Sharesleuth.com

Surge in Chinese coal company's shares produces quick gain for private placement investors

2010-03-11T14:53:13Z

A surge in the shares of SinoCoking Coal and Coke Chemical Industries Inc. (Nasdaq: SCOK) has produced a small fortune - on paper at least - for a group of unidentified investors who bought stock in an offshore placement last month.

SinoCoking's stock rose tenfold after the little-known Chinese company went public Feb. 5 through a reverse merger with Ableauctions.com Inc., based in Burnaby, British Columbia.

SinoCoking's shares peaked at $53.70 on Friday. They gained nearly $22 last week alone, with the only news being the groundbreaking on a $70 million coking facility in Henan Province.

SinoCoking's stock closed at $34.09 on Wednesday, giving the company a market capitalization of more than $500 million.

SHARE PLACEMENT

On the same day that SinoCoking completed its reverse merger with Ableauctions.com, it raised $7 million through a placement of shares and warrants to what it called 34 "high net-worth investors.'' Those investors got 1.18 million shares at $6 each, plus warrants to buy 590,446 additional shares at $12 each.

At Wednesday's closing price, the shares were worth $33.1 million more than the investors paid for them, and the warrants could have been exercised at a profit of $13 million.

The shares were issued under a so-called Regulation S exemption, which covers stock sold to non-U.S. buyers. They cannot be resold in the United States until certain holding conditions are met.

Sharesleuth asked SincoCoking over the weekend whether it could offer any explanation for the sharp rise in its stock. The company did not respond, but issued a press release on Monday saying it was unaware of any "recent or pending material announcements or recent or pending corporate developments that would account for the unusual trading activity in our stock."

Roughly 1.25 million shares have traded hands since March 4 - when the company's stock jumped more than $11, topping $40. SinoCoking said in a recent SEC filing that it had 14.7 million shares outstanding as of Feb. 16.

It is unclear how many of those shares are in the public float, or whether the surge in the company's stock is simply the result of an increasing number of investors pursuing a relatively small number of shares.

(Disclosure: No one associated with Sharesleuth.com has any position, short or long, in SinoCoking.)

THE COMPANY

SinoCoking, which has headquarters in the city of Pingdingshan, supplies coal and coke to power plants, steel mills, factories and other end users. It produces coal from its own mines, and buys some from third parties.

SinoCoking said in a recent financial presentation that it needs $65 million in "incremental capital'' to complete its new coking facility. It is pursuing another share placement, using U.S. investment bankers and soliciting U.S. investors.

The company had $51.4 million in revenue in the 12 months that ended June 30, according to an SEC filing related to the reverse merger. That was down from $58.6 million in the same period a year earlier.

The company said it had net income of $17 million for the 12 months that ended June 30, off 4 percent from a year earlier.

In a recent financial presentation, it projected sales of $69.4 million and earnings of $19.3 million this year. That estimated profit margin would far exceed the actual margins of virtually every publicly traded coal producer.

ABLEAUCTIONS.COM

SinoCoking's merger partner, Ableauctions.com, was a money-losing company that specialized in liquidating merchandise through auctions and closeout stores. It also dabbled in collectibles, and more recently moved into real estate lending and development.

Ableauction, reported revenues of $1.44 million and a loss of $1.12 million for the nine months that ended Sept. 30, 2009. It had sales of $2.81 million and a loss of $2.77 million in 2008.

Ableauctions was controlled by Abdul Ladha, a Vancouver-area entrepreneur and philanthropist.

The company completed a 1-for-20 reverse split just prior to the merger with SinoCoking, which left its original shareholders with a roughly 3 percent stake in the combined entity.

THE NEW CEO

Ladha resigned as president and chief executive at the time of the deal. He was succeeded by Jianhua Lv, who is described in SEC filings as being 41 years old and having more than 20 years of experience in the coal and coking industries.

The SEC filings also say that he has a bachelor's degree from Henan University in Chinese, a master's degree from Henan University in economics and a master of law degree from Central Party School.

Sharesleuth asked SinoCoking how Lv was able to work in the coal and coking industries while pursuing those academic degrees. The company did not respond.

Lenco Mobile links up with recidivist SEC offender

2010-02-16T04:44:27Z

Using its stock as currency, Lenco Mobile Inc. (Pink Sheets: LNCM.PK) has spent the past few years snapping up cell phone and Internet marketing companies.

Lenco's share price has risen with the acquisitions, hitting a new high of $6.05 on Friday. The company now has a market capitalization of $389 million, and is seeking a listing on the NASDAQ exchange.

But a Sharesleuth investigation has found that at least two of the businesses that Lenco acquired - for 8.5 million shares and other consideration - were connected to Michael Wayne Crow, the subject of two previous Securities and Exchange Commission cases.

In November 2008, a federal judge found that Crow secretly controlled a securities firm called Duncan Capital LLC, unlawfully collecting millions of dollars in commissions while violating broker-dealer registration and reporting provisions. Crow was ordered to disgorge those earnings, with interest, and pay a $250,000 fine.

He had previously settled another SEC case alleging that he engaged in insider trading as chief executive of a public company, and also filed false financial reports.

Although one of Lenco's SEC filings mentions a "Michael Crow,'' the company has not disclosed that he is the same Michael Crow who has been barred from serving as an officer or director of any public company, or from associating with any broker, dealer or investment advisor.

Crow filed for personal bankruptcy in California last month, listing $30,000 in assets and $11.5 million in debts, including $7.25 million owed to the SEC. In that filing, he said that one of the companies that Lenco purchased, for millions of dollars in stock, never had any business operations.

Sharesleuth found that a third business that Lenco acquired is connected to Thomas C. Ronk, a former stockbroker with a history of disciplinary actions by the National Association of Securities Dealers (now FINRA).

Ronk operates several investment web sites, including BuyIns.net, which purport to identify companies whose stocks have been targeted by illegal "naked shorting'' and are poised for price jumps.

He also is partners with former SEC Chairman Harvey L. Pitt in RegSho.com, a site created to help short sellers locate shares to borrow so that they can remain in compliance with market rules.

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THE COMPANY

Lenco describes itself as a mobile marketing solutions company with operations in the United States and South Africa.

It said in its most recent SEC filing that it had revenue of $8.7 million for the first nine months of 2009, compared with just over $2 million in the same period of 2008. Lenco posted a loss of $205,195 through Sept. 30, 2009, versus a profit of $343,299 a year earlier.

Lenco operates from a cluster of offices near the ocean in Santa Barbara, Calif. Its headquarters is a street-level storefront that holds just a few desks. There are two signs on the building, one for Lenco and another for AdMax Media, a Lenco subsidiary.

Lenco also rents several small, windowless offices around the corner from its headquarters, and pays $3,000 a month for a condominium in a residential complex just north of Santa Barbara's downtown core.

Before moving to Santa Barbara, Lenco used a residential address in San Diego that has appeared in SEC filings as the headquarters for a slew of shell companies. The people behind most of those companies are a South African financier named Zirk Engelbrecht and a former beauty queen named Angelique deMaison, who was one of the top six finalists in the 2005 Miss USA pageant. Both are significant Lenco shareholders.

Lenco (known previously as Sovereign Wealth Corp.) was one of those shells. It got into its current line of business in February 2008, acquiring a South Africa-based business called Digital Vouchers (Pty) Ltd.

Michael Levinsohn, the founder of Digital Vouchers, took over as chief executive, and Lenco borrowed $1 million from another entity he controlled. According to SEC filings, that debt was later repaid with 10 million shares of stock, worth more than $60 million at current market prices.

Lenco acquired another of Levinsohn's South African companies, a mobile advertising business called Multimedia Solutions, in August 2008. He now is Lenco's biggest shareholder, with 22.4 million shares, or nearly 35 percent of the total outstanding.

Levinsohn told Sharesleuth that because Lenco has a registration pending with the SEC, he was legally prohibited from responding to our questions about the company, its involvement with Michael Crow and the valuation of the businesses it bought. He added, though, that a law firm advised Lenco on "all matters related to acquisitions and the regulatory environment."

"I am comfortable that we have dealt with our acquisitions in a professional and transparent manner,'' he said in an email to Sharesleuth.

(Disclosure: No one associated with Sharesleuth has any investment position, short or long, in Lenco Mobile)

CELLCARD

In June 2008, Lenco bought what it described as undeveloped technology from a California company called eAccounts Inc., paying with 10 million shares.

Lenco says on its web site that the CellCard technology it acquired included "an advanced compression technology platform that enables marketers to instantly convert and deliver any existing TV, print, radio or web advertisement so that it can be viewed on most mobile handsets." It says CellCard also has an application that allows people to make secure credit card or debit card payments over their cell phones.

Lenco's purchase agreement for eAccounts Inc. and its CellCard technology identified that company's president and sole shareholder as Matthew Pirvul, of Oceanside, Calif.

But Sharesleuth noted that CellCard's Internet domain registration listed the contact person as Thomas Ronk.

Sharesleuth also found that Ronk filed a trademark application for the CellCard name and logo in April 2008 - two months before Lenco acquired the company - listing himself as their owner.

The status of Lenco's CellCard and Digital Vouchers units is unclear. Although Lenco Mobile has links to both of those businesses on its web site, they return error messages, indicating the sites are not accessible to clients or to the general public.

THE BUSINESSES

Some of Lenco's businesses engage in domaining - the practice of parking highly trafficked Internet domains and filling their pages with ads. Others use Internet sites to gather names, email addresses and other information valuable to marketers.

Lenco's two major acquisitions last year were Eden Marketing LLC and the online marketing unit of Superfly Advertising Inc. (Pink Sheets: SPFL.PK).

Lenco acquired Eden in May 2009 for 3.5 million shares, which the company valued at more than $8.2 million. In an SEC filing, Lenco said it bought the company for its domain names and its consumer gift-card business, which had the rights to market a U.S.-based program for charities to accept donations of unused gift cards and tap the balances.

Nevada business filings show that Eden was incorporated there just a few months prior to the deal. Those filings list its managing member as MC2 Squared Inc., and its managers as Michael Crow and Michelle Wasserman.

Crow said in his bankruptcy filing that he was chief executive of MC2 Squared. He also said that Eden was one of a handful of limited liability companies he created to develop new business ideas with different partners. He noted that only one of them - not Eden - ever had any operations, and that it was discontinued at a loss.

The list of assets did not include any shares of Lenco stock.

ADMAX MEDIA

Lenco announced last February that it was buying the online marketing unit of Superfly Advertising for 5 million shares, a $625,000 convertible note and just over 200,000 warrants. Lenco said it got more than 1,200 unique URLs, customer databases and contracts and a call center in Costa Rica. As part of the transaction, Lenco also assumed some of Superfly's debts. It said in an SEC filing that it issued over $2 million in convertible notes and almost 645,000 warrants to seven of Superfly's creditors.

SEC filings show that Crow and other entities connected with him were the biggest shareholders of Superfly at the time of the deal.

Superfly's headquarters address in New York City also was home to many of Crow's companies, including Duncan Capital Group LLC, one of the defendants in his most recent SEC case.

Lenco turned the businesses that it bought from Superfly into AdMax Media, a subsidiary that promises enhanced online and mobile ad delivery through proprietary technology.
AdMax shares a building with Lenco in Santa Barbara.

PREVIOUS PROBLEMS

SEC filings show that Superfly had purchased the businesses just five weeks earlier from Commerce Planet Inc. (Pink Sheets: CPNE.PK), which was facing a Federal Trade Commission investigation into complaints of deceptive business practices.

The FTC ultimately sued the company and two of its executives, alleging that many of the people who signed up for its "free" Internet auction kits wound up paying $59.99 for enrollment in an online supplier program. The FTC said people who discovered the unexpected charges had difficulty getting them reversed.

A California court issued a $19.7 million judgment against Commerce Planet, its chief executive, Michael Hill and Aaron Gravitz, former head of its Legacy Media division --one of the businesses acquired by Lenco.

That judgment was suspended because of the defendants' inability to pay. But the FTC negotiated a settlement that calls for them to come up with as much as $1.2 million in reparations.

Hill, who is responsible for the biggest chunk of that money, now is president of Lenco's AdMax unit. Real estate records list Hill as the owner and occupant of the condominium that the company is renting in Santa Barbara.

CROW'S PAST

Michael Crow once was president and chief executive of Wilshire Technologies Inc., a public company in Carlsbad, Calif., near San Diego. The SEC sued Crow and Wilshire's vice president, Peter Kuebler, in 1996, saying they overstated Wilshire's earnings and issued misleading press releases and financial reports. The SEC also accused Crow of insider trading, saying that he sold shares with the knowledge of the company's true financial condition, helping to avoid more than $1.2 million in losses.

Crow settled with the SEC in 1998 without admitting or denying guilt. He agreed to disgorge $1.25 million, plus $225,773 in interest. He also was barred from serving as an officer or director of a public company, or from practicing or appearing as an accountant before the SEC.

In 2007, the SEC brought a new case against him, this time for violations of its registration and reporting requirements. In the complaint, the SEC said that from November 2003 through at least December 2004, Crow secretly controlled Duncan Capital, a New York investment firm that specialized in arranging private share placements for public companies.

The SEC said that although Crow received most of the profits from Duncan Capital's activities, the firm never disclosed his involvement, or his previous run-in with regulators in Southern California. In fact, Duncan Capital explicitly stated that no one affiliated with the firm had ever been the subject of an SEC order or been enjoined by a court for investment-related activities.

After a seven-day trial in 2008, a federal judge ordered that Crow, a business partner and Duncan Capital repay "ill-gotten gains" of nearly $9 million (more than half of which was to come from Crow and entities related to him). He was also ordered to pay a $250,000 penalty.

THOMAS RONK

Ronk was a stock broker in Southern California before running afoul of regulators.

In 1999, he was fined $50,000 and suspended for 30 days by the NASD. Without admitting or denying the allegations against him, Ronk consented to the entry of findings that he participated in private securities transactions without providing prior written notification to his firm, describing the proposed deals or his role in them.

Ronk's securities registration was later revoked for failure to pay the fine.

Ronk now is proprietor of several web sites, including BuyIns.net and SqueezeTrigger.com, that purport to identify stocks that have been the subject of heavy shorting and are poised to rise in price as traders cover their positions.

Ronk has been one of the most vocal proponents of a theory that a shadowy network of hedge funds and other investors have been driving down the stock prices of U.S. companies through so-called "naked shorting'' of their shares.

Two of the companies that complained most loudly about the issue - Universal Express Inc. and Pegasus Wireless Corp. - later became the subject of SEC cases alleging that they improperly dumped vast amounts of stock on the market, undercutting their own share prices.

Corporation records and SEC filings show that Ronk and Zirk Engelbrecht, one of Lenco's founders, both have been listed as executives of an investor relations and advisory company called Aston Organization Ltd.

SEC filings also show that Ronk was once president of a public company called e-Synergies Inc., which counted Engelbrecht's wife among its largest shareholders.

Sharesleuth will keep following this story and report on what we find.

Michael Crow Bankruptcy

Federal authorities scrutinizing Vicis Capital execs

2010-01-05T09:41:10Z

Federal authorities are investigating the activities of two executives at Vicis Capital LLC, a New York hedge fund operator that began last year with nearly $5 billion under management.

Vicis is the biggest investor in a pair of small public companies that have been implicated in an insurance fraud scheme. The FBI and a grand jury have been examining what role, if any, representatives of the hedge fund played in that scheme.

The investigation has focused attention on the close relationship between Vicis and Midtown Partners & Co. LLC, a Florida-based investment bank that has paired Vicis with 20 companies whose shares trade mainly on the Over the Counter Market or Pink Sheets.

Sharesleuth learned of the probe while conducting its own investigation into Vicis. Our analysis of Securities and Exchange Commission filings shows that Vicis ultimately put more than $150 million into those companies, in return for stock, warrants, and notes convertible into shares.

Midtown Partners has collected at least $5 million in cash fees in connection with those transactions. It also has received blocks of stock and warrants that were worth millions more at the time they were issued.

The shares of many of the companies have plunged in value. Even the investments showing gains for Vicis are relatively illiquid, and the purported profits may exist only on paper.

Vicis and Midtown Partners did not respond to written questions submitted by Sharesleuth. The FBI declined to comment.

AN INSURANCE FRAUD CASE

The federal investigation involves two of Vicis' portfolio companies -- Medical Solutions Management Inc. (Pink Sheets: MSMT.PK), of Marlborough, Mass., and MDwerks Inc. (OTCBB: MDWK.OB), of Deerfield Beach, Fla. Over the past five years, the hedge fund has provided roughly $30 million in equity and debt financing to those companies.

A federal grand jury in New Hampshire has been hearing evidence in the fraud case, which revolves around falsified receivables for benefits covered by workers' compensation plans.

Medical Solutions Management spent roughly $8 million to buy insurance receivables at a discount, under a deal signed in 2007. MDwerks took over the claims processing the following year.

Authorities believe that one or both companies learned that some of the receivables were bogus. But instead of reporting the problem, MDwerks continued collecting on them.

People familiar with the investigation told Sharesleuth that certain participants in the scheme have already been charged under sealed indictments.

The Vicis executive who has been implicated in the case is Christopher D. Phillips, who has been a managing director for nearly two years. He previously headed the parent company of Midtown Partners, which is based in Tampa and has been acting as a middleman for Vicis in equity and debt placements since 2005.

Partly because of its relationship with Vicis, the company ranks among the most active firms in the country in raising capital through so-called PIPE (Private Investment in Public Equity) deals.

Phillips was the point person for dealings between Vicis and Medical Solutions Management. He also sat on MDwerk's board of directors. Shad L. Stastney, one of the hedge fund's three founding partners, was a director of both companies.

Medical Solutions Management's stock ended the year at 1.5 cents a share, down from a high of $10 in the second quarter of 2006. MDWerk's stock is trading for 0.5 cents a share. It peaked at $1.55 in July 2007.

OTHER PRESSURES

In September, Vicis barred investors from withdrawing money after being deluged with $550 million in redemption requests. News reports at the time said that Vicis' main fund was down 12 percent through the first eight months of the year, after posting a 14 percent gain in 2008.

Vicis' most recent quarterly filing with the SEC listed $2.6 billion in investments as of Sept. 30, down from $3.52 billion at end of June and $5.08 billion at Sept. 30, 2008.

It is unclear what value Vicis places on its investments in the companies that were brought to it by Midtown Partners. The quarterly SEC summaries did not list any of those shares or notes.

Although hedge fund investments are typically reserved for the wealthy, the Vicis investigation has implications for the general public, because a number of pension funds have invested money with Vicis.

The West Virginia Investment Management Board had $37.8 million in assets with Vicis at the end of November. The Fort Worth Employees' Retirement Fund, in Texas, said in August that it planned to increase its investment to $10 million, from $8 million.

(Disclosure: No one associated with Sharesleuth has any investment position, short or long, in the companies mentioned in this story.)

DEALS BETWEEN COMPANIES

Sharesleuth noted that some of the small public companies in Vicis' portfolio have entered into daisy-chain deals with one another, often generating additional shares and warrants for Vicis and additional fees and warrants for Midtown Partners.

We also noted that some of the companies sold Vicis millions of warrants - in a few cases, tens of millions of warrants -- that were exercisable at prices well below the prevailing market price of the shares. They also repriced existing, out-of-the-money warrants so that the hedge fund still could exercise them at a profit.

It's possible that some of those transactions created temporary gains that boosted Vicis' overall returns, making its funds more attractive to investors than they otherwise would be.

It's also possible that those gains boosted the profit payouts for the hedge fund's managers. Hedge fund operators typically charge a 2 percent annual management fee, and get 20 percent of any profits their funds generate.

]]> THE HEDGE FUND

Vicis was formed in 2004 by three partners:

--John D. Succo, who formerly ran derivatives trading at Paine Webber Inc. and Lehman Brothers Inc.

-- Stastney, a lawyer who had worked in derivatives at Credit Suisse First Boston, and

--Sky M. Lucas, who once managed convertible bond trading at PaineWebber and Lehman.

Succo is chief investment officer, Stastney is chief operating officer and Lucas is head of global convertible arbitrage. Vicis says it seeks to profit from volatility through arbitrage trading in stocks and options -- exploiting temporary price discrepancies in similar, but related, securities.

A GROWING RELATIONSHIP

Vicis' investments in the companies introduced to it by Midtown Partners represent a relatively small percentage of its assets under management. But the hedge fund has been making increasingly large bets on those microcap companies.

Its first placements through Midtown Partners were in the neighborhood of $1 million; more recently, it added $6 million to its stake in one company and $10 million to its stake in another.

Although Sharesleuth's review of SEC filings turned up $5 million in cash placement fees paid to Midtown in the deals, the total is likely higher. Some filings did not enumerate payments for specific transactions; however, Midtown Partners' contracts usually call for fees of 8 percent or more.

The ties between Vicis and Midtown Partners grew so close that Phillips went to work for the hedge fund in February 2008, stepping down from his position at Midtown Partners' parent company.

Phillis is, or was, on the board of four of Vicis' portfolio companies.

ASSET SHUFFLES

Sharesleuth noted that Vicis appeared to benefit from an asset shuffle last year involving Amacore Group Inc. (OTCBB: ACGI.OB), a Florida company in which it has a nearly 90 percent interest.

Amacore, which markets healthcare-related membership programs, spun off one of its divisions into a public shell at the end of July.

Vicis has $12 million invested in Amacore. It put a further $3.75 million into the spinoff, Zurvita Holdings Inc. (OTCBB: ZRVT.OB), a multilevel marketing company that sells discount medical benefits, residential utility plans and other products.

Zurvita also entered into deals with two other Vicis portfolio companies, buying assets from one and stock in another (read more on those transactions below).

SEC filings show that Vicis now holds convertible preferred stock equal to 36 million of Zurvita's common shares. It also has warrants for an additional 36 million shares, some exercisable at 6.25 cents a share and some at 25 cents.

Zurvita's stock, which has seen limited trading, ended 2009 at $1.20 a share. That gives the company a market capitalization of $67.7 million - more than double that of Amacore.

By our calculations, the spinoff of Zurvita and the additional $3.75 million investment boosted the imputed value of Vicis' original holdings in Amacore by nearly $30 million, a figure that excludes the Zurvita warrants.

As part of its placement fee for the Vicis financing, Midtown Partners got warrants to buy 720,000 Zurvita shares, also exercisable at 6.25 cents a share and 25 cents.

THE MATH

Vicis said in an SEC filing in November that it held 891.3 million shares of Amacore's common stock, and would hold more than 2 billion shares if it converted all of its preferred stock and exercised all of its warrants.

At the time of the spinoff, Amacore's stock was trading for 4 cents a share, giving Vicis' common shares a market value of just under $36 million. The stock ended 2009 at 2.5 cents, putting the market value at $22.3 million.

The Zurvita stock underlying Vicis' preferred shares would have a current market value of more than $43 million.

At Amacore's current average trading volume of just under 135,000 shares a day, however, it would take Vicis nearly two decades to unwind its position.

OMNIRELIANT HOLDINGS

OmniReliant Holdings Inc. (OTCBB: ORHI.OB) may provide the best example of the interrelationship between Vicis, Midtown Partners and other entities with ties to Midtown Partners or its parent company.

OmniReliant was created through a reverse merger in 2006. The company is based in Clearwater, Fla., and says it sells luxury products through infomercials, home shopping programs and other channels. Its offerings include a line of skincare products licensed to it by Kathy Hilton, the mother of socialite Paris Hilton.

Apogee Financial Consultants Inc., the parent company of Midtown Partners, got 3 million shares in the newly minted OmniReliant. Vicis provided $3 million in capital, in exchange for convertible preferred stock and warrants for 6 million common shares.

Midtown Partners received warrants for an additional 900,000 shares as a fee for arranging that placement.

Christopher Phillips was OmniReliant's original chief executive officer and chief financial officer. He also was CEO of Apogee Financial and held a 50 percent membership interest in Midtown Partners, SEC filings show.

Vicis has since invested around $30 million in OmniReliant, through the purchase of convertible preferred stock, the purchase of warrants and the exercise of warrants.

Phillips remains on OmniReliant's board of directors, and still is listed as the registrant of the company's Internet domain.

According to SEC filings, Apogee and Midtown Partners received cash placement fees of $1.39 million from OmniReliant in the two years that ended June 30, 2009, and got warrants with a fair value of $7.09 million.

Those filings show that Vicis holds 138.4 million shares of OmniReliant's common stock, along with warrants for 70 million additional shares.

OmniReliant had $7.63 million in revenue for the first quarter of its current fiscal year. It reported a loss of $15.8 million, with much of that attributable to accounting adjustments related to its financing transactions with Vicis.

OmniReliant had $9.55 million in revenue in its prior fiscal year, and posted a loss of $2.63 million.

END OF QUARTER STOCK MOVES

Sharesleuth noted that the market price of OmniReliant's stock often rises sharply as the close of a quarter approaches. On Sept. 18, for instance, the price jumped from 40 cents a share to 99 cents a share on a trading volume of just 100 shares.

There were no other trades for the rest of the month, and the stock ended the quarter at 99 cents.

At the end of March, the stock shot from 35 cents to $1.01, on a day when 5,300 shares traded hands. And on the last day of December 2008, OmniReliant's shares went from 60 cents to $1.

In each instance, the price moves lifted the market value of Vicis' and Midtown Partners' holdings at the end of the quarter back to the level where they had finished the previous quarter.

OmniReliant's shares did not have the same kind of gain at the end of the latest quarter. The stock ended 2009 at 40 cents, after rising 5 cents in the last few trading days.

Vicis' common shares in OmniReliant now have a market value of $55.4 million, down from $137.1 million on Sept. 30.

WARRANT DEALS

In July, OmniReliant and Vicis entered into a deal in which Vicis paid $5 million and got a warrant to buy 97.6 million common shares at 25 cents a share. The hedge fund surrendered an equal number of old warrants exercisable at higher prices.

At the time, the stock was at $1.01, although no shares had actually traded since late April.

Vicis also converted all 105.1 million of its preferred shares in OmniReliant to common shares, giving it a 96 percent stake in the company.

On Sept. 30, Vicis' board agreed to reduce the exercise price of the new warrants to 20.3 cents. The hedge fund converted 27.6 million of the warrants to shares, paying a further $5.6 million.

On the day that Vicis completed that transaction, those shares had a market value of $27.3 million.

Sharesleuth found similar deals at other Vicis portfolio companies. In July 2007, for instance, Medical Solutions Management reduced the exercise price of Vicis' outstanding warrants to a penny each, in return for a payment of $2.1 million.

Vicis then exercised all of its 37.7 million warrants -- most of which had been priced at $1 to $2 a share -- giving it a majority stake in the company. Medical Solutions Management's stock price at the time was around $3.50, although trading volume was minimal.

RELATED PARTIES

In addition to using Midtown Partners as its placement agent, OmniReliant entered into a consulting agreement with TotalCFO LLC, another entity of which Christopher Phillips was managing director. SEC filings show that OmniReliant paid that company $429,000 in the two years that ended June 30, 2009.

Florida corporation filings now list Phillips' sister, Natalie P. Collins, and father, Dale E. Phillips, as managing members of TotalCFO. Dale Phillips also is chief financial officer of Apogee Financial, Midtown Partners' parent company.

OmniReliant paid Apogee Financial a $125,000 consulting fee for due diligence on a recent acquisition.

SEC filings show that OmniReliant has invested nearly $3.2 million in an entity called RPS Trading LLC, with more than $2.5 million of that coming in the past six months, after the company received another cash infusion from Vicis.

OmniReliant also bought a company called Designer Liquidator Inc., which owned 50 percent of RPS Trading, for $150,000 and 100,000 shares of stock.

Florida corporation records show that Christopher Phillips' mother, Marilyn R. Phillips, was one of the managing members of RPS Trading, and was president of Designer Liquidator Inc.

Florida corporation filings also list Natalie Collins as managing member of Smallcapwatch LLC, a stock promotion web site that features profiles of OmniReliant and three other companies in which Vicis and Midtown Partners have stakes.

The corporation filings list the same address for all of the above entities except Apogee Financial -- an office at 20711 Sterlington Drive in Land O' Lakes, Fla.

That also is the business address for Debt Opportunity Fund LLLP, another entity that has provided financing to OmniReliant, MDwerks and several other Vicis portfolio companies.

MDwerks said in an SEC filing that Christopher Phillips' wife, Tonya Phillips, had a minority ownership interest in Debt Opportunity Fund. It also identified Vicis as the manager of the fund.

Florida corporation filings list the general partner of Debt Opportunity Fund as another entity called Total Capital Management LLC. The person listed as Total Capital Management's managing member is Christopher Phillips' next door neighbor.

Sharesleuth also turned up a filing in the Florida divorce case of one of Vicis' partners, Sky Lucas, that lists a joint bank account he held with Natalie Collins. The purpose of that account was not explained in the document.

NET TALK.COM

OmniReliant signed a marketing agreement last year with Net Talk.com (OTCBB: NTLK.OB), a Miami company in the Internet telephone business. The deal called for OmniReliant to get 1 million shares of Net Talk.com's stock as compensation.

SEC filings show that Net Talk.com had previously issued 2 million shares of its common stock to individuals and entities connected to Midtown Partners and its parent company.

Vicis has invested $4.2 million in Net Talk.com, in return for notes that are convertible to 16.8 million shares of common stock at 25 cents a share. Net Talk.com's stock closed Monday at $1.

Net Talk.com is built around assets it acquired from Interlink Global Corp. (Pink Sheets: ILKG.PK), another Vicis portfolio company that was introduced to it by Midtown Partners. SEC filings show that Vicis invested $3.5 million in Interlink Global between 2005 and 2007. That company's shares now trade on the Pink Sheets for a fraction of a cent, down from a high of $3.04 in early 2006.

Ron J. Rule Jr. is director of product development for Net Talk. Documents show that he also is director of information technology for both OmniReliant and Midtown Partners, and is a managing member of SmallCapWatch LLC.

ZURVITA ALLANCE.

OmniReliant entered into a strategic alliance with Zurvita last year.

OmniReliant granted Zurvita a license to use and sell software for an online business directory and advertising platform called LocalAdLink. It got a $2 million convertible note from Zurvita, along with 3.8 million shares.

SEC filings show that OmniReliant acquired LocalAdLink from Beyond Commerce Inc. (OTCBB: BYOC.OB), another Midtown Partners client. OmniReliant had previously provided financing to Beyond Commerce, in deals brokered by Midtown Partners, and held more than $5 million of its convertible notes.

As payment for LocalAdLink, OmniReliant forgave $4 million of the notes and surrendered warrants covering 18.3 million shares of Beyond Commerce's stock.

SEC filings show that Midtown Partners received at least $104,000 in placement fees on the original notes, plus warrants for 917,335 Beyond Commerce shares.

As part of the LocalAdLink transaction, Zurvita also bought 8 million Beyond Commerce shares for $800,000, or 10 cents a share.

Beyond Commerce's stock is now trading for 2.8 cents, down from its peak of $3.30 in the summer of 2008.

OTHER PORTFOLIO COMPANIES

Vicis has poured roughly $25 million into Ambient Corp. (OTCBB: ABTG.OB), a Massachusetts company that offers high-speed data communication systems that utility companies can use to monitor their power grids. Ambient also has sought to develop a system for delivering broadband Internet over power lines.

Vicis said in an SEC filing in November that it holds 641 million common shares of that company, and would have more than 1.3 billion shares if it converted two promissory notes into additional shares.

Ambient's stock has been trading for around 14 cents a share.

Vicis put $3.5 million into OptimizeRx Corp. (OTCBB: OPRX.OB), a Michigan company that offers online coupons, discounts or rebates on prescription and nonprescription medication. In return for that money in September 2008, the hedge fund got preferred stock convertible to 3.5 million common shares, plus warrants for 6 million additional common shares at $2 each.

Midtown Partners got a placement fee of $350,000. OptimizeRx said the fee also included warrants to buy 600,000 shares at $2 each and 350,000 shares at $1 each.

OptimizeRx's stock closed Monday at $2.25 a share, although only 2,500 shares changed hands.

Sharesleuth noted that the chart of OptimizeRx's major shareholders in its annual SEC filing lists a trust for the benefit of "Jillene Pinella" as the owner of 9.4 percent of its shares. Our research found that the name has been consistently misspelled in the company's SEC filings, and that the beneficiary is actually Jillene Panella, the wife of Dante M. Panella, a Tampa-area financier and stock promoter.

The SEC brought civil charges against Dante Panella in 2008 in connection with a pump-and-dump scheme involving a company called Global Development and Environmental Resources Inc. The SEC alleged that Panella helped to hype the company's stock, then profited by selling $1.1 million in illegally issued shares. A federal judge ordered him in November to pay $457,574 in disgorgement, interest and penalties, and barred him from participating in the offering of a penny stock for five years.

THE INSURANCE FRAUD CASE

Medical Solutions Management purchased the receivables at the heart of the fraud case from Deutsche Medical Inc., an Anaheim, Calif.-based company that also is a subject of the federal investigation.

Medical Solutions Management paid roughly $8 million, or 60 cents on the dollar, for receivables with a face amount of $13 million, according to people with knowledge of the company's dealings.

The idea was to profit by collecting a greater percentage of the balance owed. Vicis provided much of the money through share purchases and loan guarantees.

MDwerks took over the collection of the receivables in early 2008. SEC filings show that Vicis increased its financial involvement in MDwerks at that point, and Phillips and Stastney joined its board.

Vicis put $7.5 million into the company in March 2008, in return for preferred stock that could be converted into 7.5 million common shares. It also got warrants to buy 53.3 million additional shares at 75 cents a share.

MDwerks' stock was trading for 90 cents a share at the time, down from a high of $1.55 the previous summer.

THE PROCEEDS

MDwerks collected at least $4 million on the receivables through the end of last year, according to internal correspondence. But that money did not show up as revenue in the company's quarterly or annual financial filings with the SEC.

MDwerks reported just $881,656 in revenue for 2008, and had a net loss of $8.18 million.

Medical Solutions Management was supposed to get a substantial cut of the collections money under the transfer deal with MDWerks, because the debt used to buy the receivables was still on Medical Solutions Management's books.

But SEC filings show that Medical Solutions Management didn't report anything close to $4 million in revenue from receivables in 2008, either.

DISCLOSURE QUESTIONS

Neither Medical Solutions Management nor MDWerks have fully disclosed the nature or scope of the investigation in their SEC filings.

Medical solutions olutions reported last Jan. 27 that its president and interim chief executive, Lowell M. Fisher, had resigned. It said in its filing that his reasons for leaving included his wife's recent death and his "awareness of an ongoing federal investigation" involving the company. It did not elaborate on that probe.

Stastney resigned from Medical Solutions Management's board the following day.

MDwerks did not mention the investigation until April 15. It noted in its annual filing with the SEC that it had been informed of "an ongoing jury investigation involving certain workers compensation claims which may involve Medical Solutons Management Inc., a former client of MDwerks Inc."

MDwerks said only that it provided support services to Medical Solutions Management in connection with the collection of claims. It added that it had not been contacted by authorities, and was not aware that it was the subject of any investigation.

MDwerks had reported on Feb. 20 that Howard B. Katz, its chairman and chief executive, resigned. The company cited no reason, and noted that Katz would remain a consultant under a contract worth $240,000 a year.

MDwerks said in an SEC filing 0n Aug. 14 that Stastney had resigned from its board. It announced Oct. 8 that Phillips also had stepped down. The company offered no explanation for either departure, except to say that they were unrelated to any differences over the company's operations, policies or practices.

Sharesleuth will keep following this investigation and report on what we find.

Money and property seized from Who's Your Daddy executives

2009-11-24T17:02:54Z

Another Who's Your Daddy Inc. executive has been caught up in a criminal drug trafficking case in San Diego.

Court documents filed since our original story show that, in March, agents seized a 32-foot powerboat valued at more than $100,000 from Dan Fleyshman, one of Who's Your Daddy's founders and the current director of sponsorship.

The seizures preceded a slew of federal drug indictments that included Edon Moyal, Fleyshman's co-founder at Who's Your Daddy (OTCBB: WYDI.OB). ((link to seizure list))

Fleyshman is not a defendant in the case and has not been charged with any crimes. He told Sharesleuth that although the government seized the boat, it wasn't actually his.

"I didn't own the boat so it wasn't seized from me, nor was anything else since I'm not a part of the case," he said in an email.

Fleyshman said the boat had at one point belonged to a luxury store that he owned in downtown San Diego. He said it was purchased by one of the defendants in the drug trafficking case, which is why the government took it. However, the most current registration records for the boat still list Fleyschman's store as the owner.

The U.S. Attorney's office said it couldn't comment on a pending case.

The government disclosed the seizure after prosecutors filed a bill of particulars for all of the items and cash that were taken as part of the investigation. In all, agents seized more than $500,000 worth of cash, cars and jewelry from people connected to the case. That includes some $40,000 in cash seized from Moyal, and a little more than $4,000 seized from Fleyshman, whose name was misspelled in the court documents.

Moyal was executive vice president of marketing and brand development at the time of his arrest. He, along with a handful of others, was charged with conspiracy to distribute marijuana and possession of marijuana with intent to distribute. According to court documents, agents conducting surveillance spotted Moyal handling boxes of marijuana that were later shipped from San Diego to Maryland.

Although Who's Your Daddy said in a Securities and Exchange Commission filing in April that Moyal had resigned as an officer and director, it did not disclose his arrest or his federal indictment.

The case drew national attention when an undercover operation that was supposed to be a final bust went awry last spring and several defendants led police on high speed chase across San Diego freeways, throwing fistfuls of cash out their windows as they went.

Moyal and Fleyshman, both under 30, had been hailed in Entrepreneur and other publications for developing the Who's Your Daddy line of clothing, energy drinks and other products, and for taking their company public at such a young age.

]]> Edon Moyal / Dan Fleyschman Money and Property Seizures

Rockwell Medical Technologies has close ties to financier facing SEC charges

2009-11-03T10:35:38Z

The Securities and Exchange Commission recently brought charges against financier Michael J. Xirinachs, alleging that he helped a Florida company called Universal Express Inc. dump billions of unregistered shares on the market in 2006 and 2007.

The SEC said Xirinachs, though two investment companies, bought more than 15 billion unregistered shares from Universal Express at a discount to the market price, then sold them to the public, generating $17.5 million in proceeds. According to the complaint, he routed $11 million of that money to Universal Express as payment.

Sharesleuth noted that one of those same investment companies entered into a consulting agreement last November with Rockwell Medical Technologies Inc. (Nasdaq: RMTI), which sells dialysis concentrates and solutions to healthcare providers.

Rockwell Medical's shares doubled in the 15 days that followed that agreement, and doubled again in the first seven months of this year. The warrants that Xirinach's company, Emerald Asset Advisors LLC, received as the sole compensation for its consulting services are currently worth $1.9 million more than their exercise price.

The consulting agreement called for Emerald Asset Advisors to introduce the company to potential licensing partners, acquisition candidates, securities analysts, stock brokers and institutional investors.

The timing of the contract and the surge in Rockwell Medical's shares could be a coincidence. But a Sharesleuth investigation found that Xirinach has a long history with Rockwell Medical, dating back to the mid-1990s, when he was an executive with D.H. Blair & Co., a brokerage that defrauded investors by manipulating stock prices and engaging in high-pressure "boiler room'' sales tactics.

THE COMPANY

Rockwell Medical bills itself as a fully integrated biopharmaceutical company. Its products target end-stage renal disease, chronic kidney disease and iron deficiency anemia. It recently completed Phase 2 clinical trials of a new drug, Soluble Ferric Pyrophosphate, for delivering water-soluble iron into the bloodstream during dialysis treatment.

Rockwell Medical employs about 250 people, according to SEC filings, and has manufacturing and warehousing facilities in Wixom, Mich.; Grapevine, Tex., and Greer, S.C. The company, which is based in Wixom, reported $25.8 million in revenue for the first half of 2009, up 4.9 percent from a year ago. It posted a loss of $3.4 million for the first half, compared with a loss of $2.3 million a year earlier.

Rockwell Medical's shares got a boost this summer when the company was added to the Russell 2000, an index of small capitalization stocks. Rockwell Medical completed a directed offering of shares and warrants last month that netted $20.5 million in new capital. It placed the securities with a group of institutional investors led by Deerfield Management Co., a New York-based hedge fund that focuses on healthcare businesses.

Rockwell Medical's shares peaked at $9.39 on Aug. 7. They closed Monday at $6.84, giving the company a market value of $116.5 million.

(Disclosure: Mark Cuban, the majority member of Sharesleuth.com LLC, has no investment position in Rockwell Medical; Chris Carey, editor of Sharesleuth, does not trade in individual stocks and has no investment position in Rockwell Medical.)

Unlike some of the companies that Sharesleuth has written about, Rockwell Medical is clearly a real business, with growing revenue and a potentially valuable new product. For those reasons, we think that investors might want to ask why the company has maintained its relationship with Xirinachs, who figured into another SEC case in 2003 and also was sued for investment fraud last year in connection with a failed venture involving Emerald Asset Advisors.

Sharesleuth submitted written questions to Rockwell Medical's public-relations and investor-relations representatives last month about the consulting contract and Xirinachs' activities on behalf of the company. We received no reply.

EARLY INVOLVEMENT

Rockwell Medical's initial SEC filings in 1997 identified Xirinachs as one of its three founders, and said he held 24.9 percent of its stock. Proxy filings show that he also served on the company's board of directors until 1999.

Later filings show that Xirinachs or his then-wife, Patricia Xirinachs, maintained at least a 7 percent stake in the company until at least January 2006. On June 22 of that year, Rockwell sold Emerald Asset Advisors an additional 111,895 shares of stock for $500,000, or $4.47 a share, a discount of more than 30 percent from that day's closing price.

According to the SEC's complaint, Michael Xirinachs is the sole owner and manager of Emerald Asset Advisors, which is based in Melville, N.Y.

Xirinachs' attorney, Ira L. Sorkin, declined to discuss the SEC's allegations, except to say that his client denies guilt.

"We intend to defend against the charges,'' he said.

THE CONSULTING DEAL

On Nov. 5, 2008, Emerald Asset Advisors signed a one-year consulting contract with Rockwell Medical. It got warrants to buy 300,000 of the company's shares at $1.99 each, a slight discount to that day's closing price. Between Nov. 5 and Nov. 12, when Rockwell Medical made a presentation at an investment event in New York, its stock slipped to $1.50 -- a five-year low.

The next day, the company announced earnings for the third quarter of 2008, and its share price began rebounding on a sharp increase in volume.

Rockwell Medical reported that its revenue for that quarter rose 22 percent from a year earlier, to $13.5 million, and that revenue for the first nine months rose at a similar rate, to $38.1 million. However, the company said its losses also widened, to $2.5 million for the quarter and $4.8 million for the nine months.

From Nov. 13 through Nov. 20, more than 2.1 million shares of Rockwell Medical's stock traded hands -- eight times the average daily volume in the months leading up to the surge. By Nov. 18, the company's stock was up to $3.14 a share. Two days later, it closed at $4.54, after climbing as high as $4.79.

Rockwell Medical's shares posted those gains at the same time that the Dow Jones Industrial Average and other market indexes were plunging. Between Nov. 18 and Nov. 20, the Dow fell more than 10 percent.

On Nov. 21, Rockwell Medical amended its consulting agreement with Emerald Asset Advisors. It extended the contract by a year, and granted Xirinachs' firm two more sets of warrants - 200,000 exercisable at $4.54 a share and 200,000 exercisable at $7 a share.

The original tranche of 300,000 warrants becomes exercisable Thursday.

Sharesleuth also noted that, last Nov. 19, Rockwell Medical's board of directors awarded 100,000 shares of restricted stock and 170,000 options to Robert L. Chioini, the company's chairman and chief executive. The board also granted 50,000 restricted shares and 80,000 options to Thomas E. Klema, executive vice president and chief financial officer.

The options and restricted shares vest over three years. At current market prices, Chioni's award would be worth $1.3 million.

FRAUDULENT BROKERAGE FIRMS

When Xirinachs got involved with Rockwell Medical, he was senior vice president for investments at D.H. Blair. The New York-based brokerage shut down under regulatory pressure in 1998. A grand jury later issued a 173-count indictment against the firm and 15 of its executives and brokers. D.H. Blair, along with its chairman and two vice chairman, entered guilty pleas in 2002, agreeing to pay $21 million in restitution.

Xirinachs was not among those charged.

In July 1997, Rockwell Medical enlisted another New York brokerage, Maidstone Financial Inc., as underwriter for an initial public offering that was to raise as much as $7.24 million. Before they could complete that deal, the National Association of Securities Dealers brought charges against Maidstone and its top executives, alleging that they defrauded investors of millions of dollars on similar offerings.

Rockwell Medical then turned to two other firms, Mason Hill & Co. and J.W. Barclay & Co. They raised roughly $7.5 million for the company through the sale of shares and warrants.

In 2002, however, then-New York Attorney General Eliot Spitzer announced the indictment of Mason Hill and five of its employees, alleging that they defrauded investors by manipulating the share prices of at least six public companies, including Rockwell Medical. And in 2003, the SEC brought civil charges against J.W. Barclay and eight of its employees, saying they either defrauded investors and failed to halt the wrongful acts.

UNIVERSAL EXPRESS

Xirinachs and Emerald Asset Advisors are among 13 individuals and companies charged by the SEC in connection with the unusual stock activity at Universal Express, a Florida company that offered point-to-point luggage shipping and other transportation and logistics services.

Richard A. Altomare, Universal Express' chief executive, has claimed in press releases, blog postings and YouTube videos that the mysterious flood of shares that sank the company's stock price to a fraction of a penny was the work of hedge funds and other unknown parties that were engaged in "naked shorting.''

The SEC concluded that the company itself had issued billions of unregistered shares. It brought fraud charges in 2004 against Universal Express, Altomare and five other defendants. The agency alleged that Universal Express relied on illegal stock sales to survive, and that Altomare used company funds for lavish personal expenses, including private jet flights, luxury hotel stays and jewelry.

The SEC won a $21.9 million judgment against Universal Express and Altomare in 2007.

According to SEC's new complaint, Xirinachs and Emerald Asset Advisors entered into a deal with Universal Express in February 2006, under which they would buy its stock at a discount to the market price in exchange for cash.

The complaint says that, between February 2006 and June 2007, Emerald Asset Advisors bought 6.37 billion shares from Universal Express, deposited them into a brokerage account, then sold most of them on the public market, netting $11 million. Emerald Asset Advisors sent $7.9 million to Universal Express to pay for the shares.

The SEC said more than 6 billion of the shares that were offered and sold were not covered by any registration statement.

According to the complaint, Xirinachs opened a second brokerage account in September 2006 in the name of North Atlantic Resources Ltd., an offshore company domiciled in St. Vincent and the Grenadines. According to the SEC, Xirinachs acted as investment advisor for North Atlantic and had authority to buy and sell shares.

Between November 2006 and June 2007, North Atlantic Resources bought 9.2 billion shares from Universal Express, plus 350 million shares from Emerald Asset Advisors. It sold roughly 9.5 billion shares to the public for $6.48 million, and sent $3 million of the proceeds to Universal Express.

The SEC said Xirinachs received 10 percent of the profits on North Atlantic's trades. It said none of the 9.5 billion shares were covered by registration statements.

ANOTHER SEC CASE

Xirinachs figured into another SEC case in 2003. The agency brought fraud charges against Park South Securities LLC and Todd M. Eberhard, its majority owner. According to the complaint, Eberhard misappropriated money from customers and falsified account statements to conceal his activities.

The SEC also said in court filings that Eberhard had improperly transferred $1.75 million in customer money to a purported hedge fund called Stone House Capital Partners LP, which listed Xirinachs as one of its two general partners. Xirinachs was a registered representative at Park South at the time, and worked with Eberhard at an office in Melville, N.Y.

Eberhard, who appeared frequently on financial-related television programs, was indicted on criminal charges in 2004 in connection with his activities and pleaded guilty in 2005. He acknowledged that he looted customer accounts, traded excessively and inappropriately to generate extra commission income and forged account statements and other documents. Eberhard was sentenced to more than 13 years in prison.

The trustee assigned to liquidate Park South reclaimed the $1.75 million in customer money held by Stone House. Xirinachs was not charged with any wrongdoing.

CIVIL SUITS

In September 2008, an investor sued Xirinachs, Emerald Asset Advisors and several other defendants, alleging fraud in a failed deal to buy a cigarette-distribution business called Tobacco Holdings Inc. The investor provided $325,000 in financing, and said in the complaint that the defendants repeatedly misrepresented their progress on the acquisition, diverted the money for other purposes and failed to repay it after the deal fell through.

Xirinachs, Emerald Asset Advisors and the other defendants settled the case last October, agreeing to pay $468,308, plus another $102,000 for legal fees and expenses.

The president of Tobacco Holdings was later indicted on charges of trafficking in contraband cigarettes, conspiracy, wire fraud and money laundering. Federal prosecutors alleged that Carlo J. Nappi, also known as Carl Nappi, had devised a scheme to ship cigarettes from New York to Michigan without paying applicable sales taxes.

The same investor filed a second suit in November 2008, alleging fraud and misrepresentation in the solicitation of funds for the development of a purported television series for HBO. Xirinachs was one of four defendants, although he was not named in the most serious counts. Another of the defendants settled the debt for roughly $61,000. The case against Xirinachs and other defendants remains open.

Is notorious brokerage boss Harold Gallison back in the penny stock game?

2009-10-14T04:01:29Z

Has Kyle Rowe, the barred brokerage executive behind Going Public LLC, reunited with his former boss, convicted felon Harold "B.J." Gallison?

Securities and Exchange Commission filings for three of Going Public's clients show that big blocks of their stock went to a company called Carmel Valley Corp.

Public records show that Gallison -- who pleaded guilty in 2003 to conspiracy to commit securities fraud and was sentenced to five years in prison -- once was Carmel Valley's registered agent.

They also show that the company operated from a house in Las Vegas that was owned by another of Gallison's companies, La Jolla Capital Holding Corp.

David K. Rushing, the person now listed in SEC filings as president of Carmel Valley, is the brother of one of Gallison's longtime associates.

David Rushing also is an officer of a second company that has physical and financial ties to Gallison's offshore stock exchange, called GISBeX.

Going Public, based in San Diego, Calif., helps clients gain listings on stock exchanges through stock offerings or reverse mergers.

MILLIONS OF SHARES

SEC filings show that Carmel Valley got 4.54 million shares of Omni Ventures Inc. (OTCBB:OMVE.OB) and 3.02 million shares of LIG Assets Inc. in connection with Going Public's work for those companies.

The filings did not describe what services Carmel Valley performed in return for those shares, which amounted to just under 5 percent of each company's stock.

A filing for a third company not mentioned in Sharesleuth's previous reports on Rowe shows that Carmel Valley got 1.8 million shares of its stock, or nearly 3 percent of the total outstanding. That company is American Real Estate Assets Inc., of San Diego.

Omni Ventures' stock, which traded earlier this year for more than $1 a share, is now at 44 cents, giving the company a market value of $45.2 million.

At that price, the stake issued to Carmel Valley has a market value of nearly $2 million.

Omni Ventures reported in its latest quarterly SEC filing that it had no revenue for the nine months that ended June 30, and that it finished the period with just $9,353 in cash.

The SEC has not yet authorized trading in the shares of LIG Assets and American Real Estate Assets, the other companies that issued shares to Carmel Valley through their deals with Going Public.

FAMILY TIES

David Rushing is the brother of Robin M. Rushing, one of Gallison's key lieutenants at La Jolla Capital Corp., a San Diego-area brokerage that had frequent run-ins with regulators.

The National Association of Securities Dealers (now the Financial Industry Regulatory Authority) barred La Jolla Capital and Gallison from the penny stock business in 1997. La Jolla Capital's successor, Pacific Cortez Securities Inc., shut down under regulatory pressure in 1999.

Rowe also worked at La Jolla Capital, and later ran another brokerage called Salomon Grey Financial Corp., which was implicated in at least two fraud schemes.

Rowe was permanently barred by the National Association of Securities Dealers in 2006, and also was barred by the SEC (pdf).

As Sharesleuth previously reported, he legally changed his name earlier this year to Marvin K. Rowe II, a move that obscured his regulatory past.

GALLISON'S CRIMINAL HISTORY

Gallison was indicted in 2000 in connection with a "pump-and-dump'' scheme facilitated by Pacific Cortez. He pleaded guilty in 2003 to conspiracy to commit securities fraud and was sentenced to five years in prison.

At the time, prosecutor Steve Davis said he believed that Gallison was still involved in securities schemes, using other people as proxies. Davis told the San Diego Union-Tribune that Gallison had been contemptuous of regulators' efforts to halt his activities, and predicted that Gallison might continue to operate GISBeX from prison.

"'I think he is scheming right now ... I don't think he will be a changed person,' Davis said. "We will see him again."

Gallison was released from custody in 2006.

When Sharesleuth first asked Going Public whether Marvin K. Rowe II was in fact Kyle Browning Rowe, we heard back from Irving M. Einhorn, an attorney who once headed the SEC's regional office in Los Angeles.

After leaving the agency, Einhorn represented Gallison and Robin Rushing in SEC and NASD disciplinary proceedings.

When we asked Einhorn in April whether Gallison had any involvement with Going Public, he responded: "You don't have that.'' Einhorn did not respond to our follow-up questions late last month.

AN OFFSHORE BROKERAGE

GISBeX - short for Global Internet Stock Brokerage Exchange - is based in Costa Rica. It purports to be an electronic exchange that deals in all types of stocks and bonds, including certain types of restricted securities sold by U.S. companies to offshore investors.

Davis, the San Diego prosecutor, told KYC News in 2005 that his office had established that Gallison owned GISBex through a private trust controlled by his family.

Gallison's father, Harold Gallison Sr., told the San Diego Reader that same year that his son was not running GISBex. However, he identified Robin Rushing as a key operative at the brokerage.

Sharesleuth found documents that also link David Rushing to GISBeX. He has signed SEC filings in recent years as assistant secretary of Sandias Azucaradas CR S.A., another Costa Rican business.

Sandias Azucaradas has shared a mailing address with GISBeX in San Jose, Costa Rica. Its website was created and registered by the same company that created GISBeX's site, and those of a handful of GISBeX affiliates, including Evalesco Trading and Moneyline Brokers.

And, for a time at least, GISBex instructed clients who want to open accounts by wire transfer to send their money to a Panamanian branch of HSBC Bank, for credit to Sandias Azucaradas.

Sharesleuth recently obtained a letter that Sandias Azucaradas sent to a securities transfer agent in connection with shares it owned in another public company. The letter was signed by Robin Rushing, as managing director.

SEC filings show that Sandias Azucaradas owned large blocks of stock in several companies with ties to Regis M. Possino, a two-time felon and disbarred lawyer. ((see previous Sharesleuth stories here and here.

ARISA CAPITAL

The registration statements filed with the SEC by LIG Assets and American Real Estate Assets show that an entity called Arisa Capital Inc. also got big blocks of their stock. Nevada corporation filings list Cynthia A. Taylor as Arisa's president.

Taylor also is an officer of Corporate Capital Formation Inc., a Las Vegas company that has served as registered agent for 175 businesses, including Carmel Valley Corp. and four others with current or historic ties to David Rushing, Robin Rushing or Gallison.

The president of Corporate Capital Formation is Roger G. Coleman Sr., a former securities transfer agent who pleaded guilty in two different fraud-related criminal cases in 1989 and 1990.

A check of the other companies for which Corporate Capital Formation serves or has served as registered agent turned up at least six connected to Robert M. Bryson, another financial felon.

Bryson served 18 months in prison in the 1980s after pleading guilty in a securities fraud case. According to stories in San Diego, he had close ties to people at La Jolla Capital and Pacific Cortez.

Corporate Capital Formation once was a subsidiary of Triad Industries Inc., a publicly traded company headed by Bryson's daughter. Coleman was a director of Triad.

According to SEC filings, Corporate Capital Formation was spun off into an independent entity in 2006.

Xethanol Corp. founder creates new public company

2009-09-17T23:05:57Z

Some of the key people behind Xethanol Corp. have resurfaced with a new public company - Waste2Energy Holdings Inc. - which gained a listing on the Over-the-Counter market through a reverse merger.

Christopher d'Arnaud-Taylor, who was Xethanol's chairman and chief executive, also headed Waste2Energy (OTCBB: WTEZE.OB). He stepped down last week, in keeping with the terms of the merger agreement.

Although d'Arnaud-Taylor resigned as chairman and chief executive, he remains Waste2Energy's biggest shareholder. He will continue to serve on its board of directors, and according to Securities and Exchange Commission Filings, he also got a $300,000-a-year consulting agreement with the company.

PRIOR INVESTIGATION

Xethanol was the subject of a Sharesleuth investigation in 2006. The company replaced d'Arnaud-Taylor as chief executive a few weeks later. Taylor told Sharesleuth that, despite the presence of other Xethanol alumni at Waste2Energy, he created the company without their involvement in early 2007.

According to a recent SEC filing, d'Arnaud-Taylor, his wife and a limited liability company he controls hold 6 million Waste2Energy shares, plus warrants to buy an additional 4 million shares exercisable at 50 cents a share.

Waste2Energy's stock closed Thursday at $1.11 a share. That gave the company a market value of more than $55 million. According to the SEC filing covering the reverse merger, officers and directors control 44 percent of the company's shares.

REVERSE MERGER AND PRIVATE PLACEMENT

Waste2Energy Holdings was formed through the merger of Waste2Energy Inc. and Maven Media Holdings Inc., a public shell company in Chula Vista, Calif. The deal was consummated on May 29, with shareholders of Waste2Energy getting 46 million shares of the combined company.

In the past three months, Waste2Energy has raised $2.5 million through a series of private placements, according to SEC filings. In return for the money, it issued $2.5 million in notes paying 10 percent a year in interest, plus 2.5 million shares of its stock. The company has not identified any of the investors.

Waste2Energy's SEC filing on the reverse merger noted Taylor's ties to Xethanol, including his role as a defendant in a securities class-action suit that the company settled for $2.8 million.

"Appropriate disclosure concerning any XNL issues was included in the 8-K filed with the SEC and will be included in other filings as appropriate,'' Taylor told Sharesleuth in an email response to our questions. "However, there is no other connection with XNL that should be made.''

GAS FROM GARBAGE

Waste2Energy says it has a system for converting garbage and other solid waste into burnable gases. Its main subsidiary is pursuing deals to build cogeneration plants at industrial facilities and other locations to turn those wastes into "renewable green power.''

Xethanol claimed it had a process for turning wood chips, grass clippings and other plant material into ethanol. But the company never produced any commercial quantities of ethanol using the technology and eventually abandoned that business. It is now known as Global Energy Holdings Group Inc. (AMEX: GNH). The company's shares, which topped $16 in early 2006, now trade for less than 20 cents.

SCOTTISH PLANT

Waste2Energy is involved in the construction of a waste-to-energy plant in Dumfries, Scotland, for a British company, Ascot Environmental Ltd. According to an SEC filing at the time of the merger, the waste-to-energy side of the business had revenue of $2.68 million for the nine months that ended Dec. 31, primarily from work on the Scottish plant. It reported a net loss of $4.01 million for that period.

The Scottish plant, known as the Dargavel Energy from Waste Facility (pdf), is in the final commissioning stages, and should be processing waste soon, Taylor said. Waste2Energy's strategy, he said, is to capitalize on that project by selling other units to customers around the world.

"To support this roll-out, W2e has organized a design and fulfillment team in Scotland located in close proximity to the Dargavel site and forged a strategic alliance with a Scottish manufacturing company with a leadership position in thermal engineering processes.''

XETHANOL ALUMNI

Two other key players at Xethanol - Franz A. Skryanz and Jeffrey Langberg -- also have been involved in Waste2Energy.

Skryanz was secretary and treasury of Waste2Energy before it merged with Maven Media Holdings. SEC filings show that he got 500,000 shares in the combined company. Skryanz was an officer and director of Xethanol.

Taylor said Skryanz is no longer an officer or director of Waste2Energy and is retiring.

Waste2Energy said in its SEC filing on the reverse merger that an entity called SilverFox LLC has provided services to the company under two consulting contracts. Other SEC documents have listed Langberg as SilverFox's managing member. Langberg was a Xethanol director and was one of its investment bankers.

SilverFox got 300,000 shares of Waste2Energy stock under the first consulting contract, which was awarded in May 2008 and called for the firm to find potential investors in the company. According to the SEC filing on the reverse merger, the deal also included warrants to buy 300,000 more shares at 75 cents each.

SilverFox got a new contract in November that calls for it to identify and screen potential buyers for Waste2Energy's plants. According to the merger filing, that agreement provides for a finder's fee of 10 percent of the purchase price for each sale it brings in.

Taylor told Sharesleuth that SilverFox LLC is "a tad more'' than just Langberg, and that Langberg is no long managing member.

Waste2Energy's latest SEC filings list the company's headquarters at the same New York City address used by Xethanol. The telephone number also is the same as Xethanol's old number. Xethanol had originally leased that office space from Langberg.

The company is set to move to a new headquarters in Greenville, S.C.

A ROCKY START

Last July, Waste2Energy was sued by the former owner of EnerWaste International Corp., which it had acquired the previous year for $5 million. Thomas L. Dutcher alleged that Waste2Energy had defaulted on the payments for the business, whose "Batch Oxidization System" technology is at the core of its current activities.

Waste2Energy countersued, saying that Dutcher misled the company about the state of EnerWaste's finances and business. EnerWaste's European affiliate, based in Iceland, went bankrupt late last year because of the collapse of that country's economic system.

The two parties settled their differences in April, just before Waste2Energy arranged its reverse merger with Maven Media Holdings.

Stock promoter Irving Kott, a frequent target of regulators, has died in Canada

2009-09-09T02:32:05Z

Irving Kott, a Canadian financier and stock promoter with long history of civil and criminal violations, has died at age 78.

Kott's obituary appeared Aug 24 in a Montreal newspaper, but his passing drew no further media attention. In a sense, he was as invisible in death as he was in life - a life in which he played pivotal behind-the-scenes roles at numerous public companies and brokerage firms.

Kott pleaded guilty in 2004 to two felony charges related to his undisclosed ownership interest in J. B. Oxford Holdings Inc., a brokerage based in Beverly Hills, Calif. J.B. Oxford, whose employees pushed several stocks linked to Kott and his associates, had contended that he was merely a consultant.

The original grand jury indictment alleged, among other things, that Kott used his influence at J.B. Oxford to reap millions in profits on the sale of shares in which he or his associates had an interest. While working at J.B. Oxford, Kott lived in a mansion once occupied by actor Cary Grant.

In his plea, Kott acknowledged that he provided much of the $6.5 million that a Swiss firm loaned to the brokerage in 1994 and 1995 to keep it alive. The Swiss firm and its owner got notes that were convertible to a majority stake in the brokerage (formerly known as Reynolds Kendrick Stratton Inc.). In addition, Kott acknowledged that he provided funds for another investor who bought more than 5 percent of the brokerage's shares in 1994. Neither Kott, the investors or the brokerage disclosed his role in those transactions, which could have been considered material information because of Kott's past.

Kott was sentenced to five years' probation rather than prison time, in part because of claims that both he and his wife were in ill health. He was ordered to pay $1 million in fines and charitable contributions.

J.B. Oxford had earlier agreed to pay $2 million to settle the Justice Department's probe into possible fraud by Kott and others involved with the brokerage.

Kott also figured into the Securities and Exchange Commission's investigation into the sharp rise in the stock of Mamma.com in the spring of 2004. Over a two-day period, the small Montreal-based Internet company' stock shot from $4.10 a share to a high of $15.68. It peaked the following month at $17.49.

Mamma.com later disclosed in regulatory filings that the SEC was not only looking into the unusual activity surrounding the company's shares, but also was probing whether a certain individual - known to be Kott - and "people acting jointly or in concert with him may have had a significant influence on the company in the past as a result of undisclosed shareholdings."

Mamma.com changed its name in June 2007 to Copernic Inc. (Nasdaq: CNIC). Three months later, Copernic announced that the SEC had ended the investigation and that the agency's staff was not recommending enforcement action.

Kott's history of run-ins with securities regulators spanned at least four decades. In 1976, he pleaded guilty in Ontario to conspiring to defraud the public through the distribution of shares in a mining company. He was fined $500,000, which at the time ranked as the biggest personal penalty in Canadian history.

In 1979, he was convicted in Ontario in connection with another manipulation scheme and was sentenced to four years in prison. That conviction, however, was overturned on appeal.

In the 1980s, Dutch authorities identified Kott as the person behind a boiler-room style brokerage in Amsterdam called First Commerce Securities. That operation sold shares in obscure Canadian- and American-listed companies to foreign investors.

Authorities said in 1987 that First Commerce might have taken more than $400 million from investors, an amount equal to nearly $800 million in today's dollars. Kott was never charged in connection with the case; he agreed to pay a fine of roughly $4 million in 1990 to settle the probe into his activities.

Letters reveal hidden holders of Pure Play Music stock

2009-09-01T02:16:53Z

Last summer, a group of closely connected companies managed to turn a $291,000 loan to Pure Play Music Ltd. (Pink Sheets: PPML.PK) into stock that soon had a market value of more than $70 million.

But exactly who got the shares was a bit of a mystery -- until now. Sharesleuth has obtained copies of letters that eight entities sent to Pure Play's transfer agent, asking to have restrictions on the stock lifted so that they could be freely sold.

The largest number of shares, 4.5 million, went to Cohiba Partners Inc., a Santa Monica, Calif., company with ties to Regis M. Possino, a two-time felon and disbarred attorney who has provided financing to numerous penny stock companies.

Cohiba was the company that provided the original loan to Pure Play's predecessor - Latin Television Inc. - when it faced a severe cash shortage in 2007.

Sharesleuth previously wrote about Pure Play in June, detailing its ties to Possino and noting that the company retired its $291,000 debt by issuing 29.1 million shares to Cohiba and its assignees at a price of 1 cent a share.

The letters to the transfer agent show that many of the other entities that got blocks of that stock have ties to Possino, too.

Colin Nix, president of Cohiba, also signed as an agent of October Funds, which got 3.7 million Pure Play shares. Both Cohiba and October Funds listed their address as an office suite in Santa Monica that is shared with Possino's companies.

Corporation records list Nix as the president of a third entity, European American Investments Ltd., which got 3.4 million of the Pure Play shares. It also uses the Santa Monica address.

But the letter that European American wrote to the transfer agent on July 18, 2008, was signed by Charles McGuirk - a convicted felon and longtime associate of Possino. McGuirk, who was listed as European American's president, was sentenced to 18 months in prison in the 1990s after pleading guilty to mail fraud and tax fraud in connection with an embezzlement scheme at an insurance company.

Shearson Foundation, a Panamanian company, got 3.95 million Pure Play shares. Henry Ward signed its letter as managing director.

Nevada corporation filings also list Ward as a director of Quantum Companies Inc. McGuirk is that company's secretary and treasurer, and its most recent SEC filing listed its headquarters as the office suite in Santa Monica.

Other SEC filings show that Shearson Foundation has invested alongside Cohiba, European American and October Funds in two other public companies, Ensurapet Inc. (Pink Sheets: EPTI.PK) and Who's Your Daddy Inc. (OTCBB: WYDI.OB).

(See a previous Sharesleuth story on Who's Your Daddy here)

After a law firm signed off on the removal of the stock restrictions, trading in Pure Play's shares surged, as did the company's share price. On Aug. 4, 2008, for instance, the daily volume totaled 402,900 shares, and the stock closed at $2, up from $1.11.

More than 1 million shares traded hands over the next six months, at prices ranging from $1.90 to $2.50. Pure Play's stock price plunged in late February, and has been declining since.
The company's shares were trading at 50 cents when our first story appeared in late June, and now trade for around 10 cents.

The letters to Pure Play's transfer agent showed that 3.7 million shares from the debt conversion deal went to Donna Properties LLC, which listed an address in Panama. In 2001, investigators for the Nasdaq exchange identified Donna Properties as a "client'' of one of Possino's companies, Corporate Financial Enterprise Inc.

Their report said Donna Properties might have participated in his effort to secretly invest in -- and influence -- a publicly traded brokerage firm called Global Capital Securities Corp. Nasdaq delisted that company because of concerns about its ties to numerous people with criminal or regulatory pasts.

Two other companies that received Pure Play stock, Sandias Azucaradas CR SA and Vanilla Sky SA, listed the same Spokane, Wash., address. They got 3.6 million and 2.22 million shares, respectively.

The letter sent by Sandias Azucaradas was signed by Robin Rushing, who was identified as its managing director. She once worked for La Jolla Capital Corp., a Southern California brokerage that frequently ran afoul of regulators, and was a key aide to its chief executive, Harold "B.J." Gallison. He was sentenced to prison for his role in a securities fraud facilitated by La Jolla Capital's successor, Pacific Cortez Securities. He was released in 2006.

The last block of Pure Play stock, 3.95 million shares, went to Stock Certificate Transfer Service Foundation. It listed the same address in Panama as Donna Properties.

]]> Pure Play 144 Letters

Son of China Fire chairman gives up $30 million in stock

2009-07-09T20:31:37Z

When China Fire and Security Group Inc. (Nasdaq: CFSG) went public through a reverse merger in October 2006, Chairman Gangjin Li's teen-aged son was listed as the beneficial owner of roughly 10 percent of its shares.

This week, a Securities and Exchange Commission filing reported that the son had relinquished his interest in that stock, which has a current market value of more than $30 million.

According to the filing, Gangjin Li now has sole voting power over the 2.67 million shares, giving him control of 57 percent of China Fire's common stock. The filing offered no explanation for the transfer, the latest in a series of disclosures about the ownership of large blocks of shares issued when China Fire merged into a public shell called UniPro Financial Services Inc.

Michael Thieu, a China Fire spokesman, said Gangjin Li originally gave the shares to his son, Ang Li, to provide for his future. But the son is about to turn 18 and will no longer be a minor, and his parents are concerned about what might happen if he gains access to that wealth, Thieu said.

As a precaution, they decided to reverse the gift and use a different vehicle, such as a trust, he said.

"This transaction is internal to the Li family,'' he said. "It has no impact on the company's business operations or financials.''

Sharesleuth reported last year that the person listed as the beneficial owner of another 2.58 million China Fire shares was the sister-in-law of the company's chief executive officer, Brian Lin - a fact not disclosed in any of its SEC filings.

The sister-in-law, who operates natural food stores in Canada and California, was listed as the sole shareholder of a British Virgin Islands entity that sold millions of dollars worth of China Fire stock at the end of 2007.

After our story appeared , China Fire issued a press release and SEC filing clarifying the actual owners of the shares held by various British Virgin Islands entities. It said some of the people - including the sister-in-law -- who had been listed as beneficial owners were in fact nominees standing in for other people.

The new SEC filing says that Gangjin Li gifted the 2.67 million shares to his son in August 2006. It said that last Thursday, Ang Li's mother and legal guardian, Chunfeng Gao, " irrevocably disclaimed and renounced any and all legal and beneficial interest" in the shares on behalf of her son.

Ang Li is a student. He and his mother live in North Vancouver, British Columbia. When Sharesleuth asked him last year how he came to be listed as the owner of a big block of China Fire shares, he said he had seen the documents but was unaware of the details.

Although the reversal of the share gift puts more stock directly into Gangjin Li's hands, that could be seen as a positive for the company and for other investors, said Thieu, a former securities analyst.

"From my view, it actually will provide more stability,'' he said.

China Fire's stock closed Friday at $11.98 a share.

Barred brokerage executive has second alias

2009-07-07T17:05:35Z

Kyle Rowe, a former brokerage executive barred from the industry in 2006, changed his name to Marvin K. Rowe II earlier this year - he says to honor his father. But a third named used by Rowe, one that bears no resemblance to his father's, has surfaced in a lawsuit filed in San Diego last summer by one of Rowe's clients.

The court file includes an affidavit filed in June 2008 by Parabolic LLC, one of Rowe's stock-promotion companies. It was signed by a "Kyle Rower" -- with an extra "r" at the end. The signature appears to match the one on a Securities and Exchange Commission form filed a few years earlier by Kyle Rowe - without the extra "r."

Sharesleuth also compared those signatures with one on an SEC filing by Parabolic, covering the sale of $750,000 of stock in a client company called Cal-Bay International Inc. It seemed to be a match, too. (see the documents below)

The affidavit was filed to support Parabolic in a dispute with Pangenex Corp., a Florida-based company. Pangenex had sued Parabolic, accusing the company in court documents of failing to perform any promotion services after taking $125,000 worth of common stock as payment, and of driving down Pangenex's stock price by dumping that stock on the market. Parabolic denied wrongdoing and the case appeared to have been settled later that year.

Rowe was the subject of a previous Sharesleuth report in April. We discovered that he had legally changed his name, effectively obscuring his past run-ins with regulators. His new firm, Going Public LLC, helps companies gain listings on stock exchanges in the United States and Germany.

At the time, Irving Einhorn, an attorney representing Going Public, would not allow Rowe to be interviewed. Rowe, however, started a Web site and posted an explanation in response.

"I legally changed my first name to Marvin, the name of my 71-year-old father, who I love and respect more than any other man in the world," Rowe says on the site. "I am very proud to carry his name. Period. Nothing more needs to be said about that." In that post, he made no mention of using last name "Rower."

When we asked him about it, he said: "Why don't you write your questions or comments on my Blog in the comments section if you'd like and I'll publish them and answer you right there if you get such a kick out of this."

Rowe then published the question in his blog's comment section and posted an answer that indicated he thought using the name "Rower" could help him avoid attention from reporters. Both comments were later deleted.

]]> Kyle Rower Affidavit
Kyle Rowe's Signatures
Rowe's signature that was used to compare with the one on the affidavit above, signed by Kyle "Rower"

Online music company has silent partner

2009-06-23T02:29:20Z

When Pure Play Music Ltd. (Pink Sheets; PPML.PK) went public through a reverse merger last summer, one of its financial backers managed to turn a $291,000 loan into Pure Play stock with a current market value of $14.5 million.

Though Pure Play's Securities and Exchange Commission filings don't disclose the identity of the party or parties that got those shares, documents do provide some clues. In 2007, Pure Play's predecessor company -- Latin Television Inc. -- was on the verge of collapse. It had no revenue, almost no cash and more than $4 million in accumulated losses.

It turned to Cohiba Partners Inc., securing what it called "essential" funds to cover operating expenses. Cohiba Partners is a Santa Monica, Calif., company with close ties to Regis M. Possino, a two-time felon and disbarred attorney who has provided financing to numerous penny stock companies.

LOAN REPAID WITH SHARES

In return for the cash advances, Latin Television issued Cohiba a note that the company, or its assignees, could convert into stock at a penny a share. When Latin Television morphed into Pure Play last July, Cohiba Partners converted the roughly $291,000 in principal and interest on the note into 29.1 million shares of Pure Play stock.

Not long afterward, Pure Play's stock was trading at around $2.50, giving the converted shares a market value of more than $70 million, and giving the entire business a value of nearly $150 million.

Pure Play's stock has since fallen to 50 cents, with total trading volume exceeding 2 million shares. Neither the company, Cohiba Partners or any assignees have filed documents disclosing who holds the 29.1 million shares from the debt conversion, which amount to 49 percent of the company's outstanding common stock.

THE COMPANY

Pure Play says it provides a unique global platform that unknown bands and singers can use promote and sell their music. Its site includes streaming audio of featured acts, six genre-based Internet radio stations and a download purchase area. Pure Play also created a social networking area designed to allow fans to communicate with the musicians and with each other.

As of late, there's been little activity on Pure Play's Web site. Although they say more than 6,000 people registered for the site, those members trigger just a handful of publicly posted "actions" every few days. Pure Play's radio stations, the main way that Web visitors listen to its unsigned artists, appear in most cases to have just a few dozen songs. Artists have posted comments to the site, complaining that their profiles and music have disappeared, inaccessible for months. The last message board posting was from January.

Pure Play said late last year it had signed a deal to provide pre-loaded MP3 players to DSG International, a large electronics retailer in Europe. It said in press releases that those shipments would generate $18 million in revenue this year. But Pure Play is two quarters behind in its financial filings with the SEC, making it impossible to tell anything about its sales or profits. DSG didn't respond to questions from Sharesleuth about the deal.

THE PAPER TRAIL

No public records link Cohiba Partners or Pure Play directly to Possino. But corporation filings show that Cohiba Partners and three other companies headed by its president, Colin Nix, have the same address as three companies controlled by Possino or his wife.

Those filings show that Nix and Possino both were officers of one of those businesses, Geneva Equities Ltd. Cohiba Partners and Geneva Equities also have the same phone number.

Corporation records list Nix as president of European American Investments Ltd., another company that shares the Santa Monica address with Cohiba Partners and Geneva Equities. SEC filings show that all three of those entities were large shareholders in Who's Your Daddy Inc. (OTCBB: WYDI.OB), a San Diego energy-drink company whose founder and former chief executive, Edon Moyal, was recently arrested and charged in connection with a drug-trafficking ring.

(read about Moyal's arrest)

A CHANGE OF ADDRESS

Until recently, Pure Play's SEC filings listed the Santa Monica office suite as its address. The company said in a press release in late April that it had moved its headquarters to Poway, Calif., a suburb of San Diego. The new location is a house owned Alex J. Grange, its chief executive officer.

Pure Play also announced that it terminated all of its agreements with Cohiba Partners, which had been providing general consulting and investment banking services.

Jeffrey P. Berg, a lawyer who represents Pure Play, said last week he wouldn't allow his clients to be interviewed by Sharesleuth but asked for a list of written questions. He didn't respond to them.

STOCK PROMOTIONS

Sharesleuth noted that Cohiba Partners and European American Investments both paid stock-promotion sites to feature specific companies, including Latin Television.

European American Investments gave 225,000 shares of Latin Television's stock to a firm called Beacon Equity Research in 2007 as compensation for a research report and a public relations campaign, according to a disclosure in a Beacon press release.

Cohiba Partners and European American Investments each gave shares of Vsurance Inc. to a site called OTCPicks.com as compensation for its coverage of that company, now known as Ensurapet Inc. (Pink Sheets: EPTI.PK).

SEC filings show that Cohiba Partners was a large shareholder in Vsurance at the time. So were October Fund Ltd. -- another company headed by Nix -- and Rancho Malibu Inc., which had been headed by Possino but now lists his wife as president.

October Fund and Rancho Malibu also list their address as the Santa Monica office suite. Records show that Geneva Equities originally leased that 1,056-square foot space in 2002.

POSSINO'S PAST

Possino was convicted in 1995 of one court of wire fraud in connection with a scheme to use inflated stock to help prop up an insurance company's finances. According to court documents, he was sentenced to two years probation and ordered to pay a $500 fine.

Possino more recently has served as a consultant and financier for a number of obscure public companies. According to news reports and regulatory documents (pdf), shares of some of them were peddled to foreign investors by boiler-room style brokerages operating from Europe and Asia. This archived web page of one boiler room brokerage, General Commerce Bank AG of Austria, shows that it was promoting two companies, Thaon Inc., and Junum Inc., with ties to Possino.

Possino also figured into an investigation by the Nasdaq exchange of Global Capital Securities Corp. Nasdaq officials concluded in 2001 (pdf) that Possino and another convicted felon, Sherman Mazur, had acquired a substantial, undisclosed interest in Global Capital, a publicly traded brokerage firm. Nasdaq said that Global Capital also bought millions of dollars worth of stock in companies that listed Possino or members of Mazur's family among their largest shareholders.

Nasdaq delisted Global Capital's shares in December 2001 over concerns about its ties to Possino, Mazur and others with criminal or regulatory pasts. The company ceased operations a few months later.

Energy drink executive indicted on drug charges

2009-05-12T00:35:19Z

The handfuls of cash flying out a Ford F-150's windows in San Diego were the result of a drug bust gone awry. Spooked by a patrol car, the suspects fled just before completing a deal to buy 500 pounds of marijuana from undercover drug enforcement agents. Along the way, they tried to toss the cash they'd brought with them, throwing money onto the freeway as they led police on a high-speed chase.

Eventually, they gave up. The men in the truck were taken into custody without any more drama, just two more arrests in a sweep that included Edon Moyal, the twentysomething founder and former chief executive of Who's Your Daddy Inc. (OTCBB: WYDI.OB).

Moyal was executive vice president of marketing and brand development at the time of his arrest. Although Who's Your Daddy said in a Securities and Exchange Commission filing last month that Moyal had resigned as an officer and director, it did not disclose his arrest or his federal indictment.

Moyal, like the others arrested, is charged with conspiracy to distribute marijuana and possession of marijuana with intent to distribute. According to court documents, he's accused of helping to arrange the shipment of about 50 pounds of marijuana from San Diego to Maryland. The indictment alleges that Moyal was a player in a drug trafficking ring that has operated in San Diego for years, supplying marijuana to dealers all over the country.

Moyal, 28, had been hailed in Entrepreneur and other publications for developing the Who's Your Daddy line of clothing, energy drinks and other products, and for taking his company public at such a young age.

A STRUGGLING COMPANY

Who's Your Daddy has not been a financial success. The Carlsbad, Calif.-based company lost $2.64 million last year on $750,000 in sales. It said in a recent SEC filing that it did not have adequate capital to meet its obligations, was in default on loans, had past due accounts with vendors and had a levy on one of its bank accounts. The company's shares are trading at 3 cents, down from a split-adjusted high of $7.74 less than two years ago.

Who's Your Daddy's stock was promoted in 2007 by Parabolic LLC, a San Diego company founded by Kyle Browning Rowe, a former brokerage executive who was barred from the securities industry the previous year.

Rowe, who changed his name to Marvin Kyle Rowe II earlier this year, was the subject of previous Sharesleuth stories.

(Read about how Rowe changed his name after being kicked out of the securities industry).

Parabolic promoted Who's Your Daddy through a website called EarlyBirdStocks.com. It reported getting 250,000 shares as compensation from an unidentified third party, selling them for $278,357.

OTHER CONNECTIONS

SEC filings show that Who's Your Daddy got funding in 2007 from entities with ties to Regis Possino, a disbarred California attorney with convictions for drug dealing and fraud.

Possino has acted as a consultant and financier for numerous penny-stock companies. Corporation records list his wife as president of Rancho Malibu Inc., one of the entities that agreed to take Who's Your Daddy shares as payment for loans.

Another company that invested in Who's Your Daddy was represented by David K. Rushing. He appears to be involved in Rowe's newest venture, Going Public LLC. SEC filings show that Rushing got millions of shares in two companies that hired Going Public to help them get listed on stock exchanges.

THE DRUG CASE

The drug investigation started last December, when a police officer pulled over Danny Elia Saeed Daly for a traffic violation. According to court documents, the officer smelled marijuana and found a shoebox containing $32,000. Daly was released with just a traffic citation, but was put under surveillance.

Police later identified a house near downtown San Diego where they say marijuana was packaged and prepared for distribution. As a result of watching that property, police and the Drug Enforcement Agency eventually seized more than 400 pounds of marijuana, including 80 pounds at the house and 292 pounds in Arizona.

According to court documents, they also seized two boxes of marijuana in Maryland that they connected to Moyal.

AGENTS TRACK BOXES

The documents say agents watching the house in San Diego on March 9 saw Moyal and Brian Stanford Hampton carry two boxes from the garage and put them in the back of Hampton's truck. The agents followed Hampton to two different postal stores, where he shipped the boxes to Maryland overnight. The next day, Maryland police seized them and recovered almost 46 pounds of marijuana.

Hampton was arrested March 19. He told drug enforcement agents that he didn't know what was in the boxes, but that he'd agreed to ship them for Moyal. Hampton also said he'd shipped two other boxes for Moyal.

On the same day that Hampton was arrested, undercover agents were attempting to complete the sale of 500 pounds of marijuana to Daly and three other men who frequented the San Diego house. When a San Diego Police patrol car tried to pull over one of the buyers' vehicles on the way to the deal site, the two men inside were spooked and took to the freeways, throwing fistfuls of cash out their truck windows - cash that passing motorists promptly stopped to scoop up. The men -- Paul Loaiza and Zacarias Felix-Cutino -- eventually stopped and surrendered.

Moyal was arrested separately. He pleaded not guilty was released on $250,000 bond. Moyal, through his attorney, declined to comment for this story. His attorney did, however, provide Sharesleuth with this statement: "Edon pleaded not guilty at the outset and is persisting in the plea. This prosecution is about his relationship with Paul Loaiza and has nothing to do with Who's Your Daddy. Edon stepped down as officer/director for the best interest of the shareholders and only while the legal case is pending."

]]>

Barred brokerage executive has hidden network of stock promotion sites

2009-05-01T22:27:06Z

Kyle Browning Rowe, a barred brokerage executive who now goes by the name Marvin Kyle Rowe II, has built a maze of financial- and stock-related Internet sites that he uses to promote his companies and clients.

Records show that Rowe controls at least 40 investment-oriented domain names including marketwatchguru.com, earlybirdstocks.com, smallcapstockalerts.com, goingpublicpros.com, parabolicllc.com, e-newsfinancial.com, stocknewsroom.com and ipos2watch.com.

The connections between Rowe, his companies, clients and Web sites aren't always visible or disclosed. The promotion of a Kansas company called Omni Ventures Inc. (OTCBB: OMVE.OB) is a case in point.

Omni Ventures gained a listing on the Over the Counter market in February through a stock sale and registration orchestrated by Going Public LLC, a San Diego-area company that Rowe founded in 2007. Securities and Exchange Commission filings show that Rowe and others connected to Going Public got just over 12 million of Omni Ventures' 92.6 million shares.

A FAVORABLE PROFILE

In March, the stock-promotion site MarketWatchGuru.com posted a favorable profile of Omni Ventures. Domain records show that Rowe - the subject of an earlier Sharesleuth report -- registered that site, using the same address and phone number as Going Public.

MarketWatchGuru.com said Omni Ventures "is funding 240 apartments, an elaborate water park/family fun center, and a modular home manufacturing facility for the Nambe Pueblo in Santa Fe, New Mexico." It also said that Omni Ventures -- which listed just $2,126 in cash in its latest SEC filing - was working with three Indian tribes on projects worth $170 million.

But Herbert Yates, chief executive of the Nambe Pueblo Development Corp., told Sharesleuth that the apartments, water park and factory have not advanced beyond the proposal stage. He said the chief executive of Omni Ventures has been trying for two years to raise the money for those projects, without success.

"Come here and break ground, and I'll believe it's happening,'' he said.

MarketWatchGuru.com said on its disclosure page that it received just over 12 million shares of Omni Ventures' stock "from an affiliate of Omni Ventures" as compensation for its services. It said it intended to sell those shares.

MarketWatchGuru.com didn't identify the affiliate. Nor did it file a Form 13D with the SEC, which is required of any individual or group that acquires 5 percent or more of a company's shares.

Since Omni Ventures went public, its stock has risen from 15 cents a share to the current price of $1.01, although trading has been minimal.

(Disclosure: No one associated with Sharesleuth.com has any investment position, short or long, in the companies mentioned in this story).

ROWE'S REGULATORY PAST

Rowe was president and co-owner of Salomon Grey Financial Corp., which was expelled by the National Association of Securities Dealers (now FINRA) in April 2006. The NASD found, among other things, that Salomon Grey's brokers put customers in unsuitable stocks and made unauthorized trades in their accounts. It permanently barred Rowe from the industry.

The SEC also barred Rowe after he settled charges that he and Salomon Grey helped manipulate the shares of a California company called Freedom Surf Inc.

Domain records show that Rowe registered the Web site of Parabolic LLC, a stock promotion firm that operates from the same address as Going Public. Corporation records show that he was formerly its managing member.

Parabolic's Internet domain was registered on March 3, 2006, just four days after Salomon Grey notified the NASD and SEC that it was terminating its registration as a securities broker and dealer.

Sharesleuth noted that Parabolic's president from 2006 to 2008 was Adam J. Gilman, another barred broker who had served time in prison for his part in a multi-million dollar fraud scheme.

Parabolic and Going Public both list Ralph Spina as a sales executive. Spina has been implicated in the activities of another San Diego-area company that has taken hundreds of thousands of dollars from homeowners for mortgage-modification help that it failed to deliver (read about Spina at BailoutSleuth.com).

STOCK PROMOTION SITES

MarketWatchGuru.com and another Rowe-registered site, EarlyBirdStocks.com, have touted the shares of companies that Parabolic LLC was hired to promote. Neither site has publicly disclosed its ties to Parabolic. But a presentation created by Parabolic included stock charts showing the effects of promotional campaigns by EarlyBirdStocks.com "and other proprietary sites.''

MarketWatchGuru.com, EarlyBirdStocks.com and a third site, SmallCapStockAlerts.com, also have featured companies with no apparent ties to Rowe, collecting at least $1.5 million for those reports. The companies currently profiled on the sites include Oncolytics Biotech Inc. (Nasdaq: ONCY), Action Products International Inc. (Nasdaq: APII) and Zi Corp., which also traded on the Nasdaq until it was acquired this month.

MarketWatchGuru also has been promoting Pax Clean Energy Inc. (OTCBB: PXCE.OB). The SEC this week halted the trading in that company's shares, citing concerns about the lack of current information concerning its securities.

PHANTOM SITES

Rowe also has used some of his other domains to promote Parabolic and Going Public, without ever mentioning their connection to those companies.

For example, E-newsfinancial.com, which appears to have never actually existed beyond its domain registration, issued several press releases about those companies. A release in December 2007 announced an "exclusive deal'' in which Parabolic would provide stock promotion services to all of Going Public's clients.

An earlier release touted the "Parabolic Exclusive Guarantee," a written promise that Parabolic's clients would get a minimum number of visitors to a "custom designed" online profile - like the ones posted at EarlyBirdStocks.com and MarketWatchGuru.com. (link to document).

A third release credited to e-newsfinancial.com announced the creation in November 2007 of investorrelationsone.com, calling it "a turn-key uber investor relations/investor awareness hybrid." The site has no content currently, but is still registered to Marvin K. Rowe II, the name Kyle Rowe now uses.

Barred brokerage executive operating under new name

2009-04-23T00:49:16Z

Going Public LLC, which helps companies get listed on stock exchanges, says founder Marvin K. Rowe II has 17 years of investment banking experience, is well known in the industry and can tap a vast network of funding sources.

But Sharesleuth found no mentions of him in Securities and Exchange Commission filings or old new stories, no registrations as a securities broker or investment adviser, not even a home address. That's because Going Public's founder is really Kyle Browning Rowe, the former president of Salomon Grey Financial Corp., a brokerage shut down by regulators in 2006. Rowe was barred from the industry by both the SEC and the National Association of Securities Dealers.

Going Public helps clients gain market listings through so-called "direct filings" or through reverse mergers with publicly traded shell companies. Sharesleuth discovered that Rowe has been operating as a stock promoter and consultant for the past three years, mostly under the radar. He began using the name Marvin K. Rowe II in the second half of 2008, as Going Public's activities became more visible.

AN OFFICIAL NAME CHANGE

Rowe asked a San Diego court last December to legally change his name to Marvin Kyle Rowe II. He explained in his petition that he wanted to carry the same name as his father "out of respect and admiration." Even though Rowe's father is actually named Marvin W. Rowe, the court did not question his explanation.

The change took effect Feb. 13. Irving M. Einhorn, an attorney for Going Public, told Sharesleuth that Rowe is running a clean business and isn't doing anything wrong by using a different name.

"That's not fraud," Einhorn said in a phone interview. He declined to allow Rowe to be interviewed, and said Rowe's decision to change his name had nothing to do with hiding past regulatory problems.

Those started in 2002, four years after Rowe bought Salomon Grey, which was based in Dallas. The SEC charged Rowe, Salomon Grey and 15 other defendants with scheming to manipulate the shares of a California company called Freedom Surf Inc.

ROWE'S REGULATORY PAST

The SEC alleged that Rowe and a partner at Salomon Grey got shares of Freedom Surf at a 50 percent discount from Allen Z. Wolfson, a recidivist white-collar criminal and one of the architects of the scheme. Salomon Grey sold the shares at inflated prices to its brokerage customers, many of whom later suffered big losses when the market for Freedom Surf's stock collapsed.

The NASD (now the Financial Industry Regulatory Authority) alleged in a separate case that Salomon Grey's brokers put customers in unsuitable stocks and traded in their accounts without authorization. It also said the firm hired people with extensive disciplinary histories and ongoing regulatory actions to serve as supervisors.

The NASD expelled Salomon Grey in April 2006 and permanently barred Rowe from the industry. Rowe settled the SEC charges that same year. He did not admit wrongdoing, but agreed not to associate with any broker or dealer. Before Rowe ran Salomon Grey, he worked for a pair of frequently disciplined San Diego-area brokerages, La Jolla Capital Corp. and its successor, Pacific Cortez Securities Inc.

Their operator, Harold Bailey Gallison, pleaded guilty to conspiracy to commit securities fraud in 2003, in connection with a stock manipulation scheme that cost investors $2.5 million. Gallison was sentenced to five years in prison.

GOING PUBLIC'S ACTIVITIES

Two companies have filed to go public this year through deals orchestrated by Rowe's new firm. The first was Omni Ventures Inc. (OTCBB: OMVE.OB), whose shares began trading in February. The second, LIG Assets Inc., is still awaiting SEC approval. Rowe and others associated with Going Public got millions of shares in those companies in return for their services. The filings for each identified Kyle Rowe as Marvin K. Rowe II.

In addition to getting help with financing and SEC filings, Going Public's clients get stock promotion services from a company called Parabolic LLC. Rowe registered the Internet domain name for that firm and once was listed in corporation filings as its managing member.

Going Public and Parabolic share the same address and phone number in La Jolla, Calif. Since we began making inquiries, Going Public has removed the page on its web site that featured biographies of Marvin K. Rowe II and other employees. Parabolic has taken its entire website offline.

Sharesleuth will have more on this story. ]]> Below are selected documents from Kyle Rowe's court petition to change his name to Marvin K. Rowe II.