SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 15900 / September 24, 1998
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1079 / September 24, 1998
SECURITIES AND EXCHANGE COMMISSION v. BIO-TECH INDUSTRIES, INC., LORETTA DAVIS, JOEY DAVIS, MICHAEL DAVIS, GREGORY GILBERT, and STEVEN SCHWARTZ, Civil Action No. 98-2298 (GK) (D.D.C.)
SEC FILES COMPLAINT AGAINST SIX ALLEGING MANIPULATIONS OF THREE MICROCAP STOCKS
The Securities and Exchange Commission ("Commission") today filed a Complaint alleging manipulations of three microcap stocks -- Bio-Tech Industries, Inc. ("Bio-Tech") (formerly Twenty First Century Health, Inc.), Combined Companies International Corp. ("CCIC"), and Systems of Excellence, Inc. ("SOE"). Named in the Complaint are Bio-Tech, Loretta Davis, the former President of Bio-Tech, Joey Davis, the current President of Bio-Tech, Gregory Gilbert ("Gilbert"), the current Chief Executive Officer of Bio-Tech, Steven Schwartz ("Schwartz"), the former President and Chairman of the Board of CCIC, and Michael Davis, the former Secretary, Treasurer, Chief Financial Officer, and Director of CCIC. The Complaint alleges that Bio-Tech, Loretta Davis, Joey Davis, and Gilbert manipulated the market for the securities of Bio-Tech, that Schwartz and Michael Davis manipulated the market for the securities of CCIC, and that Michael Davis directed the preparation of sixteen materially false and misleading Form S-8 Registration Statements that were filed with the Commission as part of the manipulation of the market for SOE. The Complaint seeks permanent injunctions from violations of the antifraud, reporting, and/or recordkeeping provisions of the federal securities laws and civil penalties from each defendant. In addition, it seeks a bar from acting as an officer or director of a public company, an accounting, and disgorgement and prejudgment interest from Loretta Davis, Schwartz, and Michael Davis.
The Commissions Complaint alleges the following:
Bio-Tech Industries, Inc.
Bio-Tech issued several false and misleading press releases in which the company claimed an exclusive license to market "breakthrough" medical devices, highly successful efforts to market a new line of nutritional supplements, and the acquisition of what appeared to be a successful and nationally known tea company. Several of these false and misleading releases followed a Commission Order suspending trading in Bio-Techs stock, and were issued in an effort to reignite investor interest in those securities. Because of those additional false releases, the Commission issued a second trading suspension. Joey Davis and Gilbert were variously responsible for the false releases. In addition, Bio-Tech prepared false financial statements that materially overstated the companys assets and were submitted as part of due diligence files maintained pursuant to Rule 15c2-11 of the Securities Exchange Act of 1934 ("Exchange Act"). The 15c2-11 files were signed by Loretta Davis as President of Bio-Tech and supplied to broker-dealers to induce them to make a market in Bio-Tech stock. During the relevant time, Loretta Davis, Michael Davis, and Schwartz sold Bio-Tech stock through accounts they controlled in the U.S. and/or Canada.
Combined Companies International Corp.
CCIC also was used as a vehicle for a market manipulation. CCIC prepared financial statements that materially overstated the companys assets by including an asset valued at about $2 million and variously characterized as "cash," a "note receivable," and a "certificate of deposit." The company then obtained false audit opinions on these financial statements. CCICs materially false financial statements and audit reports were filed with the Commission as part of three separate annual reports on Form 10-K, all of which were signed by Schwartz and Michael Davis as officers of the company.
Systems of Excellence, Inc.
Charles Huttoe ("Huttoe"), the CEO of SOE, and others engaged in a massive "hype and dump" market manipulation involving the stock of SOE. The stock sold as part of that manipulation was supplied through a massive unregistered offering that ultimately included approximately 42 million unrestricted, free-trading SOE shares that were purportedly registered on Form S-8 Registration Statements. In the midst of the SOE scheme, the companys auditors discovered that the Form S-8 Registration Statements pursuant to which the stock had been issued had never been filed with the Commission. That discovery threatened to unravel the scheme, and Huttoe sought the assistance of numerous individuals, including Michael Davis, in covering it up. Michael Davis directed the preparation of new Registration Statements on Form S-8, along with a series of bogus contracts with the "consultants" identified as receiving the shares and legal opinions that the shares were validly issued, for filing as attachments to the Registration Statements. Those Registration Statements, which Michael Davis knew were materially false and misleading, were filed with the Commission.
The Commissions Complaint alleges that Bio-Tech and Loretta Davis violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; Joey Davis and Gilbert violated Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5; Schwartz violated Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2; and Michael Davis violated Section 17(a) of the Securities Act and Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-13.
The Commission previously has taken action with respect to Bio-Tech International, Inc., Combined Companies International Corp., and Systems of Excellence, Inc. See Lit. Rel. No. 15888 (September 18, 1998); Lit. Rel. No. 15677 (March 19, 1998); Lit Rel. No. 15617 (January 14, 1998); Lit Rel. No. 15600 (December 22, 1997); Lit. Rel. No. 15571 (November 25, 1997); Lit. Rel. No. 15490 (September 12, 1997); Securities Exchange Act Rel. No. 38931 (August 13, 1997); Securities Exchange Act Rel. No. 38691 (May 29, 1997); Securities Exchange Act Rel. No. 38653 (May 19, 1997); Lit. Rel. No. 15286 (March 12, 1997); Securities Exchange Act Rel. No. 38345 (February 27, 1997); Securities Exchange Act Rel. No. 38260 (February 10, 1997); Lit. Rel. No. 15490 (January 31, 1997); Lit. Rel. No. 15185 (December 12, 1996); Lit. Rel. No. 15153 (November 7, 1996); Securities Exchange Rel. No. 33791 (October 7, 1996).
The Commission is cooperating with separate investigations in this matter carried on by the United States Attorney's Offices for the District of Nevada and the Eastern District of Virginia, and the Criminal Investigation Division of the Internal Revenue Service.
The Commission's investigation in this matter is continuing.
This enforcement action is part of the Commission's four-pronged approach to minimizing Microcap fraud: enforcement, inspections, investor education and regulation. For more information about the SEC's response to Microcap fraud, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm.