Re: More ITEX fallout
Subj: Stockwatch: Street Wire - SEC bans former Itex CFO in book-cooking scheme
Date: 2/14/00 10:29:17 PM Eastern Standard Time
From: list@stockwatch.com
Gold King Consolidated Inc - Street Wire
SEC bans former Itex CFO in book-cooking scheme
Gold King Consolidated Inc
GKC
Shares issued 44,903,943
Fri 11 Feb 2000
Street Wire
See (U:ITEX) Street Wire
CPA'S ASSOCIATE A GOLD KING FOUNDER
by Brent Mudry
Former Itex Corp. chief financial officer Joseph M. Morris has been banned for five years in a consent settlement with the United States Securities Commission. The SEC claims Mr. Morris cooked the books of Itex, a barter promotion based in Portland, Ore., as part of a larger scheme allegedly masterminded by Itex founder and controlling shareholder Terry Neal. The SEC barred Mr. Morris, a certified public accountant, from serving as an officer or director for five years, and barred him from serving on SEC securities filings for the same period. The accountant was also ordered to disgorge $45,400 (U.S.) in profits made selling his own shares, but payment was waived, based on his demonstrated inability to pay.
In the Itex settlement, the SEC dropped Mr. Morris as a defendant in another case, a securities fraud action in the District of Colorado involving Scientific Software-Intercomp. The SSI prosecution, launched July 30, 1998, targeted Ronald J. Hottovy, Jimmy Duckworth, Mr. Morris and Eugene Breitenbach.
The SEC settlement follows a permanent injunction against future securities violations by Mr. Morris, granted Jan. 24 in the U.S. District Court for the District of Oregon. The SEC alleges that Mr. Morris, as CFO of Itex, knowingly and recklessly participated in material overstatement of the company's assets, revenues and earnings. Mr. Morris also failed to disclose "numerous suspect and in many cases sham barter deals between Itex and various related parties," according to the SEC.
The SEC claims the accountant's conduct was part of a larger scheme in which Mr. Neal "orchestrated and implemented a broad-ranging fraudulent scheme to make materially false and misleading disclosures" about Itex's business and to conceal numerous suspect and often sham barter deals between Itex and "various mysterious offshore entities" either related to or controlled by Mr. Neal.
In the SSI case, the SEC filed a financial fraud action against four former senior officers of the Denver oil and gas software company: CFO Mr. Hottovy, a CPA, executive vice-president for sales Mr. Duckworth, corporate controller Mr. Morris and chief executive and chairman Mr. Breitenbach. The SEC claims that in 1993, 1994 and 1995, the quartet overstated SSI's revenue and earnings by backdating contracts, booking revenue without contracts, overaccruing project revenues and providing secret side deals modifying contract payment obligations.
The regulator claims the company raised $8-million (U.S.) by selling four million shares in a financing based on the cooked books. The busy SSI quartet also allegedly misled auditors by hiding the side deals, creating false documentation of revenues and, by the first quarter of 1995, even creating false affidavits supporting recognition.
In a consent settlement on July 30, 1998, Mr. Breitenbach was fined $50,000 (U.S.) and ordered to pay disgorgement of $33,600 (U.S.) in profits, plus $9,961 (U.S.) in interest. In three other concurrent consent settlements, two SSI managers and a division controller, alleged to have assisted in the revenue falsification scheme, agreed to refrain from future securities violations.
Three months ago, on Nov. 10, the SEC reached a consent settlement with Mr. Duckworth, who was fined $35,000 (U.S.), barred from serving as an officer or director for five years and permanently barred from acting as an accountant before the commission. The case against Mr. Hottovy, SSI's former CFO, remains outstanding.
In an unrelated Vancouver-based penny stock promotion, Mr. Hottovy served as a director of Gold King Consolidated. Gold King delisted from the Vancouver Stock Exchange, the exchange then known as the Scam Capital of the World, in June of 1992, the year before the SSI scheme, and continued trading on Nasdaq.
Mr. Hottovy was a founding director of Gold King when it listed on the VSE in June of 1988, sponsored by John Tognetti's Haywood Securities, and remained on the board through at least 1992. Gold King featured several offshore backers, most notably Dr. Alfred Steinbrugger, a close associate of London-based financier John Cathersides, himself an associate of controversial expatriate Vancouver promoter Harry Moll.
Litigation involving International Telepresence (Canada), renamed Isee3D, last year revealed Dr. Steinbrugger is the principal director of Sparten Establishment, Mr. Cathersides's secretive offshore trust. During the Moll era, Sparten was a timely buyer of shares in the promoter's flagship Pineridge Capital, his comic disaster Cross Pacific Pearls and the equally ill-fated Unilens Vision.
More recently, Dr. Steinbrugger has been involved in a series of other Howe Street deals, representing Corevalor Investments & Finance Establishment, a big buyer of Moll-associate Patrick McCleery's Biometric Security. Another offshore company associated with Dr. Steinbrugger, Juricon Truehand Anstadlt, received a finder's fee in mid-1998 for a private placement of Howe Street promoter Don Farrell's Air Packaging Technologies.
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