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First United Equities Corp. made big news earlier this month when federal authorities revealed that the brokerage, along with Lexington Capital Corp. and AGS Financial Group, had bilked former tennis star Steffi Graf, football player Bryan Cox and other investors of more than $50 million before the Securities and Exchange Commission shut them down in 1998. Less publicized are recent federal charges not only of securities fraud, but also of narcotics money laundering against the former owner of Lexington Capital, lawyer Alan Berkun, and another associate of the firm, Joseph Marc Blumenthal. Despite periodic attention from the authorities over the past three years, Berkun and Blumenthal have continued to offer their services as merger and acquisition consultants. Their payment was huge quantities of shares in their client companies, many of which subsequently failed after unusually volatile share trading patterns. Berkun established Lexington Capital as Marlowe & Co. in Hauppauge, N.Y., but in early 1997 a new group of investors originally affiliated with First United Equities moved in on the company. According to the federal indictment recently made public, Hunter Adams, an alleged associate of the Gambino organized crime family, his brother Gregg Adams, and Roberto Mangiarano became undisclosed and unregistered principals of Marlowe, which was renamed Lexington Capital. “When these people moved in it was basically their shop,” said a member of the Brooklyn District Attorney’s office who asked not to be identified. Authorities believe organized crime remained associated with Lexington after it changed its name again to Preston Langley Asset Management Inc. Federal authorities believe mobsters used Lexington, First United and AGS Financial to defraud shareholders by illegally manipulating the stock of certain thinly capitalized startups through classic pump-and-dump schemes. Corporate filings show that Berkun continued to be associated with Lexington (and Preston Langley) while the Mafia was allegedly running the company. If these and other federal charges prove true, they raise serious questions not only about Berkun’s and Blumenthal’s practices, but also about their motives and fitness as M&A advisers. Already in November 1998, Berkun and Blumenthal settled allegations by NASD Regulation Inc. (the regulatory arm of the National Association of Securities Dealers Inc.) of a variety of securities violations at Marlowe/Lexington, including defrauding investors with penny stock. Apart from paying fines, Berkun was barred from associating with any NASD member until the beginning of this year, and Blumenthal was barred permanently. Since then, federal indictments have come down in the U.S. District Court for the Eastern District of New York against Berkun and others for alleged securities fraud at Marlowe & Co., and against Blumenthal for alleged securities fraud activities at other firms. More disturbingly, in the middle of last year, Berkun, Blumenthal and an associate named Karlton Zamost, who has since died, were arrested on allegations of laundering the proceeds of narcotics trafficking in late 1998. According to a sworn affidavit by an officer of the U.S. Customs Service, a confidential informant and an undercover Customs Department agent first approached Berkun, Blumenthal and Zamost in September 1998. According to the Customs affidavit, all three men were presented with large sums of cash, including $50,000 once and $100,000 twice, on the explicit understanding that the money was the proceeds of narcotics trafficking. The larger sums were exchanged for checks drawn on the account of Blumenthal’s company, JB Marc & Associates Inc. Blumenthal in late March pleaded guilty to the charges against him in both the money laundering and the securities fraud cases in New York. Berkun is scheduled to stand trial in June on the separate indictments against him in the New York Eastern and Southern District Courts. Over the past three years, Berkun and Blumenthal have offered their services as consultants to several over-the-counter bulletin board companies seeking mergers or acquisitions, for which they received large quantities of unregistered shares. In most cases, these companies were newly formed through reverse mergers, and most eventually descended into bankruptcy or the Pink Sheets after a period of market turbulence. Berkun signed his first such consulting agreement while with Lexington Capital in October 1997. Sterling Worldwide Corp., a recently restructured company, gave Berkun options to purchase shares at $5.50 per share in return for his efforts in identifying a suitable merger candidate. Lexington also was retained as investment banker at $4,000 per month for six months, with Berkun to receive a finder’s fee for any successful merger he arranged. Sterling embarked on a string of acquisitions involving tropical resorts, gold mines and gambling software vendors, but by the end of September 1998 it was unable to report substantial revenues from any of its operations. Sterling also initiated a lawsuit against Berkun and Lexington, claiming Berkun had taken his stock options without ever paying for the shares (The company eventually terminated the proceedings.) After an aborted merger with a golf resort company in late 1999, Sterling, by then renamed Sun Quest Holdings Ltd., ceased operations and disappeared. Beginning in late 1999 Berkun signed consulting agreements with six more financially fragile companies. In each case he was tasked with arranging mergers and paid in the form of large stock holdings. In all but one case, he received the shares free and clear, instead of through stock options as with Sterling. The fates of the companies, their aggressive promotion by a variety of Internet financial newsletters and their volatile share trading patterns, show a remarkable similarity: Thermacell Technologies Inc. (VCLL ) — Berkun signed a consulting agreement in September 1999 for 450,000 shares, and another agreement in February 2000 for 850,000 shares. In January 2000 VCLL, a producer of paints and insulated coatings, announced it would acquire American HealthCare Providers Inc., which had recently announced an agreement to dispense medications at a group of medical centers in the metropolitan New York area. Thermacell’s share price spiked near $6 in December and again around February. But on March 8 the merger agreement fell through, and the company’s share began a steady decline. VCLL now trades on the Pink Sheets at negligible volume. Far East Ventures Inc. (FEVI) — On the same day in February 2000 that Berkun signed his second consulting agreement with Thermacell, he made a similar arrangement with Far East Ventures, again to identify merger targets. FEVI signed an identical contract on March 21 with JB Marc, Joseph Blumenthal’s company. Berkun and JB Marc each received 900,000 shares of FEVI shares as payment. (The address on the agreements is the same Manhattan office where Berkun and Blumenthal allegedly laundered money through JB Marc for the undercover Customs agents in late 1998.) Already in January a variety of Internet newsletters had begun informing investors of FEVI’s offers to buy racetracks and casino airlines, with more deals announced in the following months. A securities industry newsletter, StockPatrol.com, noted that FEVI’s share price ranged from 30 cents to $17 between January and May. But all of the gambling-related deals ultimately fell through. Finally, in August 2000, the company announced a reverse merger with a prepaid telephone card company, Sophisticated Communications Inc., whose executives booted out FEVI’s old management and renamed the company Nico Telecom. But Nico filed for Chapter 11 bankruptcy last month. Earlier this month the SEC arrested Jeremy Johnson, operator of the Internet newsletter RumorSearch.com, on allegations of touting FEVI in a pump-and-dump scheme in early 2000. Johnson agreed to disgorge profits and pay civil penalties without admitting or denying guilt. Johnson told Salt Lake City’s Deseret News that he had stopped working for FEVI soon after realizing the company was providing him with incorrect information. Pacific Cart Services Inc. (PFCS) — Originally a marketer of hot dog vending carts, PFCS confirmed a consulting agreement with Berkun in March 2000. Berkun received 1.22 million nonrefundable shares in return for finding a merger candidate, but apart from an agreement to invest in a mining company called United Kino Hill Mines Ltd. in February 2000 and a further investment in United Kino in early October, PFCS did not announce any deals. PFCS’s share price rose to about $2 on heavy volume in late March 2000 before slumping to below 25 cents within a few weeks. A slight resurgence to 50 cents per share last September and early October did not last. PFCS hasn’t submitted any filings to the SEC since September 2000 and is currently trading on the Pink Sheets at around a tenth of a cent per share. Infotopia Inc. (IFTP) — IFTP, an infomercial production company, confirmed a consulting agreement with Berkun in May 2000, soon after it was spun off from National Boston Medical Inc. and merged with a bulletin board company, Dr. Abravenal’s Formulas Inc. Berkun was to receive 700,000 shares of IFTP upon successful completion of a merger. Another lawyer, Jeffrey E. Jacobson, signed a similar agreement with IFTP at the same time. In June Berkun and Jacobson each received more than 1.3 million unrestricted shares in payment for unspecified legal and consulting services. In addition, Berkun in July registered the prospective sale of more than 8 million IFTP shares held in escrow for other shareholders. IFTP CEO Daniel Hoyng has repeatedly assured investors that acquisition talks are under way, but no mergers have materialized to date. In the meantime, IFTP acquired exclusive marketing rights to products such as the Torso Tiger exercise device, and Hot Mommies, a system designed to restore the vigor and libido of young mothers. Numerous press releases and tout sheets failed to inspire investors, and IFTP’s share price plunged from $5 at the beginning of May to penny-stock levels by June. It now trades on the Pink Sheets for about 10 cents a share. The company made a modest, temporary recovery in August and September. That was around the time it retired 100 percent of its debt through equity placements of a total of 25 million shares with JB Marc and Thomson Kernaghan & Co., a Canadian brokerage that had been a defendant in at least two previous lawsuits alleging stock manipulation. American Inflatables Inc. (BLMP) — BLMP, a balloon advertising company, went public through a reverse merger at the end of 1999. Berkun signed a consulting agreement with BLMP in June 2000 under which his efforts to identify merger and acquisition targets were rewarded with 400,000 nonrefundable shares. In October, BLMP announced the acquisition of Lunar Lights and Lune Moon Balloon Inc., a “premier commercial lighting company,” but to date the acquisition does not appear to have been registered with the SEC. On October 25 BLMP announced that National Paintball Supply Co. Inc. of Greenville, S.C., would acquire it. A shareholder meeting to approve the merger is scheduled for June 15. The mergers seem to have done little for BLMP’s share price, which traded at above $2 at the time Berkun signed his consulting agreement, but now hovers at about 50 cents. Med Gen Inc. (MGNI) — Perhaps his arrests for money laundering and securities fraud in June 2000 slowed down Berkun’s consulting business for a while, as he appears not to have signed any agreements in the last half of 2000. But he climbed back into the saddle on Jan. 10, confirming a consulting agreement with MGNI, a manufacturer and marketer of anti-snoring tonics and other health products. Berkun’s merger-related efforts were rewarded with nonrefundable options to buy a total of 1.52 million shares in various large blocks at prices ranging from 50 cents to $1.50 per share. MGNI in November had announced a merger with Magnetherapy Inc., a producer of magnetic health products. The company’s share price continued to trade at about 40 cents throughout December and the first part of January. But it suddenly shot up in the last half of January, hitting $1 in February in spite of an announcement on Jan. 30 that the Magnetherapy merger had fallen through. On March 8 MGNI announced it would acquire Akora Inc., the main distributor of its anti-snoring tonic in France. MGNI’s share price has dropped steadily since the announcement and now trades at roughly 55 cents. The CEO of MGNI, Paul Kravitz, said Berkun is working with the company on the Akora deal, but that he had not introduced the companies. He didn’t know if Berkun had exercised any of his stock options. Asked whether Berkun had informed him of his pending indictments when the consulting agreement was signed, Kravitz, clearly nonplussed, said he had “no idea” that Berkun was facing charges. He added, “If he’s convicted we’d like to know. But anybody can be charged with anything. A man’s reputation is at stake. It’s a terrible thing to convict a man in the newspapers.” Kravitz said, however, that he would raise the issue with Berkun. Apart from Berkun’s consulting agreements, JB Marc also received shares in return for consulting agreements with three companies between 1997 and early 2000: Pacific Sands Inc., Saratoga International Holding Corp. and Affordable Telecommunications Tech Corp. All are currently trading below 25 cents. Attempts to contact Berkun and Blumenthal through their lawyers were unsuccessful. Copyright (c)2001 TDD, LLC. All rights reserved.

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