SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16837 / December 21, 2000
SEC OBTAINS EMERGENCY RELIEF AND ASSET FREEZE IN $2.5 MILLION OFFERING FRAUD
SEC v. Kultivar, Inc., MedCom Health Products, Inc., Southport S.D.G., Inc., Sidney A. Johnson and Leslie H. Fleishman (Civil Action No. 1:00-CV-466, United States District Court, District of Vermont)
The Commission announced today that a seal has been lifted on an emergency action filed against Sidney A. Johnson, of New York City and Newfane, Vermont, and Leslie H. Fleishman, of Long Beach, California, and against the entities they control, Kultivar, Inc., MedCom Health Products, Inc., and Southport S.D.G., Inc. In its complaint for emergency injunctive relief, the Commission alleged that Johnson and Fleishman engaged in a scheme involving two fraudulent securities offerings that capitalized on the investing public's fascination with start-up companies, alternative medical technologies and the internet. On December 18, 2000, the District Court for the District of Vermont granted the Commission the emergency relief it sought but ordered that the court records be sealed until all defendants were notified of the action and all known bank accounts were frozen.
In its complaint, the Commission alleged that between August 1997 and February 2000, Johnson and Fleishman solicited and sold unregistered shares of stock in Kultivar, a Plainfield, Vermont corporation that claimed to have developed revolutionary herbal medicine products, including a genetically-altered baby food that immunized infants to childhood diseases. Johnson, who created Kultivar, and Fleishman, who sold Kultivar shares through his unregistered broker-dealer Southport, claimed that Kultivar's stock would soon be publicly traded and that the value of its stock would rise because of its valuable medicinal products. These included a product called "Biowipes," a disposable wipe with "proven viral, bacteria and germ elimination," for which Kultivar falsely claimed to have received FDA approval. At least 150 investors purchased approximately $2.4 million of Kultivar stock.
The Commission further alleged that beginning in the summer of 2000 and continuing to the present, Johnson and Fleishman have been soliciting investments in MedCom Health Products, a California corporation that uses Kultivar's Vermont address. MedCom Health Products is represented to potential investors as an internet business portal that will link users and suppliers of medical products and will acquire other medically-oriented companies. Among other things, investors are falsely told that MedCom Health Products has significant existing business relationships with Fortune 500 companies such as Lockheed Martin, Commerce One, Boeing and Raytheon and that it will soon go public and begin publicly trading. Potential investors have also been falsely told that Lockheed Martin would invest $60-80 million in MedCom Health Products. In the past five months, defendants have solicited at least $185,000 of investments in MedCom Health Products and have induced many of the Kultivar investors to exchange their Kultivar stock for MedCom Health Products stock.
As a result of the conduct described in the complaint, the Commission has charged MedCom Health Products, Kultivar, Southport, Johnson and Fleishman with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder (the antifraud provisions of the securities laws); Kultivar, Johnson, Fleishman and Southport with violations of Section 5(a) and 5(c) of the Securities Act (for engaging in offers and sales of unregistered securities); and Fleishman and Southport with violations of Section 15(a) of the Exchange Act (for acting as unlicensed broker-dealers). In addition to the temporary restraining order and asset freezes already obtained, the Commission seeks to permanently enjoin the defendants from continuing to violate these laws. The Commission also seeks disgorgement of fraudulently-obtained investor funds, prejudgment interest and civil penalties.
The Commission would like to acknowledge the assistance of the California Department of Corporations in this matter.