Almost two years after the Securities and Exchange Commission launched a probe into Columbia-based Novatek International Inc. and its misleading claims of multimillion contracts in Latin America, a clearer picture has emerged of an alleged scheme that stretched across three continents and involved a web of interrelated companies.
At the heart of the action were two Howard County companies, Novatek and publicly traded Universal Healthwatch Inc. Buoyed by announcements of several multimillion dollar deals -- all fraudulent, according to the SEC -- Novatek's stock jumped to $13 in October 1996, before collapsing after the SEC halted trading. Before the announcements, shares traded for about $3.
An SEC complaint filed in U.S. District Court in Washington in June and amended in August primarily targeted William P. Trainor and Vincent D. Celentano. The two Florida men used Novatek as a front in a "massive" stock-rigging scheme, the SEC alleged.
Specifically, the SEC alleged that Trainor and Celentano "masterminded" a plan to take over Novatek and use it as a vehicle to create millions of unregistered shares of stock for themselves and family controlled companies or trusts.
The SEC alleged 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 SEC also alleged that Celentano and Trainor sold about $2.5 million worth of stock in a supposed Moscow company, 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 falsely claimed that the company was publicly listed on a Russian stock exchange, the SEC complaint said.
Celentano's lawyer, Joseph I. Goldstein, said his client intends to defend himself against the SEC allegations. In a Sept 18 court filing, Celentano declined to respond to the SEC allegations, citing his Fifth Amendment right against self-incrimination.
Trainor, his wife and two of his children, who were also implicated by the SEC, are seeking a dismissal of all charges. They contend, in part, that the SEC case lacks specific facts.
"There are no allegations that Trainor sold any of the [Health Care Ltd.] stock," Trainor's lawyer, Howard Shiffman, said. "He didn't serve as an officer or director of the company, so I don't know from the complaint what he did wrong."
According to court and SEC documents and interviews with investigators, investors who have filed lawsuits, and lawyers involved with the case, the scheme was carried out though five interrelated companies. They were:
Universal Healthwatch Inc. Based in Columbia, this company was founded in March 1995 by Celentano and his company, Celentano Limited Partnership, and Trainor and his company, New England Diagnostics. Universal was touted as the developer and manufacturer of a new line of rapid medical diagnostic test kits for detecting infectious diseases.
Medical Products Inc. Founded in November 1995 and jointly owned by Celentano Limited Partnership and a Trainor family trust, Pickeral Cove Trust. MPI claimed it had obtained distribution licenses to Universal's kits. The SEC complaint said it was created solely to merge and take over Novatek International Inc., a maker of steel framing for homes, based in Boynton Beach, Fla.
Novatek International Inc. After its 1996 takeover by MPI, Novatek moved to Columbia to share Universal's offices. Novatek claimed that it had obtained rights as a result of the merger to be the distributor of Universal Healthwatch's kits, and had shed its steel framing business. Nearly 17 million unregistered shares of Novatek stock were created in the merger, most of which were distributed to family trusts or companies controlled by Celentano and Trainor. The company is in bankruptcy proceedings and appears headed for liquidation.
New England Diagnostics Corp. First incorporated in Florida in November 1994, it reincorporated in the Cayman Islands on July 16, 1996, Cayman Island Company Registry Office records show. It is at least partially controlled and owned by Trainor; its president is Trainor's daughter, Karen Losordo, and its address is her Hingham, Mass., home. New England claimed it had licensed rights to the test kit technology from Universal Healthwatch in exchange for equipment leases and other funding. It also claimed that it had obtained distribution rights to sell the kits in Latin America and elsewhere from Novatek.