Allegation notice. Allegations from the cited record; outcomes noted where adjudicated.
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CIK 0001059577 · CEDE / LOM

Davi Skin — The Offshore Liquidation

Cane and Wallace took the MW Medical shell Wallace had run since 1998, sold the reorganized version to entrepreneur Parrish Medley (who renamed it Davi Skin and brought in Carlo Mondavi), then seized it back with a concealed $200,000 note — ousting Medley, diluting Mondavi to zero, and dumping shares through a dual nominee channel: four Bermuda LOM nominees at exactly 3.97% each plus CEDE & Co. Combined control reached ~84.79% of the free-trading float and yielded $6,385,033 in proceeds.

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How it worked

Wallace held a self-dealt $200,000 promissory note as a latent weapon; when a 2005 audit threatened to expose the offshore structure, she deployed the enterprise's signature move — accuse the victim — faxing auditors that Medley was “a liar, a cheat.” With Medley locked out and Cane installed as Secretary/General Counsel, Cane converted the note into 2,295,388 shares in a single April 3, 2007 batch (certs 5309–5312, 573,847 each) split across four LOM nominees at 3.97% — engineered one tick below the 5% Schedule 13D threshold. Cane's triple role (Secretary, counsel, director) erased any separation of duties, and her 2001 Michael→Kyleen name change severed the documentary chain on the CEDE & Co. shares.

Open the filed qui tam complaint at this section — the operative pleading (United States ex rel.), jumped to the matching allegation; the filed PDF is one click away.

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Forensic brief

The complete forensic brief behind this summary — the full record with exhibits. Page through it below, or open it larger for the document summary and key relations.

Forensic brief — Davi Skin 1 / —
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From MW Medical shell to a stolen company

Davi Skin began as MW Medical, Inc. — a Nevada shell spun out of Dynamic Associates in 1998, with roughly 48% of its shares flowing to Michael (later Kyleen) Cane and Jan Wallace installed as President, CEO, and Director. Its “microwave dermatology” business was window dressing; by 2002 it had halted all research and was openly “seeking a reverse merger partner.”1

When MW Medical filed Chapter 11 in January 2002, Wallace had positioned herself as the primary secured creditor on a $200,000 promissory note — ensuring she emerged from bankruptcy in control. In 2004 the reorganized shell was sold to entrepreneur Parrish Medley, who renamed it Davi Skin, took the CEO seat, and brought in Carlo Mondavi of the wine family as co-founder — believing, on Cane's introduction, that he had bought a clean company.2

What Medley did not know: Wallace had retained the $200,000 note, allegedly created March 15, 2003 while she still controlled the shell. It was not debt — it was a weapon, held in reserve to seize the company back the moment anyone looked too closely at the offshore structure.

  1. SEC Form 10-KSB, MW Medical, Inc. at 2–3 (Dec. 31, 2001), Accession No. 0001075793-02-000209; SEC Form 10-SB, MW Medical, Inc. (Sept. 14, 1998).
  2. Voluntary Petition, In re MW Medical, Inc., No. 2:02-bk-01234-RJH (Bankr. D. Ariz. Jan. 22, 2002); SEC Form 8-K, Davi Skin, Inc. (Aug. 16, 2004); Complaint, Medley v. Wallace, No. BC351142 (L.A. Super. Ct. Apr. 21, 2006).
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Accuse the victim

In March 2006 Davi Skin's auditors asked Wallace about the $200,000 note during their fiscal-2005 review. A real audit would have surfaced the offshore nominees and the undisclosed Cane-Wallace ownership. So Wallace did what the enterprise always does when exposure looms: she accused the victim of her own fraud, faxing a defamatory statement to the accounting firm.1

I state clearly, in the 2 and half years I have known Parish [sic], I find him to be a liar, a cheat, self-serving and of low moral character.Jan Wallace, facsimile to Davi Skin's accounting firm (Mar. 15, 2006), quoted in Medley v. Wallace, No. BC351142 (L.A. Super. Ct.)

When Medley turned to Cane — who had brokered the sale and posed as independent counsel — Cane said nothing. CFO Munjit Johal and Grace Sim, both under Cane and Wallace's control, manufactured false financial records to give the smear a paper basis. By May 2006 Medley was locked out; the board — now seating Cane as Secretary/General Counsel and Lakha as Director — stripped his authority. On March 17, 2006 he signed a separation agreement stating he was owed “nothing.”2

  1. Medley Compl. ¶¶9–11, Medley v. Wallace, No. BC351142 (L.A. Super. Ct. Apr. 21, 2006).
  2. Id. ¶12; Davi Trade Analysis (Corporate Actions Timeline); separation agreement (Mar. 17, 2006).
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Mondavi diluted to nothing

Carlo Mondavi's founding stake and his family name had given Davi Skin its legitimacy. Once Medley was gone, that founding ownership was just an obstacle. By the July 13, 2007 shareholder report, Mondavi's name appears nowhere on the register — his equity diluted to zero by massive issuances to the offshore nominees, authorized by the Cane-controlled board installed after the lockout.1

The theft is visible in the certificate ledger itself: all four offshore entities received identical allotments of 573,847 shares, on the same day (April 3, 2007), under sequential certificate numbers (5309–5312) — the signature of a single batch transaction, not four independent investments. As Secretary and General Counsel, Cane alone controlled the corporate records and executed the certificates; as a director, she sat on the board that authorized them. A complete circle of self-dealing.2

  1. Davi Skin Active Shareholder Report (July 13, 2007) ; Davi Trade Analysis (Shareholder Report).
  2. Davi Skin Active Shareholder Report (July 13, 2007) (Cert. Nos. 5309–5312, all dated 04/03/2007, each 573,847 shares) ; Investigation Summary ¶¶37–38 (Mar. 4, 2010).
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The 3.97% trick: four Bermuda nominees

On April 3, 2007, Cane converted Wallace's $200,000 note into 2,295,388 shares and split them into four equal blocks held by Bermuda nominee entities at LOM Securities — each landing at exactly 3.97%, one tick below the 5% threshold that triggers a Schedule 13D disclosure of identity, source of funds, and purpose.1

EntityCert. No.Shares%
Arch Ltd. 5309573,8473.97%
Hepburn Holdings Ltd. 5310573,8473.97%
The Chloe Group of Companies 5311573,8473.97%
Sunshine Ltd. 5312573,8473.97%
Total LOM nominees—2,295,38815.88%

All four shared one address — The LOM Building, 27 Reid Street, Hamilton, Bermuda — and one origin: a single note conversion. The 5% rule exists precisely to force this disclosure; fragmenting one 15.88% block into four sub-threshold slices defeats it by design. No SEC filing disclosed the conversion; a later Form 10-QSB described the beneficiary only as an “unrelated third party” while naming “Ms. Wallace” elsewhere in the same document.2

  1. Davi Skin Active Shareholder Report (July 13, 2007) ; 15 U.S.C. §78m(d); 17 C.F.R. §240.13d-1.
  2. Artist House Holdings Pleading ¶29 (L.A. Super. Ct. Jan. 22, 2010); SEC Form 10-QSB, Davi Skin, Inc. (Sept. 2007); Investigation Summary ¶¶37–38 (Mar. 4, 2010).
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CEDE & Co. and the name-change laundromat

The LOM nominees were only one channel. The other was CEDE & Co. — the Depository Trust Company's street-name nominee — where Cane parked 2,249,825 shares originating in her Dynamic Associates / LATI holdings. Together the two channels gave Cane and Wallace control of roughly 84.79% of Davi Skin's free-trading float.1

A simple subtraction proves the source. The non-Cane Dynamic shareholders held only 1,337,692 shares — 912,133 fewer than the 2,249,825 deposited to CEDE & Co. The shortfall is mathematically impossible to fill from anyone but the Cane family's own 4,803,461-share pool. The 36 certificates were staged in three phases, climaxing in a single 946,085-share deposit on March 5, 2007 — 42% of the balance — at the peak of promotion. That is controlled liquidation, not retail trading.2

The Michael→Kyleen name change was the laundering step. Cane filed Schedule 13Ds under “Michael A. Cane” for 231 days after legally becoming Kyleen on June 28, 2001 — and didn't disclose the change until a 2004 Form 5. Depositing the shares to CEDE & Co. with Regulation S opinion letters to strip restrictive legends severed the chain linking the dumped stock back to its fraudulent acquisition.

When liquidation ran in June and September 2007, the coordinated trading controlled roughly 89% of daily volume and produced $6,385,033 in proceeds before the shell was abandoned.3

  1. Artist House Holdings Pleading ¶37 (L.A. Super. Ct. Jan. 22, 2010); Investigation Summary ¶37 (Mar. 4, 2010).
  2. Calculation: 2,249,825 (CEDE deposits) − 1,337,692 (non-Cane Dynamic holders) = 912,133-share shortfall; Davi Skin Active Shareholder Report (July 13, 2007) (Cert. 5304, 946,085 shares, 03/05/2007) .
  3. SEC Schedule 13D, Legal Access Technologies, Inc. (June 26, 2001), Accession No. 0001075793-01-500095 , and (Feb. 14, 2002), Accession No. 0001075793-02-000056; SEC Form 5 (July 22, 2004), Accession No. 0001255294-04-000216 ; Investigation Summary ¶38 (Mar. 4, 2010) ($6,385,033 proceeds).
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“I have no offshore accounts” — and the Phillips frame

Davi Skin's SEC filings, certified by CEO Wallace and CFO Johal, swore the company had no material related-party transactions and no undisclosed 5%+ owners. Wallace's own sworn bankruptcy testimony detonated that claim. At her November 4, 2013 creditors' meeting she denied offshore accounts outright — then was read her own prior deposition.1

Q: Is it your testimony, ma'am, that you never had offshore accounts?A: That is correct.… [moments later]Q: How about Hepburn Holdings?A: That is in a management account, yes.Q: And where is that?A: That's in Bermuda.Trial Tr., Wallace Bankruptcy, In re Wallace, No. 2:13-bk-17237-SSC (Bankr. D. Ariz. Nov. 4, 2013)

One of the four nominees, The Chloe Group, is named for Wallace's daughter Chloe Cutler — whom Wallace also swore she had never transferred assets to. And the enterprise tried to pin the structure on its next target: on April 18, 2007, days after the conversion, Wallace emailed the relator — “i moved it to hepburn holdings … please keep the facts hidden.” In September 2007 Wallace and Cane obtained the relator's Social Security number by deceiving his assistant (“the sec attorney need your SSN for the form 3 filing”), manufacturing a false paper trail to implicate an innocent man in their own offshore fraud.2

Davi Skin is the enterprise template in full: a clean business hijacked through a concealed note, the founder accused of the perpetrators' own crime, ownership laundered through Bermuda nominees and a street-name depository, and the victim's identity weaponized to take the fall — all certified to the SEC as if none of it happened. Predicate acts under 15 U.S.C. §§78j(b), 78m(d) · 17 C.F.R. §§240.10b-5, 240.13d-1 · 18 U.S.C. §§1343, 1956, 1962(c).

  1. Trial Tr., Wallace Bankruptcy, at 16:9–11, 17:7–20 (Nov. 4, 2013); SEC Forms 10-K / 10-Q (FY 2006–2007) (false Sarbanes-Oxley certifications).
  2. Davi Skin Active Shareholder Report (July 13, 2007) (The Chloe Group, Cert. 5311) ; Wallace email to Phillips (Apr. 18, 2007); Investigation Summary ¶26 (Mar. 4, 2010) (SSN acquisition via Jamee Nunelee, Sept. 12, 2007; Kenn Gordon declined).
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Documents

The civil complaints naming Davi Skin and Jan Wallace, and the sworn depositions of Cane and Wallace taken in them — the Medley action that first exposed the certificate placements, and the Zenith action.

Medley v. Wallace — complaint · 21 Apr 2006
Medley v. Wallace — complaint 1 / —
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Parrish Medley v. Jan Wallace (C.D. Cal.). The complaint that first exposed the Davi Skin certificate placements — Medley’s fraud and control claims against Wallace over the concealed $200k promissory note and the offshore nominee structure positioned to seize the company.

Zenith v. Davi Skin & Wallace — complaint · 24 Mar 2010
Zenith v. Davi Skin & Wallace — complaint 1 / —
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Zenith v. Davi Skin, Inc. & Jan Wallace — a later investor action naming the renamed shell and its operator.

Cane deposition · 18 Dec 2006
Cane deposition 1 / —
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In re Medley v. Wallace. Cane, the securities lawyer, under oath on the entity structuring and the promissory-note mechanics used to move value offshore — her own account, to be measured against the contemporaneous filings. Press listen + read transcript for the multi-voice recording synced to the transcript.

Wallace deposition · 20 Dec 2006
Wallace deposition 1 / —
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Medley v. Wallace, No. CV 06-3370 (C.D. Cal.). The CEO deposed two days after Cane, on the same transactions. Press listen + read transcript for the full ~4.7-hour multi-voice recording synced to the transcript.

Lakha secured convertible note — Davi Skin 10-QSB · 20 May 2008
Lakha secured convertible note — Davi Skin 10-QSB 1 / —
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Davi Skin, Inc. Q1-2008 Form 10-QSB (Acc. 0001173473-08-000049), Note 6 “Notes Payable” and subsequent events — the SEC filing that discloses Amin S. Lakha's secured financing of Davi Skin. No separate note instrument was filed publicly; this is the authoritative record of its terms.

  1. The threat made financial. A 9% Senior Secured Convertible Note, stated amount $2,200,000 — a friendly lien over the whole company that, on default, converts the financier into the controlling creditor. The initial $500,000 advance was secured by Davi’s Constellation Wines / Robert Mondavi license.
  2. The ‘unrelated third party’ was an insider. The filing labels Lakha an “unrelated third party,” yet he sat on the Davi Skin board — installed after founder Parrish Medley’s 2006 ouster, the board that authorized the offshore issuance.
  3. Restated 1 Apr 2008. The $2.2M facility was terminated after the $500K advance and replaced by a First Amended and Restated Agreement: a $536,163 A&R Secured Convertible Promissory Note due 15 May 2010, a $10,000 release, and 600,000 warrants to Lakha.
  4. Same device, different shell. The secured-convertible-note-as-control mechanism mirrors Wallace’s manufactured MW Medical note ($615,871 → 74,000,000 reorganization shares) and her $200,000 Davi note.
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Timeline

  1. 11 Mar 1998MW Medical incorporated in Nevada from the Dynamic Associates spin-off; Wallace President/CEO/Director; ~48% flows to Michael (later Kyleen) Cane.
  2. 22 Jan 2002MW Medical files Chapter 11; Wallace positioned as primary secured creditor on a ~$200,000 note.
  3. Jun–Aug 2004Shell emerges via a 1-for-500 reverse split; Medley buys it, renames it Davi Skin, and brings in Carlo Mondavi as co-founder.
  4. 15 Mar 2006Wallace faxes Davi Skin's auditors defaming Medley (“a liar, a cheat”) to derail their inquiry into the $200,000 note; Cane stays silent.
  5. May 2006Medley ousted; Cane installed as Secretary & General Counsel, Lakha as Director — the board that authorizes the offshore issuance.
  6. 3 Apr 2007Cane converts Wallace's note into 2,295,388 shares — one batch (certs 5309–5312, 573,847 each) to four LOM Bermuda nominees at 3.97% apiece, below the 5% Schedule 13D threshold.
  7. 13 Jul 2007Shareholder report: four LOM nominees + CEDE & Co. = 84.79% of the free-trading float; Mondavi's founding stake has been diluted to zero.
  8. Jun & Sep 2007Coordinated liquidation controlling ~89% of daily volume yields $6,385,033 in proceeds; the worthless shell is abandoned.
  9. 4 Nov 2013At her bankruptcy 341 meeting Wallace swears she “never had offshore accounts” — contradicted minutes later by her own Hepburn Holdings (Bermuda) testimony.
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Named parties

  • Kyleen Cane (Secretary / General Counsel; document control; CEDE & Co. shares)
  • Jan Wallace (CEO; $200,000 note; four LOM Bermuda nominees)
  • Parrish Medley (victim; ousted founder)
  • Carlo Mondavi (co-founder; ownership diluted to zero)
  • Amin Lakha (nominee “investor” / Director)
  • Munjit Johal (CFO) & Grace Sim (manufactured records)
  • Offshore: Arch Ltd., Hepburn Holdings Ltd., Sunshine Ltd. (Bermuda), The Chloe Group of Companies (Cayman) — LOM Securities nominees · CEDE & Co. (DTC)
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Citations & pleadings