09-16-2003 -- Mulhearn, James Jr. -- Guilty Plea -- News Release

Company President Pleads Guilty in Stock "Pump and Dump" Scheme

CAMDEN, N.J. - The president of a company that purported to manufacture a legitimate medical device for the sick and elderly pleaded guilty today to conspiring to defraud investors in the private offering of $4 million worth of company stock, U.S. Attorney Christopher J. Christie and David P. Nelson, Southeast Regional Director of the U.S. Securities and Exchange Commission, announced today.

SafetyNet, a company incorporated in Delaware by founder and president James Mulhearn Jr., purported to have acquired a patent for a tattoo-like medical alert device. In reality, the device was fashioned after a child's temporary tattoo typically sold in theme parks and did not provide any of the advanced features touted by Mulhearn and his co-conspirators. Further, the product's marketing as a legitimate device did not result in sales to the intended purchasers, which were to include doctors, hospitals and nursing homes.

Nonetheless, investors - many of them elderly - were cajoled into buying private-placement stock in SafetyNet, which was to be converted into publicly traded shares of a bogus shell company with which SafetyNet merged. To date, 17 investors are known to have lost more than $600,000 in the bogus securities offerings. The investigation continues.

Mulhearn, 32, of Coral Springs, Fla., who was licensed to sell securities as a registered broker, entered his plea to a one-count Information charging conspiracy before U.S. District Judge Joseph E. Irenas.

A second defendant, Adrian Balboa, 27, of Coconut Creek, Fla, who was also a company salesman, pleaded guilty on July 14 to a one-count Information charging him with conspiracy to commit mail fraud. Balboa was also licensed to sell securities as a registered broker.

Each of the defendants faces a maximum prison sentence of five years, as well as a maximum fine of $250,000 on the conspiracy charge.

Also today, the SEC filed civil fraud charges in U.S. District Court in Miami against Mulhearn and Balboa in connection with the fraudulent offering of SafetyNet securities. Mulhearn and Balboa have agreed to settle the charges against them without admitting or denying the allegations contained in the Commission's complaint. Under the terms of the settlement with the SEC, Mulhearn and Balboa consented to the entry of a final judgement permanently enjoining them from future securities violations and barring them from participating in an offering of penny stock. The judgement also orders Mulhearn and Balboa to disgorge ill-gotten gains and imposes a civil penalty in amounts to be determined by the courts at a later date. Based upon the injunction, Mulhearn and Balboa have also consented to the subsequent entry of orders by the Commission barring them from association with any broker or dealer.

The criminal Informations and the Indictment outline a fraud scheme running from November 2001 through April 2003. The scheme was designed to induce investors to purchase "restricted" stock in SafetyNet through false statements and the failure to disclose material information regarding the company and the investment. The pitch, according to the court documents, was that SafetyNet, a privately held company, would complete a "reverse merger" with a publicly-traded corporation, identified as DVBS. DVBS, a Canadian company with no legitimate operations, had its shares listed on the over-the-counter bulletin board system of the Nasdaq Stock Exchange.

The charging documents allege that, as part of the scheme, Mulhearn - the largest holder of SafetyNet stock - and Balboa agreed with stock promoters in Toronto to convert their SafetyNet stock into freely tradeable shares of DVBS stock.

After the merger was executed, Mulhearn and Balboa agreed with the Toronto stock promoters, who controlled a majority of the stock in DVBS, that a press release would be issued in the United States in order to create the appearance of legitimate company news, so that "boiler room" brokers could then sell stock to unwitting investors. Simultaneously, various means were to be used to "hype" the stock and increase its value through controlled purchases so that shares owned by the stock promoters, as well as those issued to Mulhearn and Balboa could be sold at a substantial profit.

Both Mulhearn and Balboa admitted that in connection with this scheme they along with others raised at least $600,000 from victim-investors, many of them elderly. Mulhearn also admitted that investor funds were diverted for his own personal benefit to pay for such things as vacations, a motor boat and cocaine binges.

"This was a sham merger and a sham offering. The product to be sold was in the imagination only of these schemers," said Christie. "When all the hype and lies were stripped away, this was merely a classic stock pump-and-dump scam perpetrated by criminals."

Incorporated in Delaware, with an office in Coral Springs, Fla., SafetyNet was formed by Mulhearn, in October 2001, purportedly to develop a patented medical alert messaging kit to be marketed to doctors, hospitals and nursing homes. The kit was described as a temporary tattoo to be applied to a patient's skin in order to display relevant care information. SafetyNet also purported to be establishing an Internet medical database containing patient information that could be accessed by scanning a bar-coded device incorporated into the tattoo.

During his guilty plea, Mulhearn admitted that he hired SafetyNet's sales personnel, including Balboa and others, to solicit individuals throughout the United States to purchase shares in the company. Furthermore, Mulhearn admitted that he conspired with Balboa and others to persuade investors to purchase SafetyNet stock by making false statements and failing to disclose significant information regarding the company and the investment.

Mulhearn admitted that between Nov. 2001 and April 2002, he, Balboa and others promoted a private placement stock offering. Mulhearn admitted that "Confidential Offering Documents" were mailed to investors which stated that SafetyNet intended to raise $1 million through the sale of stock at $0.75 per share. Mulhearn also admitted that between May 2002 and January 2003, a second private stock offering was promoted by the conspirators which sought to raise $3 million through the sale of stock at $1 per share. Furthermore, Mulhearn admitted that the SafetyNet Stock that he and others sold to investors was "restricted" as defined under U.S. securities laws, which placed significant limitations on the investor's ability to re-sell the stock.

Moreover, Mulhearn and Balboa admitted at their plea hearings that potential investors were solicited over the telephone and in-person at their homes by the company's sales personnel, some of whom used fictitious names. Mulhearn and Balboa also admitted that as part of the scheme, a company salesperson who used the fictitious name "Chris Miller" traveled from Miami to Margate, New Jersey on Aug. 1, 2002, to solicit an investor, identified in the Information only as R.K., at his home.

Both Mulhearn and Balboa admitted that potential investors were directed to the SafetyNet's website, www.medicalsafety.net, which touted the company's temporary tattoos as a viable advancement in preventing medical errors. However, both defendants admitted that the tattoos which SafetyNet actually produced included simplistic messages such as, "Surgical Site," "Allergy Alert," or "Do Not Resuscitate". Furthermore, both defendants admitted that the temporary tattoos were created using a formula that was copied from a children's novelty tattoo that is typically sold at theme parks. Mulhearn and Balboa also admitted that the so-called development of a "proprietary" Internet-connected 24-hour central database to access patient records, also touted on the company's web site, did not exist.

Mulhearn admitted that beginning in Jan. 2003, he and Balboa began negotiating the sham merger with DVBS, which purported to have an office in Rochester, New York. Mulhearn also admitted that, the scheme included plans to manipulate DVBS's stock price so that shares controlled by him, stock promoters, Balboa and others could be sold at substantial profit.

Furthermore, Mulhearn admitted that he obstructed the SEC's investigation when he was served with a subpoena to produce records and during testimony before SEC staff on November 8, 2002.

Judge Irenas scheduled Mulhearn's sentencing for Jan. 9, 2004 at 9:30 a.m. Mulhearn was released on $100,000 bond and his travel is restricted to New Jersey and Florida. Balboa's sentencing is scheduled for Dec. 19, 2003 at 9:30 a.m., also before Judge Irenas.

Under U.S. Sentencing Guidelines, Judge Irenas, will determine the actual sentence based upon a formula that takes into account the severity and characteristics of the offense and the defendant's criminal history, if any, according to Assistant U.S. Attorney Marc-Philip Ferzan.

Parole has been abolished in the federal system. Under the Sentencing Guidelines, defendants who are given federal custodial terms must serve nearly all that time.

U.S. Attorney Christie credited Special Agents of the Atlantic City Resident Agency of the FBI, under the direction of Special Agent In Charge Louie F. Allen in Newark, for investigation of the matter with the U.S. Securities and Exchange Commission, under the direction of Gary Klein, Branch Chief of the Southeast Regional Office of the SEC in Miami. Further, Christie also gave special thanks to the Market Regulation Department of the NASD in Rockville, Maryland, for its assistance in the investigation.

The Government is represented in the criminal matters by Assistant U.S. Attorney Marc-Philip Ferzan of the U.S. Attorney's Office Criminal Division in Camden.

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Defense Attorneys:

Mulhearn - Michael Riley, Esq. Moorestown, NJ

Balboa - Richard Sparaco, Esq. Cherry Hill, NJ