U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19936 / December 6, 2006
SEC v. Howard R. Baer and Kevin C. Baer, Civil Action No. CV06-2792-PHX-EHC (D. Ariz.)
The Commission Charges the Chairman and CEO, and an Executive Vice President, in a Scheme to Manipulate the Stock of Health Enhancement Products, Inc.
The Securities and Exchange Commission announced that on November 20, 2006 it filed an enforcement action in the United States District Court against Howard R. Baer, the Chairman and Chief Executive Officer of Health Enhancement Products, Inc. (HEPI), a "nutraceutical" company based in Tempe, Arizona, and Howard Baer's son, Kevin C. Baer, a former Executive Vice President of HEPI.
In the complaint, the Commission named the following defendants:
In its complaint, the Commission alleges the following. In the fall of 2003, Howard Baer obtained control over a majority of the common stock of HEPI and became HEPI's CEO. Howard Baer, with the assistance of Kevin Baer, 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. 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." This representation was 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 Baer executed numerous trades in the company's stock to ensure that the price and trading volume increased. HEPI's stock price increased from approximately $0.01 per share in October 2003 to $7.54 per share in February 2004. Howard Baer profited from his fraudulent conduct. During the relevant period, Howard 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.
The Commission also announced that on November 29, 2006, the United States District Court for the District of Arizona entered final judgments against Howard Baer and Kevin Baer on their consent. The final judgments permanently enjoin Howard Baer and Kevin Baer from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act, and Rule 10b-5. The final judgment also permanently enjoins Howard Baer from violating Rule 13a-14 of the Exchange Act, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13. In addition, the final judgments direct Howard Baer to pay disgorgement of $1,349,592.81 plus prejudgment interest of $88,734.60, and direct Howard Baer to pay a civil penalty of $120,000 and Kevin Baer to pay a civil penalty of $25,000. Further, the final judgments prohibit Howard Baer from acting as an officer or director of any public company, and bar Kevin Baer from serving as an officer or director for five years. Finally, the final judgment as to Howard Baer prohibits him from participating in the offering of a penny stock. Howard Baer and Kevin Baer consented to the final judgments without admitting or denying the allegations in the Commission's complaint.
Additionally, on December 4, 2006, the Commission instituted a settled cease-and-desist proceeding against HEPI. In the cease-and-desist proceeding, the Commission finds that HEPI issued a number of materially misleading press releases, and made materially false statements (and omissions) in its public filings, as part of a fraudulent scheme to inflate HEPI's stock price. The Commission simultaneously settled these proceedings against HEPI. HEPI consented to the entry of an Order, without admitting or denying its findings, ordering HEPI to cease and desist from violating Sections 10(b) and 13(a) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13.