FINANCIAL CRIME NEWS
FEATURE STORIES May 2005 Page 1
HOOKED ON HYPE: SEC Case Says Penny Stock Veterans Pulled $20 Million of Illegal Profits out of Two Worthless Shell Companies
By Stephanie Ayres
May 2005
Miami, Florida
An SEC civil complaint filed in federal court in Miami on February 14 highlights some of the tools of the trade for penny stock fraudsters, including the use of offshore shell companies and the dissemination of absurdly false information by stock promoters, as well as the continuing trend for repeat offenders to use "consulting" or "stock promotion" as a means to continue penny stock activities after being sanctioned by the SEC and/or the NASD.
The Februay 14 case focused on the alleged manipulations of two tiny stocks orchestrated by Donald E. Oehmke of Kalamzaoo, Michigan and Bryan Kos of Montreal, Quebec with help from stock promoters Thomas M. Heysek of San Francisco, Andrew M. Kline, and Paul A. Spreadbury, and with the alleged collusion of Hartley Lord of Boca Raton, Florida.
Behind the Scenes
Oehmke was fined $150,000 and barred in 1991 by the NASD from association with NASD members for his alleged involvement in a scheme to "make improper use of customer funds," to disseminate "misleading sales literature," and other activities. According to the SEC's complaint of February 2005, Heysek was terminated by three broker-dealers for activities such as unauthorized trading and "improper handling of customer funds." Hartley Lord, another figure in the alleged manipulation scheme, is subject to a 1981 permanent injunction against securities fraud for alleged involvement in a stock manipulation scheme and was barred from the securities industry by the SEC in the 1970s.
The SEC complaint places Oehmke at the center of both of the alleged manipulation schemes covered by the case. In the first scheme, Oehmke allegedly arranged for his publicly-traded shell company, MBC Food Corporation, to merge with Lord's Concorde America Inc. Neither company had any business activity, but sometime in 2004 Lord began to claim that Concorde was in the business of recruiting and providing Spanish-speaking Latin American workers for large companies in Spain and other European countries.
The Offshore Line-up
As part of the merger agreement, Oehmke and Kos obtained ten million shares of Concorde stock, much of which they proceeded to stash in brokerage accounts in the names of four offshore entities they controlled-- DaSilva SA in Anguilla, Vanderlip Holdings NV in Anguilla, Chiang Ze Capital AVV in Trinidad, and Barranquilla Holdings SA in Anguilla. These four offshore fronts opened brokerage accounts at Sunstate Equity Trading in Tampa, Electronic Access and Newbridge Securities Corporation in Fort Lauderdale. Each entity held at least a million Concorde shares poised for dumping when the price was right.
The $2 Billion Contract That Never Was
According to the SEC's complaint, Lord told Oehmke and Kos that Concorde had an agreement to provide 150,000 workers in 2004 and 50,000 in 2005 to European employers. What happened after that is reminiscent of the children's party game where one child starts a rumor by whispering it to another who whispers it to the next and so on. When the story gets all the way around the group and back to the child who started it, the group enjoys the joke of how it got exaggerated. This is similar to what happened with Concorde America, except that those who spread the rumors got subpoenas instead of laughs.
Kos reportedly hired Heysek, Kline, and Spreadbury to promote Concorde. In preparing their promotions, the trio embellished the information Lord had provided about a European contract. Despite the fact that there really was no contract, Heysek and Kline predicted Concorde would have income of $630 million in 2004 and $399 million for 2005 from it.
They even predicted income of $289 for 2006, although Lord had said it was only a two-year contract. They also had Concorde's stock price soaring from $3 per share to about $30 per share. When this exaggerated version got back to Lord he reportedy told the promoters that the predictions were "ridiculous," but allegedly did nothing to stop them from disseminating the figures in their reports.
And disseminate they did. The "ridiculous" projections for Concorde America were reported on two websites controlled by Kos-- WinningStockPicks.net and USPennyStocks.com. The SEC complaint says that WinningStockPicks.net got so excited by Heysek's projections for Concorde that it went even further in predicting that the company would earn $2.6 billion of income from a three-year contract with the Spanish government.
By the time the story reached Kos's USPennyStocks.com, the contract was not just with the Spanish government, but with several European governments. Kline cautiously predicted a mere $2 billion of income and a stock price of $84 per share, but allegedly made the false statement that the company had positive cash flow. The Kos websites reportedly described Heysek as a "financial guru" and praised Kline's twenty years of financial experience as well as his humanitarian activities, which reportedly included five years in South America building rural clinics for the poor. The SEC says that Kline did indeed spend five years in South America, but in a Bolivian prison serving a five-year sentence on drug-related offenses.
In July 2004 Spreadbury joined the chorus, reporting that Concorde had an agreement with the Spanish government to send 200,000 workers to that country and quoting Lord and an associate about this and other fictitious information continued in his press releases for Concorde.
Oehmke and Kos Cash In
As Heysek, Kline, and Spreadbury pushed and pulled the stock price upward with their predictions of an ever more glowing outlook for Concorde America, Oehmke and Kos were busy selling off their offshore holdings. According to the SEC complaint, Barranquilla led the way with over $5.2 million of profits on Concorde stock in August alone, while Vanderlip came in second with over $4.3 million in Concorde profits, followed by DaSilva with $1.8 million in July and August and Chiang Ze with over $1.6 million in August.
The timing was not accidental. By August the game was over. On August 11 Concorde issued a statement disavowing Spreadbury's remarks and admitting that there was no Spanish government contract and no basis for the enormous income projections. On August 12 Concorde's stock creashed. The SEC alleges that by this time Oehmke and Kos had already dumped their shares for a total profit of about $9 million.
Absolute nonsense...
In the second scheme alleged by the SEC, Oehmke and Kos tried to get the owner of two health clubs in North Carolina to merge his company, called Absolute Health, with their public shell so they could promote the stock to the public. According to the SEC complaint the owner refused, but Oehmke and Kos allegedly forged his name on merger documents, changed the name of their shell company to Absolute Fitness, and made ready to dump shares from offshore.
For this scheme Oehmke and Kos allegedly lined up Chiang Ze and Barranquilla to receive 8 million shares of Absolute and created a new entity, Ryzak Investments GmbH in Trinidad, to hold 6 million shares.
...but even bigger profits!
They again hired the team of Heysek, Kline, and Spreadbury to tout the Absolute stock. The promoters' imaginative efforts had the worthless shell company poised for 300% growth with revenues doubling within a year. Pennystockpro.com predicted a 600% profit in six months. Promoters' reports and voice-mail spams apparently helped set off a flurry of buying. Between June and December 2004, Absolute's price rose from about fifty cents per share to about $5 per share and then crashed, but not, claims the SEC complaint, before Oehmke and Kos were able to reel in a whopping $14.4 million of profit from Chiang Ze and Barranquilla.
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