The head of a technology company, jailed for contempt of court in a stock fraud case, was indicted by a federal grand jury on charges he fraudulently pitching stocks during conference calls from jail.
The 30-count indictment by a federal grand jury in Los Angeles charged Michael Gartner with securities fraud, wire fraud, mail fraud and money laundering in connection with sale of shares in companies he controlled. Those companies were InterLink Data Network of Los Angeles, InterLink Fiber Optic Partners and Interlink Video Phone Partners.In January, Gartner was jailed for civil contempt in the Metropolitan Detention Center in Los Angeles for violating a judge's order that he turn over $12.3 million. The order stems from Securities and Exchange Commission charges that Gartner engaged in widespread fraud in raising more than $12 million for a video telephone network.
A fiber-optic cable and the video telephones were never made, according to court records.
While in jail, Gartner's sister, Yvette Gartner, sought investors in Canada for a new venture to make video telephones, the indictment says. In February and March, she arranged three-way conference calls with the investors and Gartner, where they gave three Canadian investors misleading information about the investments, the indictment said.
The investors were falsely told Gartner "was traveling between the various offices of the new company during March 1994," when he was actually in jail, the indictment said. The grand jury's indictment was returned Aug. 17 and announced by the Securities and Exchange Commission on Tuesday.
Prosecutors handling the case said they were surprised at Gartner's conduct.
"Quite frankly, they're usually not that bold," said Debra Yang, an assistant U.S. attorney in Los Angeles.
The case began in May 1993, when the SEC charged the Costa Mesa, Calif.-based InterLink companies defrauded investors with the sale of more than $12 million in unregistered securities. The SEC also charged that Gartner and the defendants controlled a Los Angeles-area brokerage firm, Portfolio Asset Management, which sold the Interlink securities in a large boiler-room operation.
"Investors were not told that their funds would be used to finance Gartner's personal extravagances," said an opinion by U.S. District Judge Manuel Real. He said Gartner diverted $2 million for purely personal items, such as $20,000 monthly rent on a mansion in San Juan Capistrano, Calif.; $105,000 to decorate the home; $800,000 for furniture and fixtures; and $60,000 for a fish tank.
Real said 565 investors put their money into the InterLink companies, many of whom were retired and lived on fixed incomes.
"Many of their lives are now ruined," Real said.
Telephone calls to Gartner's attorneys in California weren't immediately returned.