3 former officers of Novatek settle SEC complaint Md. pair, Floridian accused of roles in misleading filings

Regulation

July 09, 1998|By Mark Guidera | Mark Guidera,SUN STAFF

Two Maryland residents and another former officer of Novatek International Inc., the bankrupt Columbia company that has been under an 18-month federal investigation for fraud, have settled charges that they misled investors about the status of contracts the company claimed it had locked up in South America.

Without admitting or denying the allegations, the three men named in the complaint have signed agreements that they won't violate SEC regulations.

Todd Cranford, a lawyer in the enforcement division of the Securities and Exchange Commission, said no fines or other penalties were imposed. He declined to comment further.

In its administrative complaint, the SEC alleged that Columbia resident Erick A. Gray, 46, and Rockville resident Gaston Oxman, 59, were aware of serious inaccuracies in at least one of a number of news releases issued by publicly held Novatek in 1996. The releases announced more than $400 million in sales contracts for medical diagnostic test kits. But neither company officer did enough to ensure that the mistakes were corrected, the SEC said.

A Sun examination of Novatek's contract announcements in 1996 found that the contracts either did not exist or their status was overstated by the company. Those announcements helped drive Novatek's share price up 75 percent to a high of $13.12 in a matter of weeks.

The investigation also found that two principals behind Novatek, Vincent Celentano and William Trainor, did not disclose to investors their control of the company. The wealthy Hillsboro Beach, Fla., residents were identified last month by the SEC in a civil complaint as masterminds of a "massive stock fraud" using Novatek as a front.

Gray, an optometrist, was a director of Novatek from May to October 1996, when he resigned after the SEC investigation began.

Gray had been chief executive officer and chairman of Universal Healthwatch Inc. from May 1995 to December 1996. He was hired by Trainor to help launch the Columbia company, founded by Celentano and Trainor.

Novatek said it had licensed Universal's medical diagnostic test kits, though it never disclosed details of that agreement or the connection between the principals behind both companies. Novatek claimed it had multimillion-dollar contracts for the kits in South America.

In its complaint against Gray, the SEC said that because he held executive positions with Novatek and Universal, he "was or should have been aware" that Universal was controlled by Trainor and Celentano, and that they had influence over the management of Novatek.

Gray is listed as Novatek's president in records at U.S. Bankruptcy Court in Baltimore. Novatek filed for bankruptcy shortly after the SEC suspended trading in the company in October 1996.

In its complaint against Trainor and Celentano, the SEC alleges that they were responsible for issuing the misleading news releases.

The SEC complaint alleges that Gray and Oxman, who became Novatek's president in May 1996, were aware of at least one misleading release about a sales contract but did not take enough steps to see that it was corrected.

The contract in question involved a deal that Novatek claimed in August 1996 it had struck with the Oswaldo Cruz Foundation in Brazil. The company stated that the health group had signed a 10-year agreement to buy its diagnostic test kits and that the deal would generate "$35 million in the first year and expanding thereafter."

The SEC found that Oxman and Gray participated in discussions with the foundation and were aware that no firm agreement had been signed. The SEC also found that Gray and Oxman knew the release was misleading but didn't correct it.

Oxman resigned Oct. 30, 1996, two weeks after the SEC halted trading in the company.

The SEC complaint also named Frank J. Cooney, 56, a resident of Lake Worth, Fla., and Novatek's former president and founder.

It alleged that Cooney participated in filing documents with the SEC that grossly overstated Novatek's assets, included information about a nonexistent sales contract and failed to disclose Trainor and Celentano's control of Novatek operations.

Specifically, the SEC said Cooney signed SEC documents valuing Novatek's assets at $55 million when they worth $2 million.

Another SEC filing Cooney authorized said Novatek had signed a five-year contract with Chile worth $5 million annually for cholera tests and had begun shipping HIV tests to Mexico. The SEC said it found that there was no contract and that no shipments had been made to Mexico.

Cooney's attorney, Frank Jackson of Stearns, Weaver & Miller in Miami, declined to comment on the SEC allegations and settlement.

Cooney, reached in the Bahamas, declined to comment on the SEC allegations. "I'm just happy it's over," Cooney said. He said he hopes to have no more dealings with Celentano or Trainor.

Gray's attorney, Kenneth Winer of Washington, did not return a phone call seeking comment.

Pub Date: 7/09/98

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