Capital Markets

Ex-Penny Stock CFO Found Guilty

A CFO who had once pleaded guilty to a misapplication of bank funds is found guilty of a contributing to a scheme to boost the share price of a "wo...
Stephen TaubAugust 6, 2007

A federal jury found the former chief financial officer of a penny stock company, as well as another top executive, liable for securities fraud and other charges stemming from a scheme to boost their company’s share price, according to the Securities and Exchange Commission.

Michael J. Pietrzak, who served as CFO, general counsel, executive secretary and director of Hexagon Consolidated Companies of America, a development stage mining company, and Maurice W. Furlong, who was HCCA’s chairman, president and CEO, were accused of engaging in “protracted efforts” to fraudulently increase the stock price and value of the company. Among other violations, the duo filed false and misleading registration statements and financial reports, and issued a false letter to shareholders and as well as false press releases.

During the same time, Pietrzak and Furlong sold a total of more than 197 million shares of HCCA stock, receiving proceeds of $1.3 million and $3.4 million, respectively, according to the SEC. The complaint also alleged that from 1996 through 2001, HCCA, through the efforts of Pietrzak and Furlong, reported to the public that it was an entity with substantial assets when, in fact, it was virtually worthless.

The SEC said a hearing has been scheduled for September 24 to determine what penalties would be levied against Pietrzak and Furlong. The regulator has requested permanent injunctions, disgorgement of the stock proceeds with interest, civil penalties, officer and director bars, and penny stock bars.

The regulator also noted that in 1985, Pietrzak pled guilty to a crime in Illinois for aiding and abetting others in the misapplication of bank funds, for which he paid a fine. By November 1, 1996, Pietrzak, who is licensed to practice law in Illinois, was named general counsel, executive vice president, secretary and a director of HCCA. In September 1997, Pietrzak was appointed principal financial officer.

When the SEC initially brought the charges against Pietrzak and Furlong, it also named Donald E. Jordan in the complaint. Jordan, a registered assayer is a scientific expert, who in this case, specialized in analyzing the presence, absence, or quantity of components in mineral samples – but not the economic value of such minerals. The SEC accused Jordan of issuing misleading reports that falsely stated that HCCA held ore and other minerals valued at more than $2 billion.

The commission alleged at the time that Jordan issued reports in February 1996, and May and November 1997, stating that HCCA held ore valued at approximately $2.4 billion, and in August 1997 and December 1999 stating that HCCA held 500,000 tons of minerals worth more than $3 billion.

HCCA was originally incorporated in Montana in 1967 as Cadgie Taylor Company. After a merger and various name changes, the company changed its name again in July 1999 from Health Care Centers of America to Hexagon Consolidated Companies of America. HCCA’s filings disclosed that it had no employees, according to the SEC’s original complaint. It also noted that HCCA never reported any revenues.