SEC target Custable pleads the Fifth
2005-08-02 15:20 ET - Street Wire
Also Street Wire (U-TMRO) ThermoElastic Technologies Inc
by Stockwatch Business Reporter
Jailed securities violator Frank J. Custable has pleaded the Fifth Amendment in reply to substantial allegations the U.S. Securities and Exchange Commission levelled against the Chicago resident in 2003. Mr. Custable's reply comes as the lawyers involved are gearing up for the pending trial.
One of Mr. Custable's co-accused is ThermoElastic Technologies Inc., a now defunct OTC Bulletin Board company based in Blaine, Wa., a stone's throw across the U.S.-Canadian border from Vancouver. ThermoElastic was run by Howe Streeter Ken Liebscher, Toronto penny stock consultant Dennis Epstein, Toronto lawyer Howard Kerbel and Toronto dentist Barry Berman. (Mr. Liebscher, although mentioned in the case, is not accused of any wrongdoing. Mr. Epstein, Mr. Kerbel and Mr. Berman are also not accused of any wrongdoing.)
The ThermoElastic promoters
Mr. Custable's involvement with ThermoElastic was revealed around the same time as ThermoElastic's principals were facing unrelated criminal fraud charges in Florida.
The Florida fraud charges stemmed from Operation Bermuda Short, the massive penny stock sting in which the FBI, aided by the RCMP, arrested 58 penny stock players on both sides of the border.
Mr. Kerbel and Mr. Berman both pled guilty and were jailed in 2003 for other Bermuda Short shenanigans. Mr. Liebscher and Mr. Epstein were both tried and acquitted in their Bermuda Short prosecutions.
The SEC's case against Mr. Custable
The SEC, as reported in Stockwatch on April 3, 2003, claimed Mr. Custable was the mastermind behind a scheme in which he sold millions of restricted shares in ThermoElastic and four other OTC-BB companies, netting at least $4.3-million in ill-gotten gains.
Targeting struggling OTC-BB companies, Mr. Custable apparently circumvented the two-year hold on restricted shares by claiming the shares he received were pledged as collateral against two-year-old debts. The SEC, however, says the debts were bogus and the shares never should have been issued.
The SEC says Mr. Custable hired Paul Munnich, a "high-school graduate who had experience working for a travel agency," to perform the sham consulting services.
"Rather than provide ThermoElastic, Wasatch and Gateway with valuable services, Munnich acted as a straw man for Custable," the SEC claims.
The SEC says Mr. Munnich, the straw man, received 40 million shares of ThermoElastic between April, and July, 2002, and passed the shares on to his boss. According to the SEC, Mr. Liebscher, on May 3, 2002, signed the Form S-8 restricting the 40 million shares.
(ThermoElastic, which traded at 8.5 cents on March 27, 2002, was pummeled down to 13-100ths of a penny by June 17, 2002.)
Mr. Custable pleads the Fifth
Mr. Custable, in his very brief answer to the SEC's 116-page complaint, simply pleads the Fifth.
"Frank J. Custable, Jr. has and continues to invoke his Constitutional Fifth Amendment privilege against self-incrimination and hereby responds to each and every allegation ... by invoking said Constitutional privilege," his defence reads.
Sara Wetzel pleads the Fifth
Mr. Custable is not the only accused to plead the Fifth in this case. Sara Wetzel, who the SEC says was Mr. Custable's sidekick throughout the sham consulting scheme, hired the same lawyer as Mr. Custable and pled the same defence.
"Sara Wetzel has and continues to invoke her Constitional Fifth Amendment privilege against self-incrimination and hereby responds ... by invoking said Constitutional privilege," her defence states.
Mr. Custable goes to jail
The restricted share trouble came at a difficult time for Mr. Custable.
Not long after the SEC filed the sham consulting case against him, somebody found out he lied in claiming he had no money to pay fines levied in an unrelated 1994 SEC case. The U.S. Attorney's Office pounced on this, and won a criminal judgment in Illinois against Mr. Custable on May 5, 2005, for "Impeding the Due Administration of Justice."
In the 1994 case, the SEC won a $60,000 civil judgment against Mr. Custable for selling property-backed notes without telling investors how risky the notes were.
"Mr. Custable and [his company] ... were misrepresenting and omitting to state material facts to investors regarding, among other things, the nature, liquidity and risks of the investment," the SEC claimed.
The notes, sold via cold calls to 89 investors, apparently brought in $1.8-million.
Illinois Judge John A. Nordberg, who presided over the 1994 case, found for the SEC, and gave Mr. Custable 21 days to come up with a way to pay $60,000.
Mr. Custable initially avoided paying the penalty by pleading poverty.
"I own, directly and indirectly, $300 in cash," he pleaded.
He claimed his only other assets were his house, located in the Chicago suburb of Glendale Heights, and a 90-per-cent interest in a foundering company.
In doing so, he apparently avoided paying the penalty until now. On May 5, 2005, Illinois Judge Wayne Anderson ordered him to pay a $30,000 fine and $18,000 in restitution to the SEC, and sentenced him to 10 months in jail.
The SEC's sham consulting hearing, meanwhile, looks to be headed for trial. A preliminary status hearing is scheduled for September. |
