After hearing over the last few years that “Terry LaCore was nailed as a corporate embezzler by the SEC” I decided that if I ever had the opportunity to talk with him one on one, I would take advantage of the time. Well in June of 2013, Brian Underwood, CEO of RippLn invited me to meet with Terry LaCore, and talk with him and his attorney Jenifer Grace to get the truth behind the SEC issues.
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20702 / September 4, 2008
Accounting and Auditing Enforcement Release No. 2872 / September 4, 2008
Securities and Exchange Commission v. Mark D. Woodburn and Terry LaCore, Civil Action No. 3:08-cv-1555-G/Northern District of Texas (Dallas Division)
On September 3, 2008, the Commission filed a civil action in the United States District Court for the Northern District of Texas charging two former officers of Natural Health Trends Corp. (“NHT”) of Dallas, Texas, with securities fraud and other violations arising from undisclosed related party transactions from 2001 through 2005. The defendants are Mark D. Woodburn, of Southlake, Texas, NHT’s former president, director and CFO, and Terry LaCore, of Flower Mound, Texas, the former president of NHT’s chief subsidiary and an NHT director.
According to the complaint, from 2001 through August 2005, NHT’s top distributor paid Woodburn and LaCore, directly and indirectly, approximately $2.5 million in undisclosed payments. The complaint also alleges that, in February 2004, Woodburn caused NHT to loan $256,200 to a Woodburn family-controlled company, and later took steps to conceal related party nature of the loan when it was discovered by NHT’s new accounting management in the fall of 2004. As a result of Woodburn and LaCore’s activities, the complaint continues, NHT failed to disclose, or inadequately disclosed, the related party transactions in periodic filings, registration statements, and proxy statements.
Troy’s Thoughts: Notice above, that the complaint doesn’t say anything about “inappropriate payments, or embezzlement of funds.” It is very clear, the SEC violations were “NHT failed to disclose, or inadequately disclosed, the related party transactions in periodic filings, registration statements, and proxy statements.”
I think we should also notice that Terry LaCore was NOT the CFO of NHT, and that if we get down to the nitty, gritty, the CFO is the one who usually reviewes all paperwork and signed off on the SEC filings.
My personally conclusion, is that both Mr. Woodburn and Mr. LaCore were in over their heads when it came to filing the correct paperwork for a publically traded company!
Woodburn and LaCore agreed to settle the SEC’s charges without admitting or denying the allegations of the complaint. Woodburn agreed to settle charges that he violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-2, 14a-3, and 14a-9, and aided and abetted NHT’s violations of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. LaCore agreed to settle charges that he violated Section 17(a) of the Securities Act and Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5, 13b2-2, 14a-3, and 14a-9 and aided and abetted Woodburn’s violations of Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5, 14a-3 and 14a-9. Each agreed to be permanently enjoined from violations of the specified statutes and to a five-year officer and director bar. Woodburn agreed to pay a $60,000 civil penalty, and LaCore agreed to pay a $50,000 civil penalty.
Troy’s Thoughts: I would also like to point out that the SEC charges were civil charges and not criminal! Had the SEC truly believed that a criminal act had taken place, I am pretty sure they would have filed criminal charges. And embezzlement is a criminal charge!
Now let’s take a look at the letter Jenifer Grace, Terry LaCore’s attorney sent for a little more details. I am going to post just what I feel are the important parts of the letter, that I want to address, and will post the full letter below!
Dear Troy,
Thank you for the opportunity to provide some additional background on the Security and Exchange commission investigation involving Terry LaCore and Natural Health Trends. Terry is aware of the negative connotation associated with the allegations that are set forth by the SEC, and until now has remained silent with respect to his version of the circumstances and events arising in this time period in his life. It was Terry’s hope that following the conclusion of the matter with the SEC that he would be able to move on and those closest to him would recognize who he is without the negative comments that abound on the internet. Unfortunately, he silence has been met with a negativity that he believes should be addressed.
Troy’s Thoughts: In the age of the Internet, it is never good to be silent. The era of hoping things will blow over and be forgotten are gone. If a situation arises, that may not be the most positive, then address it, don’t let others decide what to say fo you!
It is understandable that concerns would arise from statements of involvement in an SEC investigation. Mr. LaCore welcomes the opportunity to explain his involvement in the investigation· and lack of wrong doing. As his counsel over the past six years, I would like to provide a somewhat impartial an explanation of the facts and circumstances discovered during my representation.
In January 1999, Mr. LaCore began working with Kaire International, a nutritional supplement and personal care direct sales company. Kaire remains operating today. Mr. LaCore served as the company’s President and Chief Operating Officer at the time Kaire acquired Natural Health Trends, Corp (a publicly traded company). Kaire was then reverse merged into Natural Health Trends, Corp. and Kaire was sold to private shareholders. As a result, Mr. LaCore served as an Officer and Director of the subsidiary of the publicly traded entity only via that Merger. Mr. Lacore did not become a director ofNHTC at that time.
Troy’s Thoughts: This is why it is so important if a company goes from privately held to a publically traded company, that competent corporate counsel is hired, to protect the company and officers and directors who might be in over their head when it comes to the regulations for public companies!
In 2001, Natural Health Trends Corp. created another subsidiary named Lexxus International, over which Mr. LaCore served as President. Thereafter, Mr. LaCore was deemed to be a director of a publicly traded company due to the success of Lexxus, and the percentage of sales the subsidiary represented to the parent company.
Mr. LaCore likely should have sought independent legal advice concerning any new obligations he undertook in this role. Terry continued to operate in the manner in which he had operated as a privately held company, and payments of commissions, were handled in the same regard as with the privately held entity. For years, Mr. LaCore forewent salary, and lived solely from the commission payments which resulted from the success of the company. Those commission payments were made to various entities, as Mr. LaCore was not building the company alone.
Troy’s Thoughts: Founders and Officers of network marketing companies have been paid from the top spots for decades. Although this is a common practice and there is not many issues when it comes to privately held companies. It is a must that a publically held company disclose that executives, directors, and founders are receiving compensation from the company, through other payments other than direct saleries.
It is really wise for founders, directors and officers to disclose how they are paid (not how much, just how!) If they are driving the growth, by taking all the risk in the compensation plan, great. If they are just taking a salery and using the breakage to pay bills and salaries great. But if they are taking a salery and taking funds from the top spot, eliminating any breakage, then it had better be documented well. Especially if they have outside investors and the company gets into financial trouble.. private or public!
The software system utilized permitted for the placement of only one entity in the commission spot that was shared by several individuals. Unfortulently, Mr. LaCore was not aware of the need to report those payments in the public filings for the company. Further, Mr. LaCore lacked the experience to put appropriate financial controls in place tl1at would have raised the issue.
Troy‘s Thoughts: Today most software companies have written into the code the ability to send a split commission to more than one person, which allows for accurate accounting!
In 2005, Mr. LaCore resigned his position as an officer and director and became employed as the Operations and Global Managing Director of Business Development for NHTC. Thereafter, further disputes arose and Mr. LaCore was terminated. Agreement was reached between Mr. LaCore and NHTC whereby, he returned any shares he had with the company. See Exhibit B, attached hereto.
Troy‘s Thoughts: I think this is a very important piece of information. If there had been an intentional act to defraud, or embezzle from the company as has been alledged in some rumors, then logic tells us, that the company would not have hired Terry LaCore back, and the SEC would have sought criminal charges!
Thereafter, and telling of their trust in Mr. LaCore, in March 2007, NHT Global sought the services of Mr. LaCore wherein they acknowledged that Mr. LaCore “is one of thc founders of the Company with substantial knowledge and experience in distributing the Company’s products throughout various international markets.” See Exhibit C, attached hereto. NHT Global sought to have Mr. LaCore support all “distributors who are down-line of the Front Line Position and otherwise administer the Front Line Positions as if Distributor where the Master Distributor.” In exchange, the company agreed to pay Mr. LaCore “100% of the amount of commissions attributable to the Front Line Positions.” Mr. LaCore served in this capacity until late 2007 when he formed bHIP Global, Inc.
Following the full investigation by the SEC, the SEC offered Mr. LaCore and Mr. Woodburn a compromise to continued litigation. As an alternative to the continued accrual of attorneys’ fees, and to attempt to end a difficult chapter in his life, Mr. LaCore reluctantly accepted the compromise. The compromise required that Mr. LaCore pay a civil fine of$50,000 to cover investigative costs, and agree not to serve as an officer or director of a publicly traded company for a period of five years.
The Agreed Judgment does not provide that Mr. LaCore admitted any wrong doing. See Exhibit D, attached hereto. In fact, Mr. LaCore still denies any wrong doing and instead has attempted to seek the advice of trusted professionals in his business dealings. In addition to seeking the advice of Grant Thorton on international tax issues, Mr. LaCore has hired full time legal assistance on areas of general liability, securities and exchange rules, and intellectual property.
Troy’s Thoughts: I personally believe there is right and wrong and legal and illegal. In some cases we can do what we believe is right, make a mistake, which will cause an illegal act, because of our ignorance of the law. In reviewing all the documentation below, I believe Terry LaCore didn’t do anything wrong, but did violate SEC regulations unintentionally, which created a civil violation (illegal act) based on the letter of the law.
Since the SEC saw fit to offer a settlement and Terry accepted the settlement, and we have NOT seen any new alligations, it truly seems Terry LaCore learned from his mistakes, and has surrounded himself with a solid team of advisors to make sure this never happens again!
I think that you will find that Mr. LaCore made mistakes, but they were mistakes made from a lack of relevant knowledge, not ill intent. Further, a complete review of Mr. LaCore’s history will show that he is a man of integrity that does guard the financial controls of the companies in which he is involved and had attempted to learn from his mistakes. As said above, Mr. LaCore remains available to address any concerns you may continue to have.
Below are all the legal documents Jenifer Grace provided!
NHTC Share Agreement – Exhibit – B
NHTC Temporary Service Agreement With Terry LaCore – Exhibit – C
