"And to compensate CHARLES PAYNE (Wall Street's minority owner), Feher instructed Gilbert to transfer 10,000 shares -- then worth about $69,000 -- from Hoornaert's account at Union Securities to PAYNE's account, also at Union."
B.C. securities firm facing U.S. civil suit SEC alleges that Union Securities and a former employee aided stock manipulators.
David Baines, Sun Business Reporter - The Vancouver Sun
American securities regulators have cited a Vancouver securities firm and one of its former employees in a multimillion-dollar stock fraud which used a 96-year-old nursemaid and a string of Bahamian companies as conduits for secret share dealings.
The U.S. Securities and Exchange Commission alleges in a civil suit filed in Washington, D.C., that Union Securities and David Gilbert helped a group of stock manipulators make $5 million US in illegal trading profits.
In the process, the SEC alleges, Union and Gilbert generated $350,000 US in illicit trading commissions.
The SEC seeks an accounting of the proceeds of the scheme, disgorgement of ill-gotten gains and an injunction against further securities violations.
Union Securities president Norm Thompson Sr. did not return several phone calls. Gilbert, who left Union Securities in August, could not be reached for comment.
In its complaint, the SEC identifies two key figures in the scheme:
Arthur Feher Jr., former chair of Members Service Corp., a Florida based company that traded on Nasdaq and the Boston Stock Exchange. Feher died in January after being convicted of multiple securities crimes relating to the stock scheme.
Philip Sung, 38, a some-time Howe Street promoter who lived in Florida in 1991-92 while the scheme was in progress. His last known address is Vancouver, but SEC officials believe he has fled to Asia.
According to the SEC complaint, Feher and Sung devised a scheme to obtain large blocks of Members stock at low prices, manipulate the share price, then sell the stock to public investors at artificially inflated prices.
The SEC says Feher and Sung learned that, under Regulation S in the Securities and Exchange Act, the company could privately issue stock without a prospectus and without the usual two-year hold period, provided the stock was issued to parties outside the country.
In January 1992, the SEC says, Feher arranged for Members to issue 200,000 shares at a deemed price of 50 cents to Godelieve Hoornaert, ostensibly as payment for consulting services.
The stock transfer records gave a Canadian address for Hoornaert.
But the SEC alleges Hoornaert was neither a Canadian resident nor a consultant, but rather a 96-year-old retired nursemaid who lived with Feher and his family in Florida.
The SEC says those shares ended up in an account at Union Securities in Vancouver. The account was in Hoornaert's name, but Feher controlled the account.
In March 1992, Feher issued another 1.2 million shares at 75 cents (an 80-per-cent discount to the market price) to seven Bahamian companies.
Of these shares, slightly more than one million ended up in Hoornaert's accounts at Union Securities. The remaining shares were deposited to an account at Union controlled by Sung.
The SEC said that in May that year, Feher and Sung met at the Boca Raton Club & Resort Hotel in Florida with four other men. They were:
Joseph Lanza, 53, of Sun River, Ore., best known for his manipulation of VSE-listed Primont Resources in 1983-84. The National Association of Securities Dealers subsequently revoked his broker's licence for life.
Todd Moore, 43, of Seattle, a small-time VSE player who owned 60 per cent of Wall Street Strategies, a New York investment advisory firm. Moore also served as president of M&S Promotions, a Washington, D.C. public relations firm.
John Silseth, 34, of Minnesota, then-owner and president of First New England Securities Corp. of Boca Raton.
The fourth person was Gilbert who, according to the SEC, attended a portion of the meeting.
At the meeting, the SEC claims, Feher, Sung, Lanza, Moore and Silseth agreed to a scheme that would artificially raise Members' share price, and facilitate the distribution of the unregistered shares controlled by Feher and Sung. Proceeds were to be split among them.
From March 1992 to February 1993, the SEC alleges, Feher caused Members to issue a series of false and misleading news releases about the company's involvement with companies which were purportedly developing synthetic blood substitutes, and drilling oil and gas wells.
Concurrently, Silseth offered "excessive and undisclosed compensation" to his brokers at First New England to induce their clients to buy the stock. From May to December 1992, their clients bought 610,000 shares at an average of $5.08 -- a total cost of $3.1 million.
Also helping to pump the stock were Moore's Wall Street Strategies, which recommended the stock by means of recorded telephone messages, and M&S Promotions, which contacted numerous brokerage firms to generate interest in the stock.
To compensate Moore for his promotional work, Sung and Feher transferred $282,000 from accounts that they controlled at Union to accounts that Moore controlled.
And to compensate CHARLES PAYNE (Wall Street's minority owner), Feher instructed Gilbert to transfer 10,000 shares -- then worth about $69,000 -- from Hoornaert's account at Union Securities to PAYNE's account, also at Union.
Meanwhile, Lanza was promoting Members stock to friends, associates and other investors. From May to September 1992, his investors bought 220,000 shares through Union Securities for about $1.3 million. As compensation, Lanza received more than $540,000 from accounts that Feher and Sung controlled at Union.
As a result of their "manipulative conduct," Members stock price jumped to a high of $12 in June 1992, then slumped to less than $1 by that fall. The company has since been delisted.
In all, the SEC said, Union Securities and Gilbert sold 1.3 million unregistered shares "at prices that they knew, or were reckless in not knowing, had been manipulated in the fraudulent scheme described herein."
These shares consisted of:
The 200,000 shares issued in Hoornaert's name, which were sold at an average of $4.90 each, for total proceeds of nearly $1 million.
Nearly all the 1.2 million shares issued to the Bahamian companies, which were sold at an average of $3.72, for total proceeds of $4.3 million.
The SEC claimed that Union and Gilbert received about $350,000 in commissions for brokering these transactions.
Feher, the company's chair, was charged and convicted of 27 counts of securities fraud, wire fraud, money laundering and obstruction of the SEC investigation. He failed to appear for sentencing in September 1996, and was a fugitive until he died in Mexico in January.
Silseth, owner of First New England Securities, pleaded guilty to criminal securities fraud, mail fraud and conspiracy. He was sentenced to 11 months in jail and ordered to pay $792,000 in restitution to his customers.
Lanza and Gilbert teamed up again in early 1993 in connection with an Alberta Stock Exchange company, Maesa Petroleum Inc.
In June 1996, while still working at Union, Gilbert admitted he had helped Lanza manipulate Maesa's share price. He agreed to a two-month suspension of his broker's licence, pay a $15,000 fine and return $66,327 in commissions.
Several weeks later, he agreed to an indefinite suspension pending a VSE disciplinary hearing.
It is not known whether that matter relates to his alleged conduct in the Members affair.
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A Sampling of Advisory Opinion--Edited by Kathryn M. Welling BARRONS
Ned Davis Research's International Currents
P.O. Box 1287, Nokomis, Fla. 34274
JUNE 25 ~ The trend is definitely a global investor's friend. Although our foreign composite model has fluctuated over the past several weeks, the conclusive message remains bullish. In addition, we have seen several of the mature markets we follow reach record and new 26-week highs week after week and our longer-term models continue to lock on, saying, ``buy, buy, buy.'' - NEIL LEESON
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The Inger Letter
100 E. Thousand Oaks Blvd., Thousand Oaks, Calif. 91360
JULY 1 ~ No doubt the Mainland Chinese money flow will continue until the bubble pops for the formerly British-controlled market. . . . Ironically, it is New York that has the greatest nearer-term exposure, and which might consider the very words of propriety and sobriety so readily offered to offshore hot-market players. - GENE INGER
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Adrian Day's Investment Analyst
1217 St. Paul St., Baltimore, Md. 21202
JULY ~ John Templeton advises buying at the point of ``maximum pessimism.'' Baron de Rothschild said to buy ``when blood is running in the streets.''
Many investors must feel these investing greats were describing junior gold stocks. Against the background of a soft gold market and, in many cases, unrealistic stock prices, the Bre-X fraud has taken a severe toll on the market. Gold funds are being hit with massive redemptions daily and have no choice but to liquidate. Individual investors, seeing former highflyers down, are dumping before they collapse more. Now the summer, always a quiet period for buying in this sector, has arrived early and with a vengeance. It's not a pretty picture. - ADRIAN DAY
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Crosscurrents
80 Cuttermill Rd., Great Neck, N.Y. 11021
JUNE 30 ~ We can easily understand the impetus of money devoted to indexed issues, largely represented in the NYSE line, but we cannot fathom the impetus of money devoted to smaller and especially aggressive growth issues. Despite the obvious and glaring dichotomy, a substantial portion of investment and retirement funds are still being allocated to smaller ``growth'' issues. Ironically, despite the still
substantial portion of money devoted to smaller issues, so much continues to flow into indexed issues that they have surged to overvalued extremes never seen before in all of history.
As we see it, investors are faced with a real dilemma. The speculative surge into smaller issues that culminated in the spring of 1996 was a once-in-a-generation event, a secular peak in excessive valuations that will likely be unwound with several years of correction. Thus the logical alternative is to invest in the NYSE - specifically, indexed issues, pushing this segment further and further into overvalued
territory and the same kind of excess that now leads Nasdaq on its downward course. Higher valuations can mean only one thing: Investors are faced with a Hobson's choice. - ALAN M. NEWMAN
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The Elliott Wave Theorist
P.O. Box 1618, Gainesville, Ga. 30503
JUNE 27 ~ In a reversal of the historic pattern, professionals' optimism is catching up with that of the public. In mid-June, when the market's advance made forecasts of Dow 8000 appear cautious, bulls rushed to up their bids. The Street's leading guru pushed her estimate to an equivalent of 8250. After considerable hounding by the press, another leading guru called for Dow 10,000 by the end of the year.
``Fifteen thousand,'' said another, who added that the bull market might last 50 years. Bullish expectation also surged in the futures pit. Market Vane's survey of traders showed 80% bulls, the highest total in 12 years. Not that the public is retrenching. A CNBC poll of 2,400 investors showed 85% were bulls and only 11% bears; 61% say the Dow will gain 10% before the end of the year versus 6% who say the Dow will fall at least 10%. The Dow rose 5% after the survey was taken.
- ROBERT PRECHTER
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U.S. Investment Report
65 Chapel Road, New Hope, Pa. 18938.
JUNE 30 ~ What does the checkered first-half performance tell us about the second half? That the largest stocks look fully valued and the small-caps remain undervalued, with the tech leaders remaining the most attractive buys for the coming two to five years.
We admire superbly run Dow companies like General Electric, Coca-Cola and Merck, but at 22 times year-ahead earnings? They don't have the 20%-plus long-term growth rate needed to sustain those elevated P/Es - although they can show great near-term gains. On the other hand, some of the best small-caps today are even better buys than they were six or 12 months ago. - STEPHEN QUIEBEL
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