A federal judge here held Monday that Zoe Products Inc. and its chairman, James P. MacPherson, committed fraud in the sale of securities to public investors at a time when it said it was in the vitamin sales business.
After the Securities and Exchange Commission filed a securities fraud complaint in January, 1984, Zoe moved from Century City to Irvine and began describing itself as a distributor of foreign-made, 3-wheel "mini-vehicles."
The SEC complaint said that the firm operated at substantial losses since it was founded in 1980 in Nevada and that its operations were financed primarily "with proceeds from public and private offerings of its common stock."
"It appears to me your clients are frauds," U.S. District Judge James M. Ideman told defense attorney Robert Bretz in announcing his decision.
The judge added that he believes that the defendants "have defrauded the public."
Granting the SEC a summary judgment in the suit, Ideman ordered the defendants permanently enjoined from filing false and misleading statements under the anti-fraud provisions of the securities laws.
Bretz objected to the court's ruling on the basis of evidence submitted by the SEC without a trial on the merits.
The Zoe attorney argued that the allegations involved "one phrase" developed by a financial public relations firm and that the wording in press releases was attacked by the SEC as "fraud by implication."
But Ideman said that the "average investor" would believe that many drug and grocery store chains had bought Zoe's products when "not one" had done so. Bretz responded that sworn statements showed that various stores had "cleared" purchases from Zoe.
There was no showing of an intent to deceive by the defendants in news releases, the defense lawyer argued. He said there was nothing to indicate that the defendants were likely to commit future fraud and said the ruling would have a "chilling effect" on Zoe's finances and other affairs.
Ideman said he was granting the judgment on the basis of the SEC's motion, which he said was "well taken." He added:
"If it has an adverse effect on the business of your client, so be it. I have grave doubts as to the business practices as performed by your client."