Two Executives in Publicly Traded Company Convicted of Federal Charges Related to Illegal Stock Sales

LOS ANGELES—A federal jury has convicted two executives of a publicly traded corporation of illegally selling unregistered stock in their company.

Richard A. Bailey, 55, and Florian R. Ternes, 62, both of Las Vegas, Nevada, who respectively were the chief executive officer and the chief operating officer of Gateway Distributors, Inc., were both convicted Friday afternoon of two counts of issuing and selling unregistered stock. Immediately following the reading of the jury’s guilty verdicts, United States District Judge Otis D. Wright II remanded both Bailey and Ternes into custody.

During a week-long trial in United States District Court, federal prosecutors presented evidence that Bailey and Ternes issued more than $600,000 worth of Gateway stock in an effort to circumvent federal securities registration laws. At the time of the issuance in 2004, Bailey and Ternes claimed that the stock issuance represented payment of fees to a purported Gateway consultant, and they filed false stock registration statements with the Securities and Exchange Commission.

In reality, the stock was issued to a friend of Bailey and Ternes who provided no legitimate services for Gateway. In return, the friend sold the illegally issued shares, and the proceeds of the transaction were then covertly returned to Gateway. Bailey and Ternes used the proceeds of the stock sales to finance acquisition of a fishing lodge in Utah and a commercial office building/warehouse in Las Vegas.

Gateway was a Nevada-based company involved in the sale of nutritional supplements. Gateway’s stock was publicly traded on the Over-the-Counter Bulletin Board.

Judge Wright is scheduled to sentence Bailey and Ternes on February 14, 2011. At sentencing, both defendants face a statutory maximum penalty of 10 years in federal prison.

The investigation into Bailey and Ternes was conducted by the Federal Bureau of Investigation and IRS - Criminal Investigation, which received the assistance of the Chicago Regional Office of the Securities and Exchange Commission.

CONTACT: Assistant United States Attorney Michael R. Wilner
Major Frauds Section
(213) 894-0687

Release No. 10-162