U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19216 / May 03, 2005
UNITED STATES OF AMERICA v. SIDNEY JOHNSON , (United States District Court for the District of Vermont, Crim. No. 2:04-CR-95)
STOCK PROMOTER SENTENCED ON MAIL FRAUD CHARGES RELATED TO FRAUDULENT STOCK OFFERING
The Commission announced today that, in a criminal case prosecuted by the Office of the United States Attorney in Vermont, on April 28, 2005, Sidney A. Johnson, 68, of Newfane, Vermont and Brooklyn, New York, was sentenced to 18 months in prison. The sentencing in the United States District Court in Burlington, Vermont, followed Johnson's guilty plea to two counts of mail fraud in December 2004. The court also ordered Johnson to pay restitution totaling $1,643,589, serve three years of supervised release following completion of his prison term and perform 200 hours of community service. On July 6, 2004, a federal grand jury in Burlington, Vermont, returned an indictment charging Johnson with 14 counts of mail fraud and one count of money laundering in connection with a fraudulent stock offering.
According to the allegations of the indictment, in 1997 and 1998, Johnson fraudulently enticed about 150 persons across the country to invest approximately $2 million in Kultivar, Inc., a Vermont-based start-up company. Kultivar was promoted as a company that was in the business of growing and marketing culinary, medicinal and decorative herbal products. Although the offering materials claimed that Kultivar had products ready for the market, owned significant amounts of real estate and had substantial assets, in fact, Kultivar had no income, no products and few assets. Eventually, Kultivar failed and investors lost all their money.
As alleged in the indictment, in late 1999 and early 2000, Johnson defrauded some of the original investors a second time by soliciting an additional $50,000 that was supposed to be used to merge Kultivar with another company and then take the merged company public. The proceeds of this later offering were to be deposited into an escrow account and used only for expenses connected with the proposed merger and public offering. Instead, however, Johnson embezzled and misappropriated the proceeds.
In a related civil action brought by the Commission in December 2000, the United States District Court in Vermont issued a temporary restraining order against Johnson, Kultivar and others in connection with the fraudulent stock offering. In August 2002, by consent, the Court permanently enjoined Johnson from future violations of the antifraud and securities registration provisions of the federal securities laws and ordered him to disgorge his ill-gotten gains. Also in August 2002, in settled administrative proceedings based on the entry of the injunction, the Commission barred Johnson from participation in any offering of penny stock. In September 2003, a court-appointed receiver distributed all disgorged funds and liquidated assets to the victims of the fraud. For further information, see Litigation Releases No. 16837 (December 21, 2000) and No. 18874 (September 9, 2004).