Looks like the SEC has a (Securities Fraud Investigation) affecting Solucorp Industries and Joseph Kemprowski! This was the same outfit who was in cahoots with Branconnier and Thermo Tech years back. Since proper authorities have FINALLY caught up with these unfavorable sorts … hopefully … TTRIF and its Honchos will get what is due them (in time) as well.
Cayman
Solucorp Industries Ltd - Street Wire
SEC expands Solucorp net, demands Vancouver interviews
Solucorp Industries Ltd SLUPF
Shares issued 17,527,233
Wednesday May 9 2001 Street Wire
Also (U:SLUP)
Also (U:SLUPF)
Also (U:USSEC)
by Brent Mudry
The United States Securities and Exchange Commission has bumped up its securities fraud investigation of Solucorp Industries, issuing formal invitations to four Vancouver witnesses, including the head of corporate finance for a small brokerage, to chat with investigators and tell everything they know about the scandal-ridden company.
In a petition filed Tuesday in the Supreme Court of British Columbia, the SEC seeks court-ordered interviews with Vancouver accountant Andrew Stewart, formerly of MacKay & Partners, securities lawyers Bernard Pinsky and Herb Ono, both of Clark Wilson, and Steve Paquin, the manager of corporate finance for Golden Capital Securities. None of the witnesses are regulatory targets.
The move comes six months after the SEC added another Vancouver accountant, Glenn Ohlhauser, a former MacKay partner, as a target in its Solucorp suit. The SEC claims Mr. Ohlhauser, 47, of Port Coquitlam, who served as Solucorp's auditor for three and a half years, discovered that Solucorp management may have backdated a dubious licence agreement in late 1997, but failed to take the appropriate steps to deal with the issue.
The SEC filed its initial Solucorp action, one of the harshest prosecutions to date against a former Vancouver Stock Exchange company, on Dec. 13, 1999. In a 36-page civil complaint filed in the United States District Court for the Southern District of New York, the SEC alleged that Solucorp and seven insiders engaged in a deliberate scheme to defraud investors over a four-year period.
The SEC alleges Solucorp's senior management falsely claimed the company had contracts worth a total of $350-million, but the purported contracts either were non-existent or contained undisclosed material contingencies. (All figures are in U.S. dollars.) The regulator also claims the insiders profited by selling their own shares into the market, benefiting from the continual stream of bogus news releases.
The original defendants included previous securities violator Joseph Kemprowski, 53, of Upper Nyack, N.Y., his wife Arle Pierro, 51, who served as Solucorp's senior vice-president, his brother-in-law Peter Mantia, 53, of Wesley Hills, N.Y., who served as Solucorp's president, former president James Spartz, 48, of Ramsey, N.J., Robert Kuhn, 44, of Ringwood, N.J., former chief financial officer Victor Hermann, 59, and W. Bryan Fair, 42, of Vancouver.
Mr. Ohlhauser was added to this list in an amended complaint filed Oct. 26, 2000. All the directors, including the Vancouver accountant, proclaim their innocence.
Mr. Kemprowski is well known to regulators. In December, 1994, while serving as president of Solucorp, he agreed in an SEC settlement to disgorge $135,000 in illegal profits for securities violations made by him and his New Jersey company, Cambridge Consulting, relating to Astro Enterprises.
Another Astro player, repeat securities violator Harold Bailey Gallison Jr., was later censured by the SEC for his Astro dealings. Mr. Gallison was the president of controversial San Diego brokerage La Jolla Capital, a keen follower of several dubious Howe Street deals.
In the SEC's current petition, Gowling Lafleur Henderson lawyers Malcolm Ruby of Toronto and Robert Finlay of Vancouver seek a court order for formal interviews with Mr. Stewart, Mr. Paquin, Mr. Ono and Mr. Pinsky by June 15, and the production of Solucorp records by MacKay & Partners by June 10.
The SEC notes that Golden Capital's Mr. Paquin, a former VSE employee, was employed by Solucorp in the fall of 1995 to assist in the preparation and review of the company's regulatory filings with the British Columbia Securities Commission and the VSE, and the dissemination of Solucorp's press releases. The U.S. regulator is anxious to hear everything Mr. Paquin can remember about this, and any work, he did for Solucorp.
The American regulator also hopes Clark Wilson lawyers Mr. Pinsky and Mr. Ono will be able to shed some light on Solucorp's affairs.
"Bernard Pinsky, a partner of Clark Wilson, had extensive dealings with Solucorp management concerning its press releases and regulatory filings throughout the relevant time period. The commission seeks to take his testimony regarding certain of the allegedly fraudulent communications, and for the purposes of having him authenticate written communications relating to the same for use at trial," states U.S. District Court Judge William Conner in a request for international judicial assistance.
The SEC also wants the testimony of Mr. Ono regarding his dealings with Solucorp management one at least one of the company's many allegedly fraudulent public disclosures.
The regulator is particularly interested in Vancouver accounting firm MacKay & Partners and one of its former accountants, Mr. Stewart. (SEC target Mr. Ohlhauser handled the Solucorp account during his tenure at MacKay.)
While MacKay has already provided some Solucorp records, the SEC now wants all documents identifying Solucorp work performed on Solucorp's financials for the periods ending June 30, 1997, to the present, and documents identifying all MacKay personnel who conducted this work. The SEC also wants copies of all communications with Solucorp and any accounting or auditing firm replacing or potentially replacing MacKay as Solucorp's auditors.
In addition, the SEC wants MacKay's complete personnel file on Mr. Ohlhauser and all documents concerning the reasons for his departure from the firm.
The final disclosure target, Mr. Stewart, is requested to testify regarding his involvement in MacKay's audit and review of Solucorp's financials, especially the accounting treatment of the company's licence fees.
Mr. Ohlhauser and Mr. Stewart have since left MacKay and landed jobs with companies involved in the penny-stock promotion field.
Mr. Stewart now works at Colin David Watt's Squall Capital, which has played key roles with several companies in the stable of controversial Vancouver promoter David Michael Patterson and self-disgraced securities lawyer Michael Seifert.
These companies include Consolidated Bradbury International Equities Ltd. and two shells featuring Mr. Seifert's New York penny-stock-lawyer-associate, Joseph Sierchio: Intertech Ventures Inc. and Northtech Ventures Inc.
In the serendipity of the penny-stock world, another of Mr. Sierchio's shells, New Tech Ventures, Inc., features a number of offshore shareholders closely related to Terry Neal's Nevis-based Exchange Bank & Trust, including a company headed by Mr. Neal's front, Gillian Hobson. The brass-plate bank's Vancouver bank account, frozen for the past year by the SEC and the BCSC, appears to have been a conduit for a cast of numerous securities rogues.
Squall Capital's key Vancouver associates, Mr. Patterson and Mr. Seifert, have had the misfortune of surfacing as BCSC targets in recent years.
Mr. Seifert was fined $450,000 (Canadian) in December, 1999, and effectively kicked out of the securities industry for 12 years, for secret offshore dealings similar to those of disgraced client Terry Alexander, the promoter of Arakis Energy and Delgratia Mining. Last October, Mr. Patterson was given a 15-month suspension and a $50,000 (Canadian) fine for similar offences.
MacKay's other former Solucorp auditor, Mr. Ohlhauser, now works for Vancouver stock promoter Brian W. Ransom's CathayOnline Inc., a tiny OTC Bulletin Board promotion which hopes to gain respect as a major player in the Chinese Internet industry.
Like numerous past Vancouver China-stock promotions, CathayOnline likes to trumpet the massive size of its target market.
"The number of people using the Internet in China has increased 30-fold in five years, with projections for the year 2000 reaching 10 million. With a global Chinese-speaking population in excess of 1.3 billion people, the growth potential for Chinese Web-based E-mail services is significant," stated Mr. Ransom in a press release a few years ago.
While Mr. Ohlhauser's status as an SEC target might scare off less brave employers, CathayOnline has kept the accountant on as its chief financial officer. In any event, CathayOnline's timing was impeccable. Mr. Ohlhauser was hired on July 26, 2000, exactly two months before he was named in the SEC's amended Solucorp complaint.
The SEC claims Mr. Ohlhauser's treatment of a mid-1997 licence deal violated securities regulations. The regulator claims that in reviewing Solucorp's Sept. 30, 1997, financials in the fall of 1997, the MacKay partner concluded that Solucorp had improperly recognized $500,000 in revenues from a licensing agreement with Smart International Ltd., which comprised 40 per cent of Solucorp's total reported revenues for the quarter.
The SEC claims the accountant based his conclusion on the fact that the parties' June 4, 1997, agreement was too speculative and vague to support revenue recognition.
Mr. Kemprowski, the Astro securities violator, was Solucorp's principal contact person with Smart, which supposedly had signed an exclusive five-year licensing agreement for the right to produce, market and apply Solucorp's MBS technology in China, with a $2-million licence fee payable in the first year.
On Dec. 18, 1997, Mr. Ohlhauser told Solucorp official Mr. Herman of his revenue-recognition concerns over the Smart contract. The accountant told Mr. Herman that the financials were misstated as a result.
While Solucorp insiders scrambled to paper things over, including a backdated Sept. 15, 1997, agreement issued at Mr. Mantia's direction, the savvy Mr. Ohlhauser saw through the ruses and figured out the backdating ploy. Although Mr. Ohlhauser challenged Mr. Herman again, he took the Solucorp official's explanations at face value, and took no further action.
Mr. Ohlhauser completed his audit of Solucorp's financials, making no reference to the inconsistencies.
The SEC claims that having concluded that Solucorp backdated the licence agreement for suspect purposes, Mr. Ohlhauser should have determined whether it was likely this was an illegal act, reviewed the possible effect of this illegal effect on Solucorp's financials, including making contingencies for penalties, fines and damages, and made sure Solucorp's "appropriate" level of management and its audit committee were adequately informed about this illegal act.
(Readers wishing more details of the SEC's Solucorp prosecution may refer to Street Wires dated Dec. 13 and Dec. 14, 1999, under the symbol SLUPF.)
(Mr. Seifert's BCSC troubles are noted in Street Wires dated Dec. 17, 1999, and Dec. 20, 1999, under the symbol BCSEC.)
(Mr. Patterson's offshore troubles are noted in various Street Wires, including those dated Dec. 21, 1999, and Feb. 9 and Aug. 16, 2000, under the symbol BCSEC.)
(Mr. Seifert and Mr. Sierchio's penny shells are noted in various Street Wires, including those dated Dec. 17 and Dec. 20, 1999.)
(Former Itex head Mr. Neal's Exchange Bank & Trust affair is noted in a 26-part Stockwatch series in Street Wires May 4, May 5, May 8, May 9, May 10, May 11, May 12, May 16, May 17, May 18, May 19, May 23, May 24, May 26, May 29, May 30, June 1, June 5, June 15, Sept. 19, Oct. 6, Oct. 24 and Nov. 30, 2000, and Jan. 19, Jan. 24 and April 3, 2001, under the Canadian symbol BCSEC and the U.S. symbol ITEX.)
(Mr. Sierchio's New Tech and other EBT connections are noted in Street Wires dated May 5, May 18, May 19, June 5 and June 15, 2000.)
(c) Copyright 2001 Canjex Publishing Ltd.
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