John Bendall(10) 50,000 50,000
(10) Represents Series E Warrants to purchase shares of Common Stock at an exercise price of $3.00 per share during the three year period commencing March 1, 1997.
source: HEMISPHERX BIOPHARMA INC s-1 4/11/1997
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"In a Jan. 13 newsletter to investors, the Lancer Group claimed that Lancer Management had "upgraded" its board to include John Bendall, claiming he "runs a successful New York based institutional investment banking/brokerage boutique and with over 30 years in the business, possesses a very extensive knowledge base." The SEC claims this is misleading, as it neglected to mention that from 1968 to 1977 Mr. Bendall was barred from associating with any broker or dealer."
SEC targets Lauer's Lancer in first big hedge fund case
2003-07-11 20:50 ET - Street Wire
by Brent Mudry
In the biggest blow to date for the largely unregulated hedge fund industry, the United States Securities and Exchange Commission has launched a major civil prosecution against the Lancer Group, a purported billion-dollar offshore hedge fund group based in Connecticut, and its head Michael Lauer, alleging the once highflying fund group was little more than massive rig job of largely illiquid penny stocks on the OTC Bulletin Board. Lancer's many clients include such celebrities as Alfred Taubman, the former chairman of Sotheby's, jailed for rigging art auction commissions, and the University of Montreal pension fund, which filed suit in the last week to recover $100-million (Canadian) it invested with Lancer.
The SEC announced Friday that it won an emergency restraining order freezing all the assets of the Lancer Group. In a supporting complaint, filed Tuesday in United States District Court for the Southern District of Florida, the SEC alleges Mr. Lauer perpetrated a "massive overvaluation and manipulation scheme" at Lancer.
Although not noted in the civil complaint, supporting SEC court filings reveal at least one of Lancer's favourite penny stocks was Aura Systems, a promotion closely linked to Rafi Mohamad Khan, a controversial penny stock promoter and SEC target who got a light penalty in a federal income tax evasion plea deal which included his co-operation as a key federal informant.
Another notable stock in Lancer's portfolio was Futurelink Distribution, a promotion of Calgary-based Cameron Chell, a close associate of Mark Valentine, the former head of Thomson Kernaghan, a controversial Toronto brokerage shut down by Canadian regulators last summer.
The Lancer Group also had a significant stake in an unrelated Calgary company, Zi Corp., listed initially on the Toronto Stock Exchange.
There is no suggestion that anyone connected with Aura, Futurelink, Zi or any other Lancer portfolio companies, or Mr. Khan, Mr. Chell or Mr. Valentine had any knowledge that anyone connected with the Lancer Group was ever doing anything wrong.
The SEC case is the second significant U.S. prosecution featuring a Lancer figure. Last August, Lancer associate Bruce D. Cowen was indicted in Operation Bermuda Short, a joint FBI-RCMP undercover sting. North Vancouver promotes Les Price was snared in a parallel indictment.
In the landmark case launched this week, the SEC seeks disgorgement, civil fines and other penalties against defendants Lancer Management Group LLC, Lancer Management Group II LLC and their principal, Mr. Lauer, based on their alleged violations of the federal securities laws. The complaint also names as relief defendants Lancer Offshore Inc., Lancer Partners LP, OmniFund Ltd., LSPV Inc. and LSPV LLC.
In court filings, the SEC alleges that from at least March of 2000 to the present, Mr. Lauer, Lancer Management and Lancer Management II engaged in a scheme to over-inflate the performances and net asset values of Lancer Offshore, Lancer Partners and OmniFund, three hedge funds controlled by Mr. Lauer, which recently claimed to have assets worth over $1-billion. (All figures are in U.S. dollars.)
Lancer Offshore, incorporated in the British Virgin Islands, claimed $854-million in assets at Dec. 31, the date of its most current audited financials, and $657-million at April 30, according to Mr. Lauer and Lancer Management. Lancer Partners, currently in bankruptcy, claimed $227-million in assets at Dec. 31, 2000, based on its audited financials, its most current such statements.
Specifically, the SEC complaint alleges that the defendants systematically manipulated the month-end closing prices of certain securities held by the hedge funds to overstate the value of the funds' holdings in "virtually worthless" companies. The SEC complaint alleges the defendants then provided unfounded and unrealistic valuation opinions to auditors to obtain audited financial statements for Lancer Offshore.
The court action further alleges that the defendants made numerous materially false and misleading statements and omissions in the Funds' offering and marketing materials. The complaint also alleges that the fraudulent manipulative trading practices and pumped-up valuations employed by Mr. Lauer, Lancer Management and Lancer Management II were designed to attract new investors to invest in the hedge funds and to induce current investors to forgo redemptions and to continue investing in the funds which resulted in increased management fees paid to the defendants.
The background of two Lancer associates might be surprising to investors and Morgan Stanley, which did business with Mr. Lauer's group, if their due diligence efforts revealed nothing of concern.
The SEC claims the Lancer Group disseminated a personnel list, at a date unknown, and a newsletter on Sept. 11, 2002, to investors relating to the background of Mr. Cowen. "The personnel list placed Cowen directly below Lauer and described, among other things, Cowen's stint as chief financial officer and later president of TRC Companies Inc. The newsletter stated that Cowen was a consultant for Lancer Management and praised his professional background by stating 'his personal achievements speak for themselves,'" states the SEC.
The regulator notes that neither the personnel list nor the letter mentioned that Mr. Cowen was enjoined, fined and barred from acting as an officer or director for five years for his fraudulent conduct, including misallocating securities to himself while serving as chief financial officer and later president of TRC.
In a Jan. 13 newsletter to investors, the Lancer Group claimed that Lancer Management had "upgraded" its board to include John Bendall, claiming he "runs a successful New York based institutional investment banking/brokerage boutique and with over 30 years in the business, possesses a very extensive knowledge base." The SEC claims this is misleading, as it neglected to mention that from 1968 to 1977 Mr. Bendall was barred from associating with any broker or dealer.
The SEC's complaint notes that over the last three years, the Lancer hedge funds have relied on a few purportedly highly valued small capitalization to comprise a substantial portion of their portfolio. "A majority of the stocks in which the funds have been heavily invested were and/or thinly traded on the OTC-BB and pink sheets. Despite the fact that most of the issuers in which the funds were heavily invested had virtually no operations or earnings, defendants assigned values to them in the hundreds of millions of dollars," states the SEC. The complaint gives as examples five such stocks: Fidelity First Financial Corp., Biometrics Security Technology Inc, SMX Corp., XtraCard Corp. and Total Film Group Inc.
The SEC's complaint also alleges several Lancer stock manipulations, including that of Lighthouse Fast Ferry Inc. on multiple occasions.
Although not noted in the civil complaint, Lighthouse and its favourite U.S. brokerage is well known to federal authorities, especially in the Bermuda Short case.
This was unfortunate for Howe Street promoter Mr. Price, who allegedly picked the notorious U.S. brokerage when he tried lining up a $5-million financing for his Medinah Minerals, allegedly by planning a $1.5-million bribe for an undercover FBI special agent posing as a dirty mutual fund manager.
Mr. Price picked Shamrock Partners of Media, Pa., a house well known to authorities. (Shamrock also served as one of 13 market makers for Mr. Price's other promotion, NP Energy.) Shamrock is best known for its star former broker, Mr. Khan, a close former associate of notorious boiler-room operator Irving Kott, the prime target of a high-profile, multiyear SEC investigation leading right to Howe Street. Mr. Khan agreed to become a star witness for the U.S. Department of Justice in the fall of 1998.
Shamrock figures were named in two of the 23 federal grand jury indictments unsealed last August in U.S. District Court for the Southern District of Florida, coincidentally the same court the SEC used for its current civil case.
The first, relating to Medinah, names Mr. Price and Joseph R. (Joe) Huard, one of the founders and officers of Shamrock. The second, relating to another penny stock deal, Lighthouse Fast Ferry, names Mr. Huard, its owner James T. (Jim) Kelly and close associate and Lancer figure Mr. Cowen, the chairman and chief executive officer of Capital Research Ltd., of San Juan Capistrano, Calif., the home of the famous swallows. This Lighthouse deal, and Lancer's alleged long-running manipulation of the penny stock, became a cornerstone of the SEC's Lancer prosecution.
Bermuda Short was just the latest setback for the folks at Shamrock. In April, 2001, the SEC fined the brokerage and three key aiders and abettors of Mr. Khan's 1995 rig job of L.L. Knickerbocker, Mr. Kelly and two traders, a total of $85,000. Mr. Kelly was given a six-month ban on acting in any supervisory capacity with any brokerage, while the two traders were fined $5,000 and banned for three months each.
The Knickerbocker settlements came 10 months after Mr. Khan agreed to a five-year brokerage ban for his egregious rig jobs of Knickerbocker in 1995 and Future Communications in 1993. The controversial former broker and penny stock promoter was not fined a penny for either rig job, a measure of just how valuable he is to federal officials.
Mr. Kelly also had the misfortune of running afoul of regulators a few years before his Knickerbocker settlement. On Nov. 12, 1998, the SEC found that Shamrock Partners and Mr. Kelly violated the National Association of Securities Dealers' Rules of Fair Practice by charging clients excessive markdowns. The SEC supported a joint fine of $15,000 against Shamrock and Mr. Kelly, plus restitution of $10,053 and payment of hearing costs. In the NASD prosecution of this case, Mr. Price's current co-accused, Mr. Huard, gave testimony, although the Shamrock executive vice-president and financial officer was not charged himself.
Shamrock also emerged as a unprosecuted key conduit in an unrelated but much more serious criminal penny stock case. The Pennsylvania-based brokerage was one of a small handful of firms used by a notable stock fraud ring to service nominee accounts. Las Vegas penny-stock shell engineer Robert E. Potter and his partner Peter E. Berney, key associates of career Vancouver fraudster Michael Mitton in the H & R Enterprises scandal, were prime players in this ring of mob-linked penny-stock promoters which used extortion, threats and violence to coerce brokers and co-conspirators to keep them in line, according to several U.S. indictments.
bmudry@stockwatch.com |
