Re: 3/1/01 - [AZNT] Las Vegas Sun: Food company accused of cooking its books
Today: March 01, 2001 at 11:30:38 PST
Food company accused of cooking its books
By David Strow
<strow@lasvegassun.com>
LAS VEGAS SUN
The Securities and Exchange Commission slapped Amazon Natural Treasures Inc. with a federal lawsuit Wednesday, accusing the small Las Vegas company of fraud against investors and customers.
In its civil lawsuit, filed in federal court in Las Vegas, the SEC accused Amazon and its president, Michael Sylver, of accounting fraud, making false statements, securities registration violations and other securities law violations.
The commission said it will seek disgorgement (reimbursement) of ill-gotten gains and civil penalties in an attempt to reimburse investors harmed by the alleged scheme. The SEC is also seeking a court order that would bar Sylver from holding a position as an officer or director of any publicly traded company.
Also named as a defendant was Domingos Loricchio Jr., a Brazilian citizen who ran Amazon's production and operations until resigning in July 2000. Sylver and family members held 37 percent of Amazon's stock at the time of the company's last report, while Loricchio and his family held 30 percent, the SEC said.
The company sells health care products made with ingredients from Brazil's Amazon rainforest.
Meredith Munro, an attorney with the SEC in Denver, said the case was one of the most extreme she'd ever seen, "given the permeation of fraud."
"(Fraud) seems to permeate every aspect of the company," Munro said. "We have had so many complaints from so many different avenues about this company. This case was hard to narrow, because we had a lot of different complaints with respect to this company."
But Amazon officials are denying the charges, and vowing to fight. Sylver blamed the SEC lawsuit on a group of Canadian brokers and American market-makers he says has been illegally short-selling millions of shares of Amazon stock.
Short-selling is the practice of investing in a special security in hopes that the company's stock will decline rather than increase.
"We believe the SEC has been duped into these charges by this group of people (the short-sellers)," Sylver said. "We intend to work hand-in-hand with the SEC ... as co-plaintiffs against these stock manipulators. We hoped the SEC would do this. We wanted the SEC to do this."
Typically, such a lawsuit results in a trading freeze. But since there is virtually no trading in the over-the-counter stock, Munro said the SEC is not seeking a trading freeze at this time. Nor will it seek a shutdown of the company, she said.
"Frankly, there's not much business operations going on there as far as we can tell," Munro said.
The SEC lawsuit accuses the company of four securities law violations: overstatement of revenues in its 1998 annual report; undisclosed cash and stock compensation to Sylver; "baseless and unreasonable" revenue projections and financial information; and false claims about the safety and benefits of Amazon products. The commission also claimed Amazon maintains "deficient" books and records that do not meet the requirements of a publicly traded company.
In its annual report filed in September 1999, Amazon claimed $580,900 in sales revenues for the year ending Dec. 31, 1998. But at least $266,600 of these sales, the SEC claims, came from the sale of stock, not products.
Amazon also claimed in its 1996 and 1997 annual reports that Sylver didn't receive any compensation for his position as president and chief executive. But the SEC claims Sylver did receive substantial compensation during that time -- at least $38,000 in salary, and more than $425,000 in cash withdrawn from company accounts.
Additionally, the SEC claimed Sylver had received stock compensation from Amazon, despite claims from the company that he had not. From January 1997 to May 1998, the SEC lawsuit states, 2 million shares of Amazon stock were issued to a Sylver-controlled entity called Titan Investments. Some of the shares were sold on the open market, the SEC said, while other were sold "at very reduced prices" to Sylver's family, friends and company consultants.
Sylver directed $514,000 in proceeds from these sales to a Titan bank account, and later withdrew $316,000 for personal uses, the SEC said.
While these stock sales were occurring, the SEC said Amazon was making grossly inflated revenue projections and false inventory statements to investors. In 1996, the company estimated it would achieve $1.5 million in sales revenue in 1997; by the end of 1997, the SEC said, Amazon was projecting in press releases it would achieve $50 million in net income for 1998 on revenues of $75 million.
This never occurred. In 1998, Amazon reported a net loss of $4.8 million on sales revenue of $392,000.
The SEC complaint also claims the company made false representations about its products. Amazon, the SEC said, claimed it developed a cream product that could protect users against AIDS, while several other products could combat cancer.
Not only were these claims false, the SEC claims the products themselves are dangerous. Three Amazon products, the SEC alleged, "can cause several forms of cancer and are toxic in some dosages."
Sylver said he's heard these charges before. The Amazon CEO said these charges have been circulated by a group of short-sellers for years. Amazon first filed suit against these short-sellers in 1998.
According to Sylver, this short-selling scheme involved a group of Canadian brokers who would sell the same shares repeatedly to different investors through American market-makers. While the brokers held 2.5 million shares, they actually "sold" 15 million shares through the market-makers, Sylver said.
"They've probably made $80 million already selling illegally," Sylver said.
The group then issued false and misleading press releases about the company, floated damaging rumors about Amazon on Internet message boards, and constantly contacted SEC investigators in an effort to trigger an investigation, Sylver said.
In November 2000, Amazon settled its lawsuit with several of these brokers, resulting in the cancellation and return of the 2.5 million shares the brokers held. The company said it has received a default judgment against the remaining defendants, and hopes to collect a "sizable judgment" from them at a later date.
"This is an ongoing thing," Sylver said. "They went after 43 companies, and we're the only ones still in business."
Amazon, meanwhile, is in the process of trading its old shares of stock for shares of a new company called Amazon Natural Treasures.com Inc., in an attempt to bring an end to the claimed short-selling scheme. These shares will trade on a members-only Internet-based stock exchange called Niphix -- and currently carry a trading price of $49 to $125 per share.
That's well above the 25 cents per share now fetched by Amazon shares on the open market.
But short-selling isn't an excuse for what has occurred over the past several years, Munro said.
"It's possible people are shorting the stock," Munro said. "I understand Mr. Sylver's complaints and concerns, however, any short-selling activity does not absolve him and his company of SEC violations. To claim such is perhaps a red herring."
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