OT OT OT LASV Enterprises
The key figure behind the Pay Pop scheme was Zaba. This was not his only penny stock experience. In 2000 he had acquired control of a shell company with publicly-trading stock called LASV, and followed the game plan that had worked with Pay Pop. LASV issued public statements about extravagant projects to buy a multi-million-dollar casino in the Dominican Republic, about receiving a loan to buy an airline, and about the billions it expected to collect from a new Russian lottery it would operate. All of these activities were illusory and just designed to get people to buy the stock and drive the price up so Zaba could allegedly dump his own shares. This he did, along with attorney Soloski. The pair made about $2.3 million from the LASV scheme, according to an SEC statement of April 5, 2004.
Kevin Orton
Indicted along with the promoters and sellers of Teletek was a Salt Lake City accountant named Kevin Orton, whose role in the scheme was described by prosecutors to the "Las Vegas Review-Journal" in October 1999 as "paying bribes and operating the principal stock and bank accounts used to carry out the scheme. " (1) He was convicted on charges of racketeering, securities fraud, and wire fraud and sentenced to about nine years in prison. He had already started this sentence when he was named as a defendant in an SEC civil case against the Draper, Utah-based Intelliquis International Inc., a penny stock that was delisted from the Over-the-Counter Bulletin Board for failure to file reports with the SEC as required. In the financial statements it had filed, for 1999 through 2001, the SEC alleged that the company had overstated its revenues by 37% and its shareholder equity by 49%, much of this due to the company's policy of treating the transfer of products to consignment dealers as completed sales, a practice not consistent with US Generally Accepted Accounting Principles (GAAP) because of the uncertainty as to the ultimate sale. Intelliquis's auditor--Kevin Orton--was accused of allowing the company to issue the financial statements with this inappropriate accounting treatment.
Jones, Jensen & Company
According to information in an SEC administrative complaint in a separate case, Kevin Orton had been a partner in the Salt Lake City accounting firm of Jones, Jensen & Company, which seemed to be the auditor of choice for more than a few penny stock issuers that were later named in federal civil, criminal, or administrative actions. The name partners in the firm--R. Gordon Jones and Mark F. Jensen--were cited for lapses in auditing standards in other penny stock cases, including Pan World Minerals International, Dynamic American Corporation, and Sky Scientific.
Pan World Minerals and Dynamic American
Although Pan World and Dynamic American were two separate companies, both controlled by the same Utah residents--Robert G. Weeks, David A. Hesterman, and Kenneth L. Weeks, and both issuing stock to finance murky South American mining deals that had little benefit for the companies' investors, they were marketed to investors as separate companies. Dynamic American actually negotiated to buy a tin mining operation in Bolivia, but according to information in the SEC's cases against the two companies and their principals, Hesterman and the Weeks spent a great deal of time paying offshore entities to create shell companies to receive unregistered Dynamic American stock, on the flimsy premise that the shells were providing "consulting" services. In December 1996 Dynamic American's charter was revoked by the State of Utah. The Weeks and Hesterman were barred by the SEC from penny stock offerings in February 2002. In May 2001 auditor Jones was barred from practicing before the SEC over his alleged failure to obtain "competent evidential matter" to help establish a reasonable value for the Bolivian mining interests which Dynamic American had artibrarily valued at about $40 million. Whatever their value, the original owner reportedly took the properties back in late 1996, so shareholders would receive little or no benefit from them.
Sky Scientific
Another Jones, Jensen audit client whose accounting was challenged by the SEC was Sky Scientific, a penny stock issuer formed through a reverse merger with a publicly-traded shell company in 1993. After the merger, when Sky could sell shares to the public, the company suddenly began a publicity campaign to announce big mining projects, hired a team of stock promoters--Robert Schlien, Melvin L. Levine, William David Jones, and Philip M. Georgeson( 2)--to boost the stock's price. According to an administrative proceeding against several participants in the scheme, Schlien, Levine, and Jones distributed about 20 million shares of Sky Scientific among accounts at Canaccord Capital, Smith Benton & Hughes, and two other brokerages.
The Sky Scientific promotion raised about $80 million from investors before crashing upon revelations of faulty accounting. in October 1994. Within the previous year, the company had gone through six auditors, including Jones, Jensen, in search of someone to let it get away with including on its balance sheet almost $30 million of mining properties and $40 million of "restricted" Russian certificates of deposit. Now here is something that may sound familiar. Eagle Holdings, the company which bribed brokers at Cohig & Company to push its stock, also had claimed to have millions of dollars worth of Russian CDs on its books. The Eagle CDs turned out to be fakes, as did the ones claimed by Sky Scientific.
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Most reporting of fraudulent penny stock promotions deals with one case at a time, because news reporting deals with events as they happen. That doesn't mean that each case is an isolated or unusual event. Often the individuals involved in fraudulent stock promotions also turn up in other cases. Corrupt brokerage firms are often involved in more than one fraudulent scheme, and penny stock fraudsters frequently pop up in other schemes as well, until they end up being described as "recidivists," the SEC's scornful way of referring to repeat offenders. There are a lot of recidivists out there, many not the least intimidated by court injunctions, fines, or sanctions and some not even much deterred by prison sentences. It is important for small investors to be aware that a lot of these pros are on the job, that they sometimes try to hide behind the scenes as stock promoters, and that they have their own support group of accountants and attorneys, all on the look-out for new worthless stocks to tout to the unwary.
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(1)Carri Geer, 'Three accused of bribery in stock scheme trial," Las Vegas Review-Journal, October 27, 1999.
(2) All of these promoters have been fined, sued, censured, or convicted in other fraud cases. Between 1989 and 1992 Schlien was barred from association with broker-dealers and subject to a federal court injunction barring future securities laws violations, fined $25,000 in a Florida state securities case, much of these actions related to his alleged role in a fraud at Profile Invs. Corp.Jones was censured and fined in April 1989 by NASD for making unauthorized transactions in customer accounts, was made subject to restrictions on his business activities by the Florida Department of Banking and Finance in 1989, barred as a securities firm supervisor by SEC in 1993 and convicted on charges of conspiracy, securities fraud, and wire fraud in 1998 in one of the Las Vegas Teletek cases (US v Cozzolino). Georgeson was censured in September 1989 by the NASD and was subject to a permanent injunction against securities law violations by SEC. Levine was a defendant in two criminal cases resulting from the 2002 penny stock investigation in South Florida called "Operation Bermuda Short."
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© STEPHANIE AYRES 2005 ALL RIGHTS RESERVED
FINANCIAL CRIME NEWS 2005
