British firm, creditors target Novatek chiefs Court complaint alleges fraud by bankrupt firm

Legal affairs

October 03, 1997|By Mark Guidera | Mark Guidera,SUN STAFF

One of Britain's leading investment houses and a group of other creditors are seeking millions of dollars from two Florida businessmen and others connected to Novatek International, the bankrupt Columbia company under federal investigation, claiming they defrauded the institution of $4 million and bilked "millions of dollars from investors" in a stock-rigging scheme.

The complaint, filed in U.S. Bankruptcy Court in Baltimore, is the first time that two of the principal insiders behind Novatek, William P. Trainor and Vincent D. Celentano, have been accused masterminding the scheme.

"A lot of money has disappeared from this company. We intend to find it and bring it back," said Edward Meehan, an attorney with Skadden, Arps, Slate, Meagher, & Flom LLP, which is representing Wood Gundy London Ltd. and a group of other unsecured creditors.

London-based Wood Gundy is the investment arm of the Canadian Imperial Bank of Commerce, based in Toronto.

Celentano, a prominent Hillsboro Beach, Fla., businessman and real estate developer, and Trainor, a flamboyant New England native with a long history of fraud who lives near Celentano, are among those under a year-long investigation by the Securities and Exchange Commission for their role in Novatek and a spectacular rise in its stock price last year.

No one has been charged with wrongdoing, and SEC investigators don't yet have a tally of investors' losses. Estimates of individual losses range as high as $1 million.

The company is in bankruptcy proceedings in U.S. Bankruptcy Court in Baltimore.

Trainor, reached at his home in Florida, said he had not seen the complaint and would not comment on the allegations.

Joseph Goldstein, a Washington lawyer representing Celentano in the SEC probe, could not be reached for comment yesterday.

Buoyed by announcements of multi-million dollar deals, Novatek's stock enjoyed a 75 percent rise in a six-month period last year, hitting a trading high of $13.125 in mid-September.

Trading in the company was halted by the SEC and the National Association of Securities Dealers last October after questions arose about statements the company made about large contracts in Latin America. As a result, the value of the stock collapsed to pennies.

A subsequent investigation by The Sun found many of those contracts either did not exist or had been seriously misrepresented by Novatek in public announcements.

In the complaint filed yesterday, Wood Gundy, Novatek's largest unsecured creditor, seeks the return of a $4 million corporate debenture that it purchased in August 1996. The complaint also seeks damages "to be determined at trial."

Wood Gundy contends it made the investment based on information it was provided about the medical kits, contracts for the kits, and the company's licensing agreements.

Cameron Capital Ltd., a Bermuda-based investment fund, brokered the private placement, investing $1 million of its own money.

The complaint accuses Trainor, Celentano, family trusts connected to the two men, as well as others connected to Novatek, of violations of SEC regulations, fraud, filing false and misleading public documents, fraudulently transferring property of the company, wasting company assets, and breach of fiduciary duty and seeks the return of $8 million paid out by Novatek.

It alleges that beginning in March 1996, Novatek was transformed from a money-losing construction company into a medical diagnostic test kit company through a number of "shell transactions" using "paper companies" controlled by Trainor and Celentano.

These included New England Diagnostics Inc., which is tied to Trainor and his business associate, Andreas Schweitzer of Switzerland; Medical Products Inc., a Florida company founded by Celentano and Trainor which merged with Novatek in early 1996; and Universal HealthWatch Inc., founded and controlled by Trainor and Celentano.

Novatek, the complaint states, "engaged in a series of shell transactions which masked the identities of certain Defendants and their connection to the company, and allowed these Defendants to siphon off corporate assets for their own benefit."

It alleges that as part of a merger between Novatek and Medical Products Inc., New England Diagnostics was paid about $2.5 million and given millions of unregistered shares in the company for pending sales contracts.

The complaint alleges that Novatek funnelled at least $6 million more to New England Diagnostics "in exchange for additional medical diagnostic device distribution licenses that were either never received or worthless."

The complaint further charges that Trainor and Celentano failed to disclose to investors that they founded and controlled Universal or that Trainor had ties to New England and Pickerel Cove Trust, a Trainor family trust that received 2 million unregistered Novatek shares in the merger.

Others named in the complaint include Dr. Erick Gray, a Howard County resident and a former chairman of Universal and Novatek director; Jamie Puccio, a Chilean and chairman of Novatek's board; Schweitzer, the Swiss business associate of Trainor who the complaint contends also controls New England Diagnostics; Frank Cooney, the former president of Novatek; Dr. Gaston Oxman, a Montgomery County resident who replaced Cooney; and Larry T. Schone, a Florida attorney who served as secretary of the company between March and July 1996.

Pub Date: 10/03/97

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