Nathan B. Montgomery, the head of a company featured in an earlier Sharesleuth story on Mesa Energy Holdings Inc.(OTCBB: MSEH.OB) and a defendant in a civil securities case brought by the SEC, was convicted Jan. 31 in the Southern District of Florida in a criminal stock pump and dump scheme.
The Securities and Exchange Commission has brought fraud chargesagainst Heart Tronics Inc. (Pink Sheets: HRTT.PK), its co-chief executives and the husband of its majority shareholder, alleging that the company falsified sales, issued misleading press releases and committed numerous other violations.
Kerrisdale Capital Management says in a new report that it has found evidence that the main operating subsidiary of ChinaCast Education Corp. — a company regarded as “the one shining beacon within a sea of scams,” according the report — is overstating revenue and profit.
Kerrisdale says the company is reporting significantly more revenue to the Securities and Exchange Commssion than it is to the Chinese government. Kerrisdale said that it also uncovered evidence indicating that ChinaCast has been diverting company assets through acquisitions. In one case, says the report — which is based on public documents from the Shanghai Stock Exchange — the company reported buying other companies for more than what the seller actually received. The difference, says Kerrisdale, was pocketed by a middleman company that acted as a conduit for the acquisition. In another case, the sale price was simply overstated.
Medical Solutions Management Inc. has sued Vicis Capital LLC claiming the hedge fund forced it into a medical billing scheme that attracted the attention of the FBI and resulted in two indictments and two guilty pleas.
Medical Solutions Management (Pink Sheets; MSMT.PK) alleged in the suit that its unwitting participation in the scheme destroyed the value of the company. It also claimed that several million dollars generated by medical receivables it purchased were diverted from another Vicis-controlled company MDWerks Inc. (Pink Sheets: MDWK.PK).
According to the lawsuit, Vicis — the subject of an earlier Sharesleuth investigation — steadily gained control of Medical Solutions Management (Pink Sheets: MSMT.PK) after it invested money to help the medical equipment company go public through a reverse merger. Medical Solutions Management said Vicis brought in Lowell Fisher, another defendant in the suit, as chief executive. The hedge fund also placed one of its founding partners, Shadron Stastney, on the board
Then, Medical Solutions Management said in court documents, Vicis arranged for the company to buy more than $12 million in receivables at a steep discount from a California company called Deutsche Medical Services. Those receivables were connected to insurance claims for medicine-laden skin creams supposedly given to workers compensation patients in that state. According to the suit, Medical Solutions Management had no time for due diligence on the receivables, and had trouble collecting them.
“Dissatisfied with the collection rate by MSMI, Vicis Capital ordered that collection responsibilities be transferred to another Vicis Fund-controlled company, defendant MDWerks,” the company says in its complaint. But MDWerks had trouble collecting, too, and Vicis then turned to a third company that specialized in medical billing, Global Healthcare Recovery.
But, according to court documents in the criminal case against Vicis’ managing director, Christopher D. Phillips, the president of the Global Healthcare Recovery told the then-chief executive of MDWerks, Howard Katz, that there were problems with the Deutsche Medical receivables and that many of the claims were probably fraudulent. Among other things, they listed incorrect dates of service, billed for charges on services that had never been provided and even claimed an expense for skin cream purportedly dispensed to a dead person. At some point, Boudreau contacted the FBI, which eventually led to Katz and Phillips being indicted for scheming to doctor the bad receivables so they could still be collected. Both men pleaded guilty.
Medical Solutions Management also named Phillips, Katz and MDWerks as defendants. It alleged in its suit that Katz diverted some of the money that MDWerks collected from the receivables to an offshore bank account.
In its complaint, Medical Solutions Management says that when Phillips found out about the FBI’s investigation in 2009, he sent a letter to Fisher, Medical Solutions Managment’s Vicis-installed CEO, that said:
it has come to our attention that the Federal Bureau of Investigation is currently investigating whether certain workers compensation claims being made and/or processed by MDWerks, Inc. and Medical Solutions Management, Inc. are fraudulent. It is our understanding that these claims may have been acquired from, or are somehow related to, Deutsche Medical Services, Inc. An investigation by the FBI is a very serious matter and we hope that Medical Solutions Management treats it as such. As a director and representatives of a large shareholder of Medical Solutions Management, Inc., we strongly urge you to conduct an internal investigation into this matter and to seek the advice of counsel as to what steps Medical Solutions Management should take so that the company and its directors and employees do not engage in any wrong-doing.
Fisher resigned a week later, along with Stastney, the Vicis founding partner on Medical Solutions Management’s board. In announcing Fisher’s resignation, Medical Solutions disclosed the investigation. The company says after the disclosures and the departures of its top executives, its stock plunged 70 percent to $.01 a share, and has never recovered.
Vicis, which once managed $5 billion, later announced it was dissolving.
The SEC has filed an administrative proceeding against Chinese company Longtop Financial Technologies, Ltd. (PInk Sheets: LGFTY:PK), saying the company had failed to file its financial report for the year ended March 31, and that its reports for 2008, 2009 and 2010 could no longer be relied upon.
Jadeorstone.com, which bills itself as a “corporate investigator aimed at Chinese companies traded overseas” issued a report on Telestone Technologies Corp., a Beijing telecommunications company whose financial reporting and history were the subject of previous Sharesleuth reports.
- The company’s production capacity is roughly 75 percent below the figure listed in its official statements
- Telestone’s core wireless communications technology – WFDS 1 – is simplistic and easily duplicated.
- There are egregious gaps between Telestone’s reported revenue and income in its Securities and Exchange Commission filings and those in its local
Chinese tax filings.
The California Attorney General’s office has
filed a complaint against Mitchell J. Stein — who was featured in a Sharesleuth
investigation in 2008 — alleging that he and others participated in a scheme to deceive desperate homeowners into paying thousands of dollars each to join dubious lawsuits against their mortgage lenders.
According to the complaint, the lawyers and telemarketers involved in the scheme led the homeowners to believe that the suits would halt foreclosures on their homes, reduce their loan balances, bring them financial settlements, and possibly eliminate their mortgages entirely.
Authorities say the ring solicited homeowners in 17 states and persuaded at least 2,500 of them to pay as much as $10,000 each to join suits, some of which were never filed.
Stein, a Californa-based lawyer, was involved in the creation and development of Recom Managed Systems Inc., a medical device company that went public through a reverse merger. It later changed its name to Signalife Inc., and is currently known as Heart Tronics Inc. (Pink Sheets: HRTT.PK).
The attorney general’s office said in a press release that all of defendants had their assets seized and were enjoined from continuing their activities.
The Securities and Exchange Commission says investors should be “especially careful” given the potential risks of investing in companies that have gone public through reverse mergers, either because they may be undercapitalized or haven’t faced enough scrutiny from regulators. The agency issued an investor bulletin that described problems with some of those companies, including a number of Chinese businesses that used reverse mergers to get listings on U.S. exchanges. ”The S.E.C. has suspended the trading in the shares of at least a dozen such companies,” says Dealbook. ” Some companies, the agency says, file questionable documents, while others file nothing at all for periods of time. Sometimes the risk comes from companies that have been using small accounting firms that cannot handle the workload of auditing a large businesses…”
Robert Khuzami, director of the enforcement division at the Securities and Exchange Commission, talked in a recent speech about some of the ways he thinks defense attorneys cross the line into obstruction. “Mr. Khuzami’s comments sound like a directive for attorneys to exercise greater care in how they interact with the S.E.C.,” says Dealbook. But, contrast that with the government’s attempt to prosecute a GlaxoSmithKline lawyer for obstruction over the way she represented the company. The judge wouldn’t even let the case go to the jury, and acquitted her on the spot.