United States Attorney John L. Ratcliffe
Eastern District of Texas
FOR IMMEDIATE RELEASE CONTACT: DAVILYN WALSTON
WEDNESDAY, NOVEMBER 14, 2007 PUBLIC INFORMATION OFFICER
WWW.USDOJ.GOV/USAO/txe PHONE: (409) 839-2538
CELL: (409) 553-9881
INTERNET EXECUTIVES SENTENCED FOR FRAUDULENT SECURITIES SCAM
TYLER, TX -- United States Attorney John L. Ratcliffe announced today that two internet executives have been sentenced to federal prison for a fraudulent securities scam in the Eastern District of Texas.
CURTIS SWANSON, 40, of Hamilton, Montana, and R. STEPHEN CAVENDER, 49, of Corsicana, were sentenced in federal court this afternoon by United States District Judge Michael H. Schneider. Swanson was sentenced to 10 years and a $10,000 fine and Cavender was sentenced to 5 years in the federal penitentiary.
In October, 2005, Swanson pleaded guilty to conspiracy to commit securities fraud, obstructing justice and money laundering. In November, 2005, Cavender pleaded guilty to money laundering and conspiracy to commit securities fraud. Swanson served as the Chief Financial Officer of RTIN Holdings, Inc. and later became their Chief Executive Officer. Cavender was a consultant with the firm prior to replacing Swanson as Chief Financial Officer.
According to information presented in court, Swanson and Cavender admitted they had intentionally and fraudulently inflated the price of shares of an internet prescription pharmacy company which was headquartered in Longview. Share prices of Safescript Pharmacies, Inc. were fraudulently inflated by misleading press reports and monetary transactions which were reflected on financial statements provided to the Securities and Exchange Commission and which were relied upon by the public. The transactions involved losses of more than $7 million.
RTIN controlled the use of a wireless transmission technology, which enabled independent doctors to transmit prescriptions for their patients directly to franchise pharmacies. The company provided the franchisees with the right to use the software transmission technology, to access ongoing software support resources and to establish pharmacies within a proscribed area. RTIN was a publicly traded company and was required to comply with United States Securities and Exchange Commission regulations.
Swanson released fraudulent and misleading press reports, indicating that RTIN had entered into franchise agreements including future payments the franchisees would make in the future. In one instance in March 2002, RTIN sold a franchise for a reported $500,000 cash and $4.5 million in stock. But in reality, the franchise was sold for $50,000 cash and a promissory note of $450,000, to be paid in periodic installments. Swanson disguised deposits of funds into Safescript accounts to create the appearance that the franchise, RxSystems, was making periodic payments. In December 2002, Swanson reported that RTIN sold a franchise to Mid-America Pharmacies, Inc. for $924,000 cash, when in reality, no money was actually paid.
In court, Swanson admitted that he made the bogus transactions to create the appearance that RTIN’s financial statements that were provided to the SEC and relied upon by the investing public, reflected the company with growing revenues, reliable cash flows, and solid profitability, when in fact, the company was highly speculative and was not generating revenue, earnings or cash flow at the levels recorded. Swanson admitted that he also obstructed justice by hindering the SEC's investigation into the fraudulent recognition of revenue by RTIN. He made numerous misrepresentations to the SEC and altered, destroyed and concealed documents.
The case was investigated by agents from the Internal Revenue Service, the Securities and Exchange Commission and the Federal Bureau of Investigation. The case was prosecuted by the late Wes Rivers, Assistant United States Attorney. Assistant United States Attorneys Jim Middleton and Arnold Spencer appeared for the United States at sentencing.
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