UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 40171 / July 6, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9643 _____________________________ : In the Matter of :ORDER INSTITUTING PROCEEDINGS :PURSUANT TO SECTION 21C OF THE Gaston E. Oxman, :SECURITIES EXCHANGE ACT OF 1934, :MAKING FINDINGS AND ORDERING Respondent. :RESPONDENT TO CEASE AND DESIST : _____________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that proceedings be, and they hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Gaston E. Oxman ("Oxman") caused violations by Novatek of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13 thereunder. II. In anticipation of the institution of these administrative proceedings, Oxman has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Under the terms of the Offer, Oxman, solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice and without admitting or denying the matters set forth herein, consents to the issuance of the Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Ordering Respondent to Cease and Desist (the "Order"). III. The Commission makes the following findings: RESPONDENT Gaston E. Oxman, age 59, is a Chilean citizen. Oxman served as Novatek's president and a member of Novatek's board of directors from August 1996 until he resigned both positions in October 1996. OTHER RELEVANT ENTITIES Novatek International, Inc. is a Colorado corporation whose principal office was located in Columbia, Maryland. Novatek purportedly markets and distributes rapid medical diagnostic test kits in South and Latin America and the Bahamas. Novatek's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and was traded on the NASDAQ SmallCap Market System until October 14, 1996, when the NASD suspended trading in the stock. This trading suspension remains in effect. On October 28, 1996, Novatek filed a voluntary petition for protection pursuant to Chapter 11 of the Federal Bankruptcy Code.[1] Universal HealthWatch, Inc. is a private company with its principal office located in Columbia, Maryland. Universal purportedly manufactures rapid medical diagnostic test kits for the detection of infectious diseases such as HIV and cholera. SUMMARY From April through September 1996, Novatek issued a series of press releases falsely stating that it had entered into contracts worth a total of $400 million with entities in various South American countries. Oxman, after joining Novatek in August 1996, read one or more of these press releases after Novatek issued them. Oxman also participated in negotiations with one or more of these South American entities and knew or should have known that these negotiations had not resulted in the contracts described in the press releases. Oxman took insufficient steps to ensure that Novatek corrected the false press releases of which he was aware or examine other press releases to confirm the accuracy of statements made therein. Oxman also did not take sufficient steps to ensure that Novatek's subsequent press releases were accurate. Novatek filed a quarterly report on Form 10-QSB on August 13, 1996, for the period ended June 30, 1996. This report contained false and misleading information with regard to, among other things, the status of a purported agreement between Novatek and an unnamed distributor in Mexico. Oxman, as president of the company, signed this Form 10-QSB, which he took no part in preparing, yet did not take sufficient steps to confirm the accuracy or completeness of the information therein. FACTS In August 1996, Oxman and others traveled to Brazil and participated in the negotiations with the Oswaldo Cruz Foundation ("Fiocruz"), an agency of the Brazilian government, that resulted in a purported "joint venture agreement" between Novatek and Fiocruz. Following the discussions with Fiocruz officials, one of Novatek's undisclosed principals drafted an agreement entitled "Memorandum of Understanding" ("MOU") that was subsequently executed by Oxman of behalf of Novatek, by Universal's president and CEO, on behalf of Universal, and by a Fiocruz official. The fact that Fiocruz signed the MOU indicates that Fiocruz was not dismissing Novatek out of hand. By its terms, however, the MOU was merely a preliminary step towards a final agreement. It stated, in relevant part, that the representatives of Novatek, Universal and Fiocruz "will negotiate an agreement for the purpose of establishing a joint venture between the parties." The MOU did not set forth important details such as dates on which manufacturing and distribution were to begin or whether importation of component parts for assembly in Brazil had been authorized. The MOU also contained certain material contingencies, such as the requirement that test results of the devices be satisfactory to Fiocruz and that any final agreement receive approval from the government of Brazil. On August 16, 1996, Novatek issued a press release stating that Novatek and Universal had entered into a joint venture with Fiocruz, a division of the federal government of Brazil, "wherein the technology for diagnostic kits produced by Universal Healthwatch will be transferred to the Novatek Joint Venture project." The term of the agreement was stated as ten years with "projected revenues exceeding $35 million dollars in the first year and expanding thereafter." The press release further stated that Novatek held the "exclusive license to market and distribute, throughout South America and Central America, 12 rapid medical testing devices manufactured by Universal HealthWatch, Inc." Oxman became aware of the press release after it was issued. On August 19, 1996, following receipt of a memorandum from Universal's president, Oxman sent a memorandum to William Trainor, someone he understood to be a Novatek control person and who had been involved in the Fiocruz negotiations. In his memorandum, Oxman asked Trainor whether he wanted him to return to Brazil to see "if we can upgrade our letter of agreement to a final contract. This will not happen until our products will be [sic] tested mainly by the Blood Bank Staff." Oxman further wrote that he had seen a "press release that indicated a contract had been signed. I am sure that this is a mistake since there are no contracts signed. Obviously we should remedy this situation as soon as possible." No corrective action was ever taken by Novatek and Oxman let the matter drop. As a Novatek officer and director, Oxman knew or should have known that his failure to take corrective action would cause Novatek's shareholders and the investing public to continue to receive false and misleading information regarding the purported contract with Fiocruz. Oxman, therefore, caused Novatek's violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.[2] On August 13, 1996, (prior to Novatek's issuance of the press release described above) Novatek filed a Form 10-QSB, signed by Oxman as president, for the period ended June 30, 1996. The MD&A section of this Form 10-QSB stated that Novatek was acting as a co-broker in an agreement to ship HIV test kits to a Mexican distributor. The MD&A went on to say that "the first shipment of the devices was made on May 14, 1996." This statement was false and misleading because Novatek never shipped any test kits pursuant to any purported agreement. Novatek's inclusion of this statement in the Form 10-QSB violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. Oxman, however, never reviewed the Form 10-QSB. Novatek's counsel sent Oxman the signature page, which he signed without conducting any independent review of the statements contained therein.[3] Oxman, therefore, caused Novatek's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.[4] IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to accept Respondent's Offer of Settlement. Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act that Oxman permanently cease and desist from committing or causing violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13 thereunder. By the Commission Jonathan G. Katz Secretary **FOOTNOTES** [1]:On June 18, 1998, the Commission filed a civil action against Novatek and others alleging violations of the antifraud, periodic reporting and other provisions of the Exchange Act. See SEC Litigation Release No. 15784 (June 18, 1998 ). [2]:Section 10(b) of the Exchange Act and Rule 10b-5 thereunder proscribe a variety of fraudulent practices, including the employment of any device, scheme or artifice to defraud, in connection with the purchase or sale of securities. A person may violate these provisions when, acting with the requisite scienter, he or she misrepresents a material fact or omits to state a fact necessary to make the facts stated not misleading. [3]:Oxman did not review or sign any other report filed with the Commission. [4]:Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 require issuers whose securities are registered with the Commission pursuant to Section 12 of the Exchange Act to file certain periodic reports that accurately disclose the results of the registrant's operations. The Commission need not prove scienter to establish a violation of Section 13(a).