B. STEM GENETICS
64. In or about April 2002, Allen Wolfson, David Wolfson's father, created a Nevada shell corporation named Stem Genetics. Contary to the representations made on its website and in its filings with the Commission, Stem Genetics has never had researchers, research space, research plan, nor were its officers aware of any research conducted by or on behalf of the company.
65. Stem Genetics executed three Offshore Agreements with Sukumo-one with First Chartered in April 2002, one with Sukumo in May or June 2002, and one in July 2003. Stem Genetics did not disclose these agreements or its plans to sell Regulation S stock in its Form SB-2 filings. Rather, when describing its plan of distribution in its July 17, 2002 filing and its August 2, 2002 amended filing, Stem Genetics stated that it planned to sell a maximum of 1,500,000 shares of Stem Genetics through Robert Youngblood, Stem Genetics' nominal President, on a "self-underwritten" basis, without any selling agents.
66. Stem Genetics did not file a Form 8-K to announce its Offshore Agreement with Sukumo to sell stock.
67. Sukumo marketed the shares of Stem Genetics to investors in the United Kingdom.
68. Sukumo misrepresented the following facts about Stem Genetics:
(a) The amount of commissions received. Sukumo representatives told investors that Sukumo would receive a 1% or 2% commission. Instead, Sukumo received 70% of the share price.
(b) The initial "float" price. Investors were told that the shares when listed would sell for $7.00 or more per share. Investors were told they could purchase shares in a "pre-IPO" deal for $5.75. There was never to be initial public offering ("IPO") of Stem Genetic shares. Instead, Stem Genetics was effecting a Regulation S offering to foreign investors through Sukumo.
(c) The business operations of Stem Genetics. Sukumo representatives directed investors to the Stem Genetics website and to false filings with the Commission and told investors that Stem Genetics had received a substantial research grant from the United States government, that it had substantial research and scientific resources, and that it was actually engaged in stem cell research. These statements were false. Stem Genetics was nothing more than a shell company without resources.
69. Stem Genetics has raised more than $5 million through its offering as of June 30, 2003.
70. Of that amount, Sukumo has received more than $4 million. Stem Genetics has received approximately $761,000. David Wolfson has received approximately $78,000 personally or through entities controlled by him.
71. Although there have been nominal presidents at the helm of Stem Genetics since its inception, the company has at all times been controlled and operated by Allen Wolfson or David Wolfson.
72. Starting in at least December 2002, David Wolfson worked side by side with his father Allen Wolfson, who was about to face trial on criminal securities fraud charges in New York and who was transferring a number of his business deals to David Wolfson to run while Allen Wolfson served possible prison time.
73. After Allen Wolfson left Salt Lake City, David Wolfson re-named his father's company, Feng Shui Consulting, Inc. ("Feng Shui") as NuWay, and relocated the offices.
74. Stem Genetics was one of the companies formerly associated with Feng Shui that David Wolfson transferred to NuWay.
75. David Wolfson knew that Stem Genetics had no operations, no researchers, no facilities, and had taken no steps to develop operations, researchers or facilities. David Wolfson also knew that since in or about October 2002, Sukumo had been selling shares in Stem Genetics to overseas investors pursuant to the Offshore Agreement negotiated by his father. Indeed, through entities controlled by him, Wolfson was receiving $0.50 for every share of Stem Genetics stock by Sukumo. Wolfson's entities received the disbursement from the escrow accounts in Salt Lake City and Mesa, Arizona to which investors wired their money.
76. In or about May or June 2002, Robert Youngblood agreed to serve as the President of Stem Genetics as a favor to his long-time friend Allen Wolfson. Youngblood was the nominal President of Stem Genetics but did not do anything as the President of Stem Genetics and his name was not on the corporate bank account. On or about March 3, 2003, Youngblood resigned from his position as President of Stem Genetics.
77. Upon Youngblood's resignation in or about early March 2003, David Wolfson asked Laura Henderson, NuWay's paralegal, to serve as Stem Genetics' President. Henderson drafted the documents that Wolfson requested and signed documents that he provided to her.
78. David Wolfson opened two new Stem Genetics accounts in April 2003 at Community First Bank in Salt Lake City, Utah. Wolfson and a NuWay employee that he appointed as a director of Stem Genetics had signature and withdrawal authority over both Stem Genetics accounts. Henderson did not.
79. In early June 2003, Henderson resigned her paralegal position at NuWay and her position as President of Stem Genetics. Wolfson did not replace her until July 2003, when he interviewed and hired Robertson as the new President of Stem Genetics.
80. Robertson does not have any experience with designing, overseeing, or conducting medical research.
81. In or about July 2003, Wolfson directed Robertson to sign a Consulting Agreement between Stem Genetics and NuWay that was retroactive to April 2003, and that retroactively justified as compensation certain funds that Wolfson had taken from Stem Genetics' corporate account.
82. In or about July 2003, Wolfson had Robertson execute a new Offshore Agreement with Sukumo that made up to 10 million additional shares available for Sukumo's purchase.
83. Although he did not draft the text for the new Stem Genetics website, Robertson reviewed the website text and made small changes to it. Robertson knew that the website stated that Stem Genetics was conducting research, and that the website stated that there were researchers at Stem Genetics who had made discoveries with adult stem cells.
84. Robertson knew that potential and actual investors were visiting the website and relying upon the information contained on the website because he has spoken with a number of investors who reached him with the contact information provided on the website.
85. When he spoke by telephone to the investors who called him, Robertson told the investors that Stem Genetics was a company with ongoing operations.
86. Robertson also posted a message to the UK investors on an investors' message board. Robertson's posted message to investors refers them to Stem Genetics' website, states that the website is accurate, and states that Stem Genetics registration statement was withdrawn because it was misleading.
87. Robertson received at least $13,000 to move from Pine, Arizona to Salt Lake City, Utah so that he could devote himself to Stem Genetics full-time. He appointed his wife, Jami Robertson, as Vice-President of Stem Genetics and charged her with the details of running the business, despite her lack of any scientific or research experience and her failure to graduate from high school. She receives at least $2,000 a month from the company.
88. From in or about April 2002, Stem Genetics has had active websites. The first website had a link to Stem Genetics' filings with the Commission. Stem Genetics' filings were registration statements on Form SB-2 that misrepresented the company's research and the structure of Stem Genetics' relationship with Sukumo. The first website was active until on or after June 13, 2003, when David Wolfson replaced it with a new website, designed by a NuWay employee.
89. Both websites affirmatively misrepresent the management of Stem Genetics by listing the names and curricula vitae various Scientific Advisory Board members, as if the company had a functioning advisory management team. The first website affirmatively misrepresented Youngblood as the President of Stem Genetics after he had resigned.
90. Both websites affirmatively misrepresent Stem Genetics as a company with on-going research, researchers, and discoveries.
Stem Genetics Filings with the Commission
91. On July 18, 2002 Stem Genetics filed a registration statement on Form SB-2 with the Commission; an amendment to the registration statement was filed on August 7, 2002.1 On the second and third pages of both of its filed registration statements, Stem Genetics falsely stated that it was currently conducting research focused on new storage techniques, research techniques, therapies, and produces based on the company's genetic discoveries with adipose stem cells. Stem Genetics also falsely stated that the potential for stem cells in tissue engineering and restorative treatment such as reconstructive and cosmetic surgery was of particular focus to its researchers, and that it provided cutting edge genetic research.
92. Stem Genetics did not conduct research, had not made genetic discoveries with adipose stem cells, did not have any researchers, and its officers were never aware of any research conducted by or on behalf of the company. In its filings, Stem Genetics failed to disclose its Offshore Agreements with First Chartered and Sukumo and its Finder's Agreement with Feng Shui and/or entities controlled by David Wolfson. Stem Genetics did not file a Form 8-K to disclose the Offshore Agreements or the Finder's Agreement. |
