SEC Sues Newport Company Over Securities Sales

The Securities and Exchange Commission sued a Newport Beach company and its owners Thursday, saying they sold investors $2.3 million in unregistered securities and guaranteed hefty returns that never materialized.

The company, Debisys Inc., and co-owner Mark T. Flanagan of Costa Mesa have agreed not to sell fraudulent or unregistered investments as part of a settlement, the SEC said. The government’s complaint seeks a similar injunction as well as fines against the company’s other owner, James S. Eberhart of Costa Mesa.

Flanagan was not assessed penalties because he demonstrated he could not pay them, the agency said.

Kenneth August, attorney for Debisys and Flanagan, declined to discuss the case. Eberhart could not be reached for comment.

SEC officials say Debisys told investors their money would pay to launch a business putting point-of-sale terminals in auto repair shops, fast-food restaurants and other spots. Customers could use the terminals to pay electronically, swiping through credit, debit or check cards.

Drawn by promises of 33% annual returns, 150 investors paid at least $9,700 apiece to Debisys from January to June 1997, the SEC said.

But the company placed only a handful of terminals and used most of the cash from investors to cover administrative costs, regulators allege.

“They didn’t tell investors how they were using the money,” said Diana Tani, assistant regional director of the SEC’s Office of Enforcement in Los Angeles.