SEC probes HiEnergy amid Gurian connections
2003-03-14 14:24 ET - Street Wire
Also Street Wire (U-SWEB) Stockgroup Information Systems Inc
Also Street Wire (U-HIET) HiEnergy Technologies Inc
Also Street Wire (C-SWB) Stockgroup Information Systems Inc
by Brent Mudry
HiEnergy Technologies Inc., a California-based penny stock promotion, revealed Friday that it is under investigation by the U.S. Securities and Exchange Commission amid media reports linking the company to notorious Mafia-linked promoter Phil Gurian. HiEnergy`s vigorous Vancouver tout, Jeff Berwick, is a Howe Street mover and shaker, who finds himself in the wrong place at the wrong time. Mr. Berwick is the founder and chief executive officer of StockHouse Media Corp., a Vancouver financial site now controlled by Stockgroup Information Systems Inc. Stockgroup has been a Howe Street favourite for several years, recently attracting new financial supporters after taking over Mr. Berwick`s StockHouse and placing him on the Stockgroup board.
In the U.S., Mr. Gurian and his close associate Phil Abramo, a capo in New York`s DeCavalcante family, are best known as the stars of The Mob on Wall Street, a 1996 cover feature by Business Week reporter Gary Weiss. In Canada, the pair are best known as clients of several Canadian brokerages, notably Pacific International Securities in Vancouver, through secretive offshore nominee accounts in the Bahamas.
In a Form 8-K filing Friday, HiEnergy confirms the SEC investigation and the board resignations of former president Barry Alter, of Toronto, and securities violator Gregory Gilbert, both at the request of chairman Bodgan Malich. On Tuesday, the company also confirmed the resignation of president and chief executive officer Tom Pascoe, and the fact that another director, Richard Alden, has been dead for some time now.
"The Enforcement Division of the Securities and Exchange Commission has opened an investigation requesting HiEnergy`s cooperation on a voluntary basis. HiEnergy has supplied the Enforcement Division attorneys with the reports developed by our independent investigators," states HiEnergy in its Friday filing.
"HiEnergy intends to cooperate with the Enforcement Division`s investigation and has agreed to voluntarily provide the Enforcement Division with other documents they have requested. At this time the Enforcement Division attorneys have not indicated whether they intend to recommend action against the company or any of its officers or directors."
This sudden situation seems awkward for Mr. Berwick, the chief editor of Paradigm Trader, a StockHouse in-house tout feature. The editor has been touting HiEnergy since at least November.
"On January 31 I took the time to travel to Irvine, California, to visit with Tom Pascoe, CEO of HiEnergy Technologies. I am very glad to have visited as meeting the people of the company and hearing their story in person is always more enlightening than reading press releases and information on their Web site," stated a Feb. 7 StockHouse report, entitled "Jeff Berwick`s Paradigm Trader: On Hiatus with HIET."
"I came away from the meeting believing that this $2 stock has the potential to go to $100+. I also felt that this stock could also go from $2 to $0.10 in less than a year if a number of variables were to occur," stated Mr. Berwick, covering two bases at the same time. (All figures are in U.S. dollars.)
So far, the 10-cent call is the closer of the two. HiEnergy shares, which briefly peaked at $3.15 in mid-December, began collapsing in mid-February, and bottomed out at 55 cents on Wednesday. The stock fell 10 cents to close at 64 cents on Friday.
Without giving details, Mr. Berwick notes that a "significant portion" of his personal speculative portfolio is in HiEnergy shares. In a Feb. 24 registration statement, HiEnergy hopes to clear eight million shares for resale to the general public. This includes 44,500 shares owned by Mr. Berwick, perhaps purchased in an earlier financing. His cost is not known.
Part of Mr. Berwick`s optimism is based on his hopes for HiEnergy`s public relations campaign. "I am familiar with the group they are using for their PR and they are very, very good at getting attention for companies like HiEnergy. It is my belief that they will be making a lot of (sic) over the coming months and I would expect HiEnergy to get a fair share of media attention," he states.
Although not identified by the StockHouse tout, a company in Toronto, called Primoris Group Ltd., handles HiEnergy`s investor and public relations, according to the penny stock promotion`s press releases. Securities filings show Primoris was granted options on 400,000 HiEnergy shares at $2, the biggest such grant to any promotional group, while Joseph Carusone is president of Primoris.
Mr. Carusone and Mr. Berwick are colleagues. In 1999, Mr. Carusone was appointed to head StockHouse.ca, a core StockHouse unit based in Toronto, and given the title of executive vice-president of operations.
There is no suggestion that Mr. Berwick, Mr. Carusone, Stockgroup, StockHouse, Paradigm Trader or Primoris have done anything wrong or that any of their HiEnergy activities are part of the investigation by the SEC.
The HiEnergy story began to crumble when an avid market follower began sniffing around another controversial penny stock promotion, Medi-Hut Co. Inc., in January, prompting the company to issue a Feb. 7 press release distancing itself from bogus analyst Christopher Cosme Tavares of Metro Trading, a tiny Florida brokerage, the author of an upbeat research report.
Dow Jones penny stock reporter Carol Remond broke the HiEnergy story on Feb. 21, revealing that the company`s former market maker, Metro Trading, was linked to Mr. Gurian, as a number of its employees previously worked at Sovereign Equity Management, the brokerage he secretly controlled in The Mob on Wall Street case.
With a little digging, a gold mine was soon discovered. Ms. Remond had a heck of a time tracking down Rheal Cote, a key figure in HiEnergy`s reverse takeover of SLW Enterprises Inc. His stated address, however, happens to be a condominium owned by Mr. Gurian`s mother, Jeannie Gurian. Another significant shareholder of SLW was Benil Finance Ltd., based in the Bahamian law office of Obafemi Pindling, the favourite offshore front of Mr. Gurian and Mr. Abramo.
Metro Trading`s two principals are Mr. Tavares and Greg Vittor, according to Florida state records. Mr. Vittor happens to be the younger brother of Glen Vittor, who fronted for Mr. Gurian as Sovereign`s owner and who was indicted along with Mr. Gurian and Mr. Abramo in 1999.
In September, 2001, the SEC banned Glen Vittor for his key role in the 1992-93 fraudulent promotion of Howe Street promoter Larry Nesis`s Technigen Corp. Mr. Vittor was credited as a primary player in Technigen, through Sovereign Equity. Technigen, one of the most notable scandal-ridden promotions on the former Vancouver Stock Exchange in the late 1980s, was delisted from the VSE in mid-1989 and continued trading on Nasdaq.
In one of the serendipities of the penny-stock world, Vancouver stock sleuth Adrian du Plessis, whose investigation into Technigen in 1987 blew up the company into a first-rate scandal despite vigorous denials by the VSE, emerged a decade later to blow up YBM Magnex International just before the feds raided the Russian mob play. Mr. du Plessis`s YBM probe was sparked by the appearance of Vancouver promoter Michael Schmidt, a former Technigen tout on the VSE, on YBM`s board.
Mr. Vittor`s alleged boss, Mr. Gurian, and Mr. Abramo, emerged as players four years ago in the Mafia`s then-highest-profile incursion on Howe Street. In February, 1999, Stockwatch revealed the regulatory probe of former Pacific International Securities Calgary branch manager Jean-Claude Hauchecorne, who handled related offshore accounts of Mr. Gurian, Mr. Abramo and Eric Wynn, who frequently made collect calls to the P.I. broker while in jail for stock fraud and tax evasion.
The risk-loving Mr. Hauchecorne was subsequently banned for life by the former VSE, which over the years had grown more particular about its image abroad. Howe Street brokerage Pacific International is now in the midst of a hearing by the British Columbia Securities, which claims it serviced too many crooks, securities violators and other riff-raff.
SEC enforcement director Richard Walker highlighted the Vittor case, and a number of other Mafia stock cases, in a Sept. 13, 2000, speech to the House Subcommittee on Finance and Hazardous Materials, Committee on Commerce, addressing the involvement of organized crime on Wall Street and the commission`s efforts to root it out. "On April 23, 1998, the commission sued Sovereign Equity Management Corp. and its president Glen T. Vittor for a scheme to manipulate the market price of two microcap companies, Technigen Corp. and TV Communications Network, Inc. Five days later, Vittor was separately charged by the SEC for his role in another microcap manipulation. The Business Week Article reported that Sovereign was controlled by organized crime," Mr. Walker told the committee.
"The commission will continue to implement a vigilant program to safeguard the microcap securities market from involvement by organized crime or anyone else aiming to commit fraud. We will also continue to work closely with the Justice Department to make certain that every instance of organized crime on Wall Street is prosecuted criminally."
In a rare extensive media interview, Mr. Gurian recently described his involvement with HiEnergy. In a March 10 article in WorldNetDaily.com, the penny stock mobster told Florida reporter Sherrie Gossett that he had nothing to do with HiEnergy, the Mafia or money laundering, one of many charges he faces in the 1999 indictment, the case relating to his dealings with Pacific International`s Mr. Hauchecorne.
Mr. Gurian claims his only connection to the HiEnergy is that its recently departed CEO Mr. Alter, of Toronto, was a golfing friend he met many years ago in Florida. Mr. Gurian also admitted giving "contacts" to Mr. Alter, which Mr. Alter confirmed to Ms. Gossett.
Mr. Berwick, the Vancouver StockHouse tout, has scrambled to put a happy spin on things, and tried to discredit the original Dow Jones article by Mr. Remond. "The article is mainly innuendo that some unsavoury people may have had some involvement with the shell that HIET went public through and with some small-time brokerage in Florida which apparently gave a buy rating on HIET," stated Mr. Berwick in a Feb. 24 report.
"If you look into all the previous owners of any OTC shells and all the people who are associated with small town brokerages, you will uncover lots of greasy people. This doesn`t overly concern me."
Mr. Berwick also tried to reassure his nervous readers by stressing that while the Dow Jones article looked negative at first glance, he had few concerns. "After reading the column more carefully, I realized that there is a lot of bluster that is over-the-top negative and worded in a way to derive fear from a number of tidbits of information that may or may not have had anything to do with HIET," he stated.
Alas, HiEnergy`s troubles are hardly just in the distant past, as indicated by the broad boardroom purge in the past week.
Besides Mr. Alter`s relationship with Mr. Gurian, which is not disclosed in regulatory filings, another surprise arrived with Mr. Gilbert, who also was asked to quit as a director. Mr. Gilbert was fined $100,000 by the SEC in 1999 and banned from future securities violations, a distressing fact HiEnergy first disclosed to shareholders on Tuesday. The company also noted that Mr. Gilbert forgot to say that the SEC previously targeted Hamilton Biophile, a company he served as chief executive officer.
The case in which Mr. Gilbert was fined $100,000 indirectly featured Barclay Davis, a Las Vegas penny stock promoter earlier described by the SEC as a "serial stock manipulator." In the serendipity of Howe Street, Mr. Davis, like Mr. Gurian, was a notable bad boy client of Vancouver brokerage Pacific International.
Mr. Gilbert, Loretta Davis, the wife of the promoter, and two other members of the Davis family, were charged with manipulating three penny stock promotions: Bio-Tech Industries Inc., Combined Companies International Corp. and Systems of Excellence Inc. (This was one of numerous cases involving Mr. Davis.)
In a related criminal prosecution, Mr. Davis was sentenced last October to 30 months in prison for masterminding the 1993-1997 rig job of Combined Companies International.
The fraudulent Combined Companies promotion included bribed brokers, false audit reports, income tax returns and bank loan documents, Form S-8 share issuances to bogus consultants and illegal use of nominee accounts. The prosecution followed an extensive investigation by the Las Vegas Field Office of the Internal Revenue Service. The judge found that Mr. Davis, amongst other things, obstructed justice by plotting to have an accountant, a witness against him, injured to shut him up.
Meanwhile, HiTech has scrambled in recent weeks to get to the bottom of its scandal, hiring a team of independent investigators including two former federal prosecutors, a former Assistant United States Attorney and a former FBI supervisory agent. The probe is now complete.
"The independent investigators reviewed disclosures HiEnergy Technologies has made, reviewed disclosures made by SLW Enterprises prior to the April 2002 reverse merger, reviewed other publicly available information, and conducted a number of interviews, including interviews with the person who had previously been involved in stock manipulation schemes and two of HiEnergy`s former directors who know him," states the company.
HiEnergy says the probe uncovered no evidence that its "current executive management team engaged in any wrongdoing," and no evidence of any wrongdoing in the reverse takeover.
However "the independent investigators obtained evidence that some of HiEnergy`s stockholders who purchased significant amounts of SLW Enterprises shares prior to the reverse merger know or have had business dealings with the person who had previously been involved in stock manipulation and that one of these stockholders was a company reportedly owned by his mother, which disposed of its shares in April 2002 at a profit believed to be between $500,000 and $600,000," states HiEnergy in its filing.
"A person who later served as HiEnergy`s interim president and was a director was aware of these purchases of SLW Enterprises shares. The independent investigators believe the evidence is inconclusive whether the person who had previously been involved in stock manipulation had control over these SLW Enterprises shares or whether, if so, HiEnergy`s former president and director had any knowledge of such control."
The company is now co-operating with the SEC in its regulatory probe.
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