Springdale : Internet provider sues company over stock
BY MICHELLE BRADFORD AND ALEX DANIELS
ARKANSAS DEMOCRAT-GAZETTE
SAVANNAH, Ga. — Owners of an Internet service provider have sued Springdale company Golf Entertainment Inc., contending that its principals — three men with a history of suing officials in Northwest Arkansas — have tried to stop them from warning investors about an alleged stock manipulation scheme by the publicly traded Golf. Carla Hohenhouse and Daniel Johanning sued on Monday in U.S. District Court in Savannah, Ga. Defendants are Jim Bolt, Golf’s chief financial officer and a convicted felon; John Dodge, Golf’s lawyer and a parttime judge in Benton County; Tim Brooker, Golf ’s chief executive officer; and one to 25 "unknown" others.
Also named as a defendant is Genesis Trust of Bentonville, which Hohenhouse and Johanning claim operated under the false "veil of a trust" and was actually created and controlled by Golf principals.
Golf Entertainment provides Spanish language broadcasts through KVAQ-TV, a low-power television station available to 350 subscribers through Ozark Wireless.
The suit states that Bolt, Dodge and Brooker, all of Benton County, libeled, threatened and harassed the plaintiffs after they posted Internet messages about Golf’s alleged involvement in a conspiracy to prop up the company’s stock.
U.S. Sen. Tim Hutchinson, RArk., asked the Justice Department in an Aug. 13 letter to investigate Golf on charges of manipulating stock prices and defrauding investors. Hohenhouse and Johanning say in their suit that such conspiracies are known as "pump and dump" schemes.
Hutchinson contacted the U.S. Justice Department in conjunction with an investigation by the Benton County Prosecuting Attorney’s office. Prosecutor Bob Balfe has contacted the Securities and Exchange Commission and the Justice Department about Golf’s practices, according to Hutchinson’s letter.
Balfe had no comment Tuesday about what he called an ongoing investigation.
FAKE TRANSACTION
The suit by Hohenhouse and Johanning said the defendants obtained excessive shares of Golf stock through a fake transaction and then engaged in a campaign to artificially inflate the value of the stock.
Bolt said Wednesday that Golf and Genesis vigorously deny allegations of stock manipulation as well as the allegations in the Georgia lawsuit. He said that Golf officials have filed complaints against Hohenhouse and Johanning with the SEC and the FBI.
The complaints mirror allegations in a June lawsuit by Golf claiming that a group of people, including Hohenhouse, tried to extort money from the company by threatening to write negative claims on the Internet.
In another matter, the Delaware Division of Corporations said Wednesday that Golf’s incorporation status there was voided March 1 for failure to pay franchise taxes. But that hasn’t stopped Golf from identifying itself in SEC quarterly reports as a Delaware corporation as late as Aug. 20. Hohenhouse said Wednesday that Golf should have revealed to investors that Bolt has an extensive criminal history, including a 1982 conviction in Oklahoma for two counts each of mail fraud and making material false statements to a federally insured bank.
"If you had knowledge that a CFO of a company was a convicted felon and had convictions involving mail fraud, that would factor into your decision to invest in that company," Hohenhouse said.
The suit she filed with Johanning seeks an injunction to make the defendants stop alleged harassment and defamatory statements and to withdraw and retract any false and defamatory statements.
The suit states that defendants disseminated false and malicious claims on the Internet that Hohenhouse and Johanning are involved in illegal drug smuggling, money laundering, child pornography, securities fraud and blackmail and have ties to organized crime.
"The claims have hurt our business relationships and personal relationships," Hohenhouse said Wednesday. "We’re not the criminals here. They are."
RELATIONSHIP QUESTIONED
Hohenhouse of Richmond Hill, Ga., said she is a public-market investor who owns Meridian-Prime with Johanning of Miami. Meridian-Prime provides Internet services, Hohenhouse said.
Hohenhouse said she and Johanning uncovered Golf ’s alleged stock scheme and posted information on the Internet message board Raging Bull warning potential investors.
Hohenhouse said she has reported Golf ’s practices to the SEC and detailed transactions that constitute a sham.
Among other things, the suit questions the relationship between Golf Entertainment and Genesis Trust.
According to a Golf Entertainment SEC filing, Genesis sold Golf about $1 million worth of equipment in exchange for 3.75 million Golf Entertainment shares.
The Dec. 31, 2001, deal was contingent on the sale to Genesis of convertible debt issued by the company to Ronald G. Farrell, Golf’s former CEO.
In April, Genesis Trust filed suit against Golf Entertainment in U.S. District Court in Fayetteville, claiming the company had failed to disclose a lien for $185,000 placed on the company by New Jersey officials. The liability stemming from the lien, Genesis said, rendered their shares illiquid.
Less than a week after the case was filed, the two sides reached a settlement May 6. In exchange for company stock, Genesis withdrew its claims.
During what the SEC filing called "interim phase" of the settlement, Golf issued Genesis 15 million shares, and warrants to purchase 2.5 million shares starting July 15, giving the trust a 70 percent stake in the company.
In the second phase of the settlement Genesis agreed to either give back 10 million shares to the company or provide them to a third-party investor. In the interim, Genesis said it would waive voting rights on 10 million shares of the stock, reducing its stake in the company to 20 percent.
In a subsequent filing, the company did not disclose whether an investor was found or if the shares were returned to the company.
The company described the settlement in a July 17 filing with the U.S. Securities and Exchange Commission, more than two months after the negotiations were completed.
Golf said in the disclosure statement that it did not inform shareholders of the settlement earlier because it "would have greatly reduced the likelihood of success of such negotiations and would have been incomplete or potentially misleading to shareholders."
UNTIMELY REPORTING
Some securities experts maintain that such changes in ownership and share dilution must be reported on a timely basis with the SEC.
"It certainly is an extraordinary event," said Carolyn M. Callahan, accounting professor at the University of Arkansas Sam M. Walton College of Business.
Callahan, while not familiar with Golf Entertainment, said public companies are duty bound to report such events "without time lag."
Hohenhouse and Johanning allege in their lawsuit that Dodge acted as attorney for both Golf Entertainment and Genesis Trust during the lawsuit and settlement between those two entities.
Dodge, the suit contends, prepared documents for the settlement agreement between Golf and Genesis in U.S. District Court in Fayetteville.
It’s illegal and unethical for an attorney to represent both sides in the same action, Hohenhouse said Wednesday. The suit alleges that Dodge had a third-party attorney sign off on the settlement agreement on Genesis’ behalf.
Dodge didn’t immediately return a phone call Wednesday.
U.S. District Judge Jimm Larry Hendren approved the settlement agreement.
Hohenhouse and Johanning said in their suit that Hendren didn’t know that Dodge was acting unethically by representing both parties, that Genesis wasn’t registered with the IRS as a non-profit organization as it has claimed and that Golf is a revoked corporation not in good standing or authorized to conduct business in Arkansas.
The June suit that Golf filed through Dodge in U.S. District Court in Fayetteville accuses Hohenhouse and others of unfairly bashing Golf on Internet message boards, including www.ragingbull.com.
In a prepared statement issued in conjunction with the June lawsuit, Brooker said that Golf had been hurt by a "systematic pattern of racketeering activity by the defendants."
It wasn’t the first time Brooker filed a lawsuit alleging a criminal conspiracy. He and Dianne Saladino of Pea Ridge filed a lawsuit in August 2000 against Sheriff Andy Lee and other county officials alleging improprieties in the attempted sale of surplus sheriff’s office guns and the trade of a sheriff’s office helicopter.
A judge dismissed the suit in October 2000. Bolt filed a federal racketeering suit against Washington County prosecutors and others after he was convicted of theft by deception in 1993. A U.S. District Court judge dismissed the suit.
Dodge filed a petition in 1998 for a grand jury to investigate then-Benton County Prosecuting Attorney Brad Butler and Lee. Two Benton County circuit judges denied the petition.
This story was published Thursday, August 22, 2002
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