2 settle bank fraud suit Trainor, Celentano to pay $2.8 million in Novatek case

Securities

July 15, 1998|By Mark Guidera | Mark Guidera,SUN STAFF

Two Florida men accused of defrauding a British investment bank of more than $4 million as part of an alleged stock-rigging scheme involving a Maryland company have agreed to settle a lawsuit against them for $2.8 million, U.S. Bankruptcy Court records show.

William P. Trainor and Vincent D. Celentano, two wealthy Hillsboro Beach, Fla., residents, and companies or family trusts connected to them have until July 31 to pay the $2.8 million. Otherwise, the case against them and others will continue, court records show.

London-based Wood Gundy London Ltd., the investment arm of the Canadian Imperial Bank of Commerce, based in Toronto, and a group of other unsecured creditors filed suit in U.S. Bankruptcy Court in Baltimore against the two men in October.

The suit alleged that Trainor, Celentano and companies, trusts and others tied to the men defrauded the institution of $4 million and bilked "millions of dollars from investors" in Columbia-based Novatek International Inc.

The suit was filed as part of Novatek's bankruptcy case; the company filed for Chapter 11 protection in October 1996 after the SEC launched a fraud investigation and Novatek's stock was delisted by the National Association of Securities Dealers.

In the suit, Wood Gundy and other creditors sought the return of $8 million, which they claimed Trainor and Celentano siphoned from the company for their own benefit.

As part of the settlement agreement, Evanston Insurance Co. of Evanston, Ill., paid $300,000 to settle any potential liability Novatek's directors and officers may have had in connection with the allegations.

Edward J. Meehan, an attorney with Skadden, Arps, Slate, Meagher & Flom in Washington, who is representing Wood Gundy and the other creditors, said his clients accepted the settlement last month in the interest of a speedy resolution.

He said some payments been made. "We are doing everything we can to see to it that the settlement is satisfied" by July 31, Meehan said.

The settlement and proceeds from the sale of Novatek's former headquarters building in Florida are earmarked for paying creditors first and administering Novatek's bankruptcy case.

Jay Shulman, an attorney with Gordon Feinblatt Rothman Hoffberger & Hollander in Baltimore, who is representing Novatek's estate in the bankruptcy case, said, "The settlement goes a long way in resolving the claims of the creditors. The question that now needs to be resolved is whether anything can be done to help the shareholders."

It remains unclear whether Novatek can emerge from bankruptcy. It has no operating funds and no full-time employees.

"We need to see if a viable, credible business plan and adequate funding for Novatek can be secured. That is a huge undertaking. As of now, no one has come forward with either," Shulman said.

"Our first goal is to help people who have been hurt," he said.

Shulman said the other possibility for shareholders' recouping some of their losses would be if Trainor and Celentano or some other investor offered to buy out Novatek's sole asset, the licenses it claimed it held for medical diagnostic test kits.

Shulman said neither Celentano nor Trainor has ties to Novatek. They took control of the publicly held company in 1996 when they merged it with another company they formed, though neither held any office or position with Novatek.

In June, the SEC filed a civil complaint accusing Celentano, a prominent Hillsboro Beach businessman and real estate developer, and Trainor, who has been convicted of fraud at least twice and imprisoned, of masterminding a scheme to defraud Novatek investors. Their attorneys have declined to comment.

Shulman said that unless a credible business plan and funding can be secured, "we may need to bring an end to the Novatek era."

In that event, Novatek shareholders, who saw the stock price rise as high as $13.125 after the company made a string of announcements of contracts that turned out to be nonexistent, are unlikely to get any compensation. The company has few assets.

"The Novatek shareholders are in a terrible position right now," Shulman said. "But we won't revive this company built on a sham. There will be no more victims."

Some shareholders are pursuing or have pursued legal action to recover losses.

Peter Toth, a Smithtown, N.Y., resident, has filed suit against the principals behind brokerage company Jos. Roberts & Co, Robert B. DiMarco Jr., of Boynton Beach, Fla., and Joseph F. DeSanto of Hillsboro Beach. In his suit, Toth claims the two men and their brokerage defrauded him of $175,000 when they persuaded him to buy Novatek stock and then would not let him sell his shares when he ordered trades.

Joan DeFosses of East Haven, Conn., Celentano's sister, was able to recover an undisclosed amount after suing her brother, said her attorney, John R. Williams of New Haven.

In her suit, DeFosses claimed her brother made false and misleading statements to persuade her to give him more than $225,000 for investments in Novatek and Health Care Ltd., a company Celentano claimed he had founded and was being traded on a Moscow stock exchange. She also alleged that Celentano veiled Trainor's criminal history.

Pub Date: 7/15/98

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