SEC moves to tumble a house of cards

A fledgling Mendota Heights company that promised to develop the next generation of sports drink is no more than a shell for a "pump and dump" stock scheme involving a small group of investors hoping to get rich quick, the Securities and Exchange Commission (SEC) alleges.

The company is Beverage Creations Inc., the purported developer of bio²Tonic, a sports water product containing "an inhalable shot of oxygen," according to a company news release issued Jan. 30, when Beverage Creations began trading on the Pink Sheets, an electronic quote system for over-the-counter stocks.

But the SEC suspended the trading of the shares this week and filed a civil complaint Thursday against Beverage Creations and three Texas stock promoters. The complaint alleges that they attempted to sell shares at inflated prices and in violation of SEC disclosure laws.

"The promoters are engaged in a 'pump and dump' of [Beverage Creations] stock, hyping the stock through spam e-mails and advertising mailers filled with specious claims, while reselling millions of shares in their own accounts for substantial profits," the SEC complaint says. "For its part, [Beverage Creations] is misleading investors by disclaiming its relationship to the stock promoters."

The SEC obtained a temporary restraining order stopping the offering and is seeking a permanent injunction.

Beverage Creations' chief executive is identified in company statements as Bob Wieden. A telephone call left for Wieden on Friday seeking comment was not returned. A receptionist said he was in a meeting with a client.

A call to the company's investor relations representative for comment also was not returned.

Beverage Creations has a slick-looking Web page showing bottles of bio²Tonic in berry, citrus and mandarin flavors. Photos of athletes click across the page.

Throughout February, the company issued one upbeat news release after another. In one instance, Beverage Creations said it was in discussions with Coca-Cola for a distribution agreement. In another release, it said that it had entered into an agreement to acquire a 44,000-square-foot production and bottling facility, but did not say where. The company also announced the appointment of a former Dallas Cowboys football player to its board of directors, and said that it had hired Kohnstamm Communications, a well-known St. Paul public relations firm, to help with marketing.

But it was all part of a ruse, according to the SEC.

"The company has no revenue from operations, has not manufactured or produced any proprietary sports drink, and offers no other products," the government complaint said.

In December, the SEC said, Beverage Creations had $14,500 in credit-card debt and just $12,506 in its bank account. In the preceding three months, the company had lost $43,760.

The Texas partners of Beverage Creations in the alleged stock-pumping arrangement are Jason Wynn, described in the SEC complaint as a former used-car salesman; Wynn Industries, owned by Wynn; Carlton Fleming, a onetime stockbroker with a record of abusive sales tactics; Thomas Wade Investments, owned by Fleming; Ryan Reynolds, a onetime stockbroker who was barred from the industry; and Bellatalia, a limited partnership owned by Reynolds.

The SEC said in the complaint that Beverage Creations sold 9,999,999 shares to the Texas interests for $199,000, or about 2 cents a share, on Dec. 17. By hyping the company and engaging in manipulative trading to create the appearance of demand for the stock, the Texans generated more than $2.4 million in stock sales, according to the SEC.

The SEC said the promotional campaign pumped the stock to a high of $1.83 a share on Monday.

On Feb. 21, after Dow Jones News Service reported that Wynn and Wynn Industries were promoting the company's shares, Beverage Creations issued a news release denying any affiliation with them. That news release was false, the SEC said.

David Phelps • 612-673-7269