Beware Of Boiler Rooms + How They Work

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.

Grenville Gold's chairman sues Bullboard posters

Grenville Gold's chairman sues Bullboard posters

2008-01-02 16:24 ET - Street Wire

by Stockwatch Business Reporter

The chairman of Grenville Gold Corp. is suing three anonymous posters to an Internet bulletin board for defaming him. In a lawsuit filed in B.C. Supreme Court on Dec. 4, 2007, Leonard DeMelt claims that the posters, with the pseudonyms dedere, serod and birdy1, wrote a series of defamatory postings about him on a Stockhouse Bullboard starting on Jan. 19, 2007. In the postings, the defendants accuse Mr. DeMelt of insider trading, high closing, lying and incompetence, among other things.

The first poster, dedere, wrote over 40 posts between Jan. 19, 2007, and Oct. 16, 2007, according to the lawsuit. Throughout his work, there is a theme of scepticism about the company and about Mr. DeMelt's fitness for his job as chairman. He harps on three main issues. He claims that Rakesh Dhir owns a large position in the company, a fact which he says the company should disclose but has not. He accuses Mr. DeMelt of high closing. He also berates Mr. DeMelt for not having an NI 43-101 report for Grenville's properties in Peru.

For example, on Jan. 21, 2007, he wrote: "When someone not listed as an insider or control person owns ten million shares of an issue, directly or indirectly it is the responsibility of the management to see that this fact is disclosed to the public, which in the case of Rakesh Dhir, Anita Dhir and Dhir Enterprizes has not been done with respect to their holdings in GVG. Other members of the De Melt family are also large shareholders, which would normally require insider reporting limitations."

On March 21, he wrote, "GVG promoters have issued themselves and their close friends approximately 15M..that's fifteen million shares and warrants and options at an average price of ten and twenty cents per shares while promoting the company to the public at prices as high as .76 cents per share before even one of their acquisitions has been formally approved NI-43-101 by the TSX."

On April 4, dedere wrote several posts. In one, he said: "It would be difficult to find anyone more inept than DeMelt when it comes to getting the paperwork done. he just doesn't get it. he is impulsive, sloppy and careless. consequently i would bet that HRR has it right." In separate post from the same day, he said: "High saling is a contravention of TSX regulation and policy. Don't do it again. It is pointless as well as dangerous, and another example of the impulsive, careless and sloppy management of this company's affairs."

Mr. DeMelt complains only about one post by the second defendant, serod. This poster does not mention Mr. DeMelt. Instead, he accuses Grenville Gold of being a scam, and raises two concerns. The first is that "Grenville doesn't have any 'mine' to speak of in the Silveria project area." The second is that the company, despite its claims, is not in the process of listing on the stock exchange in Lima.

The third defendant, birdy1, is not as prolific as dedere, but he makes many of the same accusations. Like dedere, he connects Mr. Dhir to several million shares of the company. Like dedere, he writes that Mr. DeMelt is incompetent. On Sept. 13, 2007, he wrote: "These are all 'dirt farms' as far as i can tell. in other words, all the properties are all worthless junk. the only thing that matters is can the promoters arrange a blowoff of their cheap stock?" In the same post, he added, "The delays caused by len demelt and his incompetence have basically run out the clock."

Birdy1 makes other accusations. He calls someone in management, presumably Mr. DeMelt, a "half breed metis cave dweller." He says the police are investigating this cave dweller for stalking a former business associate, that the BCSC is investigating the cave dweller for "activities while defacto control person for Andresmin" and that the cave dweller made "property transactions which contravene securities regulations."

He says that a Toronto broker informed him that Mr. DeMelt had a temper tantrum during a meeting with the broker's firm and "embarrassed everyone in the room." Supposedly, the Toronto people at the brokerage told the Vancouver people to not bring Mr. DeMelt to them again.

Finally, on Nov. 29, birdy1 wrote: "These management people will never have anything to do with any future production on this or any other projects to do with Grenville Gold Corp. Obviously Len and crew chose such a project to allow them to unload their shares on an unsuspecting public."

Mr. DeMelt claims that the postings defame him because they either say or mean that he is a liar, a fraudster, incompetent and untrustworthy. The postings also say he has not reported insider trading and has disobeyed securities regulations. Adding to the libel, all of the above is allegedly well known in the investment and mining communities.

He adds that he will submit evidence at trial about the entire content of the postings "as illustrative of important context in support of the Defamatory Meanings."

Oddly, Mr. DeMelt only claims damages from dedere and birdy1, not serod, and wants an injunction preventing those two from making any more defamatory statements.

Michael Bromm of Lang Michener LLP represents Mr. DeMelt. None of the allegations have been proven in court.