Executives sentenced to 30 months in prison for illegal stock sales

LOS ANGELES - Two executives of a publicly traded corporation were each sentenced to 30 months in federal prison today for illegally selling unregistered stock in their vitamin company.

Richard A. Bailey and Florian R. Ternes, the chief executive officer and chief operating officer, respectively, of Gateway Distributors Inc., were convicted in Los Angeles last October of two counts of issuing and selling unregistered stock.

Bailey, 55, and 62-year-old Ternes, both Las Vegas residents, issued more than $600,000 worth of Gateway stock in an effort to circumvent federal securities registration laws, prosecutors said.

At the time of the issuance in 2004, Bailey and Ternes claimed the stock issuance represented payment of fees to a Gateway "consultant," and they filed false stock registration statements with the Securities and Exchange Commission, according to federal prosecutors.

In reality, the stock was issued to a friend of Bailey and Ternes who provided no legitimate services for Gateway, evidence presented at trial showed.

In return, the friend sold the illegally issued shares, and the proceeds of the transaction were then covertly returned to Gateway, prosecutors said.

Bailey and Ternes used the proceeds of the stock sales to finance acquisition of a fishing lodge in Utah and a commercial office building and warehouse in Las Vegas, according to the U.S. Attorney's Office.

Stock in their Nevada-based company, which was involved in the sale of nutritional

supplements, was publicly traded on the Over-the-Counter Bulletin Board, prosecutors said.

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