1990 Stock Fraud Nets Prison Term
A man was sentenced to a year in federal prison and ordered to pay nearly $1 million in restitution for conspiring to manipulate the stock price of a company that provided medical testing services in shopping malls, authorities said Tuesday.
David Paletz, 54, formerly of Woodland Hills, was sentenced by U.S. District Judge George H. King on Monday.
Others already sentenced are the father and son who served as chairman and president of the E.N. Phillips company, said Nora M. Manella, U.S. attorney for California’s Central District.
Harold Bernard Phillips, 67, is serving six months in prison and will serve another six months in home detention after his release. His son, Douglas Phillips, 44, is serving a one-year prison term. The men were also ordered to pay $831,000 in restitution.
Another accomplice, Stephen Richard Friedman, 54, a former securities broker now living in Palm Springs, is awaiting sentencing, Manella said. Two other men who allegedly participated in the scheme--Akiva Bar, 48, and Rafael Harary, 50--are fugitives, according to prosecutors.
The charges against the men trace to 1990.
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E.N. Phillips, based in Woodland Hills, used the name “Testing 1-2-3,” when it provided basic medical services--such as blood-pressure or cholesterol-level checks--at shopping malls, according to prosecutors.
Shares of the company were publicly traded through the National Assn. of Securities Dealers.
The Phillipses owned more than 2 million shares of restricted stock. According to Securities and Exchange Commission rules, the shares could only be sold to the public if the trading volume in the stock increased substantially.
The indictment alleged that in 1990 the Phillipses hired Bar, a stock promoter, to create market activity in the stock through an illegal scheme that involved having Friedman, a broker at Burbank-based Toluca Pacific Securities Corp., place orders to buy E.N. Phillips stock.
Paletz and, allegedly, Harary then opened new accounts at other firms and placed orders to buy E.N. Phillips stock but never paid for the stock in full, according to investigators. The men also raised money from investors, but instead of opening new medical facilities as promised, they used the funds to purchase more E.N. Phillips stock.
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As a result of the scheme, the price of E.N. Phillips stock doubled from $1.50 a share to about $3, the indictment stated. The increase in sales allowed the Phillipses to sell more than 400,000 shares of the restricted stock, earning them more than $1 million.
The price then collapsed to 25 cents, and other investors lost more than $1 million.
The men were indicted in July 1996, long after E.N. Phillips--which abandoned medical testing in 1992--went into the gambling business and was renamed NuOasis Gaming Corp.
Paletz’s lawyer was not immediately available for comment.
