SEC disciplines figure in Novatek fraud case

Celentano ordered to pay $350,000

January 17, 2002|By William Patalon III | William Patalon III,SUN STAFF

A key figure in the Novatek International Inc. stock-rigging scandal was ordered to pay $350,000 and was forever barred from running an American public company, the Securities and Exchange Commission announced yesterday.

Vincent D. Celentano of Hillsboro, Fla., consented to the sanctions without admitting or denying the SEC's allegations of fraud and securities laws violations in one of the largest corporate scandals perpetrated in Maryland. Last week, in a related criminal case, Celentano was sentenced to two years of probation and fined $5,000.

The SEC dismissed a civil complaint against Celentano's wife, Mary N. Celentano.

"As far as we are concerned, he and his wife, Mary, are done with us," said Todd L. Cranford, an SEC senior counsel who has been involved with the case since its inception in 1998.

Celentano's lawyer could not be reached yesterday for comment.

Celentano was accused of participating with William P. Trainor in a scheme to transform Novatek, a failing Florida steel fabricator, into a highflying seller of medical diagnostic kits based in Columbia. The company's stock soared on its claims of multimillion dollar contracts before trading was halted and the firm collapsed in bankruptcy in 1996, leaving investors with millions of dollars of losses.

The case was a difficult one because Celentano and Trainor, the alleged mastermind, remained largely in the background, the SEC said. And because Celentano wasn't seen as the main architect, the SEC wanted to reach a settlement agreement and avoid a civil trial, Cranford said.

"Unfortunately it was a complicated scam," he said. "For a variety of reasons, we determined it was not in our best interest to go forward."

In September, a federal grand jury in Florida indicted Trainor on 21 counts of wire fraud and money laundering. A trial is scheduled in U.S. District Court in Fort Lauderdale in April. SEC action against other defendants in the civil case has been put on hold pending the outcome of the criminal case against Trainor.

Celentano, who was a neighbor of Trainor's in Hillsboro, pleaded guilty last week in U.S. District Court in Fort Lauderdale to making a false statement to the SEC. Judge Wilkie D. Ferguson sentenced him to two years' probation and fined him $5,000.

The Novatek scheme was what the SEC called a "pump and dump" in which an ailing public company was taken over at virtually pennies per share. By issuing news releases announcing deals that never existed and promoting the firm's brilliant prospects, Celentano and Trainor and other insiders drove up the stock price, the SEC said.

As the shares rose, they planned to dump their stock on the market, reaping huge profits before the shares inevitably collapsed in price, the SEC said.

In 1996, Celentano and Trainor took over Novatek and merged it with a shell company, raising $10 million from investors, the SEC said. Before the takeover, Novatek was an ailing maker of steel framing for houses. But the two men billed it as a cutting-edge medical products company and moved it to Columbia.

With Celentano and Trainor at the helm, Novatek claimed that it had obtained exclusive rights to a line of rapid diagnostic kits for cholera, HIV and other diseases. Then, it announced a series of contracts in Latin America that, in aggregate, would have been worth tens of millions of dollars, had the claims been true. Investors bought in and Novatek's shares responded, soaring 75 percent to top out about $13.

But before Trainor and Celentano could dump all of their shares, the SEC stepped in: In mid-October 1996, it ordered a trading halt in Novatek's stock and said it was investigating whether the firm had misled investors. Late that same month, the company filed for bankruptcy protection.

"In this case, we did get in early, before, for example, the defendants were able to sell all of their shares," Cranford said.

But many investors, who were unsecured creditors, lost their money for good.

Fraudulently boosting Novatek's stock wasn't the only scheme Trainor and Celentano were alleged to have pulled off.

As part of the civil case, the SEC alleged that the two sold about $2.5 million worth of illegally unregistered shares in HealthCare Ltd., a shell company they falsely claimed had millions in sales contracts for medical test kits in Russia. They said the Moscow-based firm was listed on a Russian stock exchange - another falsehood, according to the SEC. Shareholders in that company were offered the chance to convert their HealthCare shares into Novatek stock, with Celentano illegally acting as a broker or dealer, the SEC charged.

When some investors complained they had been bilked, they got their money back - out of the proceeds of loans made to Novatek by banks in Canada and the Bahamas. The banks sued, claiming they were defrauded out of about $8 million. "It was a house of cards," Cranford said at the time.

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