THIS SUBWAY IS STALLED
The Securities and Exchange Commission has filed a civil complaint charging the former president of Dicom Imaging Systems, Inc. (OTCBB: DCIM) and five stock promoters with using the Internet, press releases, spam e-mails and televised interviews to commit securities fraud. The SEC complaint reveals a complex scheme designed to deceive investors through baseless financial projections and myriad misrepresentations.
The action names former Dicom chief, David Gane, and promoters, Jeffrey Welsh; Southern Financial Services (SFS), a financial consulting firm controlled by Welsh; Southern Waste, Inc. (d/b/a Strategic Investors Group (SIG), a financial public relations firm run by Welsh; Charles T. Tamburello; and Capital Research Group, Inc. (CRG). CRG a Florida-based investor relations service owned by Tamburello, operates www.thesubway.com, a website that regularly touts obscure, high-risk over-the-counter companies. (See Greenvolt Power Corp. - Greenvolting Developments).
Dicom, which provided dental imaging software, ceased operations in September 2001 – no surprise in view of its failure to meet its internal financial projections, and a history of losses. But before the Company folded it provided a windfall for the stock promoters named in the SEC suit – who profited by more than $1 million after pumping up Dicom stock prices through misleading investment opinions and price projections.
According to the SEC, Dicom’s president, Gane, retained Welsh as a consultant – and through him SFS and SIG – to create interest in the Company. SFS received $5,000 to prepare a financial “due diligence” package, another $5,000 a month for financial public relations services, 50,000 Dicom shares, and options to buy another 100,000 Dicom shares from an unnamed “third party.”
Dicom agreed to pay an additional $30,000 to Tamburello’s company, CRG, to tout the Company to investors and the broader investment community. CRG also received 25,000 shares from a “third party.”
The promotions that followed were based upon inaccurate, incomplete and exaggerated information. The SEC states that Welsh prepared a misleading due diligence package, which projected that Dicom would generate $24.7 million in revenues and $19.7 million in earnings in its first three years of operation – but failed to disclose that those numbers were predicated, in significant part, on products that were still in development. The promoters then utilized those reports, together with other misleading information, to tout Dicom stock, without disclosing in full the compensation they had received for their efforts.
As a result of the aggressive promotion, Dicom’s stock price increased – from $5.08 a share on November 12, 1999 to $7 on January 11, 2000. The price movement coincided with eight investment opinions issued by the stock promoters, who were selling Dicom shares, even though they were recommending the Company to public investors as a “buy,” an illegal practice known as “scalping.”
The SEC complaint alleges that the promoters, and Gane, continued to distribute misleading financial information, offer inflated projections, and set unsupportable stock price targets for the Company, even after Dicom restated financial information to reflect reduced revenues, and then filed a series of financial reports reflecting no revenues and continuing losses. Here, again, these misleading promotions led to an increase in Dicom share prices, allowing the promoters to sell their stock for more than $1 million.
The SEC is seeking an order barring Gane from serving as an officer or director of a public company, directing all of the defendants to disgorge their ill-gotten gains, and seeking civil penalties.
As for the “subway” – it’s still running, and promoting obscure companies, for now. Buyers should be wary. (9/9/2003)
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