The Securities and Exchange Commission on Wednesday sued the former head of a defunct Pittsburgh-area medical staffing company, claiming he led a stock fraud and misappropriated $6.4 million by lying about the company's finances.
The SEC sued Richard McDonald, who had already been charged by federal prosecutors, and three other former executives at World Health Alternatives Inc.
"A key aspect of the fraud involved the manipulation of World Health's accounting entries," the lawsuit reads. "This made the company appear more financially sound and masked McDonald's misappropriation of funds."
McDonald, 35, of Gilpin Township, was indicted in August in a wide-ranging fraud that federal prosecutors say has cost investors more than $200 million.
According to that 20-count grand jury indictment, McDonald allegedly diverted funds from World Health while president and chief executive officer from 2003 to 2005. McDonald is also accused of failing to pay some $2.3 million in federal taxes withheld from employee payroll checks and with evading his own federal taxes.
McDonald has an unlisted phone and his criminal defense attorney, William C. Kaczynski, said he doesn't represent McDonald in the SEC matter and doesn't know if anyone else does. Kaczynski relayed a request for comment to McDonald, who did not immediately respond Wednesday.
According to the SEC's 32-page federal lawsuit filed in Pittsburgh, World Health was incorporated in Florida in 2002 as a public company to sell vitamins and homeopathic products online. The company never actually operated as such, however, and instead merged with Better Solutions Inc., a medical staffing company McDonald helped form in 1999.
The merged company began business as a penny stock firm in 2003 under the World Health Alternatives name.
Court filings indicate the company earned money, but never as much as McDonald claimed in SEC filings. Still, McDonald expanded its office in Wilkins Township, near Pittsburgh, and opened new branches in Cleveland and Boca Raton, Fla.
Investors claim in pending class-action suits that McDonald began acquiring smaller companies, often financing them with World Health stock that was worthless because he had lied to the SEC about the company's finances.
World Health's directors discovered the company was $22 million in debt by August 2005, triggering McDonald's resignation and the SEC investigation. Six months later, the company was forced into bankruptcy.
World Health's stock price plummeted from $3.55 per share to 49 cents when the SEC investigation was announced, a drop federal prosecutors have said cost shareholders more than $200 million.
World Health was purchased in April 2006 by Alpharetta, Ga.-based Jackson Healthcare Solutions. That company isn't targeted by the SEC or federal prosecutors, who have focused instead on World Health's operations under McDonald and three other executives.
Former controller Deanna Seruga, 34, of Pittsburgh, pleaded guilty last year to certifying bogus financial statements to the SEC and is still awaiting sentencing. She is named as a defendant in Wednesday's lawsuit, along with former board member Marc Roup, 36, of Murrysville, and Joseph Emas, 55, of Surfside, Fla., the company's former securities counsel.
Roup has an unlisted home phone; Emas didn't immediately return a message left at his home.
The SEC suit accuses the others of aiding the fraud at McDonald's direction or with failing in their duties to detect financial irregularities.