SEC Accuses Futrex Incorporated of FraudFrom an article in the Washington Post, September 24, 1996, by Kathleen Day
The Securities and Exchange Commission (SEC) accused Futrex Incorporated of securities fraud for claiming that it's Dream Beam device can measure blood sugar levels. According to the civil complaint files by the SEC against Futrex Inc. and its top executive, Robert D. Rosenthal, Futrex made false claims to investors during a private placement that raised US$1.8 million in 1994 and during a proposed US$18 million initial public offering (IPO) last year. Futrex canceled its IPO after the government began its investigation, according to the SEC.
The complaint, filed in U.S. District Court in Washington, asks the company to stop making false claims and to return money taken from investors in the private offering. In addition, the government is seeking civil damages against Rosenthal that could be as much as $100,000 for each of the several counts of fraud alleged.
The SEC said Rosenthal claimed the Dream Beam could analyze and measure glucose levels in the blood, when in fact the company had no scientific information to back up that claim. The SEC said that Futrex and Rosenthal failed to disclose to investors and potential investors that the device failed tests in the early 1990s.
The suit further alleges that, during meetings with potential investors, Rosenthal used the machine on himself and claimed it had accurately read his blood sugar when in fact he had directed a Futrex employee "to program a Dream Beam to function as if it were giving a glucose reading."
"The Dream Beam readings Rosenthal demonstrated at investor meetings were meaningless and intended solely to deceive potential investors," the SEC said. The lawsuit said no Futrex employee "has ever reviewed or analyzed any data that would support claims" made by the company and Rosenthal.
Eli Lilly & Co. paid US$1.5 million for 15 percent of Futrex's stock in 1989, but then sold the shares back to Futrex for US$1 in 1993, according to the SEC.
Update: SEC obtains final judgements concluding the Futrex securities fraud case. (The article about Futrex is one-forth of the way down the page.) [March 21, 1999]
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