SEC target Theodore denies boiler room allegations
2008-01-03 17:00 ET - Street Wire
Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
by Mike Caswell
George Theodore, the former chairman of Infolink Technologies Inc., denies allegations that he ran a boiler room in Florida that improperly raised $1.05-million. Mr. Theodore had previously asserted his Fifth Amendment privilege against self-incrimination in response to the charges. (All figures are in U.S. dollars.)
In a Sept. 13, 2007, civil complaint, the U.S. Securities and Exchange Commission said Mr. Theodore, 40, was the directing mind behind a 13-person boiler room that sold shares of University Lab Technologies Inc., an unlisted company that purportedly developed dietary supplements. One week after it filed the charges, the SEC secured an emergency injunction freezing University Lab's assets.
In October, Mr. Theodore pleaded the Fifth. He said he was aware of a federal criminal investigation into his activities and, on the advice of his lawyer, he refused to answer the allegations. Since then, no criminal charges have been filed.
In Nov. 23, 2007, Mr. Theodore filed an amended answer to the SEC's case, in which he drops his Fifth Amendment defence. He acknowledges that University Lab raised $1.05-million, but he denies allegations that the company employed salesmen who earned commissions of up to 55 per cent.
He is now discussing a possible settlement with the SEC on undisclosed terms.
SEC's complaint
Mr. Theodore's trouble with the SEC began on Sept. 13, 2007, when the regulator filed a civil complaint against him and University Lab in Florida. The SEC said Mr. Theodore, who also goes by the name George Theodoropoulous, used a Boca Raton boiler room to raise money from 46 investors in the U.S. and Canada. Salesmen under his direction cold-called potential investors, and offered them units of University Lab at 50 cents each. The salesmen said the company had contracts to place dietary supplements in 5,000 stores.
Some investors received a private placement memorandum that the SEC says misrepresented the investment. It failed to disclose that salesmen received stock representing up to 30 per cent of the units they sold, and, although it stated that the minimum investment was $25,000, that University Lab accepted investments of one-eighth of that amount.
On top of a $400-per-week salary, salesmen received commissions between 2 and 55 per cent, depending on their job, the SEC said. Fronters received 2 per cent, closers 7 to 15 per cent and loaders 35 per cent. Salesmen who sold shares to existing investors received the top commission, 55 per cent.
The SEC is seeking an order banning Mr. Theodore from penny stocks and banning him from serving as an officer or director of a public company.
Concurrent with the charges, the SEC secured an emergency order freezing University Lab's assets and appointing a receiver. On Sept. 17, Florida District Court Judge Linnea Johnson ordered Fort Lauderdale lawyer Michael Goldberg to take charge of the company's assets and to begin any legal proceedings necessary to recover investor money. Mr. Goldberg has not yet reported on his progress.
In announcing the case, the SEC acknowledged the help of the Saskatchewan Financial Services Commission and the Alberta Securities Commission. On Dec. 19, 2007, the ASC began a related administrative action against Mr. Theodore. It alleges that he improperly raised $250,000 from 15 Alberta residents for University Lab.
Theodore's answer
In his amended answer, dated Nov. 23, Mr. Theodore denies any wrongdoing. He admits that University Lab raised over $1-million from 46 investors between December, 1999, and May, 2007, but he claims that he did nothing wrong.
Most of his answer contains general denials, with no specifics. For example, his response to the allegation that University Lab paid commissions of up to 55 per cent, only says, "Defendant Theodore denies the allegations as they pertain to him."
Mr. Theodore says the SEC is not entitled to ban him from penny stocks, because the allegations cover a limited time period, they were not egregious, he did not benefit from the alleged fraud and he is not a recidivist violator. Mr. Theodore also says he relied on advice from University Lab's lawyer.
He is asking the court to dismiss the charges.
Since filing his answer, Mr. Theodore has started discussing a possible settlement with the SEC. On Nov. 26, Judge Johnson ordered both sides to agree upon a mediator, and to inform the court of their choice within 15 days. Three weeks later, the SEC filed an unopposed motion for an extension on the deadline for choosing a mediator, saying it is discussing a settlement with Mr. Theodore. The judge extended that deadline to Jan. 28, 2008.
Theodore at Infolink
In 2002, Mr. Theodore was the chairman of Infolink Technologies Inc., a junk voice-mail company that collapsed after media reports that its chief executive officer, Cesar Correia, did not disclose his criminal record. He had been convicted in 1984 for manslaughter, after he killed his abusive father.
Mr. Theodore left the company on Jan. 31, 2003, saying he needed to devote more time to his family and other business interests. He has since moved to Florida, where he now owns a $2.1-million home with his wife.
Infolink, which once traded at 50 cents, went private in December. Mr. Correia bought its shares for 4.72 cents each.