Fraud Charges Filed Over Restaurant Securities

Federal regulators filed fraud charges against two executives with the Topz restaurant chain Wednesday, saying they cheated 360 investors out of $6.2 million.

Mark R. Avila of Woodland Hills and Stephen R. Keenum of Newhall are accused of providing investors with bogus financial projections and misrepresenting how the investment money would be used.

Avila and Keenum are among 12 people facing separate federal fraud charges in connection with the sale of $23 million worth of securities in Woodland Hills-based Papa Holdings Inc., which ran the now-defunct Papashon restaurant chain.

The civil charges in the Topz case were filed in U.S. District Court by the Securities and Exchange Commission. The SEC also named Pacific Crest Holdings and Topz3, two Encino companies controlled by Avila and Keenum.

Avila, president and chairman of Topz, disputed the government’s allegations. He said he had been trying for the last year to settle the case.

“We’ve been fully cooperating with everything the government has asked of us,” Avila said. “I don’t really believe there’s been misrepresentations.”

SEC attorneys say the defendants overstated the profit potential of the restaurants to investors.

In addition, they said the defendants failed to disclose that “a substantial portion” of investor funds earmarked for new restaurants was spent to cover costs for existing eateries funded by a previous offering.

“The nub of it is that investors were misled as to the profitability of the Topz restaurants and the ability of the restaurants to generate profits for the investors,” said Kelly Bowers, an attorney with the Los Angeles SEC office.

“The restaurants they had were losing money and that was not adequately disclosed,” Bowers said. “We allege that they had no basis for those projections.”

Bowers would not say how much the SEC was seeking but that they were looking to recover funds that were improperly diverted, as well as civil penalties.

Topz operates six restaurants in the Los Angeles area, promoting what it calls healthier, fresher fast food.

In the Papashon case, the defendants were charged with misrepresenting the amount of commissions from stock sales. Investors were given documents stating commissions would be about 10% when about 40% was actually collected, according to the SEC.

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Times staff writer Karen Robinson-Jacobs contributed to this story.