A securities scam artist who claimed to have appeared on the cover of Fortune magazine fleeced investors of $8 million with the help of his family and a squad of crooked associates, the Securities and Exchange Commission alleged last week.
Stockholders were told that the companies produced everything from an anti-AIDS drug that had been developed by Dr. Jonas Salk and approved by the government to adhesive skin patches that would enhance a person's ability to obtain a suntan or reduce a craving for nicotine.The Food and Drug Administration later determined that the patches were merely placebos and prohibited the sale or distribution of the "AIDS drug."
"By and large, the companies here did not engage in real activity other than raising investors' money and spending it," said Jerry Isenberg, assistant director of enforcement for the SEC in Washington. "It's essentially a big ponzi scheme."
David Sterns, of Irvine, Calif., variously told investors he was a multi-millionaire; that he was the most-quoted individual in the Wall Street Journal during the 1970s; that he appeared on the cover of Fortune magazine; that he owned 1 percent of the land mass of Panama; and that he helped liberate the Marshall Islands, the SEC said.
In fact, the SEC said, Sterns filed for personal bankruptcy in 1979 shortly after being forced off the board of directors of Elixir Industries - a company whose stock, he later claimed, rose from pennies to $238 a share while he was president.
"He's just a securities scam artist," Isenberg said.
The Sterns family - David's daughter, Debra, his brother, Verl, and Verl's two sons, Mark and Jonathan - are among 22 defendants named in the SEC's 112-count complaint.
Together, the complaint alleges, the Sterns and their associates bought majority interests in seven dormant corporations, then used backdated corporate records and fraudulent legal opinions to restructure the companies and sell 36 million unregistered securities to the public.
The SEC said the Sterns family's self-styled "Ultimate Business Network" consisted of nothing more than the empty shells of companies whose stocks were privately held and could not be legally traded between individuals.
The companies held news conferences and seminars to persuade investors to purchase their stock, then paid the cash into payroll accounts that the family had access to as members of board of directors.
A U.S. District Court judge in Los Angeles, where the complaint was filed, granted the temporary restraining order sought Monday by the SEC, enjoining Sterns from continuing to do business.
Sterns' nephews, Mark and Jonathan Sterns, pleaded guilty last November to two counts apiece of securities violations and were awaiting sentencing.