NEW YORK (CNN/Money) -
Former New York City mayor Rudolph Giuliani's security consulting firm allegedly set up a multimillion-dollar deal with a company whose investors had a history of securities-related charges, according to a report published Friday.
USA Today, citing Securities and Exchange Commission filings, said the marketing partnership between Giuliani Partners and Los Angeles-based Applied DNA Sciences raises questions about how much Giuliani himself knew about the matter.
Applied DNA, which develops DNA-marking technology used to thwart counterfeiting of goods such as clothes and credit cards, has logged $35 million in losses from 2002 to 2004, and no revenue, the newspaper said.
Curiously, the company's "penny stock" has risen rapidly, despite the company having no cash for operations and no customers, the report said.
For instance, Applied DNA Science shares jumped an astonishing 268 percent, from 65 cents to $2.39, on Dec. 7 after the company disclosed its deal with Giuliani's firm, the report said. The stock, which trades on the OTC (over the counter) Bulletin Board, closed at 97 cents Thursday.
Additionally, several of Applied's financial backers have had run-ins with regulators, the newspaper said. Among them, federal authorities charged co-founder Richard Langley in a 1996 case involving a kickback scheme of stockbrokers. Langley pleaded guilty.
The newspaper said Langley personally owns 5 million shares of Applied.
And the National Association of Securities Dealers (NASD) fined one of the company's investor relations officials, Jeffery Salzwedel, in 1998 for allegedly making unsuitable stock recommendations for customers, according to the published report. Salzwedel neither admitted nor denied the charges.
The newspaper quoted securities lawyers as saying that the company raised plenty of red flags, the type which Giuliani himself would have looked into as a former U.S. attorney who prosecuted Mafia and Wall Street cases.
Under the one-year agreement signed last August between the two companies, Giuliani Partners will get $2 million in fees to advise the firm on marketing strategies for security and homeland defense products, the report said.
Additionally, the newspaper said Giuliani's firm stands to get 21 million shares of the company, amounting to about $10 million, making it Applied's largest shareholder.
Former federal prosecutor Lee Rubin, an attorney with Mayer Brown Rowe & Maw, told USA Today that he expects Applied's recent stock activity may signal marker manipulation and will "likely draw the SEC's attention."
Stephen Oesterle, Giuliani Partners managing director, told the newspaper that the firm is not yet a shareholder of Applied and that the firm has extended its "due diligence" investigation of the company. Oesterle added that the company will decide later whether to take equity in it.
Giuliani was not available for comment, the report said.