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- www.sec.gov/litigation/complaints/
comp18921.pdf
SEC vs. Safescript Pharmacies, Inc., et al. ... During the Commission’s investigation of this matter, rather than providing sworn testimony,
SEC Seeks Disgorgement From Safescript VIPs
Law360, New (December 20, 2007, 12:00 AM ET) -- The U.S. Securities and Exchange Commission has called on a federal court to order the principals of now-defunct Safescript Pharmacies Inc. to return millions of dollars allegedly pocketed in a scam to defraud investors.
In a motion filed Wednesday with the U.S. District Court for the Eastern District of Texas, the called for an order against the three defendants, two of whom will be jailed in January for money laundering and conspiracy, to pay $2.5 million in disgorgement of their allegedly ill-gotten profits.
The federal securities regulator first sued Safescript, father-and-son managers and Curtis Swanson, and Stephen Cavender in 2004, accusing them of inflating revenues in filings to the commission.
The successfully moved the court for a default judgment in late 2005 when the defendants, two of whom were given prison terms last month in parallel criminal proceedings, failed to answer the charges.
Curtis Swanson and Cavender, who were indicted by federal prosecutors and pled guilty to charges including money laundering and conspiracy to commit securities fraud, were sentenced in November to 10 and 5 years, respectively. They are due to begin serving their sentences in January.
According to the , the scam, orchestrated by the Swansons, with assistance by Cavender and others, improperly recognized revenue from the sale of licenses, in the form of franchises, to use Safescript's wireless medical prescription transmission technology.
“(Safescript's) recognition of revenue from the franchise sales was improper due to the unknow collectibility, in each instance, of the purchase price of the (Safescript) franchise,” the SEC said.
While the company, then known as RTIN Holdings, reported the franchise agreements as profitable in press releases and its 2002 and 2003 financial filings, the franchise purchasers were, in reality, “newly formed entities ill-equipped to make good on their franchise payments,” the SEC said.
“Disregarding this glaring collectibility issue, RTIN's principals immediately recognized as revenue the initial franchise installment on each 'sale',” the commission said.
When the franchisees defaulted on their payments, the defendants did not reverse the “dubious” revenue, but continued cooking the books by way of fraudulent note restructurings, according to the complaint.
The company allegedly inflated its net income in 2002 and 2003 by up to 998% and deceived its auditors, which have since resigned and withdrawn their audit reports.
To further the scheme, Curtis Swanson directed the issuance of 422, 900 unregistered shares in Safescript stock to Cavender's wife, the SEC said. Cavender then sold the shares for a profit of $771,341 and divided the proceeds.
In March 2004, two weeks after announcing its intention to restate its financial filings, Safescript filed for bankruptcy.
The SEC said an order of disgorgement equal to the allegedly ill-gotten profits to the tune of $2.5 million, was appropriate. The commission also called for the maximum civil penalties.
The case is Securities and Exchange Commission v. Safescript Pharmacies Inc. et al., case number 6:04-cv-455, in the U.S. District Court for the Eastern District of Texas.
In a motion filed Wednesday with the U.S. District Court for the Eastern District of Texas, the called for an order against the three defendants, two of whom will be jailed in January for money laundering and conspiracy, to pay $2.5 million in disgorgement of their allegedly ill-gotten profits.
The federal securities regulator first sued Safescript, father-and-son managers and Curtis Swanson, and Stephen Cavender in 2004, accusing them of inflating revenues in filings to the commission.
The successfully moved the court for a default judgment in late 2005 when the defendants, two of whom were given prison terms last month in parallel criminal proceedings, failed to answer the charges.
Curtis Swanson and Cavender, who were indicted by federal prosecutors and pled guilty to charges including money laundering and conspiracy to commit securities fraud, were sentenced in November to 10 and 5 years, respectively. They are due to begin serving their sentences in January.
According to the , the scam, orchestrated by the Swansons, with assistance by Cavender and others, improperly recognized revenue from the sale of licenses, in the form of franchises, to use Safescript's wireless medical prescription transmission technology.
“(Safescript's) recognition of revenue from the franchise sales was improper due to the unknow collectibility, in each instance, of the purchase price of the (Safescript) franchise,” the SEC said.
While the company, then known as RTIN Holdings, reported the franchise agreements as profitable in press releases and its 2002 and 2003 financial filings, the franchise purchasers were, in reality, “newly formed entities ill-equipped to make good on their franchise payments,” the SEC said.
“Disregarding this glaring collectibility issue, RTIN's principals immediately recognized as revenue the initial franchise installment on each 'sale',” the commission said.
When the franchisees defaulted on their payments, the defendants did not reverse the “dubious” revenue, but continued cooking the books by way of fraudulent note restructurings, according to the complaint.
The company allegedly inflated its net income in 2002 and 2003 by up to 998% and deceived its auditors, which have since resigned and withdrawn their audit reports.
To further the scheme, Curtis Swanson directed the issuance of 422, 900 unregistered shares in Safescript stock to Cavender's wife, the SEC said. Cavender then sold the shares for a profit of $771,341 and divided the proceeds.
In March 2004, two weeks after announcing its intention to restate its financial filings, Safescript filed for bankruptcy.
The SEC said an order of disgorgement equal to the allegedly ill-gotten profits to the tune of $2.5 million, was appropriate. The commission also called for the maximum civil penalties.
The case is Securities and Exchange Commission v. Safescript Pharmacies Inc. et al., case number 6:04-cv-455, in the U.S. District Court for the Eastern District of Texas.
quoted from here
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