UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 40125 / June 25, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9631 : In the Matter of :ORDER INSTITUTING PROCEEDINGS :PURSUANT TO SECTION 21C OF THE FRANK BERGER :SECURITIES EXCHANGE ACT OF 1934, :MAKING FINDINGS AND IMPOSING A :CEASE-AND-DESIST ORDER Respondent : I. The Commission deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Frank Berger ("Berger" or Respondent ) violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. II. In anticipation of the institution of these administrative proceedings, Respondent has submitted an Offer of Settlement, which the Commission has determined to accept. Solely for the purpose of this proceeding, and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, Respondent, without admitting or denying the findings set forth herein, consents to the issuance of this Order Instituting Proceedings, the entry of the findings contained herein, and the imposition of the remedial sanctions set forth below. ======END OF PAGE 1====== III. The Commission makes the following findings<(1)>: A.Respondent Berger, age 59, resides in Germantown, New York. During the relevant period, Berger believed himself to be and held himself out as the Chairman of the Board of Bio-Tech Industries, Inc. ( Bio-Tech ), although corporate records reflect that he did not officially hold that title. B.Facts 1.Background Bio-Tech, which was known as Twenty First Century Health, Inc. and located in Las Vegas, Nevada during the relevant period, held itself out as a new products development company in the field of health-related hygienic, home diagnostic, nutritional supplement and medical technology products. In or around October 1996, Bio-Tech hired Berger to market and support a line of liquid colloidal nutritional products. At the time, Bio-Tech was attempting to enter into the business of distributing these products to retail chains and had entered into an agreement with a third party manufacturer pursuant to which it could purchase the products packaged for retail sale. While Berger expended his efforts marketing the liquid colloidal products, Bio-Tech was involved in a separate venture, funding the research and development of a non-invasive glucose monitor to enable diabetics to test their blood without having to draw any. In October and November 1996, Bio- Tech issued three press releases in which the company projected revenues of between $2.5 and $5 billion through sales of, what Bio-Tech labeled, a breakthrough medical device. On February 10, 1997, the Commission issued an order suspending trading in the securities of Bio-Tech for a ten-day period pursuant to Section 12(k) of the Exchange Act. The Commission s Order noted that there were questions raised about publicly disseminated information concerning, among other things, the existence, effectiveness, and marketability of the aforementioned breakthrough medical device purportedly licensed by Bio- Tech, and the size of the market for that device. <(1)> The facts, findings, and conclusions herein are made pursuant to the Respondent's Offer of Settlement and are not binding on any other person or entity named as a respondent or defendant in this or any other proceeding. ======END OF PAGE 2====== 2.Press Release Issued on February 13, 1997 On February 13, 1997, three days after the Commission s suspension order, Bio-Tech announced that it had launched "a new line of liquid colloidal supplements, including DHEA, that will be in some 9,000 to 10,000 stores nationally by April or May 1997." Further, the release stated that Bio- Tech's colloidal line contained "35 vitamins, minerals, extracts and hormones." Bio-Tech went on to state that the "colloidal line has already been accepted by the nation's largest health products retailer with 3,000 stores, as well as several of the largest nationally known drug store chains." The release also announced plans to launch an extensive nationwide advertising campaign. Berger was interviewed by Bio-Tech s public relations agent, who drafted the release based on the information Berger and others supplied. Berger reviewed the final release before it was issued. This press release was materially false and misleading in several respects. First, it fundamentally misdescribed Bio-Tech's nutritional products business. Bio-Tech did not "have" a line of nutritional products in the sense that it could manufacture them or had some proprietary rights to them. Rather, Bio-Tech was attempting to become a distributor, and had simply entered into a contract to purchase the products from Biophase Laboratories ( Biophase ), the manufacturer. Moreover, the contract neither established a price nor limited the terms on which Biophase could sell the same products through competing distributors, with the exception of DHEA. Although the contract provided that Bio-Tech would, with certain exceptions, be the exclusive marketer of Biophase's DHEA (a product over which Biophase possessed no proprietary rights), that exclusivity was conditioned on Bio-Tech purchasing nearly $1 million of that product in the first 15 months, and annually thereafter. The release did not disclose that Bio-Tech lacked the ability to finance any significant purchases of any of the nutritional products in its line, or to carry out the marketing blitz described in the release, or that the entire project depended on the successful completion of a public offering of stock by a Bio-Tech subsidiary. The statements concerning Bio-Tech's success in marketing those nutritional products were also materially false and misleading. The figures for the number of stores that would carry Bio-Tech's products were based on the assumption that they would be available in every retail outlet at several large retail chains. When the press release was issued, Berger and another Bio-Tech officer had made contacts with representatives from several large nutritional and drug store chains concerning the colloidal products. Only one retail chain, however, had placed an order, and that single order for one particular colloidal product was not placed until the day of the press release. None of the other retail chains had signed a contract, placed an order or otherwise agreed to carry any of the products offered by Bio-Tech. Moreover, although the press release emphasizes that Bio-Tech is unique in being the only firm to offer a "full line" of supplements containing 35 vitamins, minerals, and extracts in a colloidal form, Bio-Tech only had 12 items ready for sale at the time of the press release, and no retailer it had contacted had expressed interest in more than three colloidal products. ======END OF PAGE 3====== 3.Press Release Issued on February 14, 1997 One day later, on February 14, 1997, Bio-Tech issued another press release that others drafted but Berger reviewed, which announced that the company had signed a letter of intent to purchase Modern Tea Ball Service, Inc. ("Modern Tea") for 225,000 shares of Bio-Tech stock<(2)>. In the press release, Bio-Tech stated that "Modern Tea Ball Service grew from a small family business to become the premier tea packager for Lipton, Standard Brands and General Nutrition Corp., in addition to Boston Tea Co., Dunkin Donuts and First Colony Coffee and Tea Co." The description of Modern Tea in that release was materially false and misleading. Modern Tea is a family business that was started in 1943, but had been in decline since 1991 and had revenues of substantially less than $1 million in 1996. The press release also failed to state that, with the exception of First Colony which had purchases of approximately only $75,000 from Modern Tea in 1996, none of the companies listed as customers in the press release had been a customer since the 1970 s. Berger made no effort to determine whether the facts in that press release were accurate, although it was plain from certain materials Modern Tea had provided to Bio-Tech that they were not. IV. LEGAL DISCUSSION Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 make it unlawful for any person, directly or indirectly, in connection with the purchase or sale of a security, to make an untrue statement of material fact, omit to state a material fact, use any device, scheme or artifice to defraud, or engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. The in connection with requirement may be satisfied with a showing that the respondent s acts resulted in the issuer making a public announcement that could reasonably be expected to have caused investors to trade in the issuer s securities. See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1171 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). The respondent must also have acted with scienter, which includes knowing or intentional misconduct as well as recklessness. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 (1976); Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569 (9th Cir. 1990) (en banc), cert. denied, 499 U.S. 976 (1991). Misstatements and omissions are material if there is a substantial likelihood that a reasonable investor would consider the misstated or omitted facts important in making an investment decision. Basic v. Levinson, 485 U.S. 224 (1988); TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). Berger violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by supplying information for and approving Bio-Tech s materially false press release issued on February 13, 1997, and approving the materially <(2)> On February 5, 1997, the day the letter of intent was signed, Bio-Tech's stock closed at $9.1562. ======END OF PAGE 4====== false press release issued on February 14, 1997. Both releases were issued in the wake of a Commission trading suspension premised on questions concerning the accuracy of recent Bio-Tech press releases. Berger, who believed that he was Bio-Tech s Chairman of the Board, knew the facts that made the February 13, 1997 press release false. Aaron v. SEC, 446 U.S. 680, 690-95 (knowing or intentional false statements are actionable under Section 10(b) and Rule 10b-5). With respect to the February 14, 1997 press release, Berger took no steps to review whether the remarkable claims concerning Modern Tea were accurate. Accordingly, his conduct as to that release was at least reckless, and therefore satisfies the scienter requirement. Titan Capital Corp., at 1569 (reckless conduct is an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it ). The false statements and omissions in the relevant press releases were also material. See also SEC v. Management Dynamics, Inc., 515 F.2d 801 (2nd Cir. 1975) (press release making unrealistic sales projections and giving false impression that development of project was virtually certain when in fact formidable hurdles existed was materially false and misleading); SEC v. North American Research Development Corp., 375 F.Supp. 465, 470 (S.D.N.Y. 1974) (progress report materially false and misleading where information conveyed gave false impression that the company had the productive capacity and financial resources to carry out an extensive program of expansion). V. FINDINGS Based on the foregoing, the Commission finds that Berger violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. VI. ORDER In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Respondent's Offer of Settlement. ======END OF PAGE 5====== Accordingly, IT IS ORDERED that: Berger, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violation and committing or causing any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 6======