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    United States Attorney's Office
    Central District of California

    Thom Mrozek
    Public Affairs Officer

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    Release No. 11-052

    April 7, 2011


    LOS ANGELES – Two former executives of a publicly traded corporation have each been sentenced to 30 months in federal prison for illegally selling unregistered stock in their company.

    Richard A. Bailey, 55, and Florian R. Ternes, 62, both of Las Vegas, Nevada, who respectively were the chief executive officer and the chief operating officer of Gateway Distributors, Inc., were sentenced Monday by United States District Judge Otis D. Wright II.

    Bailey and Ternes were convicted in October of two counts of issuing and selling unregistered stock. During a week-long trial in United States District Court, prosecutors presented evidence that Bailey and Ternes issued more than $600,000 worth of Gateway stock in an effort to circumvent federal securities registration laws. At the time of the issuance in 2004, Bailey and Ternes claimed that the stock issuance represented payment of fees to a purported Gateway consultant, and they filed false stock registration statements with the Securities and Exchange Commission. 

    In reality, the stock was issued to a friend of Bailey and Ternes who provided no legitimate services for Gateway. In return, the friend sold the illegally issued shares, and the proceeds of the transaction were then covertly returned to Gateway. Bailey and Ternes used the proceeds of the stock sales to finance acquisition of a fishing lodge in Utah and a commercial office building/warehouse in Las Vegas.

    Bailey and Ternes have been in jail since Judge Wright remanded them into custody following their trial in October.

    Gateway was a Nevada-based company involved in the sale of nutritional supplements. Gateway’s stock was publicly traded on the Over-the-Counter Bulletin Board.

    The investigation into Bailey and Ternes was conducted by the Federal Bureau of Investigation and IRS - Criminal Investigation, which received the assistance of the Chicago Regional Office of the Securities and Exchange Commission.


    Release No. 11-052
    Return to the 2011 Press Release Index