News on the gang from Stockwatch:
Three former members of Solucorp Industries' management have lost a case bought by the United States Securities and Exchange Commission. Under the judgment, delivered in the United States District Court for the Southern District of New York on July 25, 2003, Joseph S. Kemprowski, Peter R. Mantia and Victor Herman have been ordered to disgorge their illicit gain from selling Solucorp shares while they were in possession of material information that had not been made available to the public. Mr. Kemprowski and Mr. Mantia have both been permanently banned by the SEC against serving as directors or officers for any public company. A final judgment has not yet been entered in this case.
The SEC's action against Solucorp was filed in December, 1999, and named as defendants previous securities violator Joseph Kemprowski of Upper Nyack, N.Y.; his wife Arle Pierro, who served as Solucorp's senior vice-president; his brother-in-law Peter Mantia of Wesley Hills, N.Y., who served as Solucorp's president; former president James Spartz of Ramsey, N.J.; Robert Kuhn of Ringwood, N.J., a former vice-president of Solucorp; former chief financial officer Victor Hermann; and W. Bryan Fair of Vancouver, a director of Solucorp. Glenn R. Ohlhauser, an external auditor, was added as a defendant to the action on Oct. 31, 2000. The charges against Mr. Kuhn were dismissed by the court on July 25, 2003, on the grounds that there was no evidence to establish that he had committed any violation of federal securities laws.
The court found that over a four-year period between 1995 and 1999, Solucorp's management, including Mr. Kemprowski, claimed in news releases and other public materials to have signed contracts that did not exist, were subject to undisclosed contingencies, or had proceeds to the company below the actual amounts received. Mr. Kemprowski, Mr. Mantia and Mr. Herman were found to have knowingly falsified the company's books and records, and that Mr. Mantia misinformed the company's external auditors. There were five instances of of financials being filed with the SEC in which the company's revenue was materially overstated.
The court also found that Mr. Kemprowski and Mr. Mantia failed to disclose their equity ownership in Solucorp as of Feb. 20, 1998, the effective date of Solucorp's registration with the SEC.
The court stated, in the July 25 order, that the "pattern of deception was so consistent and pervasive that it cannot logically be attributed to mere negligence." As such, "the executives responsible for the issuance of these press releases and financial statements, specifically Kemprowski, Mantia and Herman, knowingly and deliberately falsified them with the intention of deceiving shareholders and potential investors or, at the very least, were guilty of reckless disregard for the truth or falsity of the disclosures."
Three of the defendants settled with the SEC prior to the trial, which took place in March, 2003. Mr. Spartz, Ms. Pierro and Mr. Fair settled with the SEC, without admitting or denying any of the allegations against them. The court entered a final judgement against the three on March 12, 2003. Mr. Spartz got off without a fine as the court did not think he had the financial ability to pay such a fine. Ms. Pierro was fined $10,000 for failing to disclose in a timely fashion her equity ownership in Solucorp. The SEC does not note if Mr. Fair was fined or not in the judgment. All figures are in U.S. dollars.
THE OHLHAUSER SETTLEMENT
The SEC settled with Mr. Ohlhauser on Jan. 16, as was reported in Stockwatch on Jan. 28, 2003. The Vancouver accountant was cited by the regulator for "improper professional conduct" for his failure to dig up the accounting fraud at Solucorp. He was banned from appearing or practicing before the commission for at least two years, at which point he can reapply, but he was not fined. Mr. Ohlhauser has the dubious distinction of being the first person prosecuted under Section 10A of the Securities Exchange Act of 1934, an amendment enacted in 1996 that imposes obligations on auditors who discover possible illegal conduct.
Mr. Ohlhauser acted as Solucorp's auditor for 3-1/2 years. The court found that he discovered that Solucorp management may have backdated a licence agreement in 1997, but he kept the information to himself and failed to take appropriate steps to deal with the issue.
SOLUCORP'S CONNECTION TO HOWE STREET
Mr. Kemprowski and Mr. Fair, a Howe Street promoter, were involved with VSE-listed Solucorp's predecessor company, World Tec, and its VSE affiliate, Procordia Explorations. The VSE halted trading of Procordia in October of 1992, citing concerns about dubious stock issuances to Mr. Kemprowski, Mr. Fair and certain companies of Nicholas Michael Ross, who was the president of World Tec Industries, including Ruff Management and Inter Tec. Mr. Kemprowski working in investor relations for Procordia through Cambridge Consulting of Maywood, N.J., under a Jan. 15, 1992, contract. (Three years later, in December, 1994, Mr. Kemprowski and Cambridge settled the Astro Enterprises case with the SEC, with a $135,000 disgorgement order.)
In February, 1993, Procordia's new board revealed a series of serious irregularities. "It is likely that corporate funds were utilized, under the direction of previous management, in a manner that is not acceptable to the exchange," stated David Atkinson. Mr. Atkinson noted that Procordia had issued 625,000 shares without the approval of the Vancouver Stock Exchange, and 475,000 of these shares were not paid for in cash, but with offsetting accounts. Procordia's new board also noted Mr. Kemprowski's Cambridge contract had been terminated. A month later, Mr. Atkinson revealed that an unidentified previous director had returned 300,000 shares that had been "issued in error, for cancellation." "All ties to previous directors and management have effectively been severed," Mr. Atkinson said.
Later that year, Procordia was renamed Earthworks Industries, with a consolidation of five old shares for one new share. Solucorp filed a lawsuit against Earthworks in December, 2000, under which Solucorp claimed that Earthworks failed to honour repayment demands of a $1-million (Canadian) loan facility. The lawsuit was subsequently settled in January, 2001, when Earthworks issued 262,500 shares to Solucorp at $1.50 (Canadian) per share, for a total value of $393,750 (Canadian). |
