EESO - SEC News - $1.8 million of unregistered stock sold

Company accused in securities 'scheme': SEC injunction issued against enzyme company, its CEO.


Oct. 1 --A Fort Wayne company and its chief executive officer allegedly made $1.8 million issuing unregistered stock beginning last year, according to a complaint filed by the Securities and Exchange Comission.

The SEC has asked a U.S. District Court in Florida to issue a permanent injunction against Jared E. Hochstedler , 33, of Fort Wayne , and Enzyme Environmental Solutions , 6020 Huguenard Road , to stop the securities "scheme." The SEC also asked the court to order the defendants to turn over all the "ill-gotten gains" earned through the stock issues and to pay civil penalties as determined by the court.

According to the SEC filing, here's how the stock operation worked: Hochstedler and Enzyme Solutions identified purported debts of more than $3 million owed to them by third parties, then issued a huge number of shares of stock -- about 2 billion shares -- in Enzyme Solutions to pay for those debts. In return, the third parties paid Hochstedler and Enzyme Solutions $1.8 million in separate transactions, then sold the billions of shares of stock for an average of less than a cent each.

The unregistered stock from Enzyme Solutions brought in several million dollars for the companies that received it when they sold the stock through "penny stock" exchanges, the SEC said.

The SEC filed its complaint a week ago. On Friday, the court issued a temporary restraining order against the company and Hochstedler preventing sales of more stock. This week, defendants in the case agreed to a preliminary injunction barring the stock sales. Paul Montoya , assistant regional director of the SEC in Chicago , said assets of the defendants have been frozen.

The problem with issuing stock that hasn't been properly registered, according to the SEC , is that it deprives investors of crucial information. For example, investors don't see audited financial statements from the issuing company. They aren't able to judge the impact on stock value that issuing another 2 billion shares of stock would have without the disclosures that come when a stock issue is properly registered.

The specifics in the case, according to the SEC allegations:

--Between February 2008 and June of this year, Hochstedler and Enzyme Solutions assigned $915,635 in debts to K&L International Enterprises and Signature Worldwide Advisors . K&L is a Florida company that says it is a direct-marketing and telemarketing company. Signature is a business with addresses in Minnesota and Florida . At the same time, those companies wrote promissory notes pledging to pay Hochstedler $651,564 .

--The debt agreements between Enzyme and the other companies allowed the other companies to convert that debt to shares of stock in Enzyme Solutions. From February 2008 to June of this year, Enzyme issued 1.8 billion shares of stock to the other two companies. In that same period, the companies paid Hochstedler about $592,000 , according to the SEC .

--The stock regulators say Hochstedler, Signature and K&L entered into a similar but larger agreement again in June of this year. This time, the debts allegedly owed to the companies were listed as $2.3 million . As of July 6 , about 200 million shares of Enzyme Solutions stock had been transferred to the other companies, which they credited as paying down $165,000 of the $2.3 million debt.

However, Hochstedler was paid $500,000 by K&L on June 8 , and he received $700,000 on June 25 from a company that the SEC said was controlled by Stephen W. Carnes , 45, of Apopka, Fla. Carnes is managing member of Signature Worldwide, according to the SEC .

On its Web site, Enzyme Solutions describes itself as a "manufacturer of industrial and agricultural enzyme products" and says it "strives to become a leader in ecological friendly green products, targeting the industrial and agricultural markets."

Hochstedler was not available for comment Wednesday.

On Monday, he issued a statement that said, "We are cooperating with the SEC and are currently evaluating our options for response. Until further notice, we will not issue any additional shares of stock."

In the same news release, the company said it is "a viable, active company and will continue to operate in all levels of research, sales, production and delivery.

President Mark Murphy will continue to lead the staff and team of independent contractors as they strive to establish the company as a significant player in the green cleaning and odor remediation markets."

The company's stock, which has traded for as much as 1 1/4 cents per share in the past, was trading in a range between 1/6 and 1/5 of a cent per share Wednesday.

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