SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18296 / August 19, 2003
Securities and Exchange Commission v. Medi-Hut Company, Inc., Joseph A. Sanpietro, Laurence M. Simon and Lawrence P. Marasco, Civil Action No. 03Civ 3921(Jose L. Linares) (D.N.J. filed August 19, 2003)
SEC Sues Drug Company and Top Three Officers For Accounting and Disclosure Frauds
The Securities and Exchange Commission today filed a civil action against Medi-Hut Company, Inc., a publicly-traded drug wholesaler based in New Jersey, and the company's top three former officers: Chief Executive Officer, Joseph A. Sanpietro; Chief Financial Officer, Laurence M. Simon; and Vice President of Sales, Lawrence P. Marasco. These three corporate officials also pleaded guilty today to related criminal charges, including lying during the SEC investigation. The civil and the criminal cases were both filed before the United States District Court for the District of New Jersey.
The SEC's complaint alleges that Sanpietro, Simon and Marasco inflated Medi-Hut's revenues and earnings through fictitious period-end invoices and other accounting irregularities. According to the complaint, Sanpietro and Simon also concealed from the investing public the fact that Marasco secretly owned and controlled one of Medi-Hut's largest customers, and that all three defendants lied to Medi-Hut's independent auditors. These fraudulent accounting and disclosure devices and the lies to Medi-Hut's auditors enabled the company to tout "blockbuster" revenue growth and created the appearance of profitability, when in fact the company was operating at a loss. As a result, Medi-Hut's Annual Report on Form 10-K for the fiscal year ended October 31, 2001, and three Quarterly Reports on Forms 10-Q for fiscal year ended October 31, 2002, were materially false and misleading. The complaint further alleged that the market for Medi-Hut common stock responded to this misinformation, remaining at an artificially high level. The stock traded between approximately $7 and $13 in January 2002. After Medi-Hut's fraud was partially disclosed to the market through news articles and press releases, the stock price began to spiral downward. According to the complaint, Sanpietro was unjustly enriched by his sale of Medi-Hut common stock during the relevant period.
Without admitting or denying the allegations in the complaint, Medi-Hut consented to a final judgment permanently enjoining it from violating Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1 and 13a-13, promulgated thereunder. Also without admitting or denying the allegations in the complaint, Sanpietro, Simon and Marasco consented to final judgments permanently enjoining them from violating Section 10(b) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 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 and 13a-13 thereunder. The three individuals also consented to permanent officer and director bars. Sanpietro agreed to pay disgorgement of $171,000 for his stock sales, plus prejudgment interest of $14,913.
The Commission acknowledges assistance provided by the United States Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation, and the Postal Inspection Service in this matter.