The Securities and Exchange Commission has charged the owner of bankrupt Plasticon International Inc., James Turek, with fraud.
Turek has been charged with misappropriating, for personal use, at least $2.8 million of the funds Plasticon raised between $8.2 million and $11.2 million from at least 30 investors, capital that the firm had said would be used to buy equipment and acquire other companies.
The funds were raised in an unregistered, multistate securities offering between January 2005 and April 2007, according to SEC.
The complaint was filed Sept. 30 in U.S. District Court in Lexington, Ky., against Turek, who has been chairman, chief executive officer, president and majority stockholder of the company since 1988. Plasticon filed for bankruptcy May 16, 2007, less than 18 months after it acquired injection molder and thermoformer Pro-Mold Inc. of St. Louis.
According to SEC, since May 2004 Plasticon has ``purported to be engaged'' in manufacturing concrete accessories, mainly plastic rebar supports, from recycled plastics. Turek had complete control over Plasticon's affairs until the appointment of a bankruptcy trustee in October 2007.
The SEC complaint also said Turek and Plasticon misled investors by issuing, between May 2005 and April 2006, ``false and misleading'' press releases about its financial conditions, patent ownership, and value of patents and a share buyback program that never existed.
Attempts to reach Turek and Plasticon were unsuccessful, as the company's phone numbers are no longer in service and Plasticon no longer has a Web site.
The false statements, according to SEC, triggered dramatic increases in the company's stock, even though it never rose higher than $0.0185, compared with an average closing price of $0.003 from Nov. 1, 2004, to April 30, 2005. It also triggered an average trading volume of more than 39.6 million shares between May 1, 2005, and April 30, 2006, compared with an average trading volume of less than 8 million shares in the previous six months.
The SEC suspended trading in the stock Sept. 21, 2007, and revoked the company's securities registration two months later.
According to the complaint, Plasticon issued four press releases that stated it had achieved profitability in the second quarter of 2005. But filings with SEC for that quarter filed nearly one year late on July 27, 2006 showed a net loss of $3 million on sales of $135,244. The company then lost nearly $11 million in the following quarter on sales of $135,244.
``Plasticon did not even have a bank account until February 2006,'' the complaint stated.
In addition, according to the SEC complaint, the company issued eight press releases in that same time frame about a share restructuring program that would retire 200 million shares without any dilution for shareholders. Instead, Plasticon actually increased the number of its shares from 6 billion in May 2006 to 9.4 billion in February 2007.
Further, the company issued press releases that it held four patents, with a combined value of between $16 million and $20 million when, according to the complaint, ``United States and Canadian patent records show that Plasticon has never owned a patent.''
``Plasticon did not own, or have rights to, any of the four patents for which it claimed ownership,'' said the complaint filed with the court. ``Turek himself had assigned three of those four patents to his sons'' and to another company he controlled ``before the press releases went out,'' according to SEC. The fourth patent had lapsed a year before the first press release about the patents was issued.
The complaint said Turek used ``at least $800,000'' of the proceeds raised from investors for matters related to his personal bankruptcy and that he transferred ``at least $1.8 million'' to two other companies he owned or controlled Promotional Containers Inc. and Telco Blue Inc.
The SEC said Plasticon would issue shares to Turek or a third company he owned, LexReal Co. LLC, and that he and LexReal then would sell those shares a short time later to investors in exchange for cash. ``Turek also `loaned' some of the proceeds back to Plasticon with interest, and gave some of the proceeds to one or both of his sons,'' the complaint charged.
SEC's lawsuit seeks to obtain a ``sworn accounting'' of the proceeds from the securities offering, and have all companies involved give back ``all ill-gotten gains.'' It also seeks a civil penalty against Turek and to bar him from serving as an officer or director of any public company, and to impose a restraining order to prevent him or Plasticon from violating federal securities laws.