SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18057 / March 31, 2003
SEC v. Frank J. Custable, Jr., Sara Wetzel, Suburban Capital Corp., Francis Scott Widen, Wasatch Pharmaceutical, Inc., David Giles, Gary Heesch, Pacel Corp., David Calkins, Gateway Distributors, Ltd., Richard Bailey and ThermoElastic Technologies, Inc., U.S. District Court for the Northern District of Illinois, Civil Action No. 03-C-2182 (Gottschall, J.)
On March 28, the Commission obtained a Temporary Restraining Order (TRO) from the United States District Court for the Northern District of Illinois, temporarily restraining Frank J. Custable, Jr., of Glendale Heights, Illinois, Suburban Capital Corp., Sara Wetzel, of Glenview, Illinois, and Francis Scott Widen of Buffalo Grove, Illinois, from violating the anti-fraud, registration and reporting provisions of the federal securities laws. Custable is a recidivist who, in 1994, was permanently enjoined from violating the anti-fraud provisions of the federal securities laws as part of a prior Commission enforcement action. As part of the TRO, the Court also entered orders freezing the assets of Custable, Suburban Capital, Wetzel, Widen and Pine Services, Ltd., a relief defendant, requiring Custable, Suburban Capital, Wetzel and Widen to repatriate assets, temporarily prohibiting Custable and Suburban Capital from participating in penny stock offerings and from trading in any securities, requiring all defendants to give an accounting and prohibiting document destruction.
The Commission's Complaint alleged that Custable has orchestrated an ongoing scheme to violate the registration, antifraud and reporting violations of the federal securities laws. The scheme, as alleged in the Complaint, began in at least November 2001, has involved at least seven different penny stocks and has generated at least $4.3 million in ill-gotten gains. According to the Complaint, Custable fraudulently concealed his ownership interest in the seven penny stocks by having Suburban Capital, Wetzel, Widen and various other individuals engage in a host of securities transactions on his behalf. The Complaint further alleged that Custable, Wetzel and Suburban Capital have obtained stock through fraudulent Form S-8 registrations (normally intended to allow distribution of securities to employees and consultants) and through a scheme to counterfeit nearly half of the outstanding stock in Blagman Media International, Inc., a company whose stock is quoted on the OTC Electronic Bulletin Board. The Complaint alleged that Custable and the other defendants illegally dumped massive quantities of the improperly registered shares on the general public.
The Commission's Complaint also names as defendants four public companies whose stock is quoted on the OTC Electronic Bulletin Board (Bulletin Board Companies) and four officers of the Bulletin Board Companies. The other defendants named in the Commission's Complaint are Thermo Elastic Technologies, Inc., Wasatch Pharmaceutical, Inc., David Giles and Gary Heesch, who are two of Wasatch's officers, Pacel Corp., David Calkins, who is an officer of Pacel, Gateway Distributors, Ltd., and Richard Bailey, an officer of Gateway. The Complaint also named Pine Services as a relief defendant. The Complaint alleged that Custable, Suburban Capital and Wetzel violated Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Complaint also alleged that Custable violated Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder by failing to report his ownership interest in the penny stocks involved in his scheme. The Commission alleged in its Complaint that Custable, Wetzel, Widen and Suburban Capital violated Section 5(a) and 5(c) of the Securities Act. The Complaint also alleged that Wasatch, Heesch and Giles violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, by engaging in several sham S-8 transactions with Custable and Suburban Capital. The Complaint alleged that ThermoElastic, Gateway, Pacel, Bailey and Calkins violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by engaging in fraudulent S-8 transactions with Custable and Suburban Capital.
Apart from emergency relief, the Commission seeks the entry of preliminary and permanent injunctive relief, disgorgement, civil penalties, a penny stock bar against Custable, Suburban Capital, Wetzel, Widen, Heesch, Giles, Calkins and Bailey and an order barring Heesch, Giles, Calkins and Bailey from serving as an officer or director of a public company.