SEC Wins Court Order Against Last Defendant in Magna Case

The Securities and Exchange Commission has won an injunction against the last defendant in a stock-manipulation case involving Magna Technologies, a defunct Thousand Oaks company that said it was going to market an assortment of futuristic-sounding products--from bladeless pumps to beverage pouches.

But the SEC said in court papers filed last week that the company was nothing more than “a desk, a phone and a chair.”

U.S. District Judge Mariana R. Pfaelzer enjoined securities trader Herbert Stone, who lives in New York, from violating any securities laws. The SEC could take further action to revoke his trader’s license, an SEC attorney said.

Stone and his attorney could not be reached for comment.

Last Court Action

The injunction was the last court action expected from a suit filed by the SEC in May, 1987. The suit alleged that Stone and six others helped manipulate Magna’s stock from 10 cents per share to $9.50 per share between February and October, 1985.

Magna stock traded only over the counter on “pink sheets,” which list bid and asked prices for stocks so thinly traded that they are not listed in daily newspapers. As the primary market-makers for Magna’s stock, Stone and David Siegel, another defendant, were responsible for overseeing much of the trading in the stock.

But the SEC said Stone and Siegel worked closely with the key defendant in the case, Jacob Rubenstein, to create contrived trades in the stock that sent the price up until the market for Magna’s stock collapsed in October, 1985. The SEC called Rubenstein “the promoter and brains behind the scheme.”

The SEC won an earlier default judgment against Rubenstein, ordering him not to violate securities laws and to return $650,000 in Magna trading profits. Another defendant, Robert Gutstein, Magna’s chief executive and a Thousand Oaks plastic surgeon, consented to a similar injunction and agreed to return $20,000.

Siegel and another defendant also consented to similar injunctions. The SEC won default judgments against two others in connection with the Magna suit.

The SEC said Stone helped Rubenstein use a number of techniques to inflate the stock’s price. The government said Stone placed orders for Magna stock with no intention of paying for them, a practice called “free-riding.”

‘Circular Trading’

The government said Stone used “circular trading,” buying and selling blocks of stock between accounts he and Rubenstein had allegedly set up, to create the appearance of high-trading volume.

And the SEC accused Stone of placing matched orders, simultaneous bids to buy and sell the same amount of stock, also intended to make Magna stock look popular.

In addition to the trading, the SEC claimed Rubenstein masterminded a publicity campaign to drive up Magna’s stock price. The centerpiece of the campaign, the SEC said, were press releases about the company’s alleged product line, which included the bladeless pump and the beverage pouch, as well as a stun-gun to repel attackers and a device for the diagnosis and treatment of impotence.

SEC attorney Thomas Sjoblom said Stone told others that Magna’s stock was rising because of demand for the products. But “there weren’t any products,” Sjoblom said.