MEATLOAF GETS CRIMINAL PROBE->=DJ IN THE MONEY: Govt Probe Into Absolute Health Goes Criminal
By Carol S. Remond
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--A government investigation into a busted penny stock company Absolute Health & Fitness (AHFI) and the promoters who are alleged to have manipulated its stock has gone criminal.
The U.S. Attorney's Office for the U.S. District Court for the Western District in North Carolina late last year issued criminal subpoenas in connection with a grand jury investigation, several people familiar with the situation have told Dow Jones Newswires.
This indicates that the U.S. Department of Justice is considering whether to file criminal charges against one or several of the people involved in the fast rise and crash of Raleigh, N.C., Absolute Health.
As reported earlier this month in an "In The Money" column, some of the gyms at the center of the manipulation of Absolute Health's stock in late 2004 were recently purchased by another public company called Health Partnership Inc.
(HHPN).
The criminal investigation into Absolute Health follows in the footsteps of a civil suit filed by the Securities and Exchange Commission a year ago.
Criminal Probe Follows SEC Charges
In a complaint filed in February 2005, the SEC charged two promoters, Donald Oehmke and Bryan Kos, and related companies of having pumped the stocks of Absolute Health. The SEC said the promoters planned to merge gyms owned and operated by Randall Rohm into a shell to form Absolute Health and profit by
pumping the stock.
The merger never occurred, but several promotional reports nonetheless boosted the stock more than $5 a share before the SEC halted trading in December 2004.
The SEC complaint also named one other company called Concorde America (CNDD) but the criminal probe appears to be centered around Absolute Health.
Kos and Oehmke have denied the SEC claims and the case is ongoing in the U.S. District Court for the Southern District of Florida. Absolute Health stock is now trading around 1 cent a share.
The criminal investigation is being led by Assistant U.S. Attorney Matthew Martens. He declined to comment.
Lawyers for Kos and Oehmke declined to comment.
A lawyer for Rohm, the owner of the gyms that were supposed to have made up Absolute Health's assets back in 2004, didn't respond to telephone calls.
Rohm suggested in a document filed with the Florida court last year that he was duped by business partner Jeremy Jaynes and stock promoter Kos who tried to entice him to sign a deal to merge his company Double R Enterprise Inc. into a
corporate shell called Ornate Holdings Inc. Rohm said he never signed the merger agreement he received from Florida lawyer Jeremy "Jere" Ross. Rohm said that a signed copy of the deal is a forgery and that he never authorized his name to be used in promotional newsletters that boosted the price of Absolute Health stock.
Rohm and Jaynes aren't named in the SEC action. It is not known whether they were subpoenaed in the ongoing criminal probe.
Florida Lawyer Called To Testify
Jaynes was indicted in an unrelated case in Virginia in 2003 for violating the state's new anti-spam law. Jaynes was sentenced to nine years in jail last year and is out on bail pending his appeal of the law's constitutionality. Jaynes,
through a lawyer, declined to comment.
Ross, the lawyer who sent Rohm the merger agreement between Double R and Ornate, is one of the parties that received a criminal subpoena to produce documents. Ross said he complied with a request to provide documents relating to the plan of merger. Ross told Dow Jones Newswires that he testified in front of the grand jury in December.
Over the years, Ross represented a number of people and entities associated with Absolute Health and Concorde America. His law firm continues to fight a request by the SEC to produce documents, including wire transfers, related to
the two companies. Between March and August 2004, Ross also represented
Corporate Financial Consultants LLC, a firm controlled by Kos. Ross continues to represent Hartley Lord, the president of Concorde America. Lord was named in the SEC complaint and is in the process of settling charges that he participated in
a scheme to manipulate the stock.
Eastern, Western? We Got a Criminal Investigation
It's unclear who else or what entities may have been subpoenaed to provide documents or testify in front of the grand jury.
But information about Absolute Health and the gyms that were supposed to have been merged into the company before it blew up recently turned up in an SEC filing made by yet another company.
In an 8-K filed on Feb. 13, a few days after Dow Jones wrote about the transaction and its possible ramifications to the Absolute Health debacle, Health Partnership said it completed its planned merger with Raleigh-based Capital Partners for Health & Fitness Inc. Under the deal, Health Partnership
bought nine gyms owned by Capital Partners. As it turns out, Capital Partners was known until recently as Kapital Engine Investments Inc., an entity owned by
Rohm and Jaynes. According to the filing, Rohm bought Jaynes out of his stake of Kapital for $628,425 in 2005.
Health Partnership said in the SEC filing that it performed adequate due diligence and believes that Rohm and partner Edward "Ted" Sampson to be "innocent of the alleged wrongdoings surrounding Mr. Jaynes or the other parties in the SEC complaint."
Health Partnership also said in its filing with the SEC that Rohm provided the company with a letter dated Dec. 15, 2004, from the U.S. Attorney for the Eastern District of North Carolina stating that as of that date neither Rohm,
nor Sampson, were the target of any investigation being conducted by that office.
It's not clear whether Health Partnership meant Western District or whether the U.S. Attorney's office for the Eastern District of North Carolina was also at one time looking into possible criminal behavior related to Absolute Health.
(Carol S. Remond is an award-winning columnist and one of four who write the
"In The Money" feature. Most recently, she won a 2005 Gerald Loeb Award for best
news service content with "Exposing Small-Cap fraud," a series of articles that
described how three small companies unscrupulously pumped up their stocks.)
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074;
carol.remond@dowjones.com
(END) Dow Jones Newswires
02-21-06 1432ET
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