Grand jury names plastic surgeon, two others in indictment.

Grand jury names plastic surgeon, two others in indictment

A plastic surgeon, two Los Angeles businessmen and a New York stockbroker have been indicted by a U.S. grand jury for conspiring to commit securities fraud in an alleged stock swindle.

The Magna Technologies Inc. case involves at least one former associate of Barry Minkow and has been characterized as "a mini-ZZZZ Best" by those involved in the investigation and prosecution of the case.

Magna Technologies cost investors an estimated $4.1 million, with the big losers appearing to be brokerage houses and stockholders who hoped to make a killing on the medical products company.

The company issued press releases and brochures heralding pain-killing wands, medicine dispensers with an uncommon resemblance to plastic ketchup bottles and a cup with a built-in dose of instant coffee.

Just like ZZZZ Best, the shares of Magna Technologies were pumped hard by insiders, giving the appearance of an active and promising company to investors, according to the indictment.

Shares of Magna Technologies began trading at 50 cents a share in March, 1985 and topped out at $9.50 eight months later, according to court records.

Among the big losers were Los Angeles-based brokerage house J. Alexander Securities and now-defunct Westlake Village-based Investors' International, according to court records.

Speculation is that Investors' International was dealt its death blow by its Magna Technologies' activity, according to those peripherally involved in the investigation.

The ZZZZ Best case, according to the recently published book "Wonderboy" by former Wall Street Journal reporter Daniel Akst, cost shareholders, banks, investors and creditors at least $100 million. The biggest losers in the ZZZZ Best fraud were Union Bank, out $7 million, Prudential Bache, out $2 million and First Interstate, out $1.8 million.

The Magna Technologies case, U.S. vs. Rubenstein et al., was brought by Los Angeles U.S. Attorney John F. Walsh. It alleges that Jacob Rubenstein, Robert Gutstein, Robert Victor and Herbert Stone operated Magna Technologies from November, 1984 to November, 1985 solely as a vehicle to commit securities fraud.

According to the indictment, the quartet allegedly employed "a variety of fraudulent and manipulative devices and contrivances designed to raise, maintain and control the price of Magna Technologies stock at artificially inflated levels and create a false and misleading appearance of active trading in the stock and value in the company, with the aim of attracting the interest of others not a party to the conspiracy and inducing them to purchase Magna Technologies stock . . . thereby obtaining for the defendants artificial and illegitimate profits."

Magna Technologies supposedly manufactured those "high-tech medical supplies." But it was only a company on paper, the indictment alleges.

Magna Technologies was in essence a shell corporation with no production facilities, no ongoing business and virtually no net worth, according to the grand jury indictment.

Losses to shareholders are estimated at $4.1 million, though losses of only $1 million have been documented to date, a spokesman in the U.S. attorney's office said.

Magna Technologies was able to sidestep SEC regulations and begin trading stock in 1984 by organizing a merger with bankrupt Florida-based Bashney Biscuit.

In Feb., 1985, Rubenstein and Gutstein engaged in a stock-for-stock exchange with Bashney Biscuit, which had been involuntarily dissolved on Dec. 16, 1981. The company was renamed Magna Technologies Inc.

"Even if a company is bankrupt, the SEC registration is worth $100,000 to $200,000," said David Sedore, a penny stock expert who follows Florida businesses. "Exchanges like this were done all the time in the mid-1980s."

Between March and October of 1985, the three Los Angeles defendants began vigorously trading the shares, allegedly engaging in at least 21 buys and sells to prop up the price of the shares. In addition, 25 nominee purchases were allegedly sponsored by the four indicted men, causing the company's shares to appear active.

Through the trading, shares of Magna Technologies rocketed to $9.50 a share from its 50 cents a share opening.

Last week, the SEC listed Magna Technologies at .004 cents a share, making the 6 million shares virtually worthless.

The company was involuntarily dissolved Nov. 14, 1986.

Jacob Rubenstein, one Los Angeles businessmen named in the indictment, is a fugitive, according to the FBI. He is named in the indictment as a "promoter of Magna Technologies stock."

Jacob Gutstein, the Agoura plastic surgeon named in the grand jury indictment, was chairman of the board of directors of Magna Technologies, as well as a major shareholder. He refused to comment. He is listed by the California State Medical Board as an active practitioner. His attorney, Joel Levine, did not return telephone calls.

Until the company began active trading March 11, 1985, Magna Technologies was operated out of Gutstein's plastic reconstructive surgery office, according to court records.

Robert Victor, "part-owner of several automotive businesses in the Los Angeles area," was named in the indictment as owner "of a substantial number of shares in Magna Technologies, both in his own name and through the securities accounts of his nominees."

Victor was an early partner with Minkow in B&M Insurance Services Inc., providing financing for ZZZZ Best's restoration accounts. The company collected payments from insurance companies for ZZZZ Best work. In addition, when ZZZZ Best went public, Victor was a major shareholder in the company. He was not implicated in any wrongdoing in the ZZZZ Best case.

Beginning in July 1985, and ending in September 1985, according to the Magna Technologies indictment, Victor engaged in 15 separate stock transactions of Magna Technologies stock.

Stone, a stockbroker at the now-defunct New York-based Norbay Securities Inc. brokerage house, was the "primary market maker for Magna stock."

Norbay was mentioned during last fall's House Subcommittee on Commerce and Telecommunications' hearing into penny-stock fraud.

Trial has been set for Nov. 27, because of the complexities of the case, according to the U.S. Attorney.

Magna Technologies is not related to Magnetek Inc., a publicly held electrical equipment company based in Los Angeles.