Forged Letter Used in Scam, SEC Alleges

A Los Angeles lawyer “fabricated” a Securities and Exchange Commission letter to clear the way for an initial public stock offering by a Hawaiian firm, the SEC alleged Wednesday.

Brian H. Kay, defendant in the unusual SEC complaint, consented to entry of a permanent court order against future violations of federal securities fraud laws.

The consent agreement signed by Kay said he was not admitting or denying the allegations of the suit.

However, Kay later made the following statement to The Times: “As is stated in the consent decree, I categorically deny all the allegations made by the (SEC). To be falsely accused has been damaging; further exploitation compounds the damage.”

The agreement filed with the lawsuit in U.S. District Court in Los Angeles also said Kay had consented to an SEC administrative order permanently barring him from practicing law before the commission.

Kay dealt with the SEC during 1987 and 1988 on behalf of Cytotech Corp., which was formed to develop medicinal uses for shark blood and which maintained its principal place of business on the island of Maui, the suit said. The firm is not connected with a similarly named company in San Diego.

Although the Hawaiian firm never commenced operations, it sold about $160,500 worth of stock to at least 35 investors in several Western states early last year, the suit said.

This was facilitated with a “forged letter” on SEC letterhead stationery that falsely said the company’s registration statement had became effective, according to the complaint. A copy of the letter was used in getting clearance from Oregon securities regulators, the suit said.

The complaint also alleged that on the letter Kay forged the signature of an SEC attorney in the SEC’s Los Angeles regional office.

Last September, Cytotech agreed to settle SEC administrative proceedings without admitting or denying findings that its registration statement failed to disclose that the only person conducting its research was suffering from a terminal illness.