Lawsuit Claims Magna’s ‘Edge’ Was Stock Price, Not Its Products
Two years ago, an obscure publicly traded Thousand Oaks company called Magna Technologies was featured in “Investa-Line,” an investment newsletter published by a Florida company called “Big Bucks, Inc.”
The newsletter touted what appeared to be a dizzying array of innovative products that Magna owned patents to or was designing, among them, a flexible pouch that contained soft drinks, an electrical stun gun to ward off muggers and an external device to aid sexually impotent men. The newsletter concluded that Magna “is on the leading edge of exciting products which have been patented to date and have tremendous market potential.”
It now seems that Magna Technologies’ greater potential lay in stock manipulation. Last week, the Securities and Exchange Commission alleged in a civil suit that Magna Technologies, now defunct, was actually a sham that led to “painting the tape,” a 1920s-era term for manipulating a stock price through contrived trades. Seven people were named as defendants, including some of Magna’s officers and outside investors.
Prearranged Trades Alleged
The scheme, the SEC said, pushed Magna’s stock price up from less than 75 cents in March, 1985, to more than $9 six months later through prearranged trades in which one associate would buy stock at one brokerage firm, and another associate would sell shares at a separate firm. The price then collapsed to less than 75 cents a share.
Court records show one of the defendants, New York stockbroker Herbert Stone, is to be sentenced Thursday in federal court in New York for his April 1 conviction in another stock-manipulation scheme involving European Auto Classics Ltd. of Great Neck, N.Y.
One of Stone’s partners in the latter case was Sam Sarcinelli, a major figure in organized crime in Chicago and a former Woodland Hills resident who is now serving time in federal prison on a drug trafficking conviction. Sarcinelli pleaded guilty in the New York stock manipulation case.
Stone’s attorney, Paul Chernis, said Stone did not manipulate Magna’s stock. Instead, he said, Stone was misled by investor Jacob Rubenstein into believing Magna was a healthy company with good prospects. Rubenstein is a former Agoura Hills breeder of Arabian horses, who the SEC maintains was also a key figure in manipulating the company’s stock.
The SEC alleges that Rubenstein disposed of $1 million in stock through Stone once the price rose.
Former Chairman Named in Suit
In addition to Rubenstein, the other key figure named in the suit is Dr. Robert A. Gutstein, an Agoura Hills plastic surgeon who was Magna’s former chairman. His attorney, Jonathan Schwartz, said Gutstein was duped by Rubenstein.
Rubenstein’s attorney, David L. Kagel, said that the SEC suit is inaccurate and that Rubenstein will defend himself vigorously against the allegations.
Other court records show prominent national and regional brokerages lost hundreds of thousands of dollars when they were stuck with Magna stock ordered by clients who never paid for the shares. Terry Ross, an attorney representing Prudential Bache Securities, confirmed the company lost $250,000. Dallas brokerage Eppler, Guerin and Turner also lost $250,000, according to its attorney, Duncan Boeckman.
Those brokerages have filed suit against the customers and Rubenstein, who they allege steered customers to the brokerages.
Some brokers were lucky. Richard Sacks, owner of his own brokerage in Novato, Calif., said he spurned Rubenstein’s efforts to get him to buy the stock.
“I just didn’t like the story. The products just didn’t sound right, and they were talking huge numbers,” Sacks said. As an example, Sacks said, Rubenstein told him the company was negotiating a licensing agreement with Coca-Cola to use their soft-drink pouch.
Staff Allegedly Involved
Rubenstein and Gutstein also controlled another company, the SEC alleges, called International Equestrian Development, which purportedly was a developer of equestrian centers. The SEC alleged that two employees of that company and one of its consultants opened accounts to trade stock in Magna.
One of those men, Stephen Dulyea, has settled with the SEC. He maintains that he lost about $10,000 on Magna stock, which he said he bought after overhearing people in the company talk about the company’s prospects. He also said employees of International Equestrian were paid with Magna stock once when the company ran out of money to pay its workers.
In a resume provided to International Equestrian investors, Rubenstein said he was an account executive with unnamed New York Stock Exchange member firms and a financial consultant to unnamed corporations. It also shows him as president of a company called Sherinda International from 1976 to 1981.
A publication by International Equestrian lists as vice chairman Raymond Jallow, a celebrated economic forecaster in the late 1970s when he was chief economist with United California Bank, now First Interstate Bank. Jallow was fired from that job in 1981 and is now a Los Angeles consultant.
In an interview, Jallow said he owned shares in International Equestrian but was not a board member or vice chairman of the company.
“I didn’t want to be associated with them,” said Jallow, who refused to elaborate.
