Sidney Johnson

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 18874 / September 9, 2004

UNITED STATES OF AMERICA v. SIDNEY JOHNSON, United States District Court for the District of Vermont, Crim. No. 2:04-CR-95

GRAND JURY INDICTS STOCK PROMOTER ON MAIL FRAUD AND MONEY LAUNDERING CHARGES

The Commission announced today that, on July 6, 2004, Sidney A. Johnson of Newfane, Vermont and Brooklyn, New York, was criminally indicted on mail fraud and money laundering charges by a federal grand jury convened by the United States Attorney for the District of Vermont. Johnson was arraigned and pleaded not guilty on July 9. The Commission charged Johnson with violations of the federal securities laws, in December 2000, based on related conduct.

According to the indictment, Johnson was the registered agent for Kultivar, Inc., a Vermont corporation that held itself out to the public as being involved in the research, development and marketing of herbal and natural products. Johnson's wife was the secretary, a director and the majority shareholder of Kultivar. The indictment alleges that, between 1997 and 2000, investors throughout the United States were solicited to purchase shares of Kultivar stock and, through the solicitation, approximately 150 people were induced to invest a total of about $2 million in Kultivar. The indictment further alleges that the promotional materials used in the solicitation contained materially false and fraudulent statements and representations, including claims regarding, among other things, Kultivar's real estate holdings and other assets, research and cultivation facilities, patents, contracts, products ready for market and projected revenues and profits. According to the indictment, Johnson wrote or participated in writing the promotional materials that were sent to prospective investors. The indictment also alleges that Johnson personally made false and fraudulent representations to prospective investors regarding a future public offering of Kultivar stock and the significant increase of the stock's price that would follow. In addition, the indictment alleges that Johnson diverted some of the proceeds from the sale of Kultivar stock to his own use and that he used several bank accounts in an effort to conceal his diversion of the funds. The indictment charges Johnson with fourteen counts of mail fraud and one count of money laundering.

In the civil action brought by the Commission in December 2000, the United States District Court in Vermont issued a temporary restraining order against Johnson, Kultivar and others in connection with the fraudulent stock offering. In August 2002, by consent, the Court permanently enjoined Johnson from future violations of the antifraud and securities registration provisions of the federal securities laws and ordered him to disgorge his ill-gotten gains. Also in August 2002, in settled administrative proceedings based on the entry of the injunction, the Commission barred Johnson from participation in any offering of penny stock. In September 2003, a court-appointed receiver distributed all disgorged funds and liquidated assets to the victims of the fraud. For further information, see Litigation Release No. 16837 (December 21, 2000).