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Lake Forest Firm Barred From Securities Deals

May 22, 1997|JAMES S. GRANELLI | TIMES STAFF WRITER

LOS ANGELES — A federal judge has halted a Lake Forest company from offering its securities after authorities learned it was being run by a man who was twice convicted of fraud and banned from selling securities in California.

U.S. District Judge Richard A. Paez in Los Angeles issued the temporary order against Affordable Prepaid Cellular Inc. and its part-owner, John C. Rockett, in a lawsuit filed late Tuesday by the U.S. Securities and Exchange Commission.

The latest action is the 12th taken against Rockett since 1986 by 10 states and the SEC.

The state Department of Corporations led a task force of state and federal agents in a raid Wednesday morning of APC's offices to preserve records. Paez's order also prohibited Rockett from destroying records.

"We have no idea about the size of any loss or the number of victims," said Kathleen K. Bisaccia, an SEC attorney. "The judge granted us expedited discovery to get us in there quickly to explore what happened and to find out how much was raised."

Neither Rockett, 58, nor APC operators could not be reached for comment.

APC, incorporated in November, began soliciting $5,000 corporate notes in January as part of a $500,000 private placement to fund its operations of providing prepaid cellular telephone service to "credit-challenged" individuals.

After interviewing only one buyer and two potential investors, the SEC took action because of Rockett's long disciplinary history, which includes state court convictions in California and Kansas, Bisaccia said.

He currently owes $640,000 in penalties from past disciplinary actions, according to court documents, and is a defendant in a pending SEC action in Texas that accuses him of securities fraud in an oil-and-gas venture called Pro-Tex Pipe & Tubing Corp.

Rockett has been banned from selling securities in eight other states besides California, Bisaccia said.

Court papers accuse him of shutting down at least one business and absconding with investor money.

At APC, where at least two salesmen and another part-owner worked, Bisaccia said, the SEC charges that the company sought investor funds without revealing that Rockett was a 25% owner, convicted of securities fraud and banned from selling securities in California and eight other states.

In addition, the agency alleges, APC was really based in Lake Forest even though it told investors it was based in Seattle. Bisaccia said investors could call a toll-free number in Washington, where a hired service would take the calls and relay messages to a company answering machine.

Salesmen told customers the securities were a sure bet, "the same as the sun rises in the East and sets in the West," according to court papers.

APC told potential investors it provided cellular telephone service to individuals who had been turned down previously for service because of bad credit.

The company said in its offering documents that 25% to 40% of all individuals seeking such service are turned down because they are "credit challenged." APC's plan is to buy air time and resell it to customers, who would prepay for cellular telephone minutes.

Rockett's influence at APC was seen in the terms of the offering, the agency charges. The guaranteed 16.75% rate of return and other language in the offering were identical to that used in the Pro-Tex offering, the SEC stated.

Rockett's prior violations include fraud, misappropriation of investor money and offering unregistered securities. Bisaccia said that the APC securities weren't registered but that it was unclear whether they had to be.

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