Two former executives of a Charleston-based medical device company have been indicted on securities fraud and conspiracy charges, according to documents filed in federal court this week.
Rondald Wheet, 51, the former CEO of Revolutions Medical Corp., and the company’s investor relations representative, 45-year-old Bryon Scott Key, are accused of fraudulently issuing shares of company stock and making false statements to the U.S. Securities and Exchange Commission.
Scott also faces two charges of money laundering.
“This district is applying significant resources to Securities and Exchange Commission cases,” U.S. Attorney Bill Nettles said in a statement. “The mission of enforcing SEC cases is essential to a stable economy.”
The indictment alleges that Wheet and Key fraudulently issued more than 1.2 million shares of Revolutions Medical stock, which were traded over the counter, to at least 11 unnamed individuals by using falsified statements filed with the SEC.
The statements, according to the indictment, claimed the stock was issued as payment for consulting work and other services. Wheet and Key are accused of creating fraudulent consulting agreements to back up the filings.
Wheet and Key “knew no such services had in fact been rendered, the consultant agreements were a sham and no shares of stock were issued pursuant to any consultant agreement,” the indictment states.
The two men also filed false stock registration statements with the SEC on at least five occasions, the indictment states.
Wheet faces a maximum 80-year prison sentence and Key faces a maximum 120-year prison sentence if convicted. In addition, the government is seeking nearly $1 million in restitution for money it says the pair made off the illegal scheme.
The criminal charges follow a civil lawsuit filed by the SEC against Wheet and the company. That case, which was tried last year in Atlanta, ended in a mistrial after a jury said it was deadlocked. The SEC has said it plans to retry the matter.
In the civil lawsuit, the SEC said the company issued press releases that misled investors into thinking its main product, a retractable syringe, was in the final stages of development or commercialization.
The news releases allowed Wheet and the company to borrow about $1 million from a Boston hedge fund at prices lower than if the shares had reflected the company’s true value, according to the lawsuit.
At the time the press releases were issued, the lawsuit states, Revolutions Medical had not been able to develop a syringe that was safe and would pass government standards. The press releases, however, said the company was close to signing distribution agreements worldwide, that the syringe was immediately available for purchase and that the company was about to get a contract with the U.S. military.
The SEC said Revolutions Medical and Wheet knew the syringe wasn’t approved to be sold during the period in question and that Revolutions Medical had no contract with the military.
The misleading information caused the company’s stock price to climb from 28 cents a share to $1.74 a share between Aug. 23, 2010, and Sept. 16, 2010, according to the lawsuit.
Wheet denied any wrongdoing in the civil case, saying in a deposition that “I do not issue false press releases.”
Wheet and Key are scheduled to be arraigned on the criminal charges Feb. 24 in U.S. District Court in Charleston.
Reach David Wren at 843-937-5550 or on Twitter at @David_Wren_