A father and son who ran a Reseda business that provided storefront medical-testing services have been indicted on charges that they conspired to manipulate the company's stock, the U. S. attorney's office said.
Harold Bernard Phillips, 66, a Calabasas resident, and Douglas J. Phillips, 42, of Woodland Hills were each indicted on one count of conspiracy and one count of mail fraud.
If convicted, each faces a maximum penalty of 10 years in prison and a $500,000 fine.
Also indicted were stock promoter Akiva Bar, 48, on 23 counts of securities and mail fraud, conspiracy, and tax evasion; stock broker Stephen Richard Friedman, 52, on 10 counts of securities and mail fraud, and conspiracy; David Paletz, 52, on four counts of securities and mail fraud, and conspiracy, and Rafael Harary, 50, on six counts of conspiracy and securities fraud.
Harold Phillips was chairman and chief executive of E. N. Phillips Inc. and his son Douglas was president. The company ran "Testing 1-2-3" outlets in malls around the area, where customers could get their blood pressure or cholesterol levels checked.
Together, the Phillipses owned more than 2 million shares of restricted stock in the tiny, loss-plagued company. According to Securities and Exchange Commission rules, the shares could have been sold to the public only if the trading volume in the stock increased substantially.
The indictment alleges that in 1990 the Phillipses hired Bar to create market activity in the stock through an illegal scheme that involved having Friedman, a broker at Toluca Pacific Securities Corp. in Burbank, place orders to buy E. N. Phillips stock. The stock was never paid for, the indictment says, but was sold to other brokerage firms.
Paletz and Harary then opened new accounts at these other firms, and placed orders to buy E. N. Phillips stock, but never paid for the stock in full, the indictment states. They also raised money from investors, and instead of being used to open new medical facilities as promised, the funds went to purchase more E. N. Phillips stock, authorities said.
As a result of the alleged scheme, the price of E. N. Phillips stock doubled from $1.50 a share to about $3, the indictment states. The Phillipses sold more than 900,000 shares, earning more than $1 million, Assistant U. S. Atty. David Z. Seide said. But when the brokerages sold the stock, the price collapsed to 25 cents, and the firms lost more than $1 million.
The Phillipses were arrested Friday. Each was later released on $100,000 bail. They are due to be arraigned Aug. 5.
Morton Boren, the Phillipses attorney, could not be reached for comment.
Paletz was arrested in Phoenix on Thursday, and released on his own recognizance.
Friedman, a Palm Springs resident, is expected to surrender to authorities today. Bar and Harary are in Israel.
By 1992, E. N. Phillips had abandoned the medical testing operations. It later got into the gambling business, and changed its name to NuOasis Gaming Inc.