U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 19493 / December 14, 2005
Securities and Exchange Commission v. Jeffrey B. Schmidt, et al., United States District Court for the Northern District of California, Civil Action No. C 05-05171 JCS
SEC FILES FRAUD CHARGES AGAINST RETAIL SKIN CARE CHAIN EXECUTIVES
The Securities and Exchange Commission today filed securities fraud charges against three men who fraudulently raised over $11 million from investors in stores of Skin Nuvo International, LLC, a skin care and laser hair removal company that operated in California, Nevada, and the Pacific Northwest.
The Commission’s complaint, filed in the United States District Court for the Northern District of California, alleges that, between 2002 and 2004, Nuvo co-founder Jeffrey Schmidt, 45, of Henderson, Nevada, falsely promised dozens of investors profits of 30% to 40% when he knew Nuvo’s business was in precarious financial shape. Nuvo has since filed for bankruptcy.
According to the complaint, Schmidt told investors their investments would finance particular new Nuvo locations, when in reality Schmidt spent the money to prop up the failing business, pay executives (including $680,000 to himself), and pay preexisting investors to maintain an illusion of profitability. Schmidt also provided investors with false income statements showing the retail locations to be substantially more profitable than they actually were.
The complaint further alleges that Nuvo’s former Chief Operating Officer Norman Valine, 39, of Las Vegas, Nevada, and a Nuvo co-owner Gary Gelnette, 51, of Concord, California, raised money from new investors even after suspecting that Schmidt may have embezzled funds and falsified financial records. Specifically, the complaint alleges that in late 2004, Gelnette, a former pastor, helped raise $1.35 million from a former parishioner, while Valine reaped $138,000 in commissions by selling Nuvo interests to four additional investors.
The Commission’s complaint alleges that Schmidt, Gelnette and Valine violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. The complaint also charges Schmidt and Valine with violating Section 15(a) of the Exchange Act. The Commission seeks disgorgement, civil money penalties, and injunctive relief.