Endotronics founders convicted in stock fraud case


MINNEAPOLIS -- Eugene and Michael Gruenberg, the father-son team that founded Endotronics Inc., were found guilty Wednesday on federal charges that they fraudulently inflated sales figures to bolster the value of their biotechnical company's stock.

Eugene Gruenberg, 57, was found guilty on 12 of the 15 felony counts. He was found innocent on one count of making false or misleading statements on a Securities and Exchange Commission form and two counts of securities fraud.


Michael Gruenberg, 32, was convicted on 27 of the 30 felony counts against him. He was acquitted on two mail fraud counts and one securities fraud count.

The trial started April 2 and went to the jury Oct. 19. The panel deliberated several days before returning its verdict about 11:45 a.m. Wednesday.

'We feel the evidence supported the verdict and we're pleased with it,' Assistant U.S. Attorney John Lee said. 'In view of the length of the trial and the number of months it took to get the evidence on the record, the deliberations were actually fairly brief.'


No date was set for sentencing. The convictions carry maximum prison terms of of five to 10 years and carry fines of up to $250,000 for each count. Lee said that since the charges predate federal sentencing guidelines, the judge could sentence the Gruenbergs to any term she sees fit. Lee declined to say what sentence the government would seek.

U.S. District Judge Diana Murphy revoked Michael Gruenberg's bond and ordered him incarcerated. Bond was continued for his father.

Normally, attorneys have 10 days for motions following a verdict, but the Gruenbergs' attorneys asked for an extension. Murphy took the request under advisement.

Michael Gruenberg's bond was revoked because there was no 'clear and convincing' evidence that he would not flee, Lee said. Gruenberg had left Endotronics in March 1987, going to Boston, Arizona and Japan until he was arrested on a warrant prior to his indictment in July 1989. He maintained he was seeking employment during the time he was out of state.

Prosecutors showed that between October 1985 and Feburary 1987 the Gruenbergs schemed to present a falsely bright picture of the Minneapolis-area company's sales of cell-culturing instruments to customers, most of whom were Japanese. They allegedly deceived lending institutions, the state of Minnesota and the SEC in an attempt to keep the company's financial condition hidden.


The scheme involved taking out loans totaling at least $9.4 million to finance the supposed purchase of instruments by Japanese distributors. The government charged that the Gruenbergs lied to various banks to obtain the loans.

The Gruenbergs maintained that they were just inexperienced businessmen who did not intend to defraud anyone.

The company once reached a value of about $300 million before the federal investigation. It ended up in Chapter 11 bankruptcy and emerged a much smaller company under the ownership of Detroit-based Venture Funding.

Prior to the charges, Endotronics had sought $24 million in financing from the Iron Range Resources and Rehabilitation Board in northeastern Minnesota for an experimental cancer treatment plant in Hibbing. The project, once supported by Gov. Rudy Perpich, fell apart as the allegations against the Gruenbergs surfaced.

Another defendant, Robert Howe, an Illinois businessman, was indicted along with the Gruenbergs and pleaded guilty earlier.

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