SEC wins $3.9-million default judgment against Norman
2005-04-25 12:54 ET - Street Wire
Also Street Wire (U-WTAI) World Transport Authority Inc
by Stockwatch Business Reporter
The U.S. Securities and Exchange Commission, North America's top penny stock cop, has successfully prosecuted another Canadian working on U.S. soil. Judge Naomi Reice Buchwald on March 16 handed down a default $3,982,833 judgment against Canadian promoter Douglas Norman for a 2000 pump-and-dump that featured bogus car factories and a purported $1.1-billion manufacturing deal in India. (All figures are in U.S. dollars.)
The SEC's complaint
According to the SEC's Feb. 19, 2003, civil complaint, Mr. Norman's company claimed it had developed a corrosion-resistant car with fewer than 500 moving parts. The SEC identified his company as World Transport Authority Inc., an Alberta-domiciled company trading at the time on the lightly regulated, but heavily prosecuted, OTC Bulletin Board.
Mr. Norman, a 63-year-old Canadian now living in California, evidently served as World Transport's de facto chief executive officer.
To produce these purported rust-free cars, the SEC said Mr. Norman's company developed a proprietary factory that it claimed, for a minimal investment, could produce one car per day. World Transport said it had several pending deals to licence these so-called "Factory-in-a-Box" systems, according to the SEC.
The deals that propelled World Transport, according to the SEC, were often more fiction than fact. They included a $45-million licence for 120 car factories in South America, followed less than one month later by a purported 1,000-engine order for factories in the Philippines and Colombia.
The SEC says the 1,000-engine order, which the company announced in an April 27, 2000, news release, was at best exaggerated. The actual number of engines ordered, if the SEC is to be believed, was 19.
As for the 120 South American car factories the company touted, the SEC said the company "had no reasonable basis to project that this reported agreement would result in 120 factories." The SEC also said the company made baseless projections of $45-million in revenue from the purported factories.
However, a far more ambitious exaggeration of facts came later in the year, according to the SEC. The penny stock cop said World Transport, on Sept. 13, 2000, claimed it had licensed its manufacturing technology in China, and expected to sell $900-million worth of factories and car parts.
The company followed that announcement six days later with another, on Sept. 18, 2000. This time, the company said it had a licence deal even more grandiose than the one in China. The company claimed it had secured a $1.1-billion deal in India that included 315 factories and components for over 200,000 of its corrosion-resistant cars.
The SEC said the company followed up that questionable piece of good news with another, on the same day. The company claimed its "Factory-in-a-Box" had won accreditation from the Society of Automotive Engineers, a 100-year-old professional organization. The society, in fact, gave the company no such accreditation, according to the SEC.
None of this seemed to matter to the market, however. At the time, the stock was very active in the wake of a 4:1 Sept. 1 split. The day after the two announcements, Sept. 19, the stock rose from 64 cents to a 90.6-cent high, on volume of 3,976,800 shares.
The SEC said Mr. Norman, meanwhile, dumped 5.5 million of the company's shares as these dubious licence deals propelled the stock. The company (prior to the 4:1 split) rose from a 21-cent low, at the beginning of 2000, to hit a $2.75 peak by March 30, 2000.
All good things must come to an end, however, and World Transport was no exception. The stock eventually collapsed in mid-2001, all of its overseas deals having flopped, and it reached a three-cent postsplit low by the end of the year.
Judgment
Judge Buchwald, in addition to the $3.9-million in penalties, permanently barred Mr. Norman from penny stocks. Mr. Norman's $3.9-million monetary penalty includes a return of $1.8-million in ill-gotten gains, a $1.8-million civil penalty, plus $382,883 in interest.
Mr. Norman, for his part, appears to have ignored the whole proceeding, which was heard in New York. He did not respond to the SEC's complaint and did not send a lawyer to the hearing.
Douglas Norman
Mr. Norman was the only regulatory target to emerge from the World Transport trouble, and the SEC did not accuse the company itself of any wrongdoing.
Mr. Norman is no stranger to court proceedings. He reportedly was a material witness in the criminal trial of shuttered San Diego brokerage La Jolla Capital, a follower of many dubious Howe Street deals. In that case, La Jolla principal Harold Gallison Jr. was jailed for five years for defrauding investors of millions of dollars.
World Transport
World Transport, as recently as Aug. 12, 2004, continued to tout its "Factory-in-a-Box" system. The company, now a subpenny stock operating from Beverly Hills, did not include any revenue in its most recently published financial results, for the nine months ended March 31, 2004. Mr. Norman does not appear to be associated with World Transport in any capacity these days.
World Transport now trades on the pink sheets, where it changed hands on Friday for six-100ths of a penny. |
