WASHINGTON -- A federal judge yesterday refused to dismiss the SEC's civil complaint against key figures in an alleged stock-rigging scheme involving Novatek International Inc., a bankrupt Columbia company.
The Security and Exchange Commission is seeking the return of at least $4.5 million the agency says was gained through fraud.
U.S. District Judge Emmett G. Sullivan also instructed SEC lawyers as well as those representing one of the defendants, William P. Trainor of Hillsboro Beach, Fla., to meet with a court magistrate this month to attempt to forge a settlement.
In the meantime, Sullivan said, he will allow the SEC to subpoena bank records and other documents, and take depositions.
Howard Shiffman, the lawyer representing Trainor and his wife, Geraldine, who is also a defendant, told the judge he favors a mediator's help in discussing a settlement with the SEC.
But James A. Kidney, an SEC lawyer, told Sullivan that the Trainors never indicated that they were interested in negotiating a settlement, unlike two other key defendants, Vincent D. Celentano and his wife, Mary, of Hillsboro Beach, Fla.
Kidney expressed doubts about whether settlement discussions with the Trainors would be fruitful.
'Thumbed his nose'
"Mr. Trainor has thumbed his nose at the whole process," Kidney said. "His family has gotten away with $4 million or $5 million to play with in this thing. I say to Trainor, 'You come forward with an offer and we'll see if we can find some middle ground.' "
After the hearing yesterday, Shiffman said he was "disappointed" with the judge's refusal to dismiss the case.
Shiffman also disputed the dollar figures Kidney mentioned.
"I think $4 million to $5 million is much too large," said Shiffman. He declined to cite a figure he thought was accurate.
If settlement discussions fail, it is unlikely the case will come to trial before next summer.
The SEC, in its initial complaint in June, alleged that the Trainors and Celentanos -- who are neighbors -- tried to take over Novatek International Inc. in 1995 to use it as a front to create millions of shares of stock.
The defendants transformed Novatek, then a failing maker of steel framing for houses, into a medical company. They moved it to Columbia from Boynton Beach, Fla., in 1996 to be near another company they founded, Universal Healthwatch Inc.
Novatek claimed that it had obtained the rights to distribute medical diagnostic tests made by Universal, but never disclosed to investors the ties between the two companies.
False claims alleged
The SEC charges that Mr. Trainor and Mr. Celentano inflated Novatek's stock price in 1996 by issuing press releases falsely claiming that the company had been awarded multimillion-dollar contracts for the test kits in Latin America.
The company was delisted from the Nasdaq small-capitalization market in October 1996 after the SEC launched an investigation.
Novatek, now known as Medical Diagnostics Products Inc., subsequently filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Baltimore. It no longer operates, and appears to be headed for liquidation.
The SEC revised its complaint in August, with allegations that Mr. Trainor and Mr. Celentano also illegally sold stock in a fake Russian health care company, Health Care Ltd., to U.S. investors.
The agency said the company did not have any contracts or products and the company was not listed on any Russian stock exchange as claimed.
Also charged in the case are the Trainors' two daughters and a son: Diane M. Trainor, a Florida attorney; Karen Losordo of Hingham, Mass.; and Daniel J. Trainor of Miami.
Pub Date: 12/05/98