PROVIDENCE, R.I. (CN) – A disbarred attorney who served 2 years for wire fraud got out of prison and scammed investors for $170,000 in his Web-based company, Online Medical Registries, the SEC claims in Federal Court. It sued David G. Stern, 64, of Newport, R.I., claiming that he scooped up $170,000, but only $274 remains in his company’s bank account: “Stern has misappropriated substantially all of investors’ funds for personal use.”
The SEC says Stern persuaded at least 10 people to invest in Online-Registries dba Online Medical Registries, or OMR. He described it as a Web-based “service” that would revolutionize the way emergency room doctors get information about patients, through digitally storing, organizing and disseminating confidential medical information to authorized recipients.
Stern told investors he had successfully beta tested the technology in a major hospital in Rhode Island – though he hadn’t – and said it had 18,000 subscribers, which also was untrue, the SEC says.
“OMR has little, if any, ongoing business operation, and Stern has misappropriated substantially all of investors’ funds for personal use,” according to the complaint.
One investor told the SEC that Stern told him the company’s stock would be worth more than $100 million in April this year, after “partnering” with Google Health.
The partnership with Google was actually a generic Web-based application that did not require any type of negotiation and allowed Online Registries, and dozens of other companies, to become third-party service providers to Google Health, the SEC says. The relationship did not require Google Health to make payments to Online-Registries, “and it did not obligate Google Health to do anything to promote or advertise OMR’s service,” the complaint states.
Stern was disbarred in Massachusetts in 1997 after he transferred more than $3.5 million from a client’s trust to a company in which he had an interest, according to the complaint.
He was convicted of mail fraud and wire fraud in 2002 and served more than 2 years in prison for soliciting clients for investment and spending the money on himself, and failing to inform investors about his checkered past, the SEC says.
When investors found out about his disbarment and criminal past, he told them he had been found innocent at trial, and persuaded one investor, who had put a stop payment on the check he had written to Online-Registries, to write another check by showing him documents that he claimed were proof he had been exonerated, according to the complaint.
The SEC sued Stern’s housemate, Michelle Ritter, 56, as a relief defendant.
It claims that “Of the approximately $170,000 that Stern obtained from investors, Stern appropriated $68,100 of that sum by writing checks payable to himself, and another $29,500 by writing checks payable to relief defendant Ritter.”
It adds that many “point of sale withdrawals from the bank account were made at restaurants and gas stations.”
“Since July 2010, all of the sales employees who had been hired in the spring and early summer of 2010 to sell OMR’s products have left the company,” the SEC says.
Stern took in $50,000 in June this year, and by July had transferred at least $41,000 of it to himself and Ritter, the SEC says. And in a masterpiece of understatement, it adds: “The personal relationship between Stern and relief defendant Ritter and the July 2010 transfers indicate diversion and misuse of the OMR investors’ funds.”
The SEC wants Stern’s and OMR’s assets frozen, disgorgement, penalties and an injunction.