Vector Holdings Corp. (OTCBB: VCTH), which recently abandoned its previously announced plan to acquire “boutique hotels” in the South Beach section of Miami Beach, Florida, may have its attention focused toward another Miami landmark – the Federal Courthouse. See UPDATE: Vector Holdings Corp. - Stuck With Spuds.
On October 15, 2002 the Securities and Exchange Commission filed charges of securities fraud against Vector, its President and sole director Allen E. Weintraub, and Florida Stock Transfer, Inc. The SEC complaint, filed in the United States District Court for the Southern District of Florida, alleges that Vector failed to disclose material information about Weinstein’s “checkered past,” including multiple felony count convictions and unsatisfied personal judgments.
According to the SEC, Weintraub’s criminal convictions date back to 1992, when he pled guilty in Broward County, Florida to five felony counts, including a charge of organized fraud. In that case, Weintraub, using an alias, solicited payments from hundreds of business owners, claiming that he could reduce the cost of their MasterCard and Visa processing fees. Instead, he stole the funds and used them to pay personal expenses. Weintraub was sentenced to five years probation, and ordered to pay restitution of $25,065.50.
Shortly after that probation period ended, Weintraub was back in criminal court again. In 1998, he pled nolo contendre in Miami-Dade County, Florida to four felony counts of fraudulent practices by a credit services organization. This time, Weintraub collected advance fees for repairing credit reports, although he did not have a surety bond or maintain a trust account as required by Florida law. He was placed on six months probation and ordered to pay restitution of $12,430.
Weintraub’s “checkered past” is not limited to those recent felony convictions. In 1998 a civil judgment for $33,549 was entered against him by the condominium association of his former residence, and in 2000 First Union Bank obtained a judgment against Weintraub in the amount of $22,897.
None of this information appears in Vector’s public filings with the SEC. The Company’s Form 10-K for the year ended December 21, 2002, filed on April 24, 2002, includes the following biographical information for Weintraub:
Allen Weintraub has served as our President, CEO and a director effective January 2000. During the past five years, Mr. Weintraub has been engaged in the ownership and operation of a private real estate business, including rental properties and marinas in South Florida. From October 1998 to the present, Mr. Weintraub has also owned and operated a private gourmet-food distribution business.
The Form 10-K went on to say that “[t]here have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the past five years.”
The SEC disagrees – and so should investors. A Form 10-K is required to disclose the criminal convictions (excluding traffic violations and other minor offenses) of any officer and director during the previous five years that are material to evaluation of his or her integrity and ability.
Despite that obligation, Vector has not disclosed Weintraub’s 1998 convictions in any of its public reports on Forms 10-K and 8-K. The Company also failed to include that information when it filed to register 5.25 million shares on a Form S-8 Registration Statement in April 2002.
Vector’s silence about Weintraub’s criminal history stands in sharp contrast to very vocal efforts to tout the Company and its stock. Press releases, and reports from well-paid promoters, claimed that Vector planned to acquire restaurants and hotels, and that the Company was “uniquely positioned” to capitalize on the South Beach market.
The Company’s history offered little reason for such optimism. Vector’s operating ventures consist of an online gourmet food business, a subsidiary that sells business “leads,” and a booth that sells stuffed potatoes in the food court of a South Florida shopping mall. None of these operations generate significant income. The Company had a net loss of almost $7.2 million for the first six months of 2002, over $7 million of which resulted from stock issued in exchange for “services.” See Vector Holdings Corp., Part I - Is This Spud Half Baked?; and Part II - Headed to South Beach, or Just Headed South?
The SEC says Weintraub profited from the fraud by selling millions of shares of Vector stock for at least $440,000. He did not have to go far to deliver the stock certificates. According to the SEC, Weintraub is the sole officer and director of Florida Stock Transfer, Inc., which acts as Vectors’ transfer agent. Florida Stock Transfer shares an office with Vector and apparently has no other clients.
The SEC says that Florida Stock Transfer falsified its initial registration form by representing that Weintraub, who controlled the transfer company, never had been convicted, or pled guilty or nolo-contendre to any felonies. The SEC also alleges that Florida Stock Transfer has failed, repeatedly, to provide copies of the Vector stock transfer records.
The SEC has asked the District Court to declare Vector, Weintraub and Florida Stock Transfer in violation of the federal securities laws and to order Weintraub to disgorge his ill-gotten gains. The Complaint also seeks to bar Weintraub from serving as an officer or director of any public company.
As we pointed out in our earlier articles, Vector appears to be headed south – but not to South Beach.
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