By Stephen Young
By Stephen Young
By Stephen Young
By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
Even Lewellyn speaks warmly of him. "I haven't had any contact with Charley for years now," he says, sounding almost sentimental. Bazarian, Lewellyn says, was "a short, fat guy who could absolutely charm to no end. He was the most unique personality, not an educated person, but he had a Ph.D. in how to get people to do things. He had an uncanny ability to appeal to all our basic desires."
The things the short, fat guy could charm people into doing, however, also got them in serious trouble. "Charley was radioactive," Lewellyn says. "Anyone who got close was dusted."
In the complaint the SEC filed against Bazarian and Lewellyn in December 1994 in federal court in Oklahoma, the federal agency alleges that Lewellyn came to Bazarian in 1991 seeking help to finance his money-strapped company. In response, Bazarian promised to help merge Performance Nutrition with an existing public company he controlled, Omnet Corporation, and provide Lewellyn with $500,000 in cash.
But the SEC alleges that Lewellyn knew Bazarian had legal problems, knew he had previously been accused of falsely pumping the price of other stocks, and knew that the Oklahoma-based operator intended to get the $500,000 he had pledged to Lewellyn by boosting the price of Omnet before the merger on the basis of false information about Performance Nutrition.
Together, Bazarian and Lewellyn, the SEC alleges, concocted a scheme to boost the stock. The two invited professional team coaches who had endorsed Performance Nutrition products and stockbrokers to enjoy all-expenses-paid recreational weekends in early 1992. The events included trips to the horse races, as well as prostitutes that Bazarian provided, the SEC alleges.
The real objective at those retreats, according to the SEC, was to sell Omnet stock, which would, in turn, help boost the price. Lewellyn also knew, the SEC alleges, that a Bazarian-controlled company had issued misleading press releases--one that stated Omnet had a $500,000 contract with a company (in reality, the concern had no assets), and another that said Omnet would sell a Resolution Trust Corporation debt it had acquired to another company (which, it was later revealed, also had no assets). Bazarian's efforts, the SEC alleges, increased the Omnet stock price from $.38 to $8.
Lewellyn also tried on his own to conceal information from potential investors, the SEC alleges. A few days after the merger of Performance Nutrition and Omnet, Lewellyn resigned his position as president and director and hired a retiree from Oklahoma to fill his spot. He did so, the SEC contends in its court filings, to avoid having to disclose his previous criminal convictions.
Lewellyn offers a different take on the events of 1991 and 1992. "Charley was a guy who, at about the time we made a determination we needed to raise some capital, happened to be standing there saying, 'I have a public shell,'" Lewellyn says. Performance Nutrition needed money to get from the relatively limited specialty marketplace of sports training tables to the broader, more lucrative retail market.
Lewellyn says he did not know that Bazarian intended to inflate the Omnet stock price. The proof of his ignorance, Lewellyn argues, was that he personally made no money when the Omnet stock price rocketed. Instead, he says, he took the heat when the investors who had bought Omnet shares complained when the stock price began dropping soon after the merger with Performance Nutrition.
Lewellyn also denies that he intentionally tried to circumvent any requirements to disclose his criminal past. In a deposition, Lewellyn argued that his resignation reflected a business strategy rather than a ploy to deceive shareholders. "The theory was, bring in an administrative guy with years of experience who didn't possess any so-called baggage and allow him to develop the administrative aspect of the company here in Oklahoma City," Lewellyn testified.
Had he been president at the time of the merger in 1992, Lewellyn argues, he would not have been required to disclose his 1982 conviction, because the SEC rules only require reporting events of the five previous years. The agency's rules, however, do require directors and officers of a company to disclose any background information materially significant to an investor. A criminal conviction like Lewellyn's could easily be deemed material, says SEC spokesman Harold Degenhardt. But Lewellyn points out that the SEC may be less confident on that point, given that the agency is still not requiring any such disclosure from him.
Lewellyn says the SEC wants to settle this case because it is "embarrassed" by how weak the case is. The agency is no longer seeking to bar him from operating a publicly traded company, he says. It only wants him to agree to an injunction forbidding him from violating securities law again. The deal will not require him to admit or deny guilt, Lewellyn says.
Degenhardt confirms that the agency's lawyers and Lewellyn's counsel are now working on the language of a settlement. But Degenhardt declined to provide further details of the pending case.
That the SEC case has stretched on for two years boosts Lewellyn's confidence. "If this were a horrible deal," Lewellyn speculates, "they'd go to a judge, get a temporary restraining order, and they'd kaboom ya."