U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21350 / December 23, 2009
Accounting and Auditing Enforcement Release No. 3089 / December 23, 2009
Securities and Exchange Commission v. Richard E. McDonald, et al., Case No. 09-CV-01685 (W.D. Pa.)
SEC CHARGES FORMER PRESIDENT OF WORLD HEALTH ALTERNATIVES, INC. AND THREE OTHERS FOR CONDUCTING FINANCIAL FRAUD
The Securities and Exchange Commission announced that, on December 23, 2009, it filed a civil action in the United States District Court for the Western District of Pennsylvania against Richard E. McDonald of Leechburg, Pennsylvania, former President, CEO and Chairman of World Health Alternatives, Inc. ("World Health"), a now defunct medical staffing company previously located in Pittsburgh, Pennsylvania. The Commission's complaint alleges that McDonald was the principal architect of a wide-ranging financial fraud at World Health by which McDonald misappropriated approximately $6.4 million for his personal benefit. Also named as defendants are Deanna Seruga of Pittsburgh, the company's former controller and a CPA, Marc D. Roup, of Murrysville, Pennsylvania and Miami, Florida, a former CEO of World Health, and Joseph I. Emas, of Surfside, Florida, World Health's former outside securities counsel. The complaint charges the defendants with violations of the antifraud and other provisions of the federal securities laws. Without admitting or denying the Commission's allegations, all four defendants have agreed to settle the matter. The settlements are pending final approval by the court.
The complaint alleges that, from at least May 2003 through August 2005, McDonald, along with Seruga and Roup, engaged in a wide array of fraudulent and improper conduct. A key aspect of the fraud involved the manipulation of World Health's accounting entries. McDonald and Seruga repeatedly falsified accounting entries in World Health's financial books and records, understating expenses and liabilities. This made the Company appear more financially sound, and masked McDonald's misappropriation of funds. During the relevant period, every annual and quarterly report that World Health filed with the Commission contained false financial statements.
The complaint further alleges that McDonald caused World Health to make misrepresentations and omissions in documents publicly filed with the Commission concerning, among other things, the Company's financial performance, the registration of millions of shares of World Health stock, certain material financial transactions, the number of shares authorized and outstanding, and the Company's business plan. McDonald signed and certified these filings, knowing they contained misstatements.
The complaint further alleges that, during his tenure as CEO, Roup also signed and certified false public filings, and did so with no basis to assess the veracity of the information contained therein. McDonald and Roup also failed to properly publicly report their personal sales of World Health stock to the Commission.
As alleged in the complaint, McDonald also improperly attempted to issue and register for immediate sale millions of shares of World Health stock by misusing a Form S-8 registration statement. In addition, McDonald also caused World Health to file with the Commission two false post-effective amendments drafted by Emas, World Health's outside securities counsel.
McDonald has consented to the entry of an order permanently enjoining him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b), 13(b)(5) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The order will also bar McDonald from serving as an officer or director of a public reporting company. The order finds McDonald liable for disgorgement of approximately $6.4 million plus prejudgment interest. Based on sworn financial statements and other documents and information submitted to the Commission, payment of disgorgement and prejudgment interest will be waived and civil penalties not imposed.
Roup has consented to the entry of an order permanently enjoining him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act, Sections 10(b) and 16(a) of the Exchange Act, and Rules 10b-5 and 13a-14 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The order will also bar Roup from serving as an officer or director of a public reporting company. Roup will also be ordered to pay disgorgement and prejudgment interest of $5,324,187, and a $120,000 civil penalty. Roup consented to transfer his assets to a court-appointed receiver to satisfy payment of these amounts.
Seruga has consented to the entry of an order permanently enjoining her from violating Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1 and13b2-2 thereunder, and aiding and abetting violations of Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. The order finds Seruga liable for disgorgement of $383,662 plus prejudgment interest. Based on sworn financial statements and other documents and information submitted to the Commission, payment of disgorgement and prejudgment interest will be waived and civil penalties not imposed. In addition, Seruga agreed to settle a related administrative proceeding by consenting to the entry of an order suspending her from appearing or practicing before the Commission as an accountant.
Emas has consented to the entry of an order permanently enjoining him from violating Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act. Emas will also be ordered to pay disgorgement and prejudgment interest of $163,083, and a $15,000 civil penalty. In addition, Emas agreed to settle a related administrative proceeding by consenting to the entry of an order suspending him from appearing or practicing before the Commission as an attorney for two years.
