UNITED STATES SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 16142 / May 13, 1999 SECURITIES AND EXCHANGE COMMISSION v. DAVID A. COLVIN; INTELLINET PUBLISHING, INC.; INTELLINET HOLDING GROUP, INC.; MEDICAL ADVANTAGE, INC.; LAMELLI, INC. a/k/a LAMELLI MEDICAL TECHNOLOGY, INC.; WALL STREET RESEARCH COMPANY, INC.; JOB KJELL HOVIK; LAMAR ELLIS; and JOHN LARSON a/k/a JOHN ST. JOHN, Civil Action No. SA98-135 AHS (EEx) (C.D. Cal.) On April 14, 1999, the Honorable Alicemarie H. Stotler, United States District Judge for the Central District of California, granted the Commission's motion for summary judgment against Defendants David A. Colvin ("Colvin"), Job Kjell Hovik ("Hovik"), Lamar Ellis ("Ellis") and John Larson a/k/a John St. John ("Larson"). Judge Stotler found that the Defendants had made numerous fraudulent representations in offering and selling unregistered securities, including through Internet Web sites. The Court ordered permanent injunctive relief, full disgorgement of fraudulently obtained investor funds, and imposition of the maximum third tier penalty permitted by law against each Defendant. The Defendants, operating out of offices in the San Fernando Valley in Southern California, raised over $5.6 million from hundreds of investors nationwide from January 1997 until the Commission filed its action on February 19, 1998, and obtained a temporary restraining order, asset freeze order and appointment of a receiver over the entity Defendants on February 20, 1998. The Defendants offered and sold investments in Defendants Intellinet Publishing, Inc. ("Intellinet"); Medical Advantage, Inc. ("Medical Advantage"); and Lamelli, Inc. a/k/a Lamelli Medical Technology, Inc. ("Lamelli"), each of which is now under the control of the Court-appointed receiver. The Defendants claimed Intellinet was a book publishing company. They further claimed that Medical Advantage operated a chain of weight loss clinics. Finally, they claimed that Lamelli had developed a "detoxification system" by which a person could be detoxified of drugs or alcohol in as little as fifteen minutes. In fact, Intellinet had no products, had never sold any books or other products, and had never produced a profit. Similarly, Medical Advantage was not profitable, as represented, and was unable to meet expenses and pay clinic employees. Representations by certain of the Defendants and various salespeople that former U.S. Surgeon General C. Everett Koop and television journalist Tom Brokaw were affiliated with Medical Advantage were also false, as were the Defendants' claims that Lamelli had received approval of its detoxification system by the National Institutes of Health (NIH) and a grant from the Food and Drug Administration (FDA). The Defendants falsely represented that each company would be the subject of an initial public offering (IPO), which offerings never in fact took place. Instead, the Defendants misappropriated all but approximately $361,274.67 of the $5.6 million in investor monies raised. Defendant Colvin, who controlled virtually all of the investor monies received, misappropriated for himself $939,459 in investor funds. Substantial amounts were also expended, undisclosed to investors, on payments to the sales staff ($1,081,215), office and overhead expenses ($1,197,131), an unsecured loan to an unrelated assetless company ($363,000), and fees to a consultant for, among other things, purchases of shell companies with few or no assets ($224,350). Defendant Colvin was President and CEO of Intellinet, which he owned and operated. Undisclosed to investors, Colvin also controlled each of the trust entities into which investor monies were deposited, as well as controlling Defendant Wall Street Research Company, Inc., which was falsely claimed to provide "independent" research and investment recommendations about Intellinet, Medical Advantage and Lamelli. Hovik was the Chairman of the Board of Medical Advantage. Ellis was the Chairman of the Board and CEO of Lamelli. Larson was employed as the sales manager by Colvin and Intellinet. Defendant Colvin was permanently enjoined from future violations of the securities registration, antifraud and broker- dealer registration provisions of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Colvin was further ordered to disgorge $939,459, together with prejudgment interest thereon in the amount of $52,035.72, as well as to pay a civil penalty of $939,459. Defendants Hovik, Larson and Ellis, who were previously permanently enjoined pursuant to their consents on April 15, 1998, April 27, 1998, and March 16, 1998, respectively, were similarly ordered to pay disgorgement, interest and penalties. Hovik was ordered to disgorge $397,265.50, together with interest of $22,004.15, and to pay a penalty of $397,265.50. Larson was ordered to disgorge $224,513, together with interest of $12,435.56, and to pay a penalty of $224,513. Ellis was ordered to disgorge $47,644, together with interest of $3,365.42, and to pay a penalty of $47,644. The penalties assessed against each Defendant constituted the maximum third tier penalty permitted by statute of an amount equal to each Defendant's ill-gotten gain. On behalf of the entity Defendants, the receiver earlier consented to entry of a permanent injunction without admitting or denying the Commission's allegations, which injunctive order was issued on January 25, 1999. For additional information, see Litigation Release Nos. 15551 (February 24, 1998), and 15683 (March 25, 1998).