Feds accuse Scottsdale father and son of stock fraud
Staff reports

SCOTTSDALE – Federal authorities have accused a Scottsdale father‑son business duo of participating in a fraudulent scheme to manipulate the stock prices of their start‑up nutraceutical company.

Howard Baer, 63, the former chief executive officer of Health Enhancement Products Inc. (HEPI), declined to elaborate on the allegations and the settlement he and son Kevin Baer, 38, made with the Securities and Exchange Commission.

Howard Baer did tell The Desert Advocate, “You can’t fight the government.”

He issued a written statement on Dec. 7 that states, “The company and I have settled the SEC’s action without admitting or denying the truth of the allegations stated in the SEC complaint.”

The commission on Nov. 20 announced that it filed an enforcement action in the United States District Court against the Baers, alleging they “disseminated materially misleading information” about their Tempe‑based company and about HEPI’s primary product, ProAlgaZyme, a dietary supplement.

According to a Dec. 6 news release from the SEC: “In a January 20, 2004 press release, HEPI announced that the biochemistry department of Arizona State University (ASU) had conducted an independent study that ‘concluded that ... ProAlgaZyme ... possesses fibrinolytic properties, required in the breakdown of pathological fibrin gel, thus decreasing the risk of a stroke or heart attack.’ This representation was false. In fact, the ASU scientists did not conclude that ProAlgaZyme reduced the risk of a stroke or heart attack.

“While HEPI was issuing these misleading press releases, Howard Baer executed numerous trades in the company’s stock to ensure that the price and trading volume increased. HEPI’s stock price increased from approximately $0.01 per share in October 2003 to $7.54 per share in February 2004. Howard Baer profited from his fraudulent conduct.

During the relevant period, Howard Baer sold over 390,000 shares of HEPI stock, primarily in an account in his wife’s name, for proceeds of more than $1,349,000.”       

In his written statement, Baer said he and his son decided to settle with the commission “primarily because we believe that the company’s product has great potential ... We wanted to put the SEC action behind us so as to enable the company, under new management, to devote all of its attention to the development of its product.”

This is not the first time federal authorities have hit Howard Baer with sanctions for his business practices related to stock sales and purchases.

A federal court in 1994 ordered Baer to pay just over $3.5 million in penalties and disgorgement for engaging in “a free‑riding scheme in which he placed orders to purchase stock through numerous broker‑dealers without the intent or ability to pay for the purchase,” as stated in the recent complaint.

HEPI is now under new management, according to Baer’s statement.