The U.S. Securities and Exchange Commission yesterday accused the two men behind Novatek International Inc., a bankrupt Columbia company now known as Medical Diagnostic Products Inc., of committing "massive fraud against investors."
In a 27-page complaint filed in U.S. District Court in Washington, the SEC said Novatek principals William P. Trainor and Vincent D. Celentano had orchestrated sham transactions to inflate the company's stock price.
"We're talking about a company that inflated its assets 25-fold and a company that inflated its sales to $400 million with contracts that did not exist," James A. Kidney, one of the SEC attorneys involved in the investigation, said in an interview yesterday.
The SEC, which also named the wives of both men and three of Trainor's children in the complaint, asked the court to impose civil penalties and to order repayment of the alleged illegal profits.
The SEC complaint comes after nearly two years of investigation that began after trading of the company's stock was halted in October 1996.
A subsequent examination by The Sun revealed that contracts the company claimed to have for the sale of rapid diagnostic test kits for the human immunodeficiency virus and cholera, supposedly worth millions of dollars, did not exist, and that Celentano and Trainor were behind all of the entities involved with Novatek.
Novatek also filed false financial statements with the SEC that put its assets at $57 million when they were actually $2 million, the SEC alleged, and filed false news releases about deals with South American governments and private companies.
The news releases said the contracts were worth $400 million, but the SEC said the contracts never existed.
The agency said Celentano and Trainor concealed their roles in companies they created that were involved in crucial business transactions with Novatek, making those dealings appear to be at arm's length, to deceive investors.
Trainor and Celentano committed fraud to inflate the price of Novatek stock for their own gain, the SEC complaint said, and would have sold their vast holdings if trading in the company's shares had not been halted.
At its peak, Novatek's stock closed at $12.75 a share.
The SEC said the men and their families also had access to more than $25 million that was deposited in and disbursed from the company's bank account.
Joseph Goldstein, Celentano's attorney in Washington, said he had not reviewed the complaint and would not disclose the whereabouts of his client, a wealthy and prominent Florida businessman.
"I have no comment other than we are going to defend this vigorously," Goldstein said.
Trainor is a New Englander who has been convicted of fraud twice and spent two years in a federal penitentiary.
The other defendants in the complaint are Mary N. Celentano, Celentano's wife; Geraldine Trainor, Trainor's wife; and Daniel J. Trainor, Karen Losordo and Diane M. Trainor, Trainor's children.
The SEC is seeking to recover about $4.5 million from the family members, who allegedly transferred money from Novatek accounts to their own; an undisclosed amount from Celentano and Trainor; and undisclosed penalties.
"Under the statute, the penalty could range up to $100,000 per violation," Kidney said. "We consider each false filing and each false press release a violation. That gives a sense on how much we could ask to recover."
Todd L. Cranford, a SEC attorney, said the agency has not tallied investors' losses.
The defendants have 20 days to file a response.
Because of its complexity, it has taken the SEC about 20 months to investigate Novatek and draft the complaint, Kidney said. "Not only do we have a multidefendant case, but we had to communicate with foreign government entities that Novatek claimed to have dealt with," he said.
"We did move expeditiously to stop the company's trading, so there would be no continuing fraud," Kidney said.
The SEC ordered a halt in trading of Novatek's stock on the Nasdaq stock market in October 1996.
A week later, Novatek filed for bankruptcy protection in U.S. Bankruptcy Court in Baltimore. Novatek said then that its liabilities were less than $50,000 and its assets were between $10 million and $99 million.
Pub Date: 6/19/98