Mark S Pierce reply to Shorts letter:
Message 9257000
Sorry Jeff, had to go get something to eat. Here is Mark's reply to this threatening scenario. I like Mark and he has always been a man of his word and goes forward. I think this letter addressing this obvious "compounding" based on verbal whatever and really tells it all. You know nothing messes up an innuendo or falsehood more than facts.
I can't believe these guys made it public.
Mark S. Pierce
4221 E. Pontatoc Canyon Dr.
Tucson, Arizona 85718
(520) 577-6611(Telephone); (520) 577-6185 (Facsimile);
popoagie@mindspring, corn (E-mail);
April 29, 1999
FACSIMILE: 303.282.7728
James L. Bingham, Esq.
1777 So. Harrison, Ste. 2100
Denver CO 80210
Re: Mel Kupetz/Richard Steinberg
Dear Mr. Bingham:
l am in receipt of your letter dated 27 April written by you on behalf of your clients, Messrs. Kupetz and Steinberg. Your correspondence was written to me individually, and it is in that capacity in which I am responding. I have no authority to respond otherwise.
In the public securities arena one must conduct one's affairs as if one were transparent. For this reason, I am unaffected by your threats to pursue this matter with the Securities and Exchange Commission, N.A.S.D.A.Q. and the Colorado Supreme Court if your demands are not met. I will answer any questions put to me by any regulatory
organization without fear of reprisal.
Your letter provides no substantiating documentation along with it and makes no reference to any corroborating documentation, nor do you recite what evidence it is that you have reviewed; thus, I am assuming that the allegations in your letter are based solely on the broad, general, oral representations of your clients. Given that you have
presented nothing specific to address as a factual basis, this letter will set forth, in general, the factual and legal situation in which your clients find themselves.
Please note that I have never represented your clients or any entity with which they were affiliated to my knowledge in a legal capacity.
Freedom Funding, [nc., a publicly-held Colorado corporation (the "Company"), conducted an initial public offering of its securities in 1988 and, as a result, now is required to file reports with the U.S. Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934 ("Exchange Act") using the "EDGAR" system. Mr. Kupetz was, at one time, the president and a member of the board of the Company. He also acquired shares of the common stock of the Company ("Common Stock") during its formation in 1987. Mr. Kupetz resigned as an officer and as a director, I believe, prior to the conduct by the Company of its initial public offering in 1988 due to regulatory difficulties with the Commission which he was then facing. [n any event, Mr. Kupetz has had no affiliation with the Company for over ten years. I was Secretary of the Company from inception through mid-1998, and I also acted as its legal counsel during that time. I also maintained the corporate record book and acted as its
registered agent.
Page Two
Bingham Letter
April 29, 1999
After Mr. Roger F. Tompkins took control of the Company, I was asked by him to assist in bringing the Company current in its filings with the Commission under the Exchange Act using EDGAR. I was also asked to assist him in the Company's filings with the Secretary of State for the State of Colorado and the Internal Revenue Service. These
filings were accomplished, I believe, during 1996 and 1997. The Company had not filed any reports with the Commission under the Exchange Act since 1988.
After becoming current in these filings, your clients contacted Mr. Tompkins for the purpose of offering their assistance in obtaining a listing of the Common Stock with the National Association of Securities Dealers, Inc. ("NASD"), on the over-the-counter "Bulletin Board." Mr. Kupetz was a shareholder of record at the time, owning 200,000 pre-split/50,000 post-split shares of stock. Mr. Steinberg also claimed an interest, but was not, according to Company records, a shareholder. Mr. Tompkins and I asked your clients at this point what they expected their compensation would be. They informed the Company that they would receive their compensation from Patterson/Travis and also from their acquisition of existing share positions from shareholders who had held these
positions since the formation of the Company. Your clients then recommended the Common Stock for listing on the Bulletin Board through Patterson/Travis.
The Company, with the assistance of your clients as agents of Patterson/Travis, then prepared a Form 2-11 for submission to the NASD to obtain a Bulletin Board listing. This form, as well as the attachments and other submissions supporting the same, contained, in part, the Forms 10-KSB for the two years immediately preceding the
date of submission. An integral part of the Form 2-11 and supporting Forms 10-KSB disclosed the history of the Company, the evolution of its officers and directors during this history and the shareholdings of the Company from inception. The Forms 2-11 and 10-KSB were supported by the articles of incorporation and bylaws of the Company
and by all minutes of the shareholders' and directors' meetings of the Company from inception through the date of these forms, all of which were submitted to your clients and Patterson/Travis for review prior to submission to the NASD.
The Form 2-11 further set forth the compensation proposed to be paid in order to obtain the listing of the Common Stock by Patterson/Travis on the Bulletin Board. Again, your clients assisted in the preparation of this information, provided for the submission of this information to Patterson/Travis and the NASD and were intimately familiar with
the affairs of the Company at that time, being under a contractual obligation to do so. The Form 2-11 does not disclose the progosed payment of any consideration to obtain the listing of the Common Stock on the Bulletin Board.
At no time during this process did either of your clients say anything concerning the disclosures made in the Forms 2-11 or 10-KSB. In fact, they were actively engaged in making the disclosure. Your clients were under a contractual obligation to raise any issues outstanding at the time concerning the history of the management of the Company and the shareholdings, in the Company and any other matters which had come to their attention which were incorrect. They did not do so.
Page Three
Bingham Letter
April 29, 1999
The public filings made by the Company were based upon all available corporate records, were reviewed by management of the Company, were reviewed by your clients, were independently reviewed and audited by the Company's CPAs, were independently reviewed and passed on by Patterson/Travis and were independently
reviewed, commented on, responded to and cleared with the NASD. During this one year process your clients did not once raise any questions concerning the disclosures which were not addressed and reflected in the filings, although they had full access to the information and assisted in the preparation of it; thus, one must assume that the
filings were accurate and complete and that the allegations or Messrs. Kupetz and Steinberg now being made have some other genesis.
The foregoing conclusion as to the genesis of your client's claims is further supported by your clients' not having filed the appropriate forms and schedules under Sections 16(a) and 13 of the Exchange Act reporting their shareholdings, which, if their allegations were true, would have been required. Your clients are sophisticated in the area of securities law, and their violation of these statutes, if their allegations were true, would be intentional and deliberate; thereby reaching the heightened standard necessary for criminal prosecution. You must also consider that your clients acquired 600,000 shares of common stock in addition to their initial holdings of 200,000 shares during this period of time. These shares were subsequently reversed split to 200,000 in number. These shares were acquired for, if I remember correctly, approximately $4,000 in cash. Your clients sold these shares at, I believe, prices ranging from $3.00 to $8.00 per share, realizing approximate gross proceeds of $1,000,000 in the aggregate. If the allegations of your letter were true, your clients would have been in possession of material, non-public, inside information during the period of time in which they purchased a portion of their shares and sold all of their shares. They, then, if their allegations were true, would have been required to either have refrained from trading in the Common Stock or have disclosed the information alleged in your letter prior to their sales. They sold their shares and have now raised the allegations. Again, your clients are sophisticated in the area of
securities law, and their sale of shares in possession of material, non-public, inside information would be, at a minimum, a violation of Section 10Co) of the Exchange Act and Rule 10b-5 thereunder, and, if their allegations were true, would be intentional and deliberate; thereby again reaching the heightened standard necessary for criminal
prosecution and subjecting them to treble damages in the civil arena, which would require the forfeit of all sales proceeds and penalties equal to three times that amount.
Your clients, after November 19, 1998, approached me for the purpose of attempting to obtain additional consideration for their services in providing Patterson/Travis as the sponsoring broker-dealer in obtaining the Bulletin Board listing. I initially rebuffed their advances since they had done so little in regards of the Company, had agreed to be compensated by PattersonfFravis, had refused any consideration from the Company at the time of the listing, had done nothing in the way of locating an acquisition candidate and had profited so handsomely for so little work. After your clients submitted an invoice to me in early April for 100,000 shares of Common Stock, approximately two to three years after the claimed services were performed, and after four months of hounding, I
agreed to settle all matters with your clients by selling to them 60,000 shares of Common Stock at a price of $2.75 per share, which was substantially below the market price at the time. These shares were deposited into a brokerage account_and instructions were lodged to sell the shares to your clients at this price. This was accomplished pursuant to the expressed instructions of your clients.
Page Four
Bingham letter
April 29, 1999
Your clients then sold 60,000 shares through their brokerage account. This established a cash and a short position in the stock. They intended to cover their short position using the shares purchased from me. The shares were sold by your clients for substantially in excess of $2.75 per share. Your clients, however, miscalculated. They believed they could transfer the money from their account to my account in a simultaneous exchange for shares. This is what they agreed to and this in the securities industry is a standard known as a delivery-versus-payment ("DVP") transaction.
Your clients miscalculated because the brokerage firm could not allow them to use the cash generated from their short sales to cover their position since this would be an illegal practice known as "free-riding."
Your clients then demanded that I transfer the 60,000 shares which they had agreed to purchase from me directly to their account prior to paying me. They promised to pay me later after the transaction had cleared. I rejected this offer since it would be foolish to transfer shares prior to receiving payment and because to me the stun of $165,000 is a great deal of money. This is why the DVP was established and is a standard in the securities industry. Furthermore, you clients had a great deal of money from the previous sales of their shares; thus, I suspected that they merely wanted to take the shares from me without paying.
After again being informed that the DVP was in place and that your clients merely needed to transfer the agreed sum in simultaneous exchange for the shares, your clients began a pattern of conduct which has confirmed my belief expressed in the immediately preceding paragraph. First, they made in excess of 30 phone calls in a period of three days to me and my brokerage firm in their effort ,to misappropriate my shares. Your clients left voice mail threatening criminal persecution and bodily injury if I did not transfer the shares to them prior to payment. Secondly, they obtained your services threatening criminal and disciplinary sanctions if I did not transfer the shares to them without payment. Finally and most problematical is that they have spread rumors in the market that there is an overhang of 800,000 shares of stock in the market. This is a material misrepresentation. Further, they have spread rumors that the NASD will be halting trading in the stock on Thursday; thus the timing of your letter. This is also a
material misrepresentation. The behavior in the recent Pairgain matter is reflective of your clients' actions. If they have in fact spread these rumors in an effort to impact the market for purposes of covering their short, their conduct was criminal.
Your clients have claimed an interest in 3,000,000 shares. Your clients now demand the transfer of 240,000 shares and $100,000 in cash to settle all claims. Approximately three weeks ago your clients sent me an invoice solely claiming 100,000 shares of Common Stock in payment of all amounts claimed. As discussed above, we agreed to
the sale of 60,000 shares of Common Stock at a price of $2.75 per share. A DVP account was set up for this purpose. Your clients attempted to misappropriate these shares and, in any event, refused to transfer the agreed consideration. They failed in the agreement they made. They then spread rumors in the market in an attempt to
impact the price of the stock. Failing that they are now making the demands set forth in your letter.
In closing, there is no probative value to your clients' testimony. Mr. Steinberg is a convicted felon for stock swindling. He has also had numerous regulatory difficulties and proceedings against him. His licenses with the NASD have been revoked and he cannot obtain registration with that organization ever again. Mr. Kupetz has had similar difficulties.
Please. let me know your contact at the Commission and/or the NASD, as I would like to speak to them and make sure they have a copy of your letter and this response.
Page Five
Bingham Letter
April 29, 1999
Regarding the allegations concerning the proposed shareholder meeting, please address your concerns to the Company, as I do not represent it.
If you would like to schedule a meeting to discuss this further, please let me know. I am available in Tucson at any time and may be in Denver sometime in late May.
Yours
Sincerely,
Mark S. Pierce
Cc: A. Thomas Tenebaum (w/ 26 April Bingham letter)
Patterson/Travis Securities (w/ 26 April Bingham letter)
Roger F. Thompkins (w/ 26 April Bingham letter)
CBQ, Inc. (w/ 26 April Bingham letter)
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