The following is the original Barron’s article referencing Russell Armstrong/Elgindy–
Tangled Web…Internet stock promoter has a long history of shady deals
BY Bill Alpert
The Internet page greets you with a woman’s voice in a cultured foreign
accent: “Welcome to Equity Investors’ home page.” Here are firms with
“explosive growth potential,” she says, $2 stocks offering much higher returns than
Fortune 500 shares. These stocks will rocket, suggests the electronic
spokeswoman, “just like Herbalife, Wal-Mart, Price Club.”
Welcome to the Equity Investors Inc. Web page, and its profiles of companies that
are developing Internet tools, multimedia CD-ROMs and virtual-reality rides with
real G-forces. There’s impressive name dropping: Elton John’s discoverer, Clint
Eastwood’s producer, Minnesota’s ex-governor. While most of Equity Investors’
stocks draw bids of under $5, a few have reached market caps in the hundreds of
millions of dollars.
The slick www.equityinvestors.com address shows state-of-the-art stock
promotion. But it doesn’t show that the sponsoring financial-relations and
investment-banking firm is also a front for a genius of stock swindles called Melvin
Firms touted on the Phoenix-based firm’s Web page are the cyberage incarnations
of businesses that have been Richards’s pawns since he was banned from the
securities business in the early ‘Seventies. Five years ago, some of these same firms
claimed they were in medical technology, and before that, in oil and gas.
Richards has said in sworn testimony that he plays no role in Equity Investors. Yet
he hands out Equity Investors business cards bearing his name.
“I am a self-employed consultant,” said Richards in a January deposition in an
action brought by burned investors. His consulting draws on more than 25 years of
experience, during which, according to some guesses, he has taken in tens of
millions in swindled dollars.
In 1972, he and his father were rapped by the Securities and Exchange
Commission for selling unregistered stock and for using fictitious customer
accounts. The younger Richards was barred from associating with broker-dealers
for at least three years.
Come 1979, the SEC accused Richards of lying to investors about a gold mine.
Richards consented to the SEC’s injunction against further stock fraud, without
admitting or denying the allegations.
But in a 1981 initial public offering, Richards re-emerged, this time as vice president
of Unioil, a Glendale, Calif., firm claiming dozens of oil and gas projects in the
Rocky Mountains area. Richards developed a following on Wall Street, which
wafted the stock up to $15 from its split-adjusted offering price of $1.
The Wall Street Journal burst Unioil’s bubble in February 1984, reporting that the
company’s wells produced far less than Richards claimed. In a couple of days, the
share price tumbled to $2.
Three years later Richards was convicted for
criminal tax evasion and conspiracy in
connection with a phony $22 million
uranium-mine tax shelter. He was sentenced
to five years’ probation and fined $5,000.
But before the probation was up, he had
become executive vice president for investor
relations at Alco International Group Inc.,
a San Diego-based firm with a gadget to alert surgeons if a hole developed in their
gloves, thus averting possible AIDS infection. Richards’s emissaries showed a
“prototype” to brokers, who told customers that Alco would be the next U.S.
Alco’s shareholders of record were offshore names, including Pelham Investment
Co. of Hong Kong. Yet Alco’s officers were Richards familiars, like treasurer Allen
C. Stout, who has held stock and high office in nearly every Lloyd Richards venture
since the ‘Seventies.
Alco’s device didn’t pan out and the firm never made a dime. But millions of shares
traded between split-adjusted prices of $8 and a few cents.
The SEC censured Richards, fined him $15,000, and once more barred him from
associating with broker-dealers. In December 1992, federal prosecutors charged
him with selling stock in the names of dead people, but failed to win a conviction.
Despite his problems with authority figures like Uncle Sam, Lloyd Richards’s
acquaintances describe him as a very serious businessman. “That’s all he does,”
says one associate. “He loves business. He’d rather be doing business than
He carries more than one cellular phone. A friend relates how, after spilling coffee
on one phone, Richards tossed it out the window then called back on another
Divorced in 1960 after a five-month marriage, Richards lives comfortably, but not
flamboyantly. He wears a diamond-encrusted Rolex, drives pearl-white Eldorados
and lives in a comfortable Phoenix neighborhood with a teenage boy for whom he
is legal guardian.
But under oath for a deposition in January, Richards said he didn’t own the home,
hadn’t owned a car in years, had no brokerage accounts, no individual retirement
account, no foreign property, no credit cards and no will.
The opposing lawyers asked him for his wallet. It was filled with credit cards in the
name of Melvin E. Richards, Lloyd’s 28-year-old nephew. “I use them when I am
traveling,” explained Richards. “He allows me to use them.”
The address on Richards’s driver’s license was the Phoenix address of Equity
Investors Inc. The firm lets him use its office for his consulting business rent-free,
said Richards, but he wasn’t an officer or shareholder of Equity Investors Inc.
And a peek behind the colorful profiles of stocks featured on the Equity Investors
Web site shows links to Richards that are hard to ignore.
Evans Environmental Corp., says the Web profile, is the company that can save us
from the nightmares of global warming and of endangered animal habitats. The
Miami firm’s last 10Q filing with the SEC, however, suggests that first it must save
itself from losses on plummeting sales and an absence of working capital. Until this
fall, the chief financial officer was Scott Salpeter, who was the CFO of Alco.
In July, the firm raised $7 million in an offering under Regulation S of the Securities
Act of 1933. That rule, familiar to Barron’s readers (“Easy Money,” April 29),
allows issuers to sell unregistered stock overseas at a discount and then, after a
mere 40 days, permits the offshore investors to dump the stock into U.S. markets.
The firm spent most of its Reg S proceeds to buy a new business, a Los Angeles
startup that wants to use “bio-remediation” to clean up petroleum-contaminated
soil. Instead of putting the rest of its Reg S money into its empty coffers, Evans paid
$1 million to a Winter Park, Fla., promoter, Roberto E. Veitia, who had previously
For the money, Veitia agreed to feature Evans in his MoneyWorld Magazine,
mailed to 150,000 readers, just as he’d featured Alco. Veitia’s Corporate Relations
Group would deliver “a core of 8-10 retail brokers, market makers and/or money
managers who will take positions in the stock,” according to a contract filed with
If all that doesn’t win over investors, then perhaps they’ll belly up when they see that
Evans’s directors include Wendell Anderson, former U.S. senator and governor of
More exciting, perhaps, is another Equity Investors client firm, Tampa Bay Corp.
It’s in the record business, the Internet and infomercials. Established last year,
Tampa Bay’s big shareholders are Equity Investors Inc. and a Panamanian
corporation called NOIR Intertrade.
The founding officers read like a Lloyd Richards reunion. There’s his close
companion, Allen Stout, his brother, J. Michael Richards, and his niece, Tina
Andreas. Notarizing signatures is nephew Melvin E. Richards. Directors included
Equity Investors President Andrew Croson, a former manager of tanning salons
and modeling agencies.
But look at the outside talent. Chief eexecutive Harold Rustigian once signed
record deals with Neil Diamond. Programming V.P. Morton Downey Jr. once
terrorized talk shows. Another company grandee worked on the movie Eight
Million Ways to Die.
How will they make you money? They’ll re-release compilation discs with hit tunes
like Leslie Gore’s “Sunshine, Lollipops & Rainbows” and Muddy Waters’ “Got
My Mojo Workin’. ”
Another way they would enrich you is The Wall Street News Network, a cable
show that may soon introduce you to small stocks with explosive growth potential.
Through May, meanwhile, Tampa Bay’s earnings, cash flow and working capital
were all negative.
Judged by stock price, the Equity Investors stock that’s of most interest to investors
now is MSU Corp., a British firm whose shares now fetch $9 on Nasdaq. MSU is
one of several firms with a box allowing viewers to surf the Internet on their TV.
Chip maker Zilog has taken them seriously enough to license MSU chips.
Strangely, MSU’s President Keith Hall says he’s unaware of his stock’s promotion
by Equity Investors. He says that after his firm won a multimedia contract with IBM
in ’93, financiers appeared to urge MSU into the public markets.
One was a gent called Martin Miller, who suggested that MSU merge with a U.S.
shell company. Miller, it turns out, is a director and treasurer of BNN Corp.,
owned by familiar names like Pelham Investment. The shell came from Alco’s
onetime lawyer and its CFO, Scott Salpeter.
Hall says his firm was promised $5.5 million in a Reg S offering. “We didn’t even
know what Reg S was,” he admits.
In exchange, MSU gave more than 36% of its equity as free trading stock to some
firms in the Channel Islands and Liberia. When the shares went on the National
Association of Securities Dealers bulletin board in May 1995, they moved quickly
to $13.75. After a couple of months and enough trading to turn over the entire
public float, the stock fell back to five bucks. “In retrospect, it was an awful deal,”
Hall laments. “We were quite cleverly dealt with.”
As for Lloyd Richards, Hall says he’s never heard of him.
The U.S. government, of course, has heard of him, but has found it difficult to close
in on him. In February a 25-year accomplice of Richards, James S. Ross, pled
guilty to conspiracy to commit tax fraud. Ross told a federal judge in San Diego
that Richards had indeed controlled Alco, as well as Pelham Investment Co.
In May, another Richards retainer entered a similar plea in the same courtroom: one
Peter Cahill admitted helping Richards pay cash kickbacks to brokers who pushed
Cahill explained, to an undercover informant, how to take control of a stock
through reverse stock splits. “The key is you reverse the hell out of it,” said Cahill,
“dry the float up.” After a 50-for-1 split, any previous stockholders would be left
Richards’ sidekick Virgil G. Williams also offered a stockbroker informant a
$25,000 kickback, to place $112,000 in shares of a coffee stock called Stella
Cahill told the court that many of Richards’s kickbacks went to brokers at a firm
called Armstrong-McKinley in Hurst, Texas. Amr “Tony” Elgindy was a vice
president there in 1993, when he decided the firm was getting in too deep with
Richards. So in April of ’93 he wrote to every client of the firm telling them to sell
their shares of Alco International.
He also wrote the National Association of
Securities Dealers in an attempt to get the firm’s president, Russell Armstrong, fired.
A weightlifter, Armstrong took umbrage. He grabbed Elgindy’s throat, according to Elgindy, threw him against the wall and threatened to kill him.
Elgindy says he then sent to the IRS Form 1099 reports on all the cash kickbacks
that Armstrong-McKinley brokers had gotten for pushing stocks. In retaliation,
Elgindy says, Richards sent him a 1099 claiming the Richards firm Hampton
Morgan had paid Elgindy $858,688.80. The Richards form was a bluff, says
Elgindy, and never went to the IRS.
Something else that Elgindy hopes was a bluff is a bullet he says he got in the mail,
with his name on it and no return address.
The activities of Richards and his disciples are so widespread that San Diego
lawyer Daniel J. Mogin says he gets calls every week reporting new developments.
Mogin has a $27 million class action judgment against Richards, but it will probably
end up as wallpaper.
Richards and others at Equity Investors failed to return repeated calls for comment.
But behind his Internet voices and his shell companies, Richards is just too hard to
hide. When Barron’s called Equity Investors and unsuccessfully asked for “Mr.
Richards,” the receptionist answered: “Which one?”
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The securities commission charged that Frasier set up a dummy company named Shesado on the tax haven of Nevis, which with its sister St. Kitts is located in the Lesser Antilles in the eastern Caribbean. Nevis does not recognize monetary judgments by foreign nations — an ideal place for the scam that the securities commission outlined in its charges.
Using Shesado as his alter ego, Frasier set up other empty corporations in Nevis with names like INET Capital, Jamestown Capital, Internet Investments, and Manitoba Systems. Then he distributed shares of those straw companies to compatriots, including May, who used the shells to conceal their control over Zandria.
In a deal with DiRoberto, Frasier was to receive $300,000 and seven million shares of free-trading stock in a Zandria predecessor company if he would find a shell company through which Zandria could go public. (Instead of going public in an initial public offering, companies that don’t want their dirty laundry aired often merge into an empty shell, and their stock begins trading without the company having to file a tell-all prospectus.)
Predictably, Frasier found a shell owned by a “securities fraud recidivist,” according to the commission. (He is a chap in Utah who earlier spent 14 months in prison for conspiracy, wire, and securities fraud.)
The deal was pulled off. The Zandria predecessor was merged into the shell, and the new company was renamed Zandria. Then, through a daisy chain of sham transactions in Nevis, centered around Shesado, Frasier and his confreres got control of more than 90 percent of Zandria’s free-trading stock.
[Interestingly, Churchill Reinsurance, Ltd, and OVS, Inc., the parties that sued Russell Armstrong,et al in 2003, are both Nevis corporations.]