“Health Food” Company, CEO Fined by SEC
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The SEC filed charges against a Florida-based penny stock company, Heathrow Natural Food & Beverage Inc., and its CEO Michael Pagnano with defrauding investors after it put out phony press releases proclaiming large sales and fantastic revenue projections.
Meanwhile, the purported health food company had never actually manufactured any of the products it was supposed to have sold, nor did it have any of the distribution agreements with major retail chains that it claimed.
At the time, Pagano was busy prompting the illegal, unregistered distribution of billions of shares of company stock to several people or entities, including himself. He profited by more than $150,000 by selling 877 million of his shares into the market, capitalizing on the phony press releases that boosted public demand for Heathrow stock.
Pagano also is charged with insider trading because he sold his shares while in possession of material nonpublic information about the falsehood of the press releases.
The SEC separately charged New Jersey-based transfer agent Registrar and Transfer Co. (R&T) and its CEO Thomas Montrone with violating the registration provisions of the federal securities laws and failing to supervise firm employees who enabled Heathrow’s unregistered distribution of billions of purportedly unrestricted shares of its stock.
An SEC examination revealed that R&T repeatedly failed to detect and address blatant red flags in connection with more than 54 share issuance requests from Pagnano, including the fact that none of them were accompanied by legal opinions pertaining to the shares to be issued.
In every instance, the shareholder for whom the issuance was requested was not the shareholder covered by the attached opinion letter. R&T issued more than a billion shares to Pagnano directly in spite of the firm’s own written policy against honoring requests by company officers to issue unrestricted shares to themselves. R&T even made special accommodations so the firm could keep track of Heathrow’s unusually large and frequent issuance requests, which totaled 5.6 billion shares in 27 months.
Without admitting or denying the findings, R&T agreed to settle the charges and pay disgorgement of $24,265.86 plus prejudgment interest of $3,401.78 and a penalty of $100,000, and Montrone agreed to pay a $25,000 penalty.
