N.J. AG says company used investments for personal use

By Bryan Cohen | Jul 19, 2011


NEWARK, N.J. (Legal Newsline) - New Jersey Attorney General Paula Dow announced on Tuesday that the state's Bureau of Securities has filed suit against an Allendale, N.J.-based company for alleged fraud.

In addition to Energex Systems Inc., the bureau, which is a part of the Division of Consumer Affairs, also named Thomas Fagan, the company's top executive, his wife, and two other business entities to the suit. It alleged that close to 800 investors were defrauded out of approximately $9.5 million through the sale of unregistered notes and stock and subsequent misuse of the invested funds.

Thomas Fagan, president and CEO of Energex Systems Inc., allegedly violated the state's Uniform Security Laws by using funds raised from investors for personal expenses for himself and his wife, Candace Fagan. Thomas Fagan was allegedly not registered as an agent with the N.J. bureau when he sold approximately $9.5 million in unregistered Energex stock.

The state's complaint and order to show cause includes nine counts, naming as defendants Fagan, Candace Fagan, Energex Systems Inc., Arbios Systems Inc., and Arbios Acquisition Partners LLC.

In 2009, Fagan founded Arbios Acquisition Partners to gain control of Arbios Systems Inc., and allegedly sold unregistered ASI promissory notes and ASI stock to investors. Fagan allegedly commingled investors' funds among the entities he controlled and misused approximately $2.3 million for his personal enrichment and benefit.

"The complaint outlines how Fagan allegedly used investors' hard-earned money as his personal piggy bank, misspending corporate funds for personal travel to Atlantic City and Las Vegas casinos and to see the Olympics in Europe," Dow said. "We are bringing this action to hold Fagan accountable."

The state is seeking approval from the court to freeze the defendants' assets and to appoint a receiver, as well as to enjoin Fagan from engaging in any securities-related activity. Energex is no longer in existence, according to Delaware records, where the defendant's businesses were incorporated or formed. Arbios Acquisition Partners exists but is not in good standing, while Arbios Systems Inc. exists and its stock is traded on the Over-the-Counter Bulletin Board.

Fagan's three businesses all listed the same Allendale address as their business location. Energex Systems, formerly known as Orthosonix and Orthomedics, claimed to be in the business of various biotech products, including ones related to blood safety.

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