The SEC filed an amended complaint, adding Jon Latorella
and James Fields as defendants to an action alleging a financial fraud and
stock manipulation involving two companies they control. SEC v. LocatePlus
Holdings Company, Case No. 1:10-cv-11751 (D. Mass. Nov. 11, 2010) (previously discussed
here). LocatePlus provides online access to public record databases for
investigative searches. Mr. Latorella was its CEO from 2002 until March of 2007
and the Chairman of the Board until 2008. Mr. Fields was its acting CFO for a
time and became the CEO in 2007 and the chairman of the board the next year.
The two men also founded and controlled Paradigm Tactical Products, Inc. which
sold hand held metal detectors called "FriskerPros."
Beginning in 2005, the Commission's complaint claims, the
defendants engaged in two schemes. The first was to falsify the financial
statements of LocatePlus. The second focused on manipulating the shares of
Paradigm once a trading market for those shares was established.
The revenues of LocatePlus were fraudulently inflated
over a two-year period by defendants Latorella and Fields by causing the
company to recognize about $2 million in fictitious revenue. That revenue
supposedly came from transactions with customer Omni Data. In one transaction,
Omni Data paid $600,000 to LocatePlus for services. In a second, an additional
$250,000 was paid to the company. The proceeds of these transactions were
reported by LocatePlus as revenue.
In fact, during 2005 and 2006 LocatePlus did not have any
revenue from Omni Data. The company was not a customer. The $600,000 came from
a round trip transaction in which Messrs. Latorella and Fields paid $650,000 to
an entity controlled by James Fields. Eventually, $600,000 from that
transaction was cycled back to LocatePlus. In the second transaction, Messrs.
Latorella and Fields transferred $250,000 from the sale of unregistered
Paradigm shares through Omni Data to LocatePlus. Although the cash paid to
LocatePlus from Omni Data came from sham transactions, the company reported it
in filings with the Commission as revenue.
Messrs. Latorella and Fields also manipulated the share
price of Paradigm after establishing a trading market for its shares based on
false information, according to the Commission. Following a reverse merger, the
two men furnished false information about the shareholdings of the company to a
market maker in papers required to put a quote in the Pink Sheets for the
company. At the time, they sought to establish a trading market for the shares
Subsequently, Messrs. Latorella and Fields backdated
share certificates to make it appear those shares had been held for the time
required by Rule 144. This permitted the restrictive legend to be removed from
the shares, allowing them to be sold. Those unregistered shares were then sold
to the public resulting in proceeds of $950,000. Press releases containing
false claims about the company's financial condition were subsequently issued
to push up the share price.
The Commission's complaint alleges violations of
Securities Act Sections 5 and 17(a) and Exchange Act Sections 10(b), 13(a),
13(b)(2)(A), 13(b)(2)(B) and 13(b)(5). The case is in litigation. See also
Litig. Rel. 21735 (Nov. 10, 2010).
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