NZers targeted in 'boiler room' share scam

Three men who ran a bogus embryonic stem cell research company in Utah alleged to have defrauded New Zealanders, Australians and Britons of millions of dollars have been arrested, the Salt Lake Tribune newspaper reported today.

The company never performed any research and was a shell to sell bogus stock to people worldwide, prosecutors say.

The men who operated the fraudulent company have been accused in the United States of bilking overseas investors of US$6.6 million (US$10.1 million) in what a federal grand jury said was a scam to sell shares to investors outside the United States.

The defendants have said in court filings that because all their "investors" lived outside the United States, US courts should have no jurisdiction, but American authorities have said enough activity took place on US soil for them to be prosecuted there.

Michael Sydney Newman, 45, (also known as Marcus Wiseman), Allen Z. Wolfson, 60, and his son David M. Wolfson, 26, were indicted by a grand jury on Wednesday, charged with nine counts of wire fraud in their scheme to prey on people hoping to for miracle cures from the disputed research.

According to the Tribune, the men established the company Stem Genetics, registered it in Salt Lake City, and claimed it to be conducting embryonic stem cell research and the three men sold stock in the company from October 2002 through August 2003.

They targeted overseas investors in places such as New Zealand in order to avoid having to register in the United States, according to the indictment, which was filed in the US District Court in Salt Lake City.

The Tribune reported that the men charged artificially high prices for the stock, but told investors that it would soon appear on the NASDAQ stock exchange for US$7 a share, about 20 per cent more than the investors were paying for the phony stock issues.

Melodie Rydalch, a spokeswoman for the US Attorney's Office in Salt Lake City, told the newspaper that federal officials have recovered about US$1.5 million of the $U6.6 million the trio took from more than 600 investors.

Allen Wolfson is awaiting sentencing in New York on other financial fraud issues, and Newman is believed to be in Los Angles charged with other financial fraud as well.

Newman was arrested in 2003, along with two Thai nationals at the international airport in the Laotian capital, Vientiane, and accused of defrauding New Zealand and other investors in a US$16 million stock fraud involving five United States companies, the US Securities and Exchange Commission said at the time.

The SEC said Newman and the other defendants used high-pressure tactics on investors to sell shares in five US companies: Stem Genetics, F10 Oil & Gas Properties, Diversified Financial Resources Corporation, Valesc Holdings and NCI Holdings, The Scotsman newspaper reported.

It said some were front companies with no assets, and that their stock prices were manipulated to impress potential investors.

Newman has already been convicted in Laos: he was sentenced in February 2004 to 7-1/2 years in prison and fined nearly US$6 million. The offences included conducting an illegal business operation, making illegal international telephone calls, violating tax rules and possessing drugs.

- NZPA