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."
Five companies
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.
Health Care Ltd. Started by Celentano and Trainor in 1994, records in Russia show, it claimed in 1995 to have landed a $2.16 billion contract to supply the Russian government with Universal's kits, oral vaccines and training. Celentano and Trainor told investors the company was publicly listed and traded in Russia. Universal, in turn, claimed that it had landed a $60 million contract to supply Health Care Ltd. with technology and training.
While the unraveling of Novatek and its subsequent bankruptcy has been previously reported, interviews and recent court actions after 1996 have better defined the role of Health Care Ltd.
Moscow visit, 1995
Its role began in early 1995, when Valentine Pokrovsky, a prominent physician and then president of the Academy of Medical Science of Russia, was paid a visit by a trio of Americans at his Moscow office.
Interviewed in Moscow shortly after trading in Novatek was halted, Pokrovsky recalled that Trainor, Celentano and Rockie L. Smith told the physician their company, Health Care Ltd., wanted to produce medical test kits in Russia, and would like his help locating factory space and workers.
Soon, Trainor, Celentano and Smith, who had been installed as the head of Health Care Ltd.'s two-desk office at the Americom Business Center, were courting other well-known Russian physicians. Before long, Pokrovsky recalled, he agreed to form a committee with other Russian doctors to check the accuracy and potential usefulness of the diagnostic kits.
Although the Russian doctors never agreed to officially join the business venture, Celentano and Trainor began dropping their names as they sought investors in the United States. Among their claims, according to the SEC and lawsuits: Health Care was publicly traded Moscow company that had multimillion contracts and stock that would rise to $100 a share.
So convincing were the claims that Celentano's sister, Joane Defosses of New Haven, Conn., sold most of her $150,000 stock portfolio to buy shares in Health Care Ltd. She had to seek medical care when she discovered the deception, her lawyer said. Defosses was one of at least 20 people -- mostly Celentano's friends and relatives -- who the SEC found invested $2.5 million in Health Care.
Anthony Arnone, a Florida businessman, invested $50,000 in the Russian company after getting a pitch from Celentano and Trainor over drinks at Celentano's $5 million seaside home in Hillsboro Beach, Fla.
"The scale of the lies I was told is hard to believe," said Arnone in an interview last month, after settling a lawsuit he filed against Celentano and Health Care Ltd., seeking to recover his investment.
The two, said Arnone, claimed that Health Care Ltd. held a $200 million contract to supply the Russian government with test kits for diagnosing HIV and cholera. Celentano, 77, and Trainor, 62, said they had traveled by boat up a river that was the source of a cholera outbreak to collect water samples for their company's research, Arnone recalled.
Shiffman, who represents Trainor in the SEC action, said he could not comment on Arnone's allegations. John DiChiara, a Fort Lauderdale lawyer who represented Celentano in the Arnone suit, declined to comment on the Arnone settlement.
Arnone said he was introduced to Celentano, whose holdings include hotels and resorts in South Florida, by his Lauderhill neighbor, Joseph E. "Chick" Celentano, a wealthy Connecticut businessman who had a vacation home in Florida and Vincent Celentano's cousin.
Arnone recalled being bowled over the first time he set foot in Vincent Celentano's home in 1995.
"You're in awe when you walk in the house. He's got a live-in chef from Italy, the works. I figured, I'm in the company of a mega-millionaire. If he's got a business deal for me, it's got to be legitimate and a winner."
Arnone said he was invited to posh cocktail parties at the fashionable Pier 66 Hotel in Hillsboro Beach, Fla., and at a Washington hotel in 1995 and 1996 where he was introduced by Celentano and Trainor to people he was told were prominent Russian doctors helping to spearhead Health Care's venture.
"I was enormously impressed. It seemed great that they'd lined up these type of well-connected people," said Arnone.
The two worked hard at conveying that impression.
Trip to United States
In the fall of 1995, Russian doctors and at least one government health official were whisked to the United States by Celentano to appear at a news conference in Columbia at Universal Healthwatch Inc., touted as a "Celentano Group Company."
Russians who participated in the event said in interviews more than a year later that they believed were brought to the United States to see the research and development behind the technology that Trainor and Celentano wanted to produce in Russia and to meet U.S. health officials.
It was at that event that the budding Universal Healthwatch claimed that it had signed a five-year contract worth $60 million to supply Health Care with disease-testing equipment, oral vaccines and medical equipment manufacturing expertise.
In early 1996, just months after the Universal announcement, Celentano organized a luncheon at the Pier 66 Hotel in Hillsboro Beach. Invited were more than 100 investors, including South Florida investment managers, friends and relatives, people in attendance said.
At the event were displayed diagnostic kits that Universal Healthwatch touted as having developed and licensed for sale in Latin America and elsewhere to Novatek. Novatek subsequently announced large contracts for the kits in Latin America -- contracts the SEC charges never existed.
Celentano also publicly displayed at the Pier 66 event a framed copy of a "$2.16 billion contract" between a division of the Russian federal government and Health Care Ltd. for medical kits and oral vaccines, people in attendance recall. A copy of that document was obtained by The Sun.
Both Defosses and Celentano subsequently sued Vincent Celentano for fraud; Defosses' lawsuit has been settled.
Marni S. Katz, a Bridgeport, Conn., attorney representing Celentano in civil suits filed by his sister and a cousin, declined to comment on the suits or the Defosses settlement.
In his still pending lawsuit, filed in January 1997 against Vincent Celentano, his wife and their three sons, Chick Celentano said he was contacted by the Celentanos in March 1995 about investing in Health Care Ltd.
According to the lawsuit, Vincent Celentano told his cousin that Health Care had approval from the World Health Organization to distribute HIV testing kits in Russia, that he had invested $60 million of his own money in the venture, that Universal was shipping 1 million test kits to Russia, and that his business associate Trainor had visited Russia at least 64 times to work on the government deal.
Selling to cousin
In June, the Connecticut businessman said in his lawsuit, he got another pitch from his cousin, who claimed that Health Care Ltd. stock had risen to $32.50 per share. This time the Connecticut businessman used $320,000 in borrowed money to buy 10,000 shares from New England Diagnostics, the alleged shell company controlled by Trainor.
Two days later he received a letter, signed by a "Gennady Miheev, chief accountant" of Health Care. The letter, a copy of which was obtained by The Sun, stated that the shares had been delivered for safekeeping to the "Moscow Securities Center" as required by Credit Suisse Bank, which would act as "custodian" for shareholders.
A Credit Suisse spokeswoman said it never acted as custodian for shares of a company called Health Care Ltd.
Joseph Celentano subsequently bought more Health Care stock from his Florida cousin for $138,480, as well as more than $1 million worth of the newly created shares in Novatek from New England Diagnostics, the lawsuit states. Such unregistered shares were only to be sold abroad to foreign investors, according to SEC regulations.
The SEC has not released a tally of investor losses in Novatek. But some were significant. Hill Feinberg, chief executive officer of First Southwest Co., a Texas financial institution that processed trades for Novatek's chief broker, Jos. Roberts & Co., estimated in a lawsuit that First Southwest suffered an $11 million loss from Novatek's stock collapse.
In an amended complaint filed in August against Celentano, Trainor, and Losordo, Trainor's daughter, the SEC alleged that Health Care Ltd. existed in name only.
"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.
'House of cards'
"It was a house of cards," said Todd Cranford, an SEC attorney working on the case.
The Russian doctors were among the first to grow skeptical of the Americans' intentions.
Oleg Shepin, another prominent Russian physician approached about the venture, said in a 1996 interview in Moscow that he and others decided the Americans' plans were ill defined and "mostly just talk."
The physicians recalled Trainor well, he said, because he was the most aggressive, always trying to sell the doctors on a number of ventures involving medical products and technology.
Smith, Shepin recalled, said that Trainor had donated millions in lottery winnings to build a children's hospital after nearly dying from heart failure and was now embarked on a mission to bring life-saving medical advancements to others.
What the Russians did not know was that in 1978 Trainor had served six months in federal prison for transporting stolen construction equipment across state lines, and that he has been the target of multiple lawsuits for fraud and failure to pay large debts. He also has been charged on numerous occasions with producing official looking, but fraudulent documents.
Trainor kept his name off material linking him to Novatek, Universal Healthwatch or Health Care Ltd.
For example, his name does not appear in a booklet circulated to potential investors that outlined Health Care Ltd.'s management. The booklet listed Pokrovsky, Shepin and other prominent Russian doctors as members of Health Care Ltd.'s board of directors. Celentano is listed as managing director and Smith as chief executive officer.
Smith is described in the booklet as having served as CEO for three publicly held companies -- none of them named -- including one with $100 million in annual sales. He was also cited as being "best known for pioneering work in the microcomputer industry," a career that included being founder of a unit of Digital Equipment Corp.
The only public company Smith could be found by The Sun to have headed was Duke of Energy Corp., a Cushing, Okla., shell company that held mineral leases. He also served briefly as Novatek's CEO after it went into bankruptcy in 1996.
As for the "$2.16 billion contract" Celentano touted as having signed with the Russian government, Yevgeny N. Belyaev, head of the State Committee for Sanitation and Epidemiology for the Russian Federation at the time the deal was supposed to have been signed, said in 1996 he had no recollection of signing such a firm deal.
A copy of a November 1995 document signed by Celentano and Belyaev and obtained by The Sun shows that the sanitation and epidemiology committee agreed only to "determine the need" for medical test kits and oral vaccines.
Arnone, a seasoned businessman who has seen his share of failure and success, said that he is "baffled" as to why people as wealthy as Celentano and Trainor would orchestrate such a complex web of deceit.
"I guess they thought they'd get away with it," he said. "To me, it's a case of greed and insanity."
Pub Date: 10/04/98