LAS VEGAS (CN) – Two men armed with a patent for a device that allegedly enlarges soft tissue in humans ran a “pump and dump” scheme through a shell company that netted them $990,000, the Security Exchange Commission claims in Federal Court. The SEC says Daniel Kaiser and Stephen Roebuck formed VMT Scientific Inc. to promote a device called the “VasCir System” that they claimed, without credible medical or scientific support, stimulates blood flow, expands vascular tissue and promotes vascular tissue growth.
Kaiser and Roebuck claimed the device could prevent 100,000 diabetes-related amputations a year, the lawsuit states.
Kaiser was issued a patent in 2000 for the device, then called “Stimulations VII,” with which women allegedly could enlarge their breasts permanently by wearing a self-sealing vessel for several days while attached to a vacuum pump. Kaiser even claimed the device could help re-grow breasts that were removed by mastectomy, the SEC says. He formed a company called New Womyn Inc. to market it.
But Iowa’s attorney general sued after a consumer complained, and an Iowa court entered a default judgment against Kaiser and ordered him to shut down.
The Iowa Supreme Court affirmed the decision on May 12, 2004, noting in its opinion that a Food and Drug Administration expert testified at trial that a “breast pump similar to Stimulations VII was on display in the public lobby of the FDA building in a collection of what the agency labeled ‘quack devices.'”
In July 2003, with an appeal pending before the Iowa Supreme Court, Kaiser formed another company, Vacuum Medical Technologies, “in yet another attempt to exploit his ’tissue-enlargement’ patent,” the lawsuit states.
In 2005, Kaiser met Roebuck, who offered to help raise $2 million to $3 million for Vacuum Medical Technologies. Roebuck outlined how he would merge Vacuum Medical Technologies with VMT Scientific Inc., another defunct shell corporation, take control of unrestricted shares, pump up stock prices, then sell the shares to generate $2 million to $3 million in profits, the SEC claims.
In the merger, VMT agreed to pay “shareholders” of Vacuum Medical Technologies 120 million new restricted common voting shares of the company. Those shareholders were Kaiser and Roebuck, who each got half.
VMT then performed a reverse split of 1 share for every 75 old shares, and increased its authorized outstanding shares to 500 million.
Meanwhile, the SEC says, Kaiser and Roebuck created a Web site and issued several press releases to create buzz for their renamed device, now called “VasCir System,” with unfounded claims that that its “revolutionary technology … has already driven the need to file 10-plus additional patent applications … with many more to come,” the lawsuit states.
They compared the company’s growth potential to that of Microsoft and Apple, according to the complaint. Roebuck hired a stock promoter, who in turn hired three more stock promoters, who then hired at least two more stock promoters, in July or August 2005, the lawsuit states.
Between October and December 2005, the company’s stock price reached a high of 45 cents a share, with an average daily trading volume of 1 million shares. It sold nearly 9 million shares on Nov. 30, 2005.
Roebuck sold nearly 1.4 million shares for more than $790,000 through accounts in Panama, Turks and Caicos Islands and the Cayman Islands, according to the SEC. Roebuck then transferred $300,000 to the new company, and Kaiser used it to pay business expenses and his $81,491 salary and reimburse expenses, the lawsuit states.
On Dec. 6, 2005, attorneys for the company’s court-supervised custodian ordered it shut down. The duo complied three days later, according to the lawsuit.
But Roebuck wasn’t finished, the SEC says. He continued to dump his shares, and between Dec. 14, 2005 and July 20, 2006, sold 7.l2 millions shares through a Panamanian account, receiving proceeds of $202,889, according to the complaint.
The SEC wants the operation shut down, and seeks disgorgement and civil penalties.