CONSPIRACY THEORISTS COME UP SHORT

Oliver Stone, please answer the courtesy phone.  Conspiracy theorists may soon be mourning the demise of one of their pet plots – the notion that short sellers have been targeting, and destroying, dozens of obscure, penniless and nearly penniless companies that trade on the over-the-counter market.  NASD is beginning to publish short interest information for OTC stocks, and the numbers suggest that the short-selling boogeyman is just Sasquatch in a pin-striped suit.

In recent years, promoters and proponents of these marginal companies have been trying to convince the public and potential investors that these tiny OTC companies have suffered at the hands of naked short-sellers who have conspired to drive share prices into the ground.  For the uninitiated – short-sellers borrow shares of stock, then sell them, hoping that stock prices will sink and they can “repay” the borrowed shares by buying stock at a later date and a lower price.

Some OTC Bulletin Board and Pink Sheet companies have charged that illegal “naked” short sales are depressing the market.  A short-sale is “naked” when the seller and has not arranged to borrow the shares.  For the most part, only legitimate market-makers are permitted to engage in naked short sales.

While some companies may have been adversely affected by crooked short sellers, or fallen victim to aggressive, but legitimate, short selling, other factors are far more likely to damage OTC businesses.  Unscrupulous promoters, greedy insiders, pump and dump schemes and shady secondary market trading tactics all have contributed to the dire state of these companies, most of which are under-capitalized and have minimal or no revenues.  For those entities, the specter of naked short selling is a handy scapegoat – but it is hardly their biggest problem.

The impact of short selling on OTC companies should soon become evident.  Effective July 2006, NASD expanded short interest reporting requirements to include OTC equity securities- including the OTC Bulletin Board and Pink Sheets.  The initial report, for July 2006, reflects a far more modest level of short-selling than some conspiracy theorists may have anticipated.  Take Nexia Holdings, Inc., (OTCBB: NEXH) whose CEO Richard Surber recently expressed his view that Nexia had been victimized by “abusive shorting practices.”  According to NASD’s July report, the short position in Nexia was a mere 37 shares – an insignificant fraction of the almost 4 billion Nexia shares currently outstanding.

StockPatrol.com readers are already familiar with Surber, a penny stock promoter with connection to a series of troubled OTC companies.  See Dark Dynamite Inc — Dancing In The Dark; Update: Dark Dynamite, Inc.  - No Escape; Vinoble, Inc. - Trick or Treat in This Treasure Chest? ; and Update: Vector Holdings - Room at the Top.

NASD’s reports are unlikely to silence the conspiracy theorists, but investors will now have the ability to do their own research and verify claims of improper trading.  And perhaps struggling OTC companies will focus on the source of their problems and stop handing out shares to unscrupulous promoters and shady financiers.

Remember, before you invest, investigate.

Mr. Hartley Bernstein represents clients in regulatory and enforcement proceedings. Also, he regularly represents the law firm’s clients in state and federal court proceedings. He previously served as a Trustee of Temple Israel of the City of New York.

AN IMPERFECT 10

There’s nothing funny about this “Top 10 List.” State securities regulators have released a list of the “Top 10” investment scams facing the public today. Most of them are familiar to readers of Stock Patrol – ranging from affinity fraud to pyramid schemes. Unfortunately, familiarity has not bred caution; regulators estimate that these fraudulent schemes cost American investors billions of dollars each year.

Many of the victims are older, retired investors looking for safe, predictable investments and interest income. That makes them prime victims for scammers who promise low risks and high returns. But “[t]hat’s an impossible combination,” according to Deborah Bortner, president of the North American Securities Administrators Association (NASAA). As Ms. Bortner points out, “[t]he higher the return, the higher the risk.”

Regulators express concern that securities fraud is “moving out of the boiler room and onto Main Street.” Con artists, who used to rely upon stock brokers now employ licensed life insurance agents to peddle their products. According to Ms. Bortner, while a vast majority of insurance agents look out for the best interests of their clients, “a growing minority, lured by high commissions, are relying solely on marketing claims that are misleading or false.”


So here’s the “Top 10” list, ranked roughly in order of prevalence:


1. Unlicensed individuals, such as life insurance agents, selling securities
Only licensed individuals may sell securities. Don’t do business with someone who is not. To verify that a person is licensed or registered in your state, contact your state securities regulator. (See Regulators On Patrol: Contact the Regulators). If you discover that a person is not licensed, report that individual to your state securities regulator.


2. Affinity Fraud
Many fraudulent schemes target individuals based upon religion, ethnic background or race. As a general rule, we tend to trust people who share our beliefs and background. Scam artists exploit that trust. Regulators point out that no group is immune from those artists who seek to exploit victims for financial gain - from “gifting” programs at some churches to foreign exchange scams targeting Asian-Americans. (See Buyer Be Wary – With Friends Like These; and Regulators On Patrol – Phony Phones).


3. Payphone and ATM sales
Securities regulators recently brought a series of actions charging that 4,500 people living in 25 states and the District of Columbia lost about $76 million from investments in coin-operated pay telephones. Those investors were persuaded to lease payphones for prices ranging from $5,000 to $7,000. They were promised returns of up to 15% on their investment. In reality, few interest payments were made. When they were, regulators found that money from newer investors was occasionally used to make payments to earlier investors – the sign of a classic “Ponzi” scheme. For more on these cases we recommend you read Regulators On Patrol – Phony Phones.


4. Promissory Notes
In this scam, investors are asked to buy short-term debt instruments issued by little known, or non-existent companies. They are promised a high rate of return and little or no risk. In recent years, life insurance agents have been enlisted to make these sales. NASAA cites the example of eighteen elderly Indiana investors who lost $1.4 million in one such scam. The perpetrators, who diverted the money to offshore bank accounts, used the proceeds to purchase expensive cars and for first-class business trips to China, India and Greece.


5. Internet Fraud
Readers of Stock Patrol are far too familiar with this one. Unscrupulous individuals take advantage of the anonymity afforded by the Internet to “pump and dump” thinly traded stocks of dubious value. The Internet is also utilized to peddle phony offshore “prime bank” investments and to publicize pyramid schemes.


6. Ponzi/Pyramid Schemes
These were around long before there was an Internet. In fact, they originated with Charles Ponzi, an Italian immigrant who swindled investors out of $10 million in the early 1900s by promising 40% returns from arbitrage profits on “International Postal Reply Coupons.” These schemes promise high returns, but only the promoters profit consistently. Meanwhile, money from new investors is used to pay off earlier investors and keep them from complaining. Eventually the scheme collapses and investors are left holding an empty bag.


7. “Callable” CDs
No, not the kind that play music. This involves higher-yielding certificates of deposit that will not mature for ten to twenty years unless they are “called” or “redeemed” by the bank. Only the bank can exercise that “call” – not the investor. Early redemption may result in large losses – sometimes totaling as much as 25 percent of the original investment. Regulators point out that one retiree in her 70s invested over $100,000 of her 97 year old mother’s assets in three “callable” CDs with 20 year maturities. She planned to use the money to pay for her mother’s nursing care. Regulators say sellers of these callable CDs often fail to adequately explain the risks and restrictions.


8. Viatical Settlements
The term “Viatical Settlements” refers to interests in the life insurance policies of supposedly terminally ill people. The investor gives the insured person a percentage of the death benefit in cash. In return, investors get to share the death benefit when the insured eventually dies. These investments are considered extremely speculative because of the uncertainties involved in predicting the time of someone’s death. In one twist, Pennsylvania regulators say that something called “senior settlements” – interests in the death benefits of healthy people – are now being sold to investors as well.


9. Prime Bank Schemes
These scams promise triple-digit returns through access to “elite” international banks. Investors are sometimes told they will gain access to the “secret” banking methods used by notable persons of wealth, like the Rothschilds or Saudi royalty.


10. “Get Rich Quick” Seminars
You may find that the only ones getting rich from these “get rich quick” schemes are the people running the seminars. They profit from admission fees and the sale of course materials such as books and tapes. Such seminars are marketed in newspapers, radio and telephone ads, by e-mail and through infomercials. Investors would be well advised to view such offers with a healthy degree of skepticism.


That’s the top “10” – but unfortunately there are always new scams and schemes being used to defraud investors. What would you add to the list? Let us know if you have come across any other securities frauds that may be of interest to our readers.

Mr. Hartley Bernstein represents clients in regulatory and enforcement proceedings. Also, he regularly represents the law firm’s clients in state and federal court proceedings. He previously served as a Trustee of Temple Israel of the City of New York.

How to hire a corporate attorney?

Hiring an attorney for your business is not an easy task. You can spend days phoning friends and browsing the internet and paging through Yellow Pages and still not find the person you think is capable of representing you in court. Sometimes, the opposite can happen. You get so many recommendations that it becomes all but impossible to decide whom to hire.

If you find yourself in a situation described in the paragraph above, then here is a relief: this blog will help you choose a lawyer best suited for your needs.

Three qualities to look for in a lawyer:

●      Relevant Experience

Start with relevant experience. If you run a business and need someone to help you negotiate a deal; a criminal lawyer can’t help you much. You will have to hire a corporate lawyer or someone with an long experience in corporate law.

●      Reviews

Once you have settled down on a few lawyers who fit the experience that you need for your case, start asking for reviews. If you friend has recommended a lawyer  and says the person is a professional, you can more or less take your friend’s word for it. But if you have found a lawyer online or through Yellow Pages, ask him or her to let you talk to his or her previous clients.

●      Cost

For peanuts you get only monkeys. But that doesn’t mean you have to mortgage your home to hire a lawyer. You can get a good lawyer who will help you win your case relatively inexpensively. It doesn’t mean that good lawyers come cheap. But it doesn’t mean either that good lawyers ought to cost you an arm and a leg.

About Hartley Bernstein: Mr. Hartley Bernstein represents clients in regulatory and enforcement proceedings. Also, he regularly represents the law firm’s clients in state and federal court proceedings. He previously served as a Trustee of Temple Israel of the City of New York.

TEN TIPS FOR REVIEWING ANNUAL REPORTS- Hartley Bernstein

Annual reports can be a valuable tool for investors, but they also may foster unrealistic expectations. Companies, like politicians, can be masters of spin, and annual reports provide a valuable opportunity to paint a corporate picture in the most appealing strokes. Investors need to look beyond the luster, at the company’s performance and potential. In other words, it is important to separate the facts from the fluff.

Annual reports are intrinsically more appealing than the average prospectus or financial report. Why? They generally have pages of pictures and colorful charts. Shareholders get an instant peek at officers, directors, plants and products – in color no less. But appearance is far less important than substance, particularly where investment dollars are involved. A photogenic management team is no substitute for profitability. From an investor’s point of view, a successful business presents the prettiest picture.

What should shareholders focus on when they are reviewing an Annual Report? We offer a few suggestions:

1. It’s Fair to Compare. How does the company characterize the state of its business and its future plans? Take a look at the previous year’s report. Did the company perform up to last year’s expectations or did it fall short? Did the business meet last year’s projections, and were projects started or completed as previously anticipated? If not, is there a reasonable explanation? If a company did not follow through on previous promises, there is good reason to be uneasy about future projections. An annual report offers the company a good opportunity to present its vision for the future, but having done so, it needs to fulfill those goals.

2. The Bottom Line. In the end, every public company is measured by its financial performance. Focus on the financial statements, although they may be the least colorful and most tedious section of the Annual Report. Have revenues been steady, or increasing? If not, is there a logical explanation, or a troubling one? If shrinking revenues were caused by the overall economic environment, and the company remains sound, shareholders may decide to stay the course. They may be far less comfortable, however, if revenues dwindled because the company lost a major customer, or its principal product became obsolete.

3. Cash is King. In the same vein, the financial statements will tell the shareholder how much money the company has available. Has the corporate bank account grown over the past year? Does the company have access to additional financing or lines of credit? In difficult economic times it is important to determine whether the company has sufficient resources to weather a bad year or two and survive.

4. What’s Happening? Does the company’s business have forward momentum? Has it explored new products, new partnerships or promising acquisitions? Is the company warning that it may fail to meet prior expectations? A warning is not necessarily a signal to panic, but it may be a sign of deeper problems. Why does the company plan to fall short of earlier projections? The company should provide an explanation – which may be as simple as the fact that the economy has slowed and sales are down. Shareholders need to review these facts and determine whether the company, or its industry, is likely to recover in the foreseeable future.

5. Explanation for Compensation. Executive compensation has become one of the hottest topics on Wall Street, and with good reason. When the stock market was soaring in the late 1990s, companies did not hesitate to provide generous compensation packages to their top management. High salaries, astronomical bonuses and piles of stock options were handed out like candy on Halloween. It did not seem to matter whether the company was making or losing money, as long as stock prices remained high, investors did not question the exaggerated amounts being handed to corporate leaders.

Revelations of corporate corruption exposed some of the excessive practices that had been lining the pockets of management. That does not mean, however, that every company has abandoned the practice. Review management compensation with care. Have salaries and bonuses continued to increase while revenues have remained steady or dropped? Do existing long-term compensation agreements seem out of step with the current state of the company’s business and revenues? Has there been any effort to renegotiate those agreements – downward – in view of existing conditions?

6. Stability of Management. The annual report should provide detailed information about the company’s officers and directors. Has the management team remained intact? Determine whether any key employees have departed, and how that is likely to affect business. For example, if the principal investigator has resigned from a bio-tech company, has a suitable replacement been hired? Why did the employee leave and what are his or her successor’s qualifications?

These biographies should offer some insight into each officer and director’s prior experience. Have they been involved in the industry for an extended period of time? If not, what skills and experience have they brought to the company? Be wary of a management team that is comprised principally of promoters or former stock brokers who are looking to build the value of the stock rather than the quality of the business.

7. Taking Stock. Has the company issued stock or options in the past year? If so, what has it received in return? Some companies hand out stock in exchange for services – a warning sign that they lack cash. Are options due to be exercised? If they are, that may mean dilution for existing shareholders.

8. Declaring Independence. Has the company established an Audit Committee? Are there Independent Directors? What are their qualifications? Under the Sarbanes-Oxley Act of 2002 companies that are listed on any U.S. Exchange are required to have an audit committee comprised of “independent” directors. To be independent, a director may not be affiliated with the company (other than as a director) and may not receive any compensation from the company (other than as a director).

9. Subsidiaries and Affiliates. Has the company provided detailed information about subsidiaries and affiliates? This is particularly important if a significant amount of the company’s business is constructed through those affiliated corporations. The Annual Report and accompanying financial statements should offer information about those subsidiaries and affiliates, including their revenues, profits and losses. Does the company use offshore corporations as affiliates? If it does, it should offer a reasonable explanation, particularly in light of recent revelations showing that some businesses – Enron in particular – hid losses offshore.

10. Gloss is not Enough. Annual reports may be printed on slick, expensive paper, and can be filled with appealing pictures of smiling faces, sunsets and corporate offices. Try not to be overly impressed by the packaging. Content remains the key. Thumb through the pictures quickly, and take your time reviewing the state of the business, the condition of its finances, and the qualifications of its management team. In the end it’s what is on the page that counts – not the quality of the paper.

The Annual Report is a useful tool, but investors should seek additional information. Check out research reports issued by reliable analysts, review the company’s public filings, and discuss any questions with a trusted financial advisor. As always, before you invest, investigate.

Reference link http://www.stockpatrol.com/article/key/annualreports

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

THESE PHONES ARE OUT OF SERVICE

Here’s some good news for investors. The Securities and Exchange Commission isn’t devoting all of its attention to the Enrons, Adelphias and ImClones of the world. The Commission still has its eye on phony telemarketing schemes as well. That’s bad news for those telemarketers.

On August 6, 2002, the Commission filed four separate civil lawsuits, charging 81 individuals and entities with using telemarketing schemes to defraud up to 1800 investors out of more than $30 million.

The actions, filed in a New York federal court, allege that a nationwide network of telemarketers, calling themselves “Independent Sales Offices,” or “ISOs,” sold securities to hapless investors by making misrepresentations and failing to disclose hidden commissions.

As the following summaries indicate, the four complaints sound common themes:

• SECURITIES AND EXCHANGE COMMISSION v. HERITAGE FILM GROUP, LLC.

The SEC charged nine individuals and entities in connection with the fraudulent offer and sale of securities in three companies that develop medical devices and software for health care professionals. Between 1997 and 2000, the defendants allegedly raised over $13 million from approximately 670 investors, by falsely stating that the funds would be used to build the businesses, and promising that commissions would be limited to 12%. Instead, a substantial portion of the offering proceeds was used to pay undisclosed cash commissions to the telemarketers.

The defendants include the three issuers (Intracom Corporation, Hyperbaric Systems, Inc. and Surgica Corporation), their chief executive officers, an unregistered broker who operated a boiler room sales operation, and an attorney who helped effect the fraudulent schemes. 

• SECURITIES AND EXCHANGE COMMISSION v. EPHONE, INC

This scheme involved the use of boiler room telemarketers to sell shares of three companies purportedly formed to establish long distance telephone service over the Internet. Here again, the defendants allegedly misrepresented that investment funds would be used for business purposes. According to the SEC, approximately $1.2 million of the $2.9 million raised was used to pay commissions.

The defendants include the issuers (Ephone, Inc., Webphone, LLP and Newera Communications, LLP), their principals, individuals who orchestrated the offerings and unregistered telemarketers.

• SECURITIES AND EXCHANGE COMMISSION v. AMERICA IN-LINE CORPORATION, AMERICA IN LINE OF MOUNT SINAI, INC., and PETER RICCARDO.

The SEC charged America In Line Corporation ("America In Line"), America In Line of Mount Sinai, Inc. ("Mount Sinai") and Peter Riccardo ("Riccardo") with securities fraud in connection with a fraudulent private placement scheme that raised approximately $650,000. 

The Complaint charges that the defendants raised at least $650,000 through five unregistered offerings. The funds were supposed to be used to build a roller rink in Mt. Sinai, New York, but the offering materials misrepresented the commissions that would be taken out of the offering proceeds. In some case, investors were told that there were no commissions, while in other instances they were assured that commissions were capped at 8%. According to the Complaint, however, Riccardo, America In Line and Mount Sinai paid undisclosed cash commissions of 30% to unlicensed brokers, thereby substantially reducing the amount of funds available to develop and maintain the companies' business. 

It’s good to know that regulators are poised to crack down on telemarketers, but investors should set up their own first line of defense. Telemarketing crime has been estimated to costs consumers more than $40 billion per year. Experts say that at least $10 billion of those losses can be traced to phony investment scams.

So protect yourself. Here are a few suggestions for recognizing, and handling, unscrupulous telemarketers.

• If the telephone caller tries to convince you that there are no risks, just hang up the phone. You know that he or she can’t be telling the truth. Every investment has some risks.

• Don’t be pushed, cajoled or bullied to make an investment immediately. If you are curious about the investment, insist upon reviewing written materials, including audited financial statements. If the salesman insists on an immediate answer, give it – just say no.

• If you don’t want to receive unsolicited telemarketing calls, tell the caller to put you on the “do not call list.” If you then receive more calls from the same salesperson, or someone else offering the same investment “opportunity” contact your state Attorney General’s Office.

• Tell the caller you want to call back, and ask for his or her telephone number, address, and the name of the firm. If you don’t get the information, hang up. If you do get the information, contact your state or local consumer protection agency and see whether they have information about those telemarketers.

• Review any potential investments with a trusted financial advisor or attorney.

And remember. Before you invest, investigate.

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation. 

ALL THAT GLITTERS IS NOT GOLDMEN

These days if you’re one of the thousands of defrauded investors trying to contact the offices of A.S. Goldmen & Co., Inc. just leave a message at Body By Boris in Red Bank, New Jersey. According to the NASD, that’s where this broker-dealer is now receiving its mail. But don’t expect to find any of the former Goldmen brokers at that address. The firm, which once maintained offices in New York City; Iselin, New Jersey; Los Angeles, California and Naples, Florida, is now inactive. Understandably so. On July 8, 1999, the New York County District Attorney, Robert Morganthau, issued indictments against A.S. Goldmen and 33 individuals, charging that the brokerage firm had engaged in massive securities fraud. According to prosecutors, A.S. Goldmen, its brokers and other affiliated persons have bilked thousands of investors out of almost $100 million. Morganthau also initiated civil proceedings seeking to recover these funds.
Indicted along with the firm were its President, Anthony Marchiano, his twin brother, Salvatore (the firm’s Head Trader), A.S. Goldmen’s Vice-President, Stuart Winkler, and more than 20 former A.S. Goldmen employees.
The charges run the full gamut of securities offenses, including high pressure cold calling, the sale of stocks at inflated prices, price manipulation, and refusal to obey customer sell orders. The indictment also alleges that "nominee" accounts were created by A.S. Goldmen employees in the names of their friends and relatives in order to evade rules which prohibited employees of the brokerage from investing in initial public offerings. The accounts were apparently funded by the Goldmen employees, who later shared in the profits.
According to the indictment, A.S. Goldmen’s efforts to evade regulators were devised by Winkler, the firm’s Chief Financial Officer, who worked as an examiner for the NASD between 1979 and 1986. Winkler, who reportedly joined A.S. Goldmen in 1989, allegedly used his experience at the NASD to divert attention from the regulators.
In a related case the SEC instituted administrative proceedings against Goldmen and sought a cease and desist order charging the firm and eight employees with securities law violations.
The New York indictment would seem to be the final nail in the coffin for a brokerage firm which has run afoul of regulators throughout the 1990’s. If A.S. Goldmen is truly gone, it leaves behind quite a legacy. And if you’re one of the fortunate individuals who never opened an account with this outfit, chances are you will never hear of A.S. Goldmen again. But there is an equal likelihood that former Goldmen brokers (at least the ones who have escaped indictment) will resurface at other brokerage firms, once again utilizing their well-honed sales skills on unsuspecting customers. The history of A.S. Goldmen is, therefore, an instructive cautionary tale.
A.S. Goldmen began operating in 1988. Even before the New York arrests, its final demise was signaled in May of this year when NASD Regulation’s National Adjudicatory Council found that the brokerage firm engaged in fraud and market manipulation in connection with its domination of the market for warrants of Innovative Tech Systems Inc. The NASD ordered A.S. Goldmen and its President, Anthony Marchiano to pay a $150,000 fine and make restitution of $500,000 to the firm’s customers (this decision cut in half the amount of restitution originally ordered by NASD District 10’s Business Conduct Committee). Marchiano was also required to requalify as a securities principal and censured for his failure to supervise. Goldmen’s Vice-President, Stuart Winkler, was suspended from the securities business for two years and fined as well. Stacy Meyers, the firm’s head trader at that time was also sanctioned.
The NASD sanctions resulted from A.S. Goldmen’s conduct in connection with a July 1994 Initial Public Offering for Innovative Tech Systems. Prior to that IPO Innovative had issued warrants as part of a bridge financing (Companies about to go public often arrange for bridge financings through their underwriters so that they will have sufficient funds to operate until the offering is completed. The people who offer the bridge financing generally receive securities from the company in return for providing these funds). In this case, the NASD found that, within two hours after the IPO began trading, Goldman had purchased most of the 1.3 million warrants from the bridge lenders at substantial discounts from the market price. Goldmen then artificially inflated the price of warrants to $2.00, a 700% increase over the initial offering price.
NASD Regulation considers markups of over 5% to be excessive and markups of over 10% to be fraudulent. 700%? That’s in a class all by itself.
The NASD order was merely one more blemish on A.S. Goldmen’s complexion. Other highlights –

• Since 1991 the State of Missouri has issued four separate orders directing the brokerage firm to cease and desist from its practice of selling unregistered securities to residents of that state.
  
• In December 1997 the State of Massachusetts suspended Goldmen’s registration in that state for five years, charging the firm with selling over $890,000 in unregistered securities.
  
• In May 1995 the State of Maine issued a Notice of Intent to Revoke the Broker-Dealer License of Goldmen for refusal to execute customer orders and unauthorized transactions.
  
• In February 1999 the State of Delaware suspended Goldmen for a period of five years from selling any security that was not listed on the New York Stock Exchange.
  
• In April 1998 the NASD sanctioned Goldmen for its failure to comply with required reporting and bookkeeping practices.

A.S. Goldmen’s brokers came up with a few creative ways to violate the securities laws on their own. In July 1997 the NASD found that six Goldmen brokers had used imposters to take their qualifying securities license exams. The NASD fined the six brokers and barred them from the securities industry.
Customer complaints? The NASD reports 79 arbitrations filed against the brokerage firm through the end of 1998.
That’s not all. The recent New York indictments apparently had their genesis in April 1998, when Morganthau’s office, with the assistance of Florida law enforcement officials, raided A.S. Goldmen’s offices in Iselin, New Jersey and Naples, Florida (as well as Marchiano’s Naples estate).
The Naples office of Goldmen is now closed, but the presence of the firm in that prosperous community will not soon be forgotten. It seems that Goldmen became involved with local officials and businesspeople as the investment banker for a project known as Stadium Naples – a proposed golf course stadium project. When rumors of Goldmen’s sales practices began to surface, the community started to question the involvement of the brokerage firm in the community project. Once the New York District Attorney’s Office raided the firm’s offices, Goldmen’s involvement in the project ceased. But the investigations continue. In a letter to the Florida Department of Law Enforcement on May 14, 1999, Governor Jeb Bush directed a review of "any possible violations of Florida’s criminal laws involving the brokerage firm of A.S. Goldmen & Co…that are not already being addressed by a current New York grand jury investigation."
And what if you invested in one of the companies taken public by A.S. Goldmen in the 1990’s? We looked at prices as of July 8, 1999:

• Apparel Technologies, Inc. (APTX) – 3/256;
  
• Cinema Ride Inc. (MOVE) – 33/256
  
• Cinemaster Luxury Theaters Inc. (LUXY) – $3 9/16
  
• Perma-fix Environmental Services, Inc. (PESI) – $1 _;
  
• Datatrend Services, Inc.(DATA) –$5 9/16;
  
• Millenium Sports Management Inc. (MSPT) – 23/32;
  
• Country Star Restaurants Inc. (KAFE) – no quote available;
  
• Innovative Tech Systems Inc. (ITSY) – no quote available;
  
• Adrenalin Interactive Inc. (ADRN) – $4.00;
  
• Imatec Ltd.(IMEC) – 1 13/32;
  
• Independence Brewing Company - (IBCO)- no quote available;
  
• Innodata, Inc. (INOD) – 9 1/8
  And the apparent winner …
  
• Winfield Capital Corp. (WCAP) – 25 13/16;

Winfield Capital is an interesting story in itself. Several Winfield directors and officers have served on the boards of directors of other companies underwritten by Goldmen. And, according to a July 1998 proxy statement filed by Winfield Capital, Marchiano owned 500,000 shares of that company, or 9.95% (including 150,000 shares held by Gas Motors, Co., a Connecticut car dealership owned by Marchiano
One thing’s for certain, former A.S. Goldmen salespersons will soon reappear in the brokerage community. It’s happened already. In June of this year federal prosecutors in New York’s Eastern District arrested 85 people, including some who were allegedly connected to organized crime, and charged them with swindling investors out of $100,000,000. Reportedly, 12 former Goldmen brokers were among those named in the indictments.
And just how do you make sure that your broker is not among the A.S. Goldmen alumni? Check him or her out with the NASD at http://www.nasdr.com. You just can’t be too careful.

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

Does Law Affect the Common People?

Public education systems in 17 states in the U.S. were legally segregated before 1954, when the Supreme Court declared the practice illegal. The Brown v. Board of Education case had a big influence on how the American society viewed race. Since 1954, focus has moved from segregation to integration. The change is positive and in the view of New York based veteran corporate lawyer Hartley Bernstein a showcase of how the change of a few sentences in legal books can change society.

There are two opposing views of if law can bring about a social change. One group maintains that no change is possible through law and that the job of lawmakers is to validate current practices. Their argument goes that if politicians or bureaucrats tried to force new legal codes on a population that is not prepared it would lead to either anarchy or social revolution. Law, they firmly hold, cannot change society and does not affect people.

In the opposing group, and Hartley Bernstein seconds this line of thought, are other lawyers who counter that law can have significant affect on a society and its mores. They cite the spread of liberal attitudes in America since the legal change brought about by Martin Luther King, Jr and his associates. Lynching used to be norm; at least in the Southern U.S. Law banning the practice has affected the people’s attitude even in America’s most conservative region - the Bible Belt. This group cites many other examples; such as France’s declaration of universal suffrage after the French Revolution and women’s struggle of the 1960s for legal change. In both cases a few people asked for changes in existing law and the changes brought about a affected the wider society.

To conclude the arguments between the two groups of lawyers - each maintaining if law affects common people - will continue in the foreseeable future. 

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

MASTERS OF SUSPENSE

The Securities Exchange Act of 1934 (Exchange Act) authorizes the Securities & Exchange Commission (SEC) to suspend trading in any stock for 10 business days without prior notice. Consequently, when a suspension is ordered, trading freezes – which is good news for potential investors but can be quite devastating to company’s shareholders. Those fortunate enough not to own shares of the suspended company are protected against the folly of improvident investments during the 10 day period. It affords them an extended period to gather information about the company and reassess any investment plans. On the other hand, the company’s existing shareholders may be far less fortunate. During the trading suspension they cannot sell their shares. In effect they become sacrificial lambs to the SEC’s greater agenda – protecting the general public. These shareholders can only wait and hope that trading will resume. And that when it does, the value of their holdings will not sink like a lead weight.
History indicates that those existing shareholders are likely to be disappointed.
The Exchange Act allows the SEC to suspend trading of a security when it believes it necessary to protect the public interest. This happens most frequently when the SEC is concerned that public disclosures by a company may be either inaccurate or inadequate. After the ten days have passed the suspension is over – but that does not mean that the company is out of the woods. The SEC may continue to investigate until it determines whether investors have been defrauded. The public will not know whether such an investigation is continuing unless the SEC announces that it has filed an enforcement action.
Investors also should not assume that the end of a suspension signals an automatic and immediate resumption of trading. Over the Counter stocks – like those that trade on the OTC Bulletin Board or Pink Sheets - do not automatically resume trading once the suspension is lifted. Instead, brokers must first review information about the company and be satisfied that all financial data about the company is current and accurate in light of the questions raised by the SEC. Only then may they publish a quote for the company’s stock. So, even if the company files regular reports with the SEC and would otherwise qualify for listing on the OTC Bulletin Board, brokers may not begin to trade until these additional criteria are met.
Since February 2000, the SEC has issued 10 day suspensions to the following 12 companies:

Lifekeepers International, Inc;
Wellness Universe, Inc.;
eConnect;
U.N. Dollars Corporation;
Enterprises Solutions, Inc.;
Asthma Disease Management, Inc.;
WAMEX Holdings, Inc.;
E-Pawn.com, Inc.;
American Healthcare, Inc.;
Save the World Air, Inc.;
Net Tel International, Inc.; and
Ives Health Company, Inc.

All of those suspensions have now ended, but those companies are still feeling the effects. As best we can determine, five of those issuers (Enterprises Solutions, Inc.; U.N. Dollar Corporation; Lifekeepers International, Inc.; American Healthcare; and Net Tel International, Inc) are not presently trading on either the OTC Bulletin Board or the Pink Sheets. Six others (Wellness Universe; Asthma Disease Management; WAMEX Holdings; E-Pawn; Save the World Air; and Ives Health Company) now trade on the Pink Sheets – although at least three, Wellness Universe, WAMEX and Save The World Air, traded on the OTC Bulletin Board prior to their suspensions. Only one of the companies, eConnect, has resumed trading on the OTC Bulletin Board. The most recent suspension involved Ives Health Company. On March 2, 2001, the day before trading stopped, shares of Ives closed at 25 cents on the OTC Bulletin Board. When trading resumed on March 19th – on the Pink Sheets this time – the stock was selling at around 4 cents.

When trading has resumed for the formerly suspended stocks the picture is far from rosy. Virtually all of the companies now trade for pennies per share – compared with pre-suspension prices that were generally considerably higher.

Why have companies found it so difficult to thrive upon their return from the purgatory of suspension? Broker-dealers, confronted with SEC concerns about the accuracy of company disclosures, are often reluctant to jump back onboard. Understandably, brokers may be reticent to accept that company’s representations at face value. At the very least, those brokers will conduct extensive due diligence before agreeing to make a market in the shares. Even then, with the possibility of further SEC action looming on the horizon, those brokers may decline to re-enter the fray.

In the end, 10 days can last a lifetime.

 About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

WITH FRIENDS LIKE THESE…

“Trust me.” That’s the mantra of every securities scam artist. Investors are more likely to jump into an investment if it is recommended by someone they trust – particularly somebody from their “group.”
“Affinity fraud” refers to a particularly insidious form of investment scam that targets members of an identifiable group – such as race, religion, ethnic heritage, age or special interests. As a rule, people are inclined to believe – and trust - someone who claims to have the same background or beliefs. Unfortunately, con artists know this, and are fully prepared to take advantage of that inclination.
Take, for example, a complaint filed by the SEC on September 13, 2000. In that case the Commission charges that Bernard Taalib-Din Hasan (a/k/a Bernard Caldwell), and his common law wife Maria Elena Gonzalez, targeted Hispanic investors as victims of their scheme. According to the Complaint, the defendants allegedly raised approximately $1.5 million while misrepresenting the risks and potential returns of “overseas trading” in rice, diamonds and precious metals. Investors are believed to have lost about $860,000 – more than half of the total funds that were invested.
The North American Securities Administrators Association (NASAA) cautions investors to be on guard against infinity fraud, telling the public to “Beware of swindlers who claim loyalty to your group.” That is often more easily said than done. As NASAA points out,
[e]veryone, in some way or another, is connected to a group or association. Our interests, backgrounds, and other factors will naturally lead us to those organizations or affiliations that serve our needs. Race, culture, and religious beliefs also play a role in identifying us as members of unique groups that we often come to trust – sometimes to our detriment.
The warning rings true. After all, at one time or another we have all been solicited to contribute money to a place of worship, a community club, an alumni association or some other common cause. So how can individuals differentiate legitimate fund raising activities from scams? It is not always easy, particularly when the con artist’s message goes something like: “You can trust me because we have a common bond.”
How do these scamsters locate their prey? Sometimes they really are members of the “group.” On other occasions, they join organizations, go to meetings or obtain membership lists. Sometimes they do not bother to actually join the “group.” Instead, they begin by soliciting some of the more prominent members of a community or organization. Then they invoke those prominent names to attract other investors.
The Internet has made it even easier to find and communicate with members of a particular group. Chat rooms, message boards and web sites are specifically geared to special interests, religions and ethnic groups. In the past, sophisticated scam artists might buy a mailing list that identified people of a particular age group, religious belief or ethnic background. Today, they can buy e-mail lists containing even more detailed information, and communicate almost instantaneously with hundreds or thousands of potential victims.
How can you recognize “affinity fraud?” Start by keeping in mind these few examples:

• Seven officials of the Tampa-based Greater Ministries International Church were charged with operating a massive Ponzi scheme that may have defrauded investors around the country out of as much as $200 million. Greater Ministries quoted from the bible as they told investors that their money would soon double.
• The Illinois Securities Department claimed a promoter allegedly targeted Christians by saying that he had a device that could find oil based upon visions he received from God. About 150 investors are believed to have lost an aggregate of $1 million through this scheme.
• A Milwaukee, Wisconsin man was charged with allegedly raising money from hundreds of Milwaukee residents, many of whom were reached through their churches, to finance a minority owned and operated telephone company. Soon after raising the money, the promoter’s company filed for bankruptcy.
• In Indiana, the NASSA says, elderly investors were duped into buying bogus promissory notes by three men "who often got on their knees and prayed with their victims to gain their trust."
• The SEC alleged that four men bilked approximately 100 elderly persons out of about $2.5 million by promising "guaranteed" returns. According to the SEC, the defendants first obtained information about the assets and investments of the senior citizens and then encouraged them to invest in phony promissory notes issued by companies with little or no business. The SEC says that these defendants preyed on the fears and insecurities of the elderly by disseminating literature designed to alarm senior citizens with claims that the Texas probate process was costly and lengthy.
• The SEC charged a stockbroker raised and misappropriated at least $1.7 million from victims, including elderly church members, through the sale of a fictitious “Interim Church Loan Fund.”
• In another SEC action, charges were brought against a defendant who allegedly bilked 375 investors, most of whom were African-American, out of $2.8 million. Victims were falsely promised that they would have an opportunity to participate in investments and reap profits not normally available to African-Americans.

How can you protect against affinity fraud? A few tips:

• Always ask for, and review, written materials detailing the proposed investment. If it involves an Initial Public Offering, make sure you receive a prospectus that has been filed with the SEC. If someone is reluctant to provide this information, or says it is not available, you should avoid the investment.
• Discuss the investment with someone who is outside the “group” – preferably an accountant, attorney, investment advisor or broker with whom you have a long-standing, and satisfactory relationship.
• Be wary of anyone who repeatedly emphasizes his or her connection to the “group” in order to gain your trust.
• Stay away from anyone who asks you to make an investment on faith alone.
• Be skeptical of someone who invokes the names of “group” leaders or who offers testimonials from other “group” members. Many affinity frauds involve “Ponzi” schemes, where the earliest investors get high payouts at the expense of later subscribers. Those early investors may then become unwitting pawns in the scheme, speaking enthusiastically about their successful investments.
• As always, stay away from “guarantees” of profits or “risk-free” investments. There are no “sure things.”
• Always check out the person who is soliciting the investment with the SEC, NASD and your state regulators. You will not be betraying a “group” member by checking on credentials. You will, however, be following a prudent course of conduct to protect your assets.

We’ve said it before, but it bears repeating. If it sounds too good to be true, it probably is.
One final word. If you believe you have been the victim of an affinity fraud, contact your state regulator and the SEC immediately. (See CONTACT THE REGULATORS for the addresses of these agencies). Do not hesitate because you are reluctant to turn against a “group member.” After all, with friends like these …


About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

Will Frank Quattrone Win This Trifecta?

Could the third time be the charm for former Credit Suisse First Boston investment banking star, Frank Quattrone? A federal appeals court raised that possibility this week when it tossed out Quattrone’s 2004 conviction on obstruction of justice charges.  His first trial, in 2003, ended with a divided jury. 
In a unanimous ruling, a federal appellate panel ruled that jury instructions were “flawed,” and chided Judge Richard Owen, who presided over the Quattrone trial, for making comments which went “beyond mere impatience or annoyance with the defense.” 

Quattrone gained prominence as a leading rainmaker for mega-Internet IPOs.  The government’s charges against him arose out of an investigation into the allocation of IPO shares during the red-hot IPO bubble of the 1990s.  In December 2000, Quattrone, while regulators were investigating possible IPO irregularities, Quattrone circulated an e-mail reminding colleagues to clean up their files.  Prosecutors claim that he did so to obstruct their investigation. 

The flawed jury instructions permitted jurors to find the investment banker guilty without first determining whether he knew he was obstructing a federal investigation.

Prosecutors have not indicated whether they plan to bring Quattrone to trial a third time.

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.
 

How to find a reliable law firm in New York?

There used to be a time when there was a dearth of lawyers in the U.S., today they are dime a dozen. Unsurprisingly, many law firms have sprouted; many of them in New York - the heartland of legal profession in America. While this is a good news for many customers - who can now negotiate with more confidence - it has created its own problems: it is now harder for an individual or business to find a law firm that works for his or her purposes. In the words of New York based lawyer Hartley Bernstein, while the number of law firms in New York has increased, it has become more difficult for people and businesses to find law firms that can be trusted.

Fortunately, things have not gotten out of hand. It is still possible, if you are a little careful, to find reliable law firms in New York. The key is to look for certain characteristics and ask pertinent questions.

Experience Matters

When looking for a law firm, prefer to do business with those that have been in business for a long time. Hartley Bernstein has been practicing corporate law for more than three decades. If you are starting a new business, then his firm is a relatively safer bet compared to a law firm founded a month or two ago. Experience matters.

Experience is not merely the sum total of years a firm has been doing business. It is much more. It is not a good idea to hire a law firm that deals with immigration cases to manage your business cases. Experience extends to the type of cases a firm has been handling.

To conclude, it is possible to choose a good law firm in New York if you focus on the number of years the firm has been doing business the kind of cases it accepts.


About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

A SCHEME AND A DREAM, CIRCA 2003

A millennium ago (back in the 1990s) a significant portion of securities frauds could be traced to boiler room penny stock firms, where dozens of telemarketers (known as cold-callers) furiously worked the phones to dump their “products” on unwary customers. That kind of setup took time and money; it required a brokerage firm, rooms full of brokers and their assistants, capital to operate the firm, licenses, and finally, a product to sell.
Then came the Internet. And, to paraphrase one popular commercial, investment fraud just got a lot easier. Now, all a scam artist needs is a computer, an e-mail list, a vivid imagination, and a heart of stone. Now, fraudulent stock schemes can be carried out by creating an “e-buzz” – through bogus press releases, online newsletters, mass e-mailings and visits to online chat rooms and message boards. Each of these tools is employed with a single goal in mind – to get people to buy stock, increase volume, and support higher prices.
The plan is usually simple. Pump up the price of a stock, and then dump a truckload of shares at significant profits. And disappear. It is this final step that distinguishes Internet fraud from traditional incarnations of the “pump and dump.” It is just so much easier for the perpetrator to vanish.
In those old days, the boiler room brokers could be identified and located with ease - brokerage firms cannot easily fade from site. Cyber crime is different. It operates under a cloak of anonymity. Screen names and Internet “monikers” can be changed in an instant. Who is really posting false or misleading information on chat boards, in e-mails and through seemingly responsible newsletters? In all likelihood, the investor will never know - the perpetrator moves from chat room to message board, before disappearing into cyberspace.
Sound scary? It is. Still, there are some warning signs that should have investors proceeding with caution – or not at all. For example:

1. Is financial information about a Company readily available for the public to review? If so, has it been reviewed by independent auditors? Of course, investors have grown skeptical of auditors after recent revelations from Enron, Xerox, WorldCom and a host of other public companies whose audited financial statements do not withstand scrutiny.
Still, audited financial statement are likely to be a far more accurate reflection of the Company’s activity than unaudited projections posted on a Company’s web site, or touted by a paid analyst. Be skeptical if the Company does not file regular reports with the SEC, or is delinquent in those filings. Without that information how can you, as an investor, fairly assess the prospects of the business or the condition of the Company?
2. Does the person making the recommendation say that he or she is a stockbroker? Every broker must be registered with the NASD and any state in which he or she is selling securities. Investors can check out the status of any broker by contacting the NASD at www.nasdr.com. The NASD will provide public customers with detailed information about any registered broker or brokerage firm, including the broker’s employment background, registration status and disciplinary history.
What if the NASD has no records about this so-called broker? Contact NASD Regulation immediately, and provide the regulators with any information you received from that “broker.”
3. Have you been promised that an investment is “guaranteed” or “risk-free?” This one is easy. There are no guarantees in the stock market. No reputable investment advisor or broker will ever guarantee a rate of return or the success of a company. There are different levels of investment risk, from extremely conservative to highly speculative, – and a broker or salesperson should outline those risks with care - but no investment is free from risk.
4. Have you been told that you must act immediately – or lose a once-in-a-lifetime opportunity? What’s the rush? Consider the nature of the investment and its source. Take your time and investigate the potential investment. If the salesperson continues to push for an immediate commitment he or she may want you to leap before you look. That is generally the prescription for a long and perilous fall.
5. Have press releases and online promoters been announcing “big news” and projecting record revenues? Be cautious. Internet touts may be trying to drive up interest in a Company as part of a “pump and dump” scheme. Thanks to the Internet, and e-mail, these promotions can spread like wildfire, resulting in increased attention for a Company, a spike in volume, and an environment that lets the promoters dump their shares.
Investors should be wary of glowing newsletters and press releases. A fair report will always point out the risks, discuss the problems a Company is likely to encounter, and give a balanced view of the Company’s financial position. If the “report” ignores the negative, and embellishes the positive, you can be sure you are not getting the full story.
6. Investments that promise business opportunities abroad (outside the United States and Canada) pose their own set of problems. It can be significantly more difficult for investors to verify information about foreign companies or to get all of the facts about promised overseas business combinations. Unscrupulous promoters often operate from outside the United States, making it more difficult for regulators to track them down and hold them accountable.
7. An unscrupulous stock promoter is always eager to close the deal as quickly as possible. He or she may provide a federal express account number so funds can be delivered overnight. They may even offer to have an investor’s check picked up by messenger. Why? One goal should be obvious. They want to get your money before you can change your mind. Sometimes they just want to get your bank account number and other personal information.
8. Does the investment newsletter have an agenda? As an investor you want to know if the newsletter publisher has an ulterior motive for recommending a stock. Has he or she received stock, or cash, for publishing a recommendation? Newsletters should contain disclaimers disclosing this information. But even the presence of a disclaimer does not necessarily signify legitimacy. The newsletter that has been paid, whether in stock or in cash, has a conflict of interest that may prevent it from being objective. Is the newsletter providing a balanced analysis, or is it simply a paid tout trying to pump up interest so it can dump shares?
9. Beware of code words. Like “Homeland Security,” “anti-terrorism products,” and “AIDS treatments.” They are often used to lend an air of legitimacy to a Company and to kindle investor interest. Gather enough information to be certain that the Company has substance, that its management team is qualified and experienced, and that it is sufficiently financed to pursue its business plan.
10. If you receive an e-mail recommending a Company, does the sender use his or her own name? Or does it arrive from an anonymous source, with a vague or misleading subject heading? Just today we received an investment recommendation from “a good friend,” and the subject of the e-mail was “lunch at 1?” That certainly does not suggest a credible, professional or reliable source of information.
Know who is making a recommendation. Does the person use his or her own name, and provide a phone number or address where he or she can be contacted? If you are relying on nothing but an alias or pseudonym, how can you possibly verify the integrity or agenda of the promoter? Don’t deal with ghosts. They’re not all as friendly as Casper.
11. If you believe you have been the victim of an investment fraud, contact the SEC, NASD or your local state regulator without delay. A complete list of these contacts is provided at REGULATORS ON PATROL – CONTACT THE REGULATORS.

These tips only offer a starting point. The hardest task is for investors to exercise discipline, to resist the temptation to make a quick buck, and to investigate before they invest.
Every scam has one goal in common – to separate an investor from his or her money as quickly and effortlessly as possible. Unfortunately, the tools of investment fraud have become easily available. Anyone can assume a fictitious identity on the Internet, generate e-mails, chat away, and send out fictitious or misleading press releases.
All it takes is the click of a button. 


About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

Hartley Bernstein's Guide to Bankruptcy Lawyers

A bankruptcy lawyer’s job does not start and finish with the filing of bankruptcy papers. It involves much more. In this article, New York based corporate lawyer Hartley Bernstein explains what a bankruptcy lawyer really do.

What is Bankruptcy?

Many people know intuitively what bankruptcy is but law does not have intuition. It needs a concrete definition. The job of a bankruptcy lawyer starts with an explanation of bankruptcy. The lawyer helps the client know what bankruptcy means legally, what other options are available, and if it is a right decision to declare yourself bankrupt when debt settlement may be more beneficial.

What is Your Bankruptcy Type?
Law differentiates between bankruptcies. Broadly speaking, there was two ways to go bankrupt: (a) chapter 7 type bankruptcy and (b) chapter 13 type bankruptcy. Either can be more beneficial to you, depending on your specific situation. It is the job of your lawyer to explain the difference between these types.

In chapter 7 bankruptcy, you agree to your assets being sold. The proceeds from the auction are divided among creditors. The entire process takes a few months and personal assets are usually protected.

In chapter 13 bankruptcy, you agree to make a monthly payment to creditors for between three and five years. The debts are settled at the end of this term. This type is beneficial for those, who can count on a steady income.

 What is the Bankruptcy Process?

It is part of the job of a bankruptcy lawyer to explain to you every phase of the bankruptcy process: (a) It starts with an application. (b) Meetings between creditors and trustees come next, (c) followed by an agreement on the details of bankruptcy.

What Happens after Bankruptcy?
An attorney’s job does not finish after the declaration of bankruptcy. The lawyer can offer advice and recommendations on how to rebuild credit and established a new business.

A bankruptcy lawyers explains you what bankruptcy is, what its types are, what the process is, and guides you on how to rebuild your life after bankruptcy.

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

Criminal and Civil Law

It can come as a surprise to many people that the law does not carry equal weight - breaking some laws invites more severe punishment than others. Lawyers recognize two kinds of law: (a) civil law, and (b) criminal law. Although professionals are well aware of their difference, the distinction is often lost on many people who have limited contact with the American legal system. In this post New York based corporate lawyer Hartley Bernstein sheds light on how the civil law is different from the criminal by highlighting two big differences:

Punishment

This is one of the fundamental distinctions - the idea of punishment.

Criminal law: In criminal law, a person who is found guilty can receive any of the following sentences: (a) long incarceration, (b) hefty fine, and (c ) execution. Felonies attract sentences of more than a year while misdemeanors can get a person a few months’ sentence.

Civil law: In civil law, a person who is found guilty is never executed or put into prison. He or she can avoid prison by paying a fine, or reimbursing the plaintiff his or her loss. Even the punitive damages awarded under the civil law do not come anywhere near the severity of the punishment permissible under criminal law.

Burden of Proof

This is another big distinction.

Criminal law: In criminal law, the state carries the burden of proof. It is the responsibility of the state to prove that a person is guilty. It is the state’s responsibility to prove provide evidence beyond a reasonable doubt that the defendant is guilty. Until then the person is assumed innocent. The accused person does not need to prove anything.

Civil law: In civil law, although the plaintiff has to prove the other person is guilty, in some circumstances the burden can shift to the defendant.

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

Three REasons To Hire a Bankruptcy Attorney

Bankruptcy is not a pleasant thing. To hire an expensive lawyer is the last thing on the to-do list of people preparing to file for a bankruptcy. Yet, it is the wisest thing you can do - says New York based corporate lawyer Hartley Bernstein. In this blog he shows three excellent reasons to hire an attorney when filing for bankruptcy:

Harassment Protection

To hire an attorney is an effective way to protect yourself against potential harassment against lenders. An expert attorney will phone your collectors; thereby stopping them from giving calls to you. This way you can guard yourself against harassment.

Little Room for Uncertainty

Bankruptcy petitions are complex. There are communications from court. The trustees and creditors communicate. All this can be very stressful for you. Hiring a lawyer can offer you an easy way to navigate this stressful land. Your attorney can guide you on how to proceed and keep everything on schedule.

Fewer or No Mistakes

Paperwork is not always the easiest thing to do when you are filing for bankruptcy, says New York based corporate lawyer Hartley Bernstein. Mistakes can happen. A lawyer can help you navigate through all the paperwork without making costly mistakes.


About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

TELEMARKETING HOAX

Regrettably, there always seem to be unscrupulous individuals seeking to profit from a crisis and the misfortunes of others. In the wake of Tuesday's terrorist attack, authorities have warned the public to beware of telemarketers who have been fraudulently soliciting funds by claiming that the money they collect will be used to help victims and their families. According to reports, these telemarketers do not represent any recognized charitable group.

If you have been contacted by a telemarketer soliciting such donations contact us at editor@stockpatrol.com, and we will report that activity to appropriate authorities.

Persons wishing to make contributions should contact established charitable organizations whose credentials can be checked and verified, such as the American Red Cross or the United Way. The Red Cross can be reached at 1-800-HELP-NOW. The United Way/New York Community Trust Fund can be contacted at 1-800-710-8002 or visit the United Way of New York City website at www.uwnyc.org

Anyone wishing to contribute food, clothing or supplies can contact the Salvation Army at 1-800-SAL-ARMY


About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

Former Tyco Honchos Sentenced

Courts continue to impose lengthy prison sentences on former corporate hotshots found guilty of looting their companies.  This week, Tyco’s fallen leader, Dennis Kozlowski joined former WorldCom chief, Bernard Ebbers and Adelphia Communications founder, John Rigas, behind bars.  A New York Supreme Court justice sentenced the former Tyco CEO to a lengthy 8 1/3 to 25 year prison term – somewhat less time than prosecutors were seeking, but far from the minimum sentence that the Kozlowski legal team had sought.

Kozlowski is going to jail because a jury found him guilty of orchestrating a massive fraud that siphoned hundreds of millions of dollar from Tyco.  Mark Swartz,  TYCO’s ex-CFO, also received an 8 1/3 to 25 year sentence for his role in the fraud.  The two men, who will not be eligible for parole until they have served almost 7 years in jail, were led from the courtroom in handcuffs to begin serving their terms.

Jurors found Kozlowski and Swartz guilty in June, after a four month trial that devoted considerable attention to the opulent lifestyles enjoyed by the two defendants – courtesy of Tyco funds.  The defendants had been accused of fueling lavish lifestyles - including such items as a $6,000 shower curtain purchased by Kozlowski -  through illegal bonuses and generous loans, to the tune of $150 million.  It was the second trial for both men, who dodged a bullet the first time around when the court declared a mistrial.  They were not so fortunate this time.

In addition to imposing the prison sentences, the court ordered Kozlowski and Schwartz to pay back $134 million to Tyco.  Kozlowski and Schwartz also were ordered to pay criminal fines of $70 million and $35 million, respectively.

Because they were convicted in a New York State court, the defendants will not be spending the coming years have the opportunity to while away their days in a prison camp or minimum security prison, a so-called “Club Fed” – ala Martha Stewart.  Instead, because they received sentences of more than 6 years, the two men are likely to land in a maximum security state prison which houses violent offenders, and rarely plays host to white collar criminals.

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.

Update: Bio-Heal Laboratories, Inc. - Beyond Healing

The tortured public life of Bio-Heal Laboratories, Inc. has come to an end.  The Securities and Exchange Commission has revoked the registration of Bio-Heal's securities – with the Company's consent – extinguishing any false hope that the troubled Company could survive a series of regulatory assaults and validate its purported business plan.

Bio-Heal claimed to operate a medical research facility in Latin America where it was developing and testing a line of natural products with healing benefits.  The Company also said that it owned more than 11,000 acres of "prime virgin rain forest" in Nicaragua.  Despite aggressive promotion in early 2005, which boosted the Company's common stock price from $3 to $11 a share, Bio-Heal has not offered any verifiable evidence supporting its claims.

Bio-Heal first ran afoul of regulators in April 2005, shortly after issuing 12 million shares of unregistered common stock.  The SEC temporarily suspended trading of Bio-Heal stock, citing concerns about the propriety of that stock issuance and the Company's reliance on the exemptions from registration embodied in Rule 504 of Regulation D of the Securities Act of 1933.

That suspension ended, but the regulatory inquiries continued.  On April 25, 2005, the Securities and Exchange Commission filed a lawsuit in the United States District Court for the Southern District of Florida charging Bio-Heal with orchestrating and facilitating an elaborate securities fraud scheme centered upon the illegal sale of those 12 million shares.  

According to the SEC complaint, Bio-Heal issued the 12 million shares to three entities, MRMG Holdings, Inc., Kess Associates, Inc. and ICOR, Inc., relying on a phony legal opinion letter to support the transfer of unregistered stock.  Some of those shares were subsequently transferred to a pair of Anguilla corporations, Bela Enterprises, LLC and Gibson Island Enterprises, LLC, and were later dumped while promoters were pumping up interest in Bio-Heal.

The Company's ultimate demise, however, did not stem from questionable stock sales.  The SEC sought to revoke registration of the Company's securities because of Bio-Heal's protracted failure to file required financial reports.  Bio-Heal, which became public through a reverse-merger with Nexar Technologies, Inc. in February 2005, had not filed any required public reports since that time.  (Nexar, the predecessor, also had failed to file public reports since March 1999).
As usual, public shareholders pay a high price for relying on unsupported promises and inflated promotions. 

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.  

International Biofuel and Biochemical Corporation - SEC's Not Fueling Around

Investors can bid farewell to International Biofuel and Biochemical Corporation (Pink Sheets: IBBO).  On September 29, 2005, the Securities and Exchange Commission entered an order terminating registration of International Biofuel and Biochemical's common stock because of the Company's failure to file accurate, current public reports.
StockPatrol.com first reported on International Biofuel in March 2003, shortly after the Company changed its name from J Bird Music Group Ltd. and shifted its focus from selling music over the Internet to producing and marketing a soy-based fuel alternative.  See, International Biofuel And Biochemical Corporation — The Day The Music Died.  As we observed at the time, the Company faced serious hurdles in its effort to enter the biofuel industry.  International Biofuel was counting on its strategic alliance with American Bio-Fuels, an entity that was owned, in part, by Green Star Products, Inc., (Pink Sheets: GSPI).  Green Star faced its own financial challenges.  According to that Company's financial statements – which are available only on the Green Star website since the Company does not file regular public reports with the SEC – Green Star had $852 in cash at the end of 2003.  The Green Star web site does not contain any more recent financial information.
Soon after our article appeared, International Biofuel stopped filing financial reports with the SEC.  The last available financial statement, a Form 10-Q for the quarter ended June 30, 2003, indicated that the Company had no revenues in 2003 and about $13,000 in cash.  International Biofuel also claimed an "intercompany (sic) receivable" from J-Bird records of approximately $2.2 million, but conceded that the collectibility of that sum – essentially from itself – was problematic.

After that, the Company simply ceased filing reports – which eventually prompted the SEC to take action.  As the order indicates, International Biofuel
• Failed to file annual reports for the years ended December 31, 2003 and December 31, 2004;
• Failed to file quarterly reports for the quarters ended September 30, 2003, March 31, 2004, June 30, 2004, September 30, 2004, and March 31, 2005;
• Failed to file audited financial statements in its annual report on Form 10-K for the year ended December 31, 2002.  The auditor was unable to deliver an audit opinion for that year because the Company lacked sufficient internal controls to establish that the transactions were recorded so that financial statements could be prepared in accordance with generally accepted accounting principals.
But the failure to file reports was only part of the problem.  The SEC also discovered that reports which were filed falsely claimed that:
• The Company was registered with the EPA as a biofuel producer;
• The Company was working with DQ University to establish a laboratory and biofuel plant;
• The continuous flow technology licensed by the Company was protected by patent;
• The Company planned to have 12 plants in production, with each plant producing a minimum of 35 million gallons of biodiesel a year.
• Net return to the Company was estimated at 20 cents a gallon.
• The Company was in the process of building a biodiesel plant in Connecticut;
• Each plant had potential production capacity of 20 million gallons a year; and
• The plant would be able to produce 240 million gallons by 2008
In truth, according to the SEC,
• The EPA had not approved the Company's registration;
• The Company was not in a position to work with DQ University because it did not even own a biofuel processor;
• A patent application was pending, but not approved;
• No company had produced the quantity of biofuel that International Biofuel was projecting;
• The Company and its CEO had no reasonable basis for their revenue projections of 20 cents a gallon since that result was dependent, in part, on a government tax credit that had not been approved; and
• The Company did not have the funding to build a plant in Connecticut – or a site;
Faced with these allegations, International Biofuels consented to the order which effectively ended its life as a public company.  The music, which fell silent for J-Bird almost three years ago, has finally died.

About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.