New charges filed in stock fraud probe SEC says 2 sold shares in fake Russian company

Novatek case widens

Health Care Ltd. alleged to have no products or contracts

Health care

August 13, 1998|By Mark Guidera | Mark Guidera,SUN STAFF

The Securities and Exchange Commission filed new charges yesterday against two Florida businessmen alleged to have been behind a stock-rigging scheme involving a Columbia company, claiming that the two also illegally sold stock in a fake Russian health care company to U.S. investors.

In an amended civil complaint filed yesterday in U.S. District Court in Washington, the SEC alleged that Vincent D. Celentano and William P. Trainor sold about $2.5 million worth of stock in Health Care Ltd. by falsely telling U.S. investors that the company had millions of dollars worth of sales contracts in Russia for medical diagnostic test kits. The men also claimed that the company was publicly listed on a Russian stock exchange.

The SEC complaint also named Trainor's daughter, Karen Losordo of Hingham, Mass., and New England Diagnostics, a Trainor-controlled shell company incorporated in the Cayman Islands and based at Losordo's home.

In its initial complaint, filed in June, the SEC alleged that Trainor and Celentano masterminded a scheme to take over Novatek International Inc., at the time a failing manufacturer of steel house framing, and use it as a front to create millions of shares of stock. The SEC charged that the two then inflated the stock price by issuing false news releases in 1996, claiming that the company had been awarded multimillion-dollar contracts for medical diagnostic test kits in Latin America. The company was delisted from the Nasdaq small-cap market in October 1996.

Novatek, now Medical Diagnostics Products Inc., subsequently filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Baltimore and appears to be headed for liquidation.

In its revised complaint, the SEC alleged that Health Care Ltd. also did not have any contracts or products and that the company was not publicly listed on any Russian stock exchange as claimed.

"Health Care Ltd. never sold a product for commercial purposes or engaged in any other commercially significant business in Russia. Nor was the stock ever offered publicly for sale in Russia," the SEC complaint stated.

"It was a house of cards," said Todd Cranford, an SEC Enforcement Division attorney working on the case.

The SEC also alleged that Health Care Ltd.'s securities were never registered for sale in the United States, as required by law, and that the sale of the stock was illegal.

According to the complaint, investors were told by Celentano that they would have to buy Health Care Ltd. shares from New England Diagnostics.

Investors were given promotional materials about the Moscow-based company that contained false and misleading information about contracts with Russian state agencies and projections of millions of dollars in sales, the SEC said.

Losordo, the SEC charged, took part in hawking Health Care Ltd. shares to investors and disbursed illegal profits to her father, herself, Celentano and other Trainor and Celentano family members. She is listed as New England Diagnostics president.

The SEC charged that, beginning in 1996, Celentano offered holders of Health Care Ltd. shares the option of converting them into shares of Novatek.

In making such solicitations, Celentano was illegally acting as a stockbroker or dealer, the SEC said in its complaint.

Joseph I. Goldstein, a Washington lawyer representing Celentano and his wife, Mary, in the SEC action, said his clients "will vigorously defend all of the allegations against them." He declined to comment on specific allegations.

Howard Shiffman, a Washington lawyer representing Trainor, Losordo and other Trainor family members named in the case, declined comment.

James A. Kidney, another SEC Enforcement Division attorney working on the case, said investigators found that Celentano, Losordo and New England sold $2.5 million worth of Health Care Ltd. stock to about 20 U.S. investors.

"The investors were mostly family members, friends and acquaintances," Kidney said.

"These guys knew exactly what they were doing. Health Care Ltd. was a complete and utter fake."

Among those who bought Health Care Ltd. shares were Celentano's sister, Joan Defosses, and his cousin, Joseph "Chick" Celentano. Both have filed civil suits in Connecticut courts, claiming they were defrauded by Celentano. In her suit, DeFosses said she bought $150,000 worth of shares at $20 each based on representations by her brother.

According to her suit, Celentano told her that the investment had a potential ten-fold return. He also claimed that Trainor was well respected, having received a gold medal for humanitarian work from the United Nations and donated $12 million to build a children's hospital. Defosses alleged in her suit that Celentano never informed her that Trainor had a criminal background, had served prison time or was the target of a number of fraud suits.

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