Dr. Phan better not try to throw the new accountants down a flight of stairs? Call them Cockroaches , yes, throw them down a stairs, no.
Penny Stock Scam article - Wash Post - SEXI
washingtonpost.com
Penny-Stock Scam Keeps Replenishing Rogues' Gallery
By Jerry Knight
Monday, February 12, 2001; Page E01
Four years after the chairman of a small Virginia communications company copped a plea and went to prison for securities fraud and money laundering, the Securities and Exchange Commission is still untangling what's turned out to be the biggest little stock scam this area has ever seen.
You might have known there had to be a story in a company whose stock traded under the symbol SEXI, but what a story!
Four people have been convicted on criminal charges in cases involving Systems of Excellence Inc., once of McLean, now defunct.
Forty others have been sued by the SEC for securities-law violations, in eight separate enforcement actions.
The Virginia case led to cases against penny-stock brokers in New York, stock touts in Florida and strong-arm men in Las Vegas who were recorded threatening to throw an accountant down a flight of stairs to keep him from talking about SEXI.
More than $15 million in illegal profit has been recovered from defendants in the SEXI cases, one of the biggest recoveries in the history of micro-cap stock fraud. But it's a fraction of the upwards of $100 million lost by investors who bought stock in the company.
Now the SEC is trying to get back another million or more.
The SEC late last month filed two new civil lawsuits naming two companies and eight people who allegedly made money by manipulating the price of SEXI stock or selling unregistered shares.
The new defendants include the most interesting name yet to surface in the SEXI investigation: Thomas Clines, former CIA operative, international arms trader and a key player in the Iran-contra scandal.
Clines was part of a shadowy team put together by Marine Lt. Col. Oliver L. North that made an arms-for-hostages swap with Iran, then used the profit to buy weapons for the Nicaraguan contra rebels after aid to that group was outlawed by Congress.
Prosecutors charged that Clines used sham corporations and Swiss bank accounts to enrich himself. In 1990, he was convicted of filing false income-tax returns on which he failed to report $260,000 in arms-sale profit, and of failing to disclose that he had offshore bank accounts. He was sentenced to 16 months in prison.
In the SEXI lawsuit, the SEC alleges that Clines, 72, made $209,000 by illegally selling unregistered securities that he was given for "consulting" services. An additional $90,000 in profit from illegal securities sales, the SEC claims, went to Heidi DeConde Clines, who was Thomas Clines's girlfriend at the time and is now his wife.
While one of the other defendants in the latest SEC legal proceedings settled with the government, the Clineses are fighting the SEC's demand that they repay the money they allegedly made selling SEXI stock.
The Miami lawyer who represents Clines in the case, Arthur W. Tifford, did not return three phone calls seeking comment on behalf of his client. Heidi Clines has an unpublished phone number in Huddleston, Va., near Roanoke. There's no separate listing for Thomas Clines, who the SEC says also lives in Huddleston.
The SEXI case began in Miami with a company that was originally called Software of Excellence Inc. In the mid-1990s, Software of Excellence had a flourishing following among penny-stock investors but was, in fact, a foundering company, little more than a shell, according to the SEC.
The company's chairman, Charles O. Huttoe of Miami, came up with a plan to revive interest in the stock by acquiring a Northern Virginia company called ICMX Federal Systems Inc., which said it had developed a video-teleconferencing system.
Telling investors that ICMX had $10 million in orders for its video gear, Huttoe arranged a merger with ICMX, moved his offices to McLean and renamed the company Systems of Excellence.
Soon SEXI started showing up in Internet investment newsletters. The stock and the company's supposedly innovative video-teleconferencing technology were repeatedly plugged in the now-defunct SGA Goldstar Whisper Stocks online advisory service.
SGA Goldstar's publisher, Theodore R. Melcher Jr., was sentenced in 1997 to one year in prison by Judge Albert V. Bryan Jr. in U.S. District Court in Alexandria. Melcher pleaded guilty to charges that he made $500,000 selling SEXI stock that he was given in return for touting the shares on the Internet.
The payoff came from Huttoe, who was the first to go down when the SEC went after SEXI in 1996.
Before Huttoe was even charged, his defense attorney, former SEC enforcement director John Fedders, went to the agency and began preemptive plea bargaining. In return for helping the SEC recover some of the millions made in the SEXI scam and for naming names, Huttoe got the minimum sentence on two counts of securities fraud and money laundering.
In December 1996, Huttoe was sentenced to 46 months in federal prison at Eglin Air Force Base in Florida, one of Uncle Sam's more hospitable slammers.
Huttoe's singing got the SEC and Justice Department started on an investigation that's still going.
Next to fall was the Los Angeles accountant who had signed his name to more than a dozen false financial statements filed by Systems of Excellence and by three companies in Las Vegas. Accountant Merle Finkel also rolled over, on both civil and criminal securities-fraud charges.
For Finkel, then 67, the government was not the only threat.
On a transcript of wiretaps that was filed in the case, Las Vegas stock promoter Barclay Davis was caught discussing how to dissuade the accountant from cooperating with the SEC.
"Well to put . . . totally put the lights out, that could be a bigger problem in the end," Davis said. "But an accident . . . a severe injury . . . could send the right message."
Musing with an associate who turned out to be another one of the defendants who were flipped by investigators, Davis suggested an office in Los Angeles that might be the place to deal with the accountant.
"You know, Finkel just needs to fall down the stairs," the wiretap text has Davis saying. "It's a perfect setting -- the stairs are far enough down that he takes that flight of stairs, he's going to end up with broken bones."
Davis even had a person in mind to handle Finkel. "If Oscar is in this back corridor, comes up behind him, foot in the back, he goes tumbling down the stairs. Que sera sera."
The wiretaps got Davis indicted on federal witness-tampering charges on top of the civil and criminal securities-fraud charges brought by the SEC.
Nothing matches that scene for cinematic value, but methodically, every few months, the SEC files another civil suit in the SEXI case, using testimony from one defendant to go after the next.
The defendants in one of the two new civil case -- which SEC lawyers do not call the last -- are three Florida men: former broker Joseph D. Radcliffe, investment-firm owner William A. Calvo III and penny-stock trader Jerome E. Rosen. Rosen was the market maker who handled trading of SEXI stock on what's called the Over-the-Counter Bulletin Board. On the bulletin board, stocks of companies too small or too weak financially to qualify for the Nasdaq Stock Market are traded over the phone.
The civil charges follow the pattern of allegations in the six previous SEXI civil cases: payoffs from Huttoe in SEXI shares that were not registered with the SEC and were not supposed to be sold, but were, and what the SEC calls "a fraudulent scheme to manipulate the market."
Rosen and Calvo have denied the charges. Radcliffe settled, agreeing to give the government $383,000 in stock-trading profits, $156,000 in interest, a $75,000 civil penalty and the fair market value of a Lincoln Town Car he allegedly acquired as part of the stock manipulation.
Thomas Clines, his wife and four other defendants were sued at the same time in a separate case, accused of selling unregistered securities. All six defendants have denied the charges in the case, which ties up a few loose ends in the SEXI story.
It was Clines, the SEC claims, who hooked Charles Huttoe up with ICMX, source of the dubious video technology that became the centerpiece of the entire fraud. Clines and his wife allegedly got the stock they sold in return for introducing Huttoe to ICMX.
Until now, the SEC has pursued the SEXI case by persuading one defendant after another to roll over and testify against the next target.
It's hard to imagine that happening with Clines. He never talked in Iran-contra. He kept quiet about another arms-dealing case he was drawn into. He was a CIA lifer, as close to "licensed to kill" as the government will admit exists. It's hard to imagine he will be turned by any lawyers from the SEC.
Jerry Knight's e-mail address is knightj@washpost.com. |
