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SEC v. Howard R. Baer, et al. Case No. 06-cv-2792 (D. Ariz.)

Oct. 7, 2022

The Commission filed a complaint against defendants Howard R. Baer and Kevin C. Baer on November 20, 2006. The Commission’s complaint alleged that Howard R. Baer and his son, Kevin C. Baer, participated in a fraudulent scheme to manipulate the stock of Health Enhancement Products, Inc. (“HEPI”), a start-up nutraceutical company. In the fall of 2003, Howard R. Baer, a recidivist securities law violator, obtained control over a majority of HEPI’s common stock, and became the Chief Executive Officer of HEPI. Howard R. Baer, with the assistance of Kevin C. Baer, HEPI’s executive vice-president, then disseminated materially misleading information about HEPI and the company’s primary product, ProAlgaZyme, a purported natural dietary supplement, in press releases and the company’s annual, quarterly, and current public filings. HEPI claimed that ProAlgaZyme was a potential cure-all for numerous diseases and illnesses. For instance, in a January 20, 2004 press release, HEPI announced that the biochemistry department of Arizona State University ("ASU") had conducted an independent study that “concluded that . . . ProAlgaZyme . . . possesses fibrinolytic properties, required in the breakdown of pathological fibrin gel, thus decreasing the risk of a stroke or heart attack.” Further, the press release quoted Howard R. Baer as saying that “[t]he study provides conclusive evidence of the efficacy of ProAlgaZyme.” These representations were false. In fact, the ASU scientists did not conclude that ProAlgaZyme reduced the risk of a stroke or heart attack.

While HEPI was issuing these misleading press releases, Howard R. Baer executed numerous trades in the company’s stock to ensure that the price and trading volume increased. In fact, HEPI’s stock price increased from approximately $0.01 per share in October 2003 to $7.54 per share in February 2004. Howard R. Baer profited from his fraudulent conduct. During the relevant period, Howard R. Baer sold over 390,000 shares of HEPI stock, primarily in an account in his wife’s name, for proceeds of more than $1,349,000.

Based on these allegations, the Commission charged Howard R. Baer with violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13a-14 thereunder. The Commission charged Kevin C. Baer with violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. On November 29, 2006, the Court entered a final judgment against Howard R. Baer ordering him to disgorge $1,349,592.81 plus prejudgment interest of $88,734.60 for total of $1,438,327.41 and to pay a civil penalty of $120,000.[1] The disgorgement and prejudgment interest were payable to the clerk of the court for deposit into an interest bearing account with the Court Registry Investment System (“CRIS”), and the penalty was payable to the Commission for remission to the U.S. Treasury. A total of $1,421,000 was paid to the Court.

The funds collected, plus any interest earned thereon, less any payments for taxes, fees, and expenses, will be distributed to injured investors. Pursuant to the Court approved distribution plan, payments will be made:

  • First, pro rata to investors other that the “Institutional Investors” (defined as registered broker-dealers), who had purchased HEPI common stock during the period of the market manipulation and who has sustained an Eligible Loss;
  • Second, if any amounts remain, to the Institutional Investors who sustained an Eligible Loss;[2] and
  • Finally, if any amounts remained, to the Commission to remit to the Treasury,

See the distribution plan.

Rust Consulting, Inc. has been appointed as the Distribution Agent. For more information, please contact:

Phone: 1-855-460-1530

[1] A judgment was also entered against Kevin C. Baer ordering him to pay civil penalty of $25,000 to the Commission for remission to the U.S. Treasury. 

[2] The reason for separating the Institutional Investors was that, as market makers, they represented at least half of the trades during the market manipulation and therefore would have obtained a significant share of any distribution to the prejudice of the investing public.

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