMKM Diamonds and associated companies can be found in STOCKWATCH articles dated Oct. 21, 2003; June 22; Sept. 16 and 24; Oct. 1, 15 and 20, 2004; Feb. 11, 14, 18, 22 and 23; March 1, 3, 4, 7, 14, 15, 16 and 21; June 6, 8, 9, 10, 13, 14, 15, 16, 17, 20, 21, 22, 29 and 30; July 1, 4, 6, 12 and 13; Aug. 2, 5 and 9; Sept. 7, 12, 27 and 30; Oct. 24, 26 and 31; Nov. 7, 11, 22 and 25; Dec. 1, 6, 9, 15 and 22, 2005; Jan. 3; and Sept. 29, 2006.)
Michael Manahan http://www.sec.gov/litigation/litreleases/lr18712.htm
CONTACT: PracticeXpert, Inc.
Investor Relations
Michael Manahan, CFO
800-661-9984
mike@pxservices.com
Mohajer, Philpy & Hiles
Product and Trade Relations
Mike Hiles
310-234-3200
mhiles@mphpr.com
PracticeXpert Engages Investment Banking Firm
Distribution Source : Prime Newswire
Date : Thursday, November 13, 2003
LOS ANGELES, Nov. 13, 2003 (PRIMEZONE) -- PracticeXpert, Inc. (OTCBB:PXPT), today announced that it has entered into an agreement to engage the services of NevWest Securities Corporation.
NevWest Securities Corporation ("NevWest") owns and operates the only NASD-Member securities brokerage, trading, and investment-banking firm headquartered in Southern Nevada. NevWest is a full service, introducing broker-dealer and investment banker servicing the individual, institutional, and corporate client and investor. NevWest is registered as a broker-dealer and market maker with the Securities and Exchange Commission ("SEC"), State of Nevada Securities Division, approximately eleven (11) other states, and the National Association of Securities Dealers, Inc. ("NASD"). NevWest is also a member of the Securities Investor Protection Corporation ("SIPC"). For additional information visit www.nevwestsecurities.com.
Jonathan Doctor, chief executive officer of PracticeXpert, Inc. stated, "As we move forward with our strategy to acquire billing companies it is important to us that we have a financial partner that can assist us in addressing the capital needs of an organization that while still small, has an aggressive growth perspective. We believe that NevWest is just such a company and we are very pleased that they have chosen to assist us in executing on our plans. We are currently working on numerous acquisition opportunities, and while we anticipate we will be closing on a couple of these acquisitions in the near term, we will definitely need a partner capable of assisting us in raising capital to acquire all of the acquisitions we currently have in our pipeline."
About PracticeXpert, Inc.
PracticeXpert, Inc., a healthcare technology and services company, is in the business of developing and deploying systems, technologies and services designed to improve operational efficiencies, reduce billing errors and enhance cash flow for medical practitioners. Its services revolve around its flagship patent-pending hand-held patient encounter system, PXpert(tm), and include medical billing, collections, transcription, clinical trial accruals, contracting and practice management. To find out more about PracticeXpert, Inc. (OTCBB:PXPT), visit our website at www.practicexpert.com.
Note: Any statements released by PracticeXpert, Inc. that are forward- looking, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. Editors and investors are cautioned that forward-looking statements invoke risk and uncertainties that may affect the Company's business prospects and performances. These include economic, competitive, governmental, technological and other factors discussed in the statements and in the Company's filings with the Securities and Exchange Commission.
CONTACT: PracticeXpert, Inc.
Investor Relations
Michael Manahan, CFO
800-661-9984
mike@pxservices.com
Mohajer, Philpy & Hiles
Product and Trade Relations
Mike Hiles
310-234-3200
mhiles@mphpr.com
Puppy, that is very interesting read. Have you heard of PracticeXpert, Inc.?
There is a whole thread on SI which is very documented
PracticeXpert, Inc. :PXPT PREVIOUSLY BOILER ROOM
http://siliconinvestor.advfn.com/subject.aspx?subjectid=55061
Yes, that was REMC
Former Oil CEO Indicted in Stock Scheme
By JUAN A. LOZANO 07.13.07, 6:55 PM ET
HOUSTON - The former chief executive of a now defunct Houston-based oil and gas company has been indicted on charges he devised a scheme to inflate the price and trading volume of his company's stock, federal prosecutors said Friday.
John N. Ehrman, 52, the former CEO of Rocky Mountain Energy Corp. is charged in a 13-count indictment with securities fraud and making false filings to the Securities and Exchange Commission.
Ehrman, of the Houston suburb The Woodlands, was arrested by FBI agents Friday morning and made his initial court appearance later in the day. His bond was set at $100,000.
His attorney, Donald Petrillo, declined to comment on the charges.
According to the indictment, Ehrman is accused of 10 counts of securities fraud for devising a scheme to inflate the price and trading volume of Rocky Mountain stock. He planned to profit by selling and directing others to sell and transfer shares issued under an obscure exemption to the registration provisions of federal securities laws, the indictment claims.
In the scheme, Ehrman allegedly signed separate agreements on behalf of Rocky Mountain to acquire small privately held oil and gas companies, or parts of the companies, in exchange for Rocky Mountain stock.
A Utah court issued orders finding that Rocky Mountain's plans to issue and exchange shares were fair to shareholders and owners of the acquired companies and did not constitute a public securities offering by Rocky Mountain.
The indictment alleges Ehrman caused Rocky Mountain to issue more than 46 million shares that had not been registered with the SEC. As part of the scheme, Ehrman caused Rocky Mountain to make false and misleading statements to the investing public, according to the indictment.
Ehrman allegedly received about $500,000 in proceeds from sales of Rocky Mountain shares during the scheme, which the indictment says took place between June 1, 2002 and April 3, 2003.
Ehrman also allegedly caused Rocky Mountain to not disclose to the public that the company issued tens of millions of shares of stock, which diluted the value of shares held by investors. Investors allegedly lost approximately $1.1 million during the scheme.
Ehrman is also accused of three counts of making false and misleading statements in reports and documents filed with the SEC.
He faces up to 20 years in prison and a fine of up to $5 million if convicted.
Ehrman's indictment comes after the SEC prevailed in a civil complaint it had filed in 2003 against Rocky Mountain Energy and several company officials for false and misleading statements they made regarding the company's business and its operations.
As part of the civil complaint, Rocky Mountain Energy terminated all business operations and had all of its corporate assets liquidated so that shareholders who had lost money in the scheme could be compensated, according to court records.
Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed
"at last an example of the "phantom shares" so many pennystock "investors" moan about."
Message Boards | Five Dollars and Under : TFRY (was FRYA) Tasty Fries, Inc. -- Ignore is Off
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To: yardslave who wrote (2338) 4/17/2005 5:25:59 PM
From: Janice Shell Read Replies (3) of 2396
lol, at last an example of the "phantom shares" so many pennystock "investors" moan about.
SEC Files Settled Charges Against Tasty Fries, Inc. and Its President And Chief Executive Officer, Edward Kelly, For Fraud, Unregistered Sales of Securities, And Reporting, Record Keeping, and Internal Controls Violations
Tasty Fries' Former Operations Manager and Counsel, Louis Kelly, Also Settles Charges Relating to The Unregistered Sales of Securities
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20194 / July 12, 2007
Securities and Exchange Commission v. Tasty Fries, Inc., Edward C. Kelly and Louis M. Kelly, Civil Action No. 07-CV-2857(E.D. Pa.)
SEC Files Settled Charges Against Tasty Fries, Inc. and Its President And Chief Executive Officer, Edward Kelly, For Fraud, Unregistered Sales of Securities, And Reporting, Record Keeping, and Internal Controls Violations
Tasty Fries' Former Operations Manager and Counsel, Louis Kelly, Also Settles Charges Relating to The Unregistered Sales of Securities
On July 12, 2007, the Securities and Exchange Commission (Commission) filed a complaint against Tasty Fries, Inc. (Tasty Fries), located in Blue Bell, Pennsylvania, and its President and Chief Executive Officer, Edward C. Kelly, in the United States District Court for the Eastern District of Pennsylvania alleging that they unlawfully: issued Tasty Fries stock without proper authorization; issued and filed with the Commission false and misleading financial statements; made false and misleading statements in press releases and Commission filings; and, together with Edward Kelly's son, Louis M. Kelly, engaged in the unregistered sale of Tasty Fries securities. Tasty Fries, aided and abetted by Edward Kelly, also committed reporting, record keeping and internal control violations.
The Commission's complaint alleges that between 2001 and 2005, Edward Kelly, on four occasions, improperly attempted to increase the number of authorized shares of Tasty Fries stock. As a result, since 2001, the company issued over 78 million more shares of common stock than its articles of incorporation authorized, and incorrectly accounted for its issuances of common stock in its financial statements. Since January 2002, all of the company's financial statements filed with its annual and periodic reports are materially misstated. The complaint further alleges that between 2002 and 2004, Tasty Fries and Edward Kelly also made materially false and misleading statements in press releases and in Commission filings relating to the development and production status of a French fry vending machine that Tasty Fries was developing. Edward Kelly improperly profited by $32,925 from such statements as the result of improper trading in Tasty Fries stock. The complaint alleges that this conduct violated Section 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder.
The Commission's complaint also alleges that Tasty Fries, Edward Kelly, and Louis Kelly engaged in improper unregistered offers and sales of Tasty Fries common stock by compensating advisors and consultants with common stock in sales that the company did not effectively register. Tasty Fries used this stock to pay consultants and advisors who either did not provide bona fide services to Tasty Fries or provided promotional and investor relations services. In three such instances, Louis Kelly, an attorney licensed in Pennsylvania, authored the legal opinions that the company filed with its ineffective registration statements. The complaint further alleges that Tasty Fries and Edward Kelly also engaged in improper unregistered sales of Tasty Fries common stock by engaging in so-called "gypsy swaps" in which they arranged for shareholders to sell purportedly nonrestricted Tasty Fries stock to others, in exchange for which Tasty Fries ultimately received all or some of the stock purchase price, and the selling shareholders received from the company new restricted shares, which sometimes included extra bonus shares provided as an inducement for the shareholders to sell their purportedly nonrestricted stock. The complaint alleges that this conduct violated Sections 5(a) and 5(c) of the Securities Act.
The Commission's complaint further alleges that Tasty Fries, aided and abetted by Edward Kelly, has failed to make filings with the Commission of required annual, quarterly and current reports; to make and keep books, records, and accounts that accurately and fairly reflect Tasty Fries' transactions and dispositions of Tasty Fries' assets; and to devise and maintain an adequate system of internal accounting controls. As a result, Tasty Fries, aided and abetted by Edward Kelly, violated Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 15d-1, 15d-11, 15d-13, and 12b-20, promulgated thereunder. The complaint further alleges that Edward Kelly violated Rule 15d-14 under the Exchange Act by filing certifications of Tasty Fries' required Commission filings that contained false or misleading statements and did not satisfy the Rule's requirements.
Without admitting or denying the allegations in the complaint, Tasty Fries consented to the entry of a final judgment, subject to the court's approval, in which it is permanently enjoined from further violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 10b-5, 12b-20, 15d-1, 15d-11, and 15d-13 thereunder. Without admitting or denying the allegations in the complaint, Edward Kelly consented to the entry of a final judgment, subject to the court's approval, in which he is: (i) permanently enjoined from further violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5 and 15d-14 thereunder, and from aiding and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, 15d-11, and 15d-13 thereunder; (ii) barred from acting as an officer or director of a public company; (iii) ordered to pay disgorgement of his trading profits, plus prejudgment interest, totaling $39,245; and (iv) ordered to tender 3,115,165 shares of Tasty Fries stock for cancellation. Without admitting or denying the allegations of the complaint, Louis Kelly consented to the entry of a final judgment, subject to the court's approval, in which he: (i) is permanently enjoined from further violations of Sections 5(a) and 5(c) of the Securities Act; and (ii) ordered to pay a civil penalty of $19,500.
http://www.sec.gov/litigation/litreleases/2007/lr20194.htm
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Home | Previous Page Modified: 07/12/2007
David Patch also uses the alias GETCLONG on ragingbull. He had other alias's but according to Patch he had to keep signing up on ragingbull under diferent alais's because "Bashers" where reporting him for TOS violations.
Here is David Patch's touting of USXP on ragingbull
http://ragingbull.quote.com/mboard/memalias.cgi?board=USXP&member=getclong
also a post showing he was once long USXP
Patch was only "out to make a quick buck or 2"
USXP Message list | Reply to msg. | Post new msg. « Older | Newer »
By: getclong
04 May 2007, 08:07 AM EDT
Msg. 517585 of 526096
(This msg. is a reply to 517584 by redtopbill539fl6.)
Jump to msg. #
redtop, I never said I did not buy this stock. I currently own several million shares and hope to make a quick buck or 2. The basher keeps saying to stay away from this stock. I am trying to figure out his angle, ie is he short and wants me to sell to put more downward pressure on the stock or is he really wanting to buy stock and he wants to shake my shares loose?
Now what I did say is that I have no idea if RA is on the up and up and I could care less because I have never seen penny stocks trade on the true value of the company..
I have followed USXP for years and I hope to catch another run like last year..
Do you think thats possible again??
http://ragingbull.quote.com/mboard/boards.cgi?board=USXP&read=517585
Darrel Uselton I am NOT: A Public Relations Firm Who will: Send out 100 million emails, lol
===============================================
http://www.protrading.com/index2.html
HOME | ABOUT | CONTACT
I am NOT: An Investor Relations Firm Who will:
Call brokers;
Hold meetings;
Hustle investors;
Arrange radio touts and web cast interviews;
ALWAYS be on the OFFER to sell stock,
NEVER post a BID or a buy order;
Recommend everybody else BUY the stock,
While dumping the stock you paid them …in your face.
I am NOT: A Public Relations Firm Who will:
Spin your story;
Redesign your web site;
Print brochures;
Write press releases & annual reports;
Post to message boards;
Send out 100 million emails,
Bring the SEC down on you for false and misleading press, and
Dump the stock you paid them…in your face.
I am NOT: A Stock Research Firm Who will:
Ask a few simple questions in a five minute phone interview;
Convert your business plan into an “analytical” report with a bit of added hype;
Send out emails, faxes, and direct mail pieces;
Make 7 calls to brokers touting ridiculous assumptions that would impress even the management of Enron and Worldcom;
All the while discussing with associates how sorry your company really is,
While debating which new yacht is best to spend those "investment banking" fees you paid,
Oh, and dumping any stock owned by them and their clients...in your face, during the rally created from that “Strong Buy” recommendation.
I am NOT: A Stock Promoter Who is:
Slick hair, Fancy suit, Diamond Studed Rolex, Smooth talk, Big promises, Cool car and a Playmate girlfriend on his arm...
Cleaned your clock in a week flat;
Spending your money on some island you've never heard of (to avoid jail),
While continuing to dump the stock you paid him …in your face,
Until your stock reaches never-before-heard-of-low-prices in the “mils” (1/10th a penny) because he needs to PAY HIS CELL PHONE BILL to stay in business.
I am NOT: A NASD Registered Market Maker Who will:
Short sell, short sell, short sell your stock …did I mention: SHORT SELL?;
Spread so wide a freight train could pass through;
Hey, why is my stock quoted $.08 - $5.00?
Push up the offer in the morning, sell short, and drop the bids out from under the stock the rest of the day; (causing YOU to be accused of a "pump and dump" when both the "pump" and the"dump" were done ENTIRELY by the manipulating market makers pumping to sell short at progressively higher prices, then fading the bids to cover on panic selling.)
Can I borrow some more stock for short selling please?
85% of new companies fail
All "penny stocks" are scams ("penny stock" definition: OTC Traded and under $5.00);
This deal sucks; That deal blows;
This CEO is a crook; That Company is a fraud;
That company must cook the books;
Everyone belongs in jail;
Let's "break the bank" on this piece of crap,
The price of gold is going up, up, up;
Interest Rates and Oil Prices are rising,
The sky is falling...and so is YOUR stock.
I am NOT: A Death Spiral Funding Group Who will:
Give you a small amount of funding with a 187 page agreement;
With enough 'fine print' to scare off the best attorney;
Short sell, short sell, short sell your stock …did I mention: SHORT SELL?;
Convert your note at $.0001 per share after shorting your stock to there;
Strip the assets of your company after taking control;
Reverse your shell and start over with a new deal;
Leaving you and your shareholders in the dust.
Ready to retire to the golf course and leave this pubco business behind?
CONTINUE
ProTrading.com / Valores Fund, L.P.
1029 Highway 6 N, Suite 650-276
Houston, Texas 77079
Phone: (713) 854-4368 or Email: Darrel@ProTrading.com
Listen to one of the "vicemails" here. http://www.sec.gov/investor/pubs/voicemail-edited.wav
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20192 / July 11 , 2007
SEC v. Roderic Lee Boling III, Anna August Boling, Jeffrey Scott Mills and Direct Results of Sweetwater, LLC, Civ. No. 06-1329 (RMC) (D.D.C., filed July 27, 2006); U.S. v. Boling, et al., Crim. No. 06-228 (ESH) (D.D.C., filed July 27, 2006).
Florida Promoters and the Voice Behind "VICEMAIL" Pump and Dump Scheme Plead Guilty
The Securities and Exchange Commission today announced that former husband-and-wife Roderic L. and Anna A. Boling of Altamonte Springs, Florida and stock promoter Jeffrey S. Mills of Longwood, Florida pled guilty on July 3, 2007, to federal charges for their roles in the broadcasting of hundreds of thousands of fraudulent "vicemail" stock tip messages. The messages, which were left on telephone voicemail recording machines throughout the country, were designed to deceive a recipient into believing he had inadvertently received a "hot" stock tip meant for a close friend of the caller.
Roderic Boling and Jeffrey Mills each pled guilty before District Judge Ellen Segal Huvelle of the U.S. District Court for the District of Columbia to one count of securities fraud and one count of conspiracy to commit securities fraud in connection with the fraudulent "vicemail" scheme. Anna Boling pled guilty to misprision of a felony for her role in concealing from a grand jury and law enforcement officials her own activities, as well as those of her then-husband.
According to the statement of offenses, Mills was hired in July and August 2004 to promote five microcap stocks. Mills recruited Roderic Boling to record and distribute the fraudulent voicemails and together they designed and created the scripts for the messages with the intent of fraudulently inducing prospective investors into purchasing the securities touted in the voicemails at inflated prices. Roderic Boling asked his then-wife Anna Boling to record the fraudulent messages, which she knew would be distributed to hundreds of thousands of persons across the country. After Anna Boling learned that her mother and sister had been subpoenaed to testify before a federal grand jury, she falsely told them that she had not recorded the messages, and caused her relatives to convey that false information to the grand jury.
At sentencing, Roderic Boling and Jeffrey Mills each face a maximum term of imprisonment of 25 years, and a fine of $5,000,000. Anna Boling faces a maximum term of imprisonment of 3 years and a fine of $250,000. Sentencing dates have not yet been set by the court.
The Commission first cautioned the public about these and similar messages touting microcap stocks in an August 2004 Investor Alert. On May 3, 2005, the Commission filed a settled civil action against the telemarketer and associated companies for its role in broadcasting the "vicemail" stock tips. The Commission's civil action against Roderic Boling, Anna Boling and Jeffrey Mills is pending.
For additional information, see Litigation Release No. 19213 (May 3, 2005) and Litigation Release No. 19779 (July 27, 2006) at:
http://www.sec.gov/litigation/litreleases/lr19213.htm
http://www.sec.gov/litigation/litreleases/2006/lr19779.htm
The SEC's investor alert is at:
http://www.sec.gov/investor/pubs/wrongnumberscam.htm.
Listen to one of the "vicemails" here.
Read a transcript of one of the "vicemail" calls.
See also Press Release 2005-70 (May 3, 2005) and 2006-124 (July 27, 2006).
http://www.sec.gov/litigation/litreleases/2007/lr20192.htm
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Home | Previous Page Modified: 07/11/2007
Conversion Solutions auditor slammed by oversight board
2007-07-11 14:23 ET - Street Wire
by Lee M. Webb
Conversion Solutions Holdings Corp.'s sloppy auditor Thomas Benson has had his one-man firm's registration revoked as part of a settlement with the Public Company Accounting Oversight Board (PCAOB), a U.S.-based auditing watchdog.
In a June 29 order instituting disciplinary proceedings, making findings and imposing sanctions, the PCAOB effectively barred Mr. Benson from auditing public companies, but the decision does not affect his day job as internal auditor for Michigan's Department of Natural Resources.
Watchdog pedigree
In the wake of a rash of massive accounting scandals such as Enron and WorldCom, the PCAOB was established under the Sarbanes-Oxley Act of 2002 as part of an initiative to restore public confidence in the U.S. markets.
The mission of the PCAOB, a private sector, non-profit corporation, is "to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair and independent audit reports."
In order to audit the financial statements of issuers registered with the U.S. Securities and Exchange Commission (SEC), auditing firms must register with, and adhere to the rules of, the PCAOB.
The new accounting watchdog is well on the way to becoming a bureaucratic behemoth. Approximately 1,780 accounting firms ranging from one-man operations to large companies with hundreds of employees were registered with the PCAOB as of the end of June.
The organization, which is itself overseen by the SEC, expects to have a staff of approximately 520 by the end of this year. The PCAOB's operating budget for 2007 rings in at approximately $136-million. (All amounts are in U.S. dollars.)
Dubious distinction
Conversion's former auditor Mr. Benson joined a rather elite, if ignominiously distinguished, group of accountants by virtue of being sanctioned by the PCAOB.
According to the accounting oversight board, sanctions for violations "may be as severe as revoking a firm's registration or barring a person from participating in audits of public companies."
Lesser sanctions include monetary penalties and requirements for remedial measures such as training, new quality control procedures or the appointment of an independent monitor.
Mr. Benson was slapped with the PCAOB's most severe sanctions.
While the Sarbanes-Oxley Act gives the PCAOB broad investigative and disciplinary authority over registered firms and associated individuals, the accounting watchdog has only instituted nine disciplinary proceedings since it was established.
Since instituting its first disciplinary proceeding in May of 2005, the PCAOB has only barred eight people, including Mr. Benson, from participating in audits of public companies.
Moreover, only five firms, including Mr. Benson's one-person outfit, have had their PCAOB registration revoked.
Within this exclusive group of PCAOB-sanctioned scofflaws, Mr. Benson has the further dubious distinction of being given the boot after performing his first and only audit for a public company.
The background
As noted in earlier Stockwatch articles, Conversion is the brainchild of Rufus Paul Harris, a semi-literate Georgia promoter with a criminal record, a history of flaky private and public failures, a flare for wild histrionics and a penchant for blaming the inevitable collapse of his cockamamie schemes on an assortment of "demons."
Among the imagined blackguards responsible for the Conversion debacle, Mr. Harris points the finger at unidentified crooked market makers, similarly unnamed hedge funds, nasty naked short sellers, collusive or incompetent regulators, conspiratorial "bashers" and a host of other perceived market miscreants.
Rather incredibly, Mr. Harris still has a gullible group of cultish followers who congregate on the Georgia promoter's members-only Internet chat forum and apparently lend credence to his outrageous imaginings.
In reality, of course, responsibility for Conversion's collapse rests elsewhere and turns on bogus claims that the company owned billions of dollars worth of assets.
A purported $310-million Uniform Commercial Code (UCC) security note provided an early cornerstone for the overblown promotion.
As subsequently revealed by Stockwatch, however, there was no legitimate security underpinning the touted UCC note, which traces back to alleged fraudster David Alan Hawkins. The note is actually worthless.
Before merging with an insolvent OTC Bulletin Board company, penniless Conversion added a purported $500-million worth of Republic of Venezuela bonds to its proclaimed asset portfolio, supposedly by virtue of a deal with a mysterious outfit called the Caracas Group headed by someone named Ismet Paez.
If the so-called Caracas Group exists at all, it has no public profile beyond claims made in fluffy Conversion news releases.
Stockwatch traced Mr. Paez back to a Miami mail drop and telephone service linked to Florida resident Alexander Major, who was discharged from bankruptcy just three days before the purported $500-million Venezuelan bond deal was inked.
When contacted by Stockwatch, Mr. Paez would not comment on the suspect deal, which looks remarkably like an advance fee scheme.
One of the documents relating to the ballyhooed bond deal, oddly filed under the real estate index in an obscure court in sleepy Cartersville, Ga., indicates that the purported Venezuelan bonds were issued with 19 consecutive serial numbers.
Given that the bonds trade in increments of $1,000, the bait for the scheme might consist of as little as $19,000 worth of bonds.
In any event, penniless Conversion never even got around to paying the $400,000 administration fee called for under the March 17, 2006, Venezuelan bond "funding agreement."
The worthless UCC note and highly suspect Venezuelan bonds comprised the only significant purported assets that fell within Mr. Benson's sloppy audit, but as the promotion ramped up and long before the audit was filed, Mr. Harris announced the addition of billions of dollars worth of other bonds to Conversion's touted asset portfolio.
On Aug. 18, 2006, Conversion announced that, under a touted "global funding agreement" with the obscure Humanitarian & Scientific World Foundation Ltd. (HSWF), it had acquired a euro-denominated Lehman Brothers Holdings PLC bond with a converted value of approximately $579-million.
Five days later, Conversion followed up with a claim that, in another deal with HSWF, it had added a euro-denominated bond on the Republic of Finland with a converted value of approximately $939-million to its asset portfolio.
Perhaps concerned by the public exposure triggered by Mr. Harris's promotion, HSWF issued a cease and desist letter to Conversion, but the genie was already out of the bottle.
As detailed in previous Stockwatch articles, fledgling Georgia-incorporated HSWF was hardly headed by an all-star cast of renowned financial wizards.
In fact, the three key players in HSWF consist of another discharged bankrupt, Craig M. Cason, repeat securities violator Steven O. Canady and shadowy Adnan Sakli, who has reportedly been dodging service of a civil RICO suit involving allegations of bogus bond deals.
The HSWF deals did not mark the end of Mr. Harris's purported bond acquisitions.
On Sept. 27, the wild promotion went into high gear with the announcement of the addition of euro-denominated Republic of Venezuela bonds with a converted value of approximately $6.5-billion. That touted deal purportedly also involved the invisible Caracas Group.
According to Mr. Harris, that acquisition brought the company's purported asset portfolio to approximately $7.3-billion, giving Conversion a touted book value of $70.71 per share. The market, of course, gave little heed to those fanciful promotional claims.
On Oct. 16, 2006, Conversion filed a cut-and-paste annual report created by Mr. Harris, which included Mr. Benson's sloppy audited financial statements for the year ending June 30, 2006. As subsequently reported by Stockwatch, the annual report and audited financial statements were rife with gross deficiencies.
Interestingly, Conversion's identified chief financial officer, Daryl Horton, did not sign off on the required Sarbanes-Oxley certification.
Eight days after Conversion filed the slipshod annual report, the SEC suspended trading and filed a securities fraud lawsuit against the company and Mr. Harris.
In its Oct. 24, 2006, complaint, the SEC claims that Conversion and its chief executive officer committed securities fraud by making a series of false or misleading statements through news releases and regulatory filings with respect to owning billions of dollars worth of bonds, fraudulently inflating the share price and trading volume in the process.
The U.S. regulator also alleges that Mr. Harris knowingly recorded fictitious assets and certified fraudulent financial statements.
Meanwhile, an early and persistent critic of the overblown Conversion promotion, Timothy Miles, publicly dissected some of Mr. Benson's shoddy auditing work soon after it was filed.
Mr. Miles also announced on an Internet chat site that he had filed a complaint about the auditor with the PCAOB. Others reportedly followed suit.
It appears that those complaints prompted a PCAOB investigation.
The watchdog bites
While the June 29 PCAOB order making findings and imposing sanctions against Mr. Benson is couched in measured bureaucratic language, it is clearly a scathing indictment of the auditor's shoddy work on behalf of Conversion.
According to the PCAOB, in April of 2006, Conversion's chief financial officer, Mr. Horton, asked Mr. Benson if he would be interested in auditing the company's financial statements.
Evidently Mr. Horton had been "a colleague of Benson's for over 20 years."
As noted by the accounting oversight board, the 48-year-old Mr. Benson had spent most of his professional career working for the government of Michigan in internal auditing positions and had never before audited a public company.
In early July of last year, however, Mr. Benson agreed to audit Conversion's financial statements for 2006.
After Mr. Horton, his colleague of more than 20 years, informed him that the company's auditor had to be registered with the PCAOB, Mr. Benson submitted an application that was subsequently approved by the accounting watchdog.
On Sept. 28, 2006, Mr. Benson issued his audit report, which was included in a Sept. 29 SEC filing, Conversion's annual report filed on Oct. 16 and two subsequent amended annual reports.
Mr. Benson's audit report included an unqualified audit opinion on Conversion's financial statements.
According to the assessment of the PCAOB, however, Conversion's financial statements were a garbled mess riddled with glaring inconsistencies.
The accounting watchdog found that Mr. Benson failed to perform sufficient procedures to evaluate Conversion's assertions regarding the $500-million in Venezuelan bonds and approximately $19.9-million in accrued interest.
Among other things, the PCAOB findings indicate that Conversion reported $19.9-million of interest as a receivable on its balance sheet, but inconsistently with that, the statement of cash flows treated that interest as having been received.
Moreover, the company reported the interest receivable as interest revenue on the statement of operations, accounting for all of its reported revenue for 2006.
Adding to the muddle, penniless Conversion's statement of cash flows shows a $500-million cash payment relating to the bonds.
Mr. Benson did not take any steps to address or resolve the inconsistencies regarding the $19.9-million in interest, nor did he obtain any evidence that Conversion had in fact made a $500-million cash payment as described in the statement of cash flows.
According to the PCAOB, apart from management's representations and documents, Mr. Benson obtained no audit evidence relevant to evaluating Conversion's assertions and he "failed to follow up on evidence that cast doubt on those assertions."
Despite making repeated requests to physically inspect the bond certificates, for example, Mr. Benson "never saw any such certificates."
In addition, despite Conversion's claim that it was entitled to an interest payment of $19.9-million on Aug. 8, 2006, Mr. Benson knew at the time of his Sept. 28 audit report that the company had not received any such payment.
Turning to the $310-million UCC note, the PCAOB found that Mr. Benson failed to perform sufficient procedures to evaluate the assertions in the financial statements about the existence of the obligation described in the note and the company's rights relative to that obligation.
Mr. Benson acknowledged that he did not sufficiently understand documents relating to the $310-million note provided by Conversion's management, but he "took no steps to attempt to clarify the nature and meaning of the documents."
Moreover, Mr. Benson took no steps to determine whether a Washington court had actually issued a judgment related to liens on property owned by various judges and lawyers that purportedly underpinned the UCC note.
(In fact, as previously reported by Stockwatch, a Washington court issued orders more than 10 years ago striking those liens and prohibiting the original note assignor, alleged fraudster Mr. Hawkins, from filing any more such liens.)
In short, Mr. Benson really had no clue whether Conversion's $310-million valuation of the note was justified.
Mr. Benson also failed "to comply with PCAOB auditing standards concerning responding appropriately to indicators of a risk of material misstatement due to fraud."
According to the accounting watchdog, Mr. Benson not only failed to adequately perform basic procedures, but he failed to reassess the risks after learning about numerous facts that warranted heightened scrutiny.
Overall, Mr. Benson failed to perform adequate audit procedures and failed to exercise due care and professional skepticism.
His conduct in connection with the audit of Conversion's financial statements violated PCAOB rules and auditing standards and, according to the accounting oversight board, warranted the most severe sanctions available.
Being barred from auditing public companies might indeed be a severe sanction for an accountant who actually relied upon such work for a livelihood. In this case, however, the U.S. accounting watchdog's bark may be worse than its bite.
Indeed, it is not clear that the PCAOB disciplinary action will be much more than a passing embarrassment for Mr. Benson, perhaps particularly if it becomes a topic of office gossip at Michigan's Department of Natural Resources.
Meanwhile, Mr. Harris, who spends a good deal of time among his private chat board zealots talking about "demons," asking for prayers, lashing out at "bashers" and lamenting his arrests and other misadventures, evidently has little or no sympathy for Mr. Benson.
"CSHD was his first audit of a public issuer, looks to be his last audit of public issuer," Mr. Harris remarked to his insular group of cultish followers.
Given that, in a case in which it will almost certainly prevail, the SEC wants Mr. Harris banned from being an officer or director of any public company, the Georgia promoter is not likely to have any role related to the audit of a reporting issuer again, either.
With approximately 1.4 million shares changing hands in grey market trading, Conversion closed at three-10ths of a cent on July 10.
Stockwatch will continue to follow developments as the saga continues.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More information regarding Conversion Solutions Holdings Corp. is available in Stockwatch articles published on Oct. 13, 16, 18, 20, 24 and 26; Nov. 2, 3, 7, 10 and 16; Dec. 5, 7 and 11, 2006; May 9, 10, 11, 14, 17 and 22; and June 12, 2007.)
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Reader Comments - Comments are open and unmoderated, although libelous remarks may be deleted. Opinions expressed do not necessarily reflect the views of Stockwatch.
David Patch speaks out on USXP http://www.thesanitycheck.com/BobsSanityCheckBlog/tabid/56/EntryID/622/Default.aspx
Re: Bobo gone walkabout for a few weeks...
By patchie on 7/4/2007 6:01 PM
Real Life,
Nobody knows for sure what is happening but the evidence does not look good. If a naked short existed years ago in USXP the dilution recently authorized by the company has all but diluted it into non-existence.
I will say what i have now said for years, If you are in this fighting for right and wrong the best thing to do is not pick a particular horse as your front runner. You never know when it is a nag.
Fight the cause for the cause and hope you placed your bet on a winner. With recent events where companies claim a naked short to pump investors into a dump, it is best not to put any one on a pedestal that coul lead you into being made a fool.
Altomare would do best by being fiscally responsible to shareholders by paying off the debt he and his wife owe the financially struggling company and keeping his mouth shut until he has something of substance to speak about. These PR's are getting embarassing based on the SEC allegations against him and the very clear stock dilutuion that nobody can deny. The $700 Million judgement sounds much better in print than reality will show and it is being used as a carrot to investors.
Video of arrest http://www.oag.state.tx.us/media/videos/play.php?image=070907uselton_arrest&id=235
Texas Attorney General, SEC File Market Manipulation and Stock Fraud Charges Against Two Texas Residents
Illegal “botnets”used to cheat investors out of more than $4.6 million
HOUSTON – Texas Attorney General Greg Abbott’s Special Investigations Unit charged two Texas residents with devising an illegal high-tech scheme to defraud investors out of more than $4.6 million. Both suspects, who were indicted July 3 by a Harris County grand jury, are the subjects of an ongoing investigation by several states and the Securities and Exchange Commission (SEC). In addition to the state’s charges, the suspects face securities fraud charges, which were filed today by the SEC.
Darrel Uselton, 40, of Katy, and his uncle, Jack Uselton, 69, of Houston, face organized criminal activity and money laundering charges. According to state and federal investigators, the Useltons reaped millions in illegal profits by promoting shares from at least 13 penny stock companies. The suspects then secretly sold those stocks into an artificially active market they created with manipulative trading schemes, spam e-mail campaigns, direct mailers, and Internet-based promotional activities.
http://www.oag.state.tx.us/media/videos/play.php?image=070907uselton_arrest&id=235
Video of arrest
The case is being prosecuted by the Texas Attorney General’s Office (OAG) and the Office of Harris County District Attorney Chuck Rosenthal with investigative assistance from the New York Attorney General’s Office. OAG investigators have seized more than $4.2 million from bank accounts associated with the defendants. Darrel Uselton was arrested by OAG investigators and is currently being held in Harris County Jail in lieu of $8 million bond. An arrest warrant has been issued for Jack Uselton.
“Investors will not tolerate scam artists who use the Internet to illegally manipulate stock prices,” Attorney General Abbott said. “Together with several states and the SEC, we have uncovered an elaborate scheme to defraud unwitting investors. The Office of the Attorney General will aggressively prosecute market manipulators, spammers and con artists whose illegal schemes defraud unsuspecting citizens.”
SEC Chairman Christopher Cox added: “This latest step in the Commission’s anti-spam initiative is intended to protect investors from fraud artists who would treat the investing public as their personal ATM machines. The use of bots to spread investment spam at exponentially higher rates is making this type of fraud an even more virulent threat to ordinary investors. Not only are victims getting hit with get-rich-quick spam, but by turning the victims’ computers into zombies, these fraudsters are sending out still more spam to others. Given estimates that up to one quarter of all personal computers connected to the Internet are part of a botnet, and the thriving market in selling lists of compromised computers to hackers and spammers, the SEC is taking this very seriously. We remain aggressively committed to tracking down anyone attempting to use bots to prey on investors with false or misleading spam about securities.”
The Commission’s complaint, which it filed with the U.S. District Court in Houston, charges the Useltons with orchestrating a series of spam e-mail campaigns. The scheme, which relied on an array of computer “botnets,” touted near-worthless penny stocks in millions of spam e-mails sent to potential investors. Those unsolicited electronic messages included baseless price projections and other unfounded claims. Each campaign, which featured a single company, lasted anywhere from several days to several weeks.
According to the SEC’s complaint, the Useltons earned more than $4.6 million from their fraudulent scheme between May 2005 and December 2006. The SEC’s complaint indicates the Useltons and companies they controlled received unrestricted penny stock shares despite little or no investment. Those shares were allegedly provided in return for their purported financing or promotional activities.
Darrel Uselton was disciplined by the National Association of Securities Dealers (NASD) in 2004 and 2005. In a 2002 action that has since settled, the SEC permanently enjoined Jack Uselton from violating anti-fraud regulations.
-30-
Spam suspects charged over $4.6m share con
By John Leyden
Published Tuesday 10th July 2007 13:28 GMT
Two Texans have been charged with securities fraud and money laundering offences over a pump-and-dump email stock scam.
The case (http://www.sec.gov/news/press/2007/2007-130.htm) follows an investigation by the Securities and Exchange Commission (SEC) into the illegal use of pump-and-dump junk mails to promote the sale of at least 13 low-value stocks between May 2005 and December 2006.
Darrel Uselton, 40, and his uncle, Jack Usleton, 69, allegedly used a series of spam emails campaigns to trick the gullible into buying worthless stocks on the basis of bogus insider information. The dynamic duo are suspected of using a network of compromised zombie PCs to distribute junk mail stock tips.
Investigators reckon gullible users were defrauded out of $4.6m in furtherance of the scam before the dodgy duo were caught. The pair allegedly made the mistake of sending one of their fraudulent emails to a SEC lawyer, prompting the launch of an investigation that ultimately led to charges against the two. Texas criminal authorities have seized more than $4.2m from bank accounts associated with the Useltons.
The prosecution of the Useltons is part of a larger SEC crackdown on stock scams. The SEC suspended trading of 35 companies which had been the subject of pump-and-dump emails in March. ®
Anyone ever pull CMKM coprorate records in Texas? Seems its easy to find out who the leaders of CMKM are;
http://www.sos.state.tx.us/corp/sosda/index.shtml
An Online Business Service from the Office of the Secretary of State
The Secretary of State OnLine Access (SOSDirect) web access system provides subscribers with up-to-date, on-line computer access to a variety of information maintained by the Office of the Secretary of State.
SOSDirect provides the following:
The SOS UCC System is compliant with Revised Article 9 (RA9).
Electronic filing of UCC documents for as low as $5.00 per document and for electronic filing of business organizations for fees set by statute. Certificates of formation, applications for registrations, name reservations; changes to registered agents/offices and assumed name certificates can be filed online. Dissolutions, terminations and withdrawals for corporations and limited liability companies; cancellation of certificates or registrations of limited partnership; registration of Texas LLPs and withdrawals of foreign LLPs also may be filed electronically. Applications for reinstatement following tax forfeiture and amendments to change the name of business and professional corporations may be filed through SOSDirect. In addition, annual statements, limited partnership and nonprofit corporation reports may be filed using SOSDirect.
Turntime for web filings is generally 24 hours or less.
Enhanced search capabilities for business organizations including searching by entity name, name of person listed as a registered agent, officer or director of a corporation.
Expands records available online and includes records filed with the SOS relating to:
Corporations
Limited Partnerships
Limited Liability Companies
Assumed Names
Trademarks
Limited Liability Partnerships
Foreign and State Financial Institutions
Uniform Unincorporated Nonprofit Associations
Probate Code filings by Foreign Corporate Fiduciaries
UCC Financing Statements
Federal Liens
Allow users to order copies and certificates relating to business and UCC records over the Internet.
Allow users to view copies (when images are available) of filed documents over the Internet, print copies of those documents on computers in their office, and generate certificates relating to those documents in their office.
Bulk Order information pertaining to Business Organizations data files or UCC data files and images is provided in Help/Fees.
All of these features are available 24/7.
Furthermore, we now offer a new low price of only $1.00 per search.
For more information about SOSDirect please call or contact the following:
SOSDirect@sos.state.tx.us
Corporations: (512) 475-2755 or e-mail SOSDirect@sos.state.tx.us
UCC: Sondra Lowery at (512) 475-2740 or e-mail slowery@sos.state.tx.us
Refunds: Notice regarding refunds
To establish an account, please click on the icon below. The fees associated with the SOSDirect account are the fees for documents filed, for copies and certificates ordered, and inquiries submitted. There are no monthly subscription fees.
Action Type: Convert Out
POST CONVERSION ADDRESS: KEVIN WEST CMKM DIAMONDS, INC. 615 S BROADWAY, SECOND FLOOR TYLER, TX 75701
https://esos.state.nv.us/SOSServices/AnonymousAccess/CorpSearch/corpActions.aspx?lx8nvq=FLHUb1Wr8HP4FN0InjoBtg%253d%253d&CorpName=CMKM+DIAMONDS+INC.
Corporation Actions for "CMKM DIAMONDS INC."
Sort by File Date Document Number Action Type descendingascending order
1 - 19 of 19 actions
Actions\Amendments
Action Type: Convert Out
Document Number: 20070292566-69 # of Pages: 2
File Date: 04/27/2007 Effective Date:
POST CONVERSION ADDRESS: KEVIN WEST CMKM DIAMONDS, INC. 615 S BROADWAY, SECOND FLOOR TYLER, TX 75701
Action Type: Resignation of Officers
Document Number: 20060402137-05 # of Pages: 1
File Date: 06/23/2006 Effective Date:
(No Notes for this action)
Action Type: Resident Agent Change
Document Number: 20060270980-04 # of Pages: 1
File Date: 04/27/2006 Effective Date:
(No Notes for this action)
Action Type: Annual List
Document Number: 20060250879-49 # of Pages: 1
File Date: 04/20/2006 Effective Date:
(No Notes for this action)
Action Type: Annual List
Document Number: 20050243947-06 # of Pages: 1
File Date: 06/22/2005 Effective Date:
(No Notes for this action)
Action Type: Resident Agent Change
Document Number: 20050082053-75 # of Pages: 1
File Date: 03/25/2005 Effective Date:
(No Notes for this action)
Action Type: Amendment
Document Number: C9852-2002-012 # of Pages: 1
File Date: 08/18/2004 Effective Date:
CAPITAL STOCK WAS 500,000,000,000 @ .0001= 50,000,000 MDC
ACTUAL STOCK IS: 800,000,000,000 SHARES @ .0001= 80,000,000
1 PG. ($35,000) MDC
Action Type: Amendment
Document Number: C9852-2002-011 # of Pages: 1
File Date: 07/13/2004 Effective Date:
CERTIFICATE OF AMENDMENT FILED AMENDING THE PAR VALUE FROM .001 TO .0001, THE
CHANGE OF PAR VAULE DUE TO A TYPO IN THE ORIGINAL ARTICLES FILED DEC. 26,
2002. (1PG)($175) AJW
Action Type: Annual List
Document Number: C9852-2002-002 # of Pages: 1
File Date: 04/21/2004 Effective Date:
List of Officers for 2004 to 2005
Action Type: Amendment
Document Number: C9852-2002-010 # of Pages: 1
File Date: 03/01/2004 Effective Date:
CAPITAL STOCK WAS 200,000,000,000 @.001 KAB
1 PG. $35,000 KAB
ACTUAL SHARES IS 500,000,000,000 @ .001 = 500,000,000 KAB
Action Type: Amendment
Document Number: C9852-2002-009 # of Pages: 1
File Date: 02/05/2004 Effective Date:
1 PG. MDC
CASAVANT MINING KIMBERLITE INTERNATIONAL MDCB 00002
Action Type: Amendment
Document Number: C9852-2002-008 # of Pages: 1
File Date: 12/18/2003 Effective Date:
CAPITAL STOCK WAS 100,000,000,000 @ .001 RAF
CERTIFICATE OF AMENDMENT FILED AMENDING ARTICLE 4 STOCK. CHANGING TO:
200,000,000,000 @ .001 = 200,000,000. $175 1 PG. RAF
Action Type: Resident Agent Change
Document Number: C9852-2002-007 # of Pages: 2
File Date: 05/20/2003 Effective Date:
NEVADA CORPORATE HEADQUARTERS, INC.
P O BOX 27740 LAS VEGAS NV 89126 RAF
Action Type: Amendment
Document Number: C9852-2002-006 # of Pages: 1
File Date: 12/26/2002 Effective Date:
CAPITAL STOCK WAS 10,500,000,000 @.001 = 1,052,700. RAF
CERTIFICATE OF AMENDEMENT FILED AMENDING ARITICLE IV STOCK TO BE
99,997,000,000 COM. & 3,000,000 PREF. @ .001 = 100,000,000 1 PG. $20,300. RAF
Action Type: Amendment
Document Number: C9852-2002-005 # of Pages: 1
File Date: 12/03/2002 Effective Date:
1 PG. KAB
CYBER MARK INTERNATIONAL CORP. KABB >!H 00001
Action Type: Amendment
Document Number: C9852-2002-004 # of Pages: 1
File Date: 11/26/2002 Effective Date:
CAPITAL STOCK WAS 500,00,00 COM. @ .0001 & 3,000,000 PREF. @ .001 = 53,000 AJW
CERTIFICATE OF AMENDMENT FILED AMENDING STOCK TO BE 10,497,000,000 COM. @ .0001
& 3,000,000 PREF. @ .001 = 1,025,700.(1PG)($4275) AJW
Action Type: Initial List
Document Number: C9852-2002-013 # of Pages: 1
File Date: 04/22/2002 Effective Date:
(No Notes for this action)
Action Type: Amendment
Document Number: C9852-2002-003 # of Pages: 5
File Date: 04/18/2002 Effective Date:
(BREAKDOWN OF SHARES: 500,000,000 COM. @ .0001 & 3,000,000 PREF. @ .001) DMF
ARTICLES OF CONVERSION FILED CONVERTING CYBER MARK INTERNATIONAL CORP., A
(DE) CORPORATION (CONSTITUENT ENTITY) INTO THIS CORPORATION (RESULTING
ENTITY). (3)PGS. DMF
Action Type: Articles of Incorporation
Document Number: C9852-2002-001 # of Pages: 5
File Date: 04/18/2002 Effective Date:
(No Notes for this action)
John Stanton involved in SEC investigation
Tampa Bay Business Journal - 2:53 PM EDT Friday, July 6, 2007
The Securities and Exchange Commission has petitioned the U.S. District Court for the Northern District of Georgia for an order to enforce investigative subpoenas served on U.S. Sustainable Energy Corp. and John D. Stanton.
The SEC alleges that on May 3, it issued a formal order of private investigation for U.S. Sustainable Energy Corp. According to the SEC's application, USSE-FL and Stanton have failed to comply with validly issued and served subpoenas for documents relating to this investigation.
The investigation involves U.S. Sustainable Energy Corp., which is headquartered in Mississippi and others, a release said. The investigation relates to possible false and misleading statements by companies engaged in merger discussions, possible insider trading activity and other possible securities law violations.
A hearing on the SEC's application has not yet been scheduled.
Stanton is involved with a number of small public companies in the Tampa Bay area.
Title: Advice to Richard A. Altomare (Universal Express) from a Convicted Felon: Cut the Bull
Link here: http://whitecollarfraud.blogspot.com/2007/07/advice-to-richard-altomare-universal.html
Friday, July 06, 2007
Advice to Richard A. Altomare (Universal Express) from a Convicted Felon: Cut the Bull
As cold blooded and heartless criminals, ‘Crazy’ Eddie Antar, his father Sam M. Antar, and I made up many tales to divert attention from our crimes. Eddie’s father tried to set up his own son, Eddie, to take the fall for his crimes. After Eddie Antar was dragged back into the United States by US Marshals, Eddie and father (now re-united against a common enemy, me, who had turned state’s witness), tried to blame the entire Crazy Eddie fraud on me. Before I began cooperating with the government, I used many excuses such as attributing our inventory shortages, (later uncovered when new management took an inventory and found a massive fraud), on anything from poor internal controls to shop lifting.
Recently, Senior New York Times Columnist, Floyd Norris has been following the actions of Richard A. Altomare from Universal Express. In a post on his blog entitled, "Naked Shorting Grows Ever Larger," (subscription required), Mr. Norris writes that Richard A. Altomare is a “the man who claims to be chief executive of Universal Express despite a court order barring him from serving as an officer of any public company….”
In a column entitled, "HIGH & LOW FINANCE; A Sad Tale Of Fictional S.E.C. Filings," (subscription required), Floyd Norris wrote:
In 2006, Universal lost $18.9 million on revenue of just $1.1 million. Mr. Altomare, acting as the sole member of Universal's board, gave himself a $50,000 raise, to $650,000 a year. The company also forgave part of $1.6 million in loans to Mr. Altomare and his wife. The cash to pay that salary came from the sale of unregistered stock.
In Mr. Altomare's view, the issues that bothered the judge are irrelevant. ''Long and short of it,'' he said in a statement issued by the company, ''this is a naked short hallmark case in the making.''
Eddie Antar and his immediate family used Crazy Eddie as a personal piggy bank, too. For example, Eddie Antar and his father, Sam M. Antar, put their wives on payroll for no-show jobs and gave them company cars to use.
In another column, entitled "S.E.C. Seeks Receiver for Universal Express, Calling It a Fraud," (subscription required), Floyd Norris wrote:
In its filing, the S.E.C. said, ''Universal Express has since 2001 existed primarily as a vehicle to flood unregistered stock into the public market at values fraudulently inflated by the dissemination of false and misleading statements'' and said the ''conduct is continuing unabated.''
Later, Mr. Norris writes:
The company...argued that it was being persecuted by the S.E.C. because Mr. Altomare had been a loud critic of the commission for not cracking down on ''naked short selling,'' the practice of selling shares without owning or borrowing them.
Excuses, excuses. Advice to Richard A. Altomare, from a convicted felon, when you can no longer spin, SHUT UP! The Securities and Exchange Commission is not buying into your nonsense and neither will a federal jury buy into it, too.
Read about spinning here.
Written by:
Sam E. Antar (former Crazy Eddie CFO & convicted felon)
Posted by Sam E. Antar at 4:13 AM
Labels: Floyd Norris, Richard A. Altomare, Securities and Exchange Commission, Spinning, Universal Express
Docs on SEC case are on Pacer for those interested http://www.gand.uscourts.gov/pacer.htm
KissyKat And The Magic Diesel
Daniel Fisher 02.26.07
http://www.forbes.com/forbes/2007/0226/078_print.html
When the cry goes up, "Renewable Energy!" an army of penny-stock operators swings into action.
An aerial photo on the web site of U.S. Sustainable Energy Corp. shows a plant in Natchez, Miss. where the company says it will soon begin producing 1.5 million gallons a day of biodiesel-like fuel from soybeans. To put that in perspective, that's double the current biodiesel output in the entire country.
John Rivera, U.S. Sustainable's chairman, admits he gets some skeptical looks when he describes his "secret" process for turning soybeans into liquid gold at a rate (five gallons per bushel) that experts say defies the laws of chemistry and physics. "Everybody comes out here and says, 'Hey, you're full of it,' and then they see me do it," says Rivera, who in the 1990s promoted a similar process for turning used tires into fuel oil. "That's when I turn to them and say, 'Welcome to the Liars Club. Because now nobody's gonna believe you, either.'"
Somebody's buying Rivera's story. His company, which has not yet reported any revenue (it intends to start filing financials with the Securities & Exchange Commission "soon"), carries a market value of $227 million. Hey, that's nothing. A December news release from U.S. Sustainable says that the company could have "an immediate market value" of $12 billion.
Things only get more confusing if you follow the trail to EarthFirst, a Tampa outfit that told the SEC it loaned $3.3 million to U.S. Sustainable Energy last year. EarthFirst Chairman John STANTON put out a news release in April trumpeting U.S. Sustainable's revolutionary biofuel process. In the days before the release EarthFirst's trading volume spiked to 5 million shares from several hundred thousand and the stock price bounced to 17 cents, briefly arresting a long slide to a nickel a share.
No, no, says STANTON. That's a different U.S. Sustainable Energy. Rivera wanted to use the same name for his company, explains STANTON, who admits doing business with Rivera in the past.
Details, details. The big picture: Everyone is in love with renewable energy--George Bush, any congressman you could name, the eminent venture capitalist Vinod Khosla, Goldman Sachs. At the upper end of the investment spectrum the field has attracted $53 billion in private capital over the last three years for windmills, solar panels and low-carbon energy sources. At the lower end there are the penny stocks.
Watch your wallet. Des Moines lawyer Steven Wandro is trying to recover $3.8 million stolen a few years ago from a group of grain farmers who thought they were investing in an ethanol plant. The money passed instead to a film studio and a Florida scamster named Jerry Drizin, allegedly at the behest of a Nigerian in Germany, as detailed in a federal judge's ruling in the case. "People are just running to this thing in a way that I think is scary," sighs Wandro, who recalls how legitimate ethanol projects in Iowa collapsed after oil prices fell in the mid-1980s. "It's a prescription for dashed expectations."
Capitalizing on the popular mania for sustainable energy, the penny-stock operators are converting failed Canadian mining outfits and Internet firms into green machines with names like Western Wind Energy and Hydrogen Power International. Western Wind, run by Vancouver mining-stock executive Jeffrey Ciachurski, paid Khandaker Partners, a New York research firm, $22,000 for a November report touting a "price target" of $11.59 a share. Ambitious, given that the price is now hovering around a buck. Western Wind is trading lawsuits with former employees who accuse the wife of the chief executive of posting unflattering comments on a stock bulletin board, including one suggesting that one of those employees was "caught shagging some Red Head" near the proposed wind-farm site. (Ciachurski denies his wife ever made such comments.) Hydrogen Power of Englewood, Colo. says it has a revolutionary method for making hydrogen fuel out of aluminum. One problem: The fuel source weighs more than the high-pressure hydrogen tank it is supposed to replace. That problem is being worked on.
Cornell Capital of Jersey City, N.J. has pumped at least $100 million into green-themed companies in the past couple of years. "Solar, wind, clean technology plays--we love the space," says Troy Rillo, a Cornell managing director. "We think the trends are great."
Great for Cornell, which gets shares at a discount that it can then sell in the open market. Great for investors paying full price?
Check out some Cornell clients. NewGen Technologies, which says it plans to build several hundred million dollars' worth of ethanol refineries, was formed out of a shell company. XsunX, formerly known as Sun River Mining, is now a solar-cell company with no revenue and no orders. Market cap: $86 million. Earth Biofuels, whose mascot is country music star Willie Nelson, raised $52.5 million from Cornell and other convertible-debt buyers but sank more than half the dough into a Louisiana ethanol refinery project that has stalled amid charges of excess costs and failed financial commitments. Power Technology is on the verge of producing what it claims is a revolutionary lightweight lead-acid battery but has yet to find any potential customers. Still, it's aiming to raise capital in a public share offering; proceeds will repay a $1.4 million loan from Cornell.
Don't like the Cornell portfolio? Maybe there's something in the cozy family of GreenShift Corp., a holding company for six publicly traded entities--combined shares outstanding: 3 billion--with names like gs CleanTech and gs AgriFuels. GreenShift is working on technology to feed carbon dioxide to algae and then harvest the algae as if they were corn stalks. If you find this impractical you are presumably not among the investors whose enthusiasm has given GreenShift a market cap of $114 million.
In 2005 a predecessor of a GreenShift unit, called Incode, was flogging KissyKat, an online dating service for pet lovers. That operation didn't work out. Reincarnated as resource firm, GreenShift lost $9 million on sales of $17 million over the first nine months of 2006. Most of that revenue came from a waste-disposal business and a machine shop in Ohio. But GreenShift's chairman and controlling shareholder, Kevin Kreisler, has dreams, and the algae venture is just one of them. Another is to convert the waste material from corn ethanol plants into oil that can be used to make biodiesel. GreenShift says it has sold several of the $1.6 million units so far, but there's a reason it has the business largely to itself: Michael Ladisch, a Purdue University engineering professor, says that few ethanol plants produce enough waste oil to justify trucking it to a biodiesel plant.
No problem, says Thomas Scozzafava, president of GreenShift's gs AgriFuels unit and a former Lehman Brothers merchant banker. All you do is cluster the corn-oil units around biodiesel plants that use another money-saving GreenShift innovation: a "continuous base catalyst reaction" system that relies on a "proprietary process intensification and advanced separation technologies"--whatever those are. There are plans to use them in a new Mean Green Biofuels plant, in Memphis. Mean Green is meantime applying for emissions permits.
EarthFirst, John STANTON's firm, claims to be at "the forefront of alternative energy sources," according to its Web site, but still gets most of its revenue from moneylosing waste-disposal and biodiesel-import businesses, and recently filed to allow Laurus Capital to sell 76 million shares, whose proceeds would be used to retire convertible debt held by Laurus. A self-described turnaround expert, Chairman STANTON doesn't disclose in EarthFirst's sec filings anything about the $157 million collapse of Keller Financial, a used-car finance firm in Florida he briefly ran. A plaintiff attorney reportedly claimed that Keller preyed on unsophisticated, elderly investors. STANTON later paid $181,000 to settle a bankruptcy trustee's claim.
STANTON owns stakes in U.S. Energy Initiatives, which lost $4.5 million on sales of $426,000 in the first half of 2006 trying to sell kits to reconfigure diesel engines so they run on natural gas; and U.S. Sustainable Energy, which claims a catalytic vacuum distillation process that sounds remarkably similar to the one John Rivera is cranking up over in Natchez. Both involve heating organic materials in a vacuum until they break down into carbon and vapors that can be condensed into a low-grade fuel oil. "Why you'd put soybeans in there, I don't know," says Thomas Adams, a biofuels expert at the University of Georgia. "Sewage works just as well."
Adams questions how Rivera can produce biodiesel without methanol--or transform 60 pounds of soybeans into 37 pounds of biodiesel, versus the 27 pounds generally considered the limit. Rivera says his process is a secret and now claims he means "biofuel." He's not the only one pushing the limits of science: In its sec filings EarthFirst claims it can create more than 20 pounds of carbon, fuel oil, combustible gas and scrap steel from a 20-pound tire.
While scrambling for green-energy investments they can trumpet in news releases, penny-stock operators invariably collide. That's what happened in Plaquemines Parish, south of New Orleans, where Earth Biofuels of Dallas last year announced plans to restart an alcohol refinery, closed since the first ethanol boom went bust in the early 1990s. Months later South-ridge Enterprises, a onetime mining operation now in the ethanol business, said it was buying $6 million worth of equipment from the same plant to build its own 60-million-gallon-a-year ethanol refinery. Its shares jumped 20 cents to $1.84 on the news.
Earth cried foul, saying it owned the equipment. Southridge has sued Earth's partner in the deal, blaming it for the loss of $60 million in market value. A lawyer for the Louisiana partners says he expects the case to be dismissed, but the point seems moot: Earth has since imperiled its own $27 million investment by failing to come up with $80 million to finish the refurbishment by a Dec. 4 deadline. Earth says the project is "still viable."
So, apparently, is AFV Solutions of San Diego, which plans to import hybrid natural-gas/electric buses from China. Up until early 2005 AFV was known as Dogs International and planned a chain of "bed and biscuit" upscale kennels. (It still owned one in Flagler Beach, Fla. as of its most recent sec filing in November.) Dogs International turned green after Jeffrey Groscost, former speaker of the Arizona House of Representatives, took over as chief executive. Groscost was famous in Arizona for pushing through a subsidy program for alternative-fuel vehicles in 1999 that cost the state more than $200 million before it was shut down; buyers could get up to half the cost of a $50,000 suv back from the state.
AFV shares surged from $1.60 in 2005 to $11.30 in May 2006. That's when it announced $4.8 million in financing and plans to import Chinese buses. AFV has yet to sell a bus, and its share price has since deflated to $4.50. Groscost died suddenly in November.
Some schemes are outright fraud. LeeRoy Allen was ordered to pay $270,000 and barred from involvement with public companies last October after the sec accused him of converting a penny stock called J-Bird Music Group (former home of faded stars like Billy Squier and The Guess Who) into a purported biodiesel company with "no assets, funding or viable product." Allen consented to the charges without admitting or denying guilt.
In New Jersey the state attorney general last fall filed civil fraud charges against Brian Smith and his wife for promoting Digital Gas. The company lacked even a bank account yet had shares trading on the pink sheets that briefly soared to 90 cents a share last spring, giving it a theoretical value of $22 million. As he pumped the stock with press releases like the one claiming Digital Gas had a "high temperature fuel cell" that would unlock as much as 1.1 billion gallons of oil from a neglected oil shale deposit, New Jersey officials say, Smith was using stock to renovate his home and pay his attorney.
Smith insists, in an e-mail, that he's innocent and his company "is actively seeking to commercialize its energy savings, alternative energy and farming opportunities." For assets, his Web site offers a grainy image of the deed to a 178-acre granite quarry in New Brunswick, Canada. Despite Digital's legal problems, "We're still in the pipeline," says Theo van Bakkum of iccu Holding bv, a Smith partner who is working on a new method for storing electricity.
"We are here to help farmers, lessen the heavy yoke of imported fuel, help to create food and jobs for Americans and offer the greatest solution to the world's need for energy since humans harnessed the power of fire itself," says Taylor Moffit, chief executive of Originally New York, an o-t-c bulletin board and would-be ethanol producer with a grand total $331 in revenue since it launched in 2001. Dream on--you'll get a lot of investors to dream with you.
http://www.forbes.com/forbes/2007/0226/078_print.html
Doulgeris’ biography in the placement memo makes no mention EarthFirst Technologies Inc. (OTCBB: EFTI), a company outside the healthcare industry. His name appeared as the contact person on press releases issued in 2000 by EarthFirst, which was pursuing technologies for the production of alternative fuel and the treatment and remediation of solid waste.
EarthFirst’s chairman and biggest shareholder is John D. Stanton. His biography in SEC filings describes him as a turnaround specialist for financially distressed companies.
Florida corporation filings show that Stanton also was a director of Healthcare Resource Specialists and Bay Management Group, the companies involved in the California hospital case.
http://sharesleuth.com/2007/06/post.html
Orthopedic Development Corp.
by Christopher Carey
Orthopedic Development Corp. says its new spinal implant procedure can reduce or eliminate pain for many of the millions who suffer from chronic back problems.
The approach is simple and potentially lucrative. ODC’s system uses small pieces of specially shaped cadaver bone to help stabilize the spine. The Clearwater, Fla.-based company says in its promotional material that its TruFUSE procedure gives patients a middle option between physical therapy and major fusion surgery.
It even says its minimally invasive procedure can be performed on an outpatient basis, saving money and time. But former insiders tell Sharesleuth that ODC has encountered design and performance problems with TruFUSE. They add that documents given to investors in a recent stock placement overstated the number of patients who have been treated using the procedure, and may have overstated the results.
“I believe the company misled investors to raise money to market a product whose function and benefits had not been validated through clinical studies,’’ said Dan Grayson, who was in charge of TruFUSE sales from early November until early May.
Because the TruFUSE procedure relies on human body parts instead of mechanical devices, the Food and Drug Administration does not require clinical trials or regulatory approval. That means the company is responsible for ensuring that the treatment works.
As with any medical device that requires surgery, understanding the risks and monitoring the results is critical to the health and safety of the patients.
Sharesleuth examined some of the documents given to patients and investors and found contradictions in the company’s story. We thought it was important to disseminate this information so that patients considering this operation would have more information available to them, as would people considering making an investment in the company.
(Disclosure: No one at Sharesleuth, including majority member Mark Cuban, has any financial interest or business relationship with ODC or anyone mentioned in this report.)
THE PRODUCT
ODC sold $8 million in preferred stock through a private placement that focused mainly on the promise and potential of TruFUSE.
The procedure was patented by Dr. David A. Petersen, a Tampa Bay area surgeon. He is ODC’s chief medical officer, as well as its biggest shareholder.
In the TruFUSE surgery, small fasteners made from cadaver bone are implanted into holes drilled into the facet joints of the vertebrae. The hope is that the graft will promote fusion between joints in problem areas, reducing or eliminating pain.
The company maintains that its procedure is less invasive than other treatment options, which translates to shorter hospital stays and faster recovery times.
ODC said in its private placement memorandum that more than 200 patients were treated using TruFUSE between March and September 2006. It said the surgeries produced “uniformly positive outcomes with no material complications.’’
Sharesleuth has seen a company document that lists all of the TruFUSE procedures by date. It shows that when ODC was claiming that more than 200 patients had received the TruFuse surgery, the internal count was no more than 83.
It also shows that when ODC claimed 500 patients, in a February supplement to the private placement memorandum, the maximum number on the list was 342.
Patient names and other identifying information were removed from the list viewed by Sharesleuth.
The discrepancy in the numbers suggests that either the company’s records are incomplete – a problem in the event of a safety alert – or that the figures in the private placement memorandum are inaccurate.
Vito Santoro, who was vice president of business operations before resigning last month, told Sharesleuth that ODC’s figures for the number of patients treated with TruFuse were more of a “best guess’’ than a hard count.
“They probably were not as accurate as they could have been,’’ Santoro said, noting that the company had trouble getting a full list of patients from doctors and distributors.
ODC markets TruFUSE through a subsidiary called minSURG Corp.
PATIENTS
Despite ODC’s earlier statements, some patients who underwent the TruFUSE procedure have experienced problems. The list includes one person who had appeared at a presentation for potential investors as an example of a successful outcome.
Because of medical privacy laws, the identities of most of the TruFUSE recipients are off limits to Sharesleuth. However, Sharesleuth saw correspondence that discussed the above patient’s situation, identifying him by first name only.
Sharesleuth asked doctors at university medical centers about TruFUSE. Most would not speak on the record, citing unfamiliarity with the product and the surgical technique. But all said they would not consider using any new procedure on their own patients unless it had been the subject of a peer-reviewed report that demonstrated its merits.
Sharesleuth could find no such report for TruFUSE.
Dr. Michael Mac Millan, an associate professor and chief of spine surgery at the University of Florida's College of Medicine, said an investigation of the risks and benefits should precede the marketing of almost any new product.
“I think that a clinical product that has not been evaluated under the auspices of an institutional review board of a university or hospital would fall outside the norm of good clinical practice,’’ he said.
Dr. Jurgen Harms, an internationally known spine specialist in Carlsbad, Germany, said he would require biomechanical testing results, surgical results and clinical studies.
“Without biomechanical test and clinical outcome studies, I don’t see a chance to use this product clinically,’’ he said in an e-mail response to questions from Sharesleuth.
Harms added that ODC’s approach to fusion through minimally invasive surgery was nevertheless interesting.
THE OFFERING
ODC is not a public company. It sold 4 million shares of preferred stock at $2 a share in its private placement. The stock was available only to accredited investors – those who met certain income or asset guidelines -- and the minimum investment was $100,000.
ODC said in the placement memorandum that its goal was to establish TruFUSE as the treatment of choice for minimally invasive spine surgery. The company said it planned to increase awareness of the procedure among doctors, hospitals, patients and insurers, expand its marketing and sales and take the product national.
ODC cited a report that said the market for orthopedic spinal products and procedures was expected to grow from $3.65 billion in 2003 to $5.75 billion by the end of last year.
ODC’s placement memorandum said that company had 14.2 million common shares outstanding prior to the sale, including 760,000 options granted to outside directors.
Even after the sale, Petersen and Doulgeris controlled a majority of the company’s shares.
The private placement was managed by GunnAllen Financial Inc., a Tampa-based brokerage that received $800,000 in fees from the proceeds.
ODC executives declined to respond to written questions from Sharesleuth, saying through an attorney that they first wanted to know the identities of the people providing information about the company.
ODC also warned Sharesleuth not to publish information contained in the private placement memorandum, saying that it was a confidential document. However, a copy has been entered as evidence in a court case, making it a public record.
Petersen referred questions to Doulgeris, who said in an email last week that he could not respond because of the pending litigation.
GunnAllen also declined to reply to a list of questions submitted by Sharesleuth.
David H. Jarvis, GunnAllen’s general counsel, cited a policy of not commenting on litigation involving the company. He said that policy would also extend to clients of the company.
E-MAIL CAMPAIGN
Starting in February, ODC’s officers, directors and advisory board members began receiving e-mails sent from accounts with fictitious names, raising questions about the contents of the placement memorandum. Some of the messages also went to GunnAllen.
The e-mails challenged some of the statements that ODC made in the memorandum, including the credentials and track records of its management. They also alleged that ODC was overstating the number of TruFUSE procedures and that it had no scientific basis for the claims it was making about pain relief, recovery times or failure rates.
Printed copies of the e-mails have been entered into evidence in a lawsuit filed in state court in Florida.
Those documents show that Roger L. Overby, senior vice president for investment banking at GunnAllen, responded to one of the messages from the anonymous emailer.
Overby said that GunnAllen performs “extensive due diligence” on a company and its founders and senior management before taking them on as a client. The company’s dealings with ODC, he said, were no exception.
“We believe Dave Petersen and Jim Doulgeris, co-founders and executives of the company, have done a good job of managing an early stage fast growing company in a competitive marketplace,’’ Overby wrote.
ODC responded to the emails by hiring a private investigator to determine their source.
ODC also asked a special committee of its board of directors to review the allegations. The company said in a notice that was posted briefly on its Web site that those directors concluded the charges were without merit.
Last month, four top managers left the company. Grayson said that he and another employee were fired and that two others resigned. The names of all four have disappeared from the contact list on the company’s Web site.
The shakeup at ODC also has inspired at least three lawsuits – one by Grayson, one by the company and one by an investor in the private placement.
PRIVATE PLACEMENT MEMORANDUM
Sharesleuth has reviewed ODC’s private placement memorandum, as well as a supplement issued a few months later. We noted that ODC did not mention any clinical trials of the TruFuse procedure, or any other broad-based, long-term study of its effectiveness.
We wondered how the company could claim, without such a study, that doctors had performed the procedure on several hundred patients without a material complication.
We also wondered what sort of review the company conducted that led it to state in the supplement in February that the failure rate for the TruFuse procedure after a reported 500 patients was “plus or minus 5 percent of cases.’’
Sharesleuth noted that the “Use of Proceeds’’ section of the placement memorandum did not contain line items for medical studies or research and development. It did, however, envision ODC buying back as much as $2.025 million in shares from existing holders.
We found that the original private placement memorandum did not contain certain information about the prior business activities of James Doulgeris, ODC’s president and chief executive, and Peter M. Sontag, chairman of the board of directors.
For example, the bankruptcy trustee for a now-closed California hospital has sued Doulgeris and his former company in connection with their management of the facility while it was trying to reorganize through Chapter 11 proceedings. The suit alleges breach of fiduciary duty and negligence and seeks repayment of more than $1 million in fees.
ODC disclosed that information in a supplement that was distributed in February, after the company received the first of the anonymous emails.
AN INVESTIGATION
The investigation that followed those emails created a climate of suspicion at ODC, which had been a small, close-knit company, said Santoro, who had worked there since its inception in 2003.
“I think the company culture changed,” he said. “They were looking under every rock because of what was going on. It seemed like everyone became suspect. It wasn’t conducive to a career anymore.’’
ODC and minSURG also lost their vice president of sales, chief technical officer and business development manager.
Grayson was fired May 8 after raising questions internally about TruFUSE. He sued, claiming that the company breached his employment contract and fraudulently induced him to enter in that agreement.
Grayson’s complaint alleged that ODC and minSURG had no clinical data or internal study to support the claim that TruFUSE had been used on more than 200 patients between March and September 2006, with no reported problems.
His suit also said ODC and minSURG had no clinical data to support claims that TruFUSE provided “immediate pain relief” and that most patients recovered in three months of less.
Grayson’s suit added said that, up to the time of his firing, ODC had no Good Manufacturing Practice program, as required by the FDA.
Grayson, who has specialized in orthopedic medical sales for nine years, said in an interview last month that he was compelled to take his concerns public through the lawsuit because they had gone unheeded by other company executives.
“As an officer of the company, I had a fiduciary duty to investors, patients, surgeons and hospitals,’’ Grayson said. “It was my job, as the face of the company with regard to sales, to make sure that we were marketing a product that would benefit all those groups.’’
DAN GRAYSON
Grayson ran his own orthopedic-device distributorship before joining ODC last November, at a base salary of $200,000 a year. He said he was drawn to the company because he believed TruFUSE held substantial promise.
He still believes that product could prove beneficial to patients, provided that it is redesigned and subjected to clinical studies before it is reintroduced to the market.
Grayson said in the suit that soon after he was recruited to ODC, he became aware of graft design and graft tolerance concerns that could lead to post-operative problems for patients.
According to the suit, Doulgeris said BayCare Health System, a nine-hospital group in the Tampa Bay area, was conducting a cost and outcome study of the TruFUSE procedure, and that ODC was compiling information from surgeons elsewhere.
The BayCare study did not go forward because of BayCare’s concerns about certain elements of the program, including a potential conflict of interest on the part of one of the doctors that ODC chose to supervise it.
A brochure that ODC circulated to doctors, patients and others last year contained a question-and-answer section that also addressed the issue of clinical studies. ODC said BayCare was conducting a study.
The company said that papers on cadaver testing and engineering testing also were in the works.
“Because waiting times for publication are so long, there is no published material available specifically for TruFUSE,’’ it said in the brochure. “Five articles are being prepared by the University of South Florida biomechanical engineering department, our development partner for TruFUSE. One is complete and is awaiting publication.’’
Grayson said in his suit that he also learned that the company had no clinical study or company data to support claims about the number of procedures performed, the success rate, the average recovery time or other benefits.
Grayson said he repeatedly approached Doulgeris with concerns about the TruFUSE procedure and design, and about the potential liability the company could face by making claims that were not supported by clinical studies.
MEDICARE QUESTIONS
Grayson claimed in his suit that between 40 percent and 50 percent of the patients receiving the TruFUSE procedure were covered under Medicare, and that doctors were billing Medicare under an insurance code that applies to fusion treatments.
The suit suggested that if the implanted pieces of cadaver bone routinely come loose or pull out entirely and the vertebrae do not fuse, then ODC could become subject to claims of Medicare fraud.
ODC says in its marketing materials that the risks of serious complications with the TruFUSE procedure are low. It says that because the technique is minimally destructive to the vertebrae joint, there is little danger of compromising the integrity of the bone or causing nerve damage.
ODC has noted, however, that the grafts can work their way loose, or can break if subjected to excessive stress in the first few weeks after the surgery. Both of those outcomes could mean a return of pain for the patient, and could require new grafts or the removal of the grafts and treatment using a different method.
ANOTHER SUIT
ODC has filed a suit of its own in state court in Florida, claiming that Grayson and an investor named Terje Gronlie acted together to disparage the company. The suit alleged the Gronlie was behind the email campaign.
ODC said in its complaint that the messages contained numerous false statements that held the company and its executives in a false light and could hurt its sales efforts and interfere with its business relationships.
Gronlie was the biggest purchaser of stock in the private placement. ODC also alleges that he violated the terms of the placement agreement by buying stock on behalf of others who might not have met the investment criteria.
The complaint listed a third defendant, Kent Grasley, a purported freelance journalist in Hillsborough County, Fla. The filing alleged that he helped Gronlie route the emails through anonymous channels so that they could not be traced to the authors.
Sharesleuth could find no one by that name in Hillsborough County or anywhere else in the United States.
Gronlie has filed a suit of his own against the company and its executive.
COUNTING THE PROCEDURES
ODC said in its supplement to the private placement memorandum in February that more than 500 patients had been treated using the TruFUSE procedure.
Grayson told Sharesleuth that he and other employees who saw the supplement before it was distributed were concerned that the number was too high.
“It raised a red flag for us,” he said.
They decided to rewrite that section and submit it to Doulgeris. The warning was disregarded, Grayson said, and the letter went out with the original number.
ODC even referred in its second supplement to the placement memorandum to a “review” of the first 500 TruFUSE cases. It said that the review had prompted the company to increase its estimate of expected failures, to “plus or minus 5 percent of cases.’’
“With an anticipated continuing growth rate, we believe that our present clinical success rate is not reasonably sustainable and that surgeon expectations should be properly realigned,’’ it said.
Although the failure to achieve fusion through such a procedure generally would not have serious health consequences for the patient, the emotional toll could be devastating, Mac Millan said.
“It’s psychologically disastrous to be told that your treatment didn’t work and has to be redone,” he said.
THE CHIEF EXECUTIVE
None of ODC’s outside directors have expertise in the medical or medical-device fields.
Doulgeris’ biography in the placement memorandum said he had “spent 22 years of his 30 career in executive management, primarily as president, CEO and director of for-profit, non-profit, public and private companies in the hospital, ancillary provider, medical device and healthcare services sector.”
Florida corporation records show that he has been an officer or director in a dozen companies in that state since the early 1990s. He was involved in the creation of nearly all of those companies, most of which have been dissolved.
One venture that ended badly was Healthcare Resource Specialists Inc, a Tampa company that was created in 2002 to provide crisis management to troubled companies in the healthcare industry.
The company was hired in January 2003 to provide interim management at Granada Hills Community Hospital, a facility in California’s San Fernando Valley that was reorganizing in bankruptcy court.
Doulgeris became chief executive, and someone from Health Resource’s parent company, Bay Management Group LLC of Tampa, was appointed chief financial officer. According to legal filings, Doulgeris told the hospital’s board that its finances were stabilizing and that the facility could survive. But just after the Fourth of July holiday in 2003, the board learned that the management company had neglected to remit payroll taxes.
It fired Healthcare Resource and converted the hospital’s bankruptcy to a liquidation. The trustee sorting through the financial wreckage alleged that Doulgeris, Health Resource and Bay Management contributed to the collapse.
The trustee's suit alleges that Doulgeris and the hospital’s chief financial officer acted in their own self-interest by paying $1.2 million in management fees while neglecting $1 million in payroll taxes and $5 million in bills, according to an account last year in Modern Healthcare, a trade publication. The trustee also noted that Doulgeris and the company misrepresented their experience and abilities when seeking the assignment.
Doulgeris remains a defendant in the suit, which cites breach of fiduciary duty and negligence and seeks the repayment of the fees.
Doulgeris’ biography in the placement memo makes no mention EarthFirst Technologies Inc. (OTCBB: EFTI), a company outside the healthcare industry. His name appeared as the contact person on press releases issued in 2000 by EarthFirst, which was pursuing technologies for the production of alternative fuel and the treatment and remediation of solid waste.
EarthFirst’s chairman and biggest shareholder is John D. Stanton. His biography in SEC filings describes him as a turnaround specialist for financially distressed companies.
Florida corporation filings show that Stanton also was a director of Healthcare Resource Specialists and Bay Management Group, the companies involved in the California hospital case.
BOARD OF DIRECTORS
ODC’s private placement memorandum did not mention that Sontag was formerly president of 800 Travel Systems Inc., a public company that ran an Internet and telephone travel agency. It filed for bankruptcy in March 2002 and its assets were sold.
Sontag had stepped down as chief executive in September 2001 but remained chairman of 800 Travel's board until two days before its bankruptcy filing.
Court documents list Gary H. Baker, another current ODC director, as the trustee who oversaw the liquidation.
Sontag is a Tampa Bay-area entrepreneur whose activities have primarily focused on the travel industry. He currently is a director of World Air Holdings Inc. (Pink Sheets: WLDA), the parent company of World Airways.
Sontag also is founder and president of Fast Lane Travel Inc., which offers luxury package tours for Porsche enthusiasts that include a visit to the automaker’s factory and driving on Germany’s Autobahn.
Baker is the registered agent for Fast Lane Travel, according to Florida corporation filings.
Prior to the private placement, ODC had five directors – Doulgeris, Petersen, Sontag, Baker and Richard T. Welch.
ODC said in the placement memorandum that it paid its independent directors an annual fee of $60,000 a year, plus $2,000 for each board meeting. Directors get $6,000 for each committee membership, with the exception of the chairperson, who gets $12,000.
The company said it had accrued director’s fees of $389,000, payable partly in cash and partly in stock at $2 a share. It said it planned to use some of the money from the private placement to pay the cash portion of the fees.
Welch previously was chief financial officer of Vision Twenty One Inc., a publicly traded eye-care company based in Largo, Fla. He was a defendant in multiple shareholder lawsuits filed against the company after its stock collapsed in 1998.
The suits were later consolidated into a single case, whose central claim was that the company’s executives issued false and misleading statements about Vision Twenty One’s acquisition of another eye-care company, Block Vision Inc., and about its final performance afterward.
The suit alleged that Vision Twenty One touted synergies that did not exist, and failed to disclose problems with Block in a timely manner.
Vision Twenty One announced record results for the first two quarters of 1998, then posted a surprise loss in the third quarter. The company also said revenue for the earlier quarters was overstated.
It put Block up for sale, saying the divestiture would add to earnings and improve profit margins. Welch left the company in late 1999.
Vision Twenty One’s revenue declined significantly in 2000 and 2001 and the company never recovered. It settled the shareholder litigation, agreeing to pay $2.5 million to shareholders and their attorneys.
The company defaulted on its bank debt in 2002 and its assets were sold.
Welch’s biography in ODC’s private placement memorandum makes no mention of the shareholder litigation or the company’s liquidation. It simply states that Welch played a key role in Vision Twenty One’s acquisition efforts, “with over 40 acquisitions in 14 months adding $200 million in revenues.’’
Welch and Sontag both were directors of another small public company, Coast Dental Services Inc. of Tampa. The dental management company angered minority shareholders in 2003 when its majority owners – members of the founding family – announced a plan to take the company private by buying in the stock of minority shareholders.
The first proposed price was $3.25 a share. The offer later was lifted to $3.75, and then $4.50 a share, which was still very near the market price.
According to SEC filings, Coast Dental appointed Welch and Sontag as a two-person special committee of the board to analyze the self-tender offer. They were to be paid fees of $45,000 each, beyond their ordinary director pay.
Welch and Sontag’s committee rejected the first two offers as inadequate, but approved the $4.50 a share buyback price. Most of Coast Dental’s minority shareholders refused to tender their shares, and the buyback was shelved.
Coast Dental then spurned two outside bidders who were offering to buy the entire company, one at a price of $7.50 a share.
Coast Dental ultimately completed the privatization in 2005, with minority shareholders receiving $9.25 a share.
A NEW ADDITION
ODC’s private placement memorandum said the company’s board would be expanded to seven members from five. The preferred shareholders would initially elect one of the new directors, and GunnAllen would choose the other.
The preferred shareholders would get control over both of those seats in two years.
GunnAllen chose H. Jay Hill, currently executive vice president for corporate development at VillageEDOCS Inc. (OTCBB: VEDO). That company provides online data delivery, management and storage.
Its stock is thinly traded, and closed Friday at 7 cents a share.
Hill has prior ties to Overby, the GunnAllen executive who played a key role in ODC’s private placement
The New York Stock Exchange disciplined Overby in 2003. It charged that he engaged in outside business activities without the consent of the brokerages that employed him, solicited investments in outside businesses without disclosing his involvement in those businesses, and failed to disclose that involvement to his employers.
Overby consented to the charges without admitting or denying guilt and was barred by the exchange for nine months.
The NYSE’s report on the case said that, in 1996, while employed by Merrill Lynch & Co., Overby engaged in business activities with a privately held medical technology corporation without Merrill Lynch’s knowledge or approval.
In 1996 and 1999, Overby entered into consulting agreements with that company, again without the knowledge or approval of his brokerage employers. According to the report, his compensation included $290,000 in cash, plus stock options.
The NYSE said that, in 1997, while working for Prudential Securities Inc., Overby helped the medical technology company arrange a partnership agreement with another company whose shared traded on the Over-The-Counter market.
In 1999, the medical products company was acquired by its partner, and Overby became a shareholder representative within the combined business, again without the knowledge or approval of his employer.
The NYSE report did not identify the medical technology company. But the dates of the transactions it described coincide with deals between Unitron Medical Communications Inc., which was based in the Tampa Bay area, and Sabratek Corp. of Skokie, Ill.
Unitron Medical’s president at the time of the merger was H. Jay Hill.
Sabratek’s SEC filings show that Overby wound up with 34,333 Sabratek shares through the merger, while Hill had 16,451. Sabratek’s stock was trading in the vicinity of $20 a share at the time of the transaction.
Within three months, however, Sabratek’s stock had declined by nearly 90 percent. The formerly high-flying medical equipment company announced a surprise drop in earnings, failed to file its quarter report to the SEC on time and parted ways with its founder and chief executive, K. Shan Padda.
Sabratek filed for bankruptcy in December 1999. Its Unitron Medical subsidiary, which did business under the name Moon Communications, also sought Chapter 11 protection.
The SEC filed accounting fraud charges in September 2001 against Padda and three other Sabratek executives, alleging that they engaged in a scheme to overstate the company’s sales and earnings.
The SEC said the fraud occurred before the Unitron merger. The charges covered the company’s annual report for 1998 and quarterly reports through the first quarter of 1999.
All four defendants settled with the SEC without admitting or denying guilt. They agreed to pay penalties and disgorge money they had received in bonuses or other compensation.
As is often the case when Sharesleuth investigates, we find additional information that could have a material impact on the decision making of consumers or investors. We hope that this report provides valuable insight for those who will consider doing business with the companies and individuals involved.
Susan Drury provided fact-checking services for this article.
Posted by Chris Carey on June 8, 2007 07:02 PM | Permalink
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Nice work.
Posted by: Andrew Sayeg | June 11, 2007 10:44 AM
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