quote.bloomberg.com; Ex-Con Pal Has Own Dominion: Christopher Byron (Correct)
By Christopher Byron
New York, June 7 (Bloomberg) -- An unusual corporate fraud lawsuit was filed last month in a Worcester, Massachusetts, state court. Though the suit has attracted virtually no attention in the press, behind the action lies a remarkable and complex series of stock deals, stretching from Seattle to Miami, New York, Boston and the Channel Islands.
The intrigue is woven with hard-to-follow transactions involving penny stock companies with sound-alike names. The deals have been buttressed by confusing and sometimes contradictory press releases and Securities and Exchange Commission filings -- all pulled together in an effort to capitalize on Internet fever by pyramiding billions of apparent market value atop a group of stocks that in some cases look to be worth nothing at all.
In the spotlight in this tale: a wheeling and dealing privately held company named Zero.Net that is attempting to build itself into an Internet incubator firm along the lines of CMGI Inc., the $15 billion holding company run by financier David Wetherell.
The characters involved in the action are also remarkable. Specifically, the suit levels allegations of fraud and deception against a convicted bank swindler named Andrew Evans, who bizarrely enough turns out to have been a close personal friend of -- and one-time financial adviser to -- Microsoft Corp. Chairman William Gates.
Looting Alleged
Evans' role in these matters is now coming to light as a result of a suit filed May 23 in Massachusetts Superior Court by Biz2Net Corp., a struggling Internet commerce company. The plaintiff firm charges that Evans and others misappropriated, stole and looted Biz2Net's business plan, technology and key employees during a four-month period beginning last November. The suit claims that Evans and his group engaged in sham merger talks with Biz2Net while secretly misappropriating the company's trade secrets and plans. Evans has declined to comment on the case.
Biz2Net is hardly General Motors Corp. The Millbury, Massachusetts, company began life in 1995 as a stock-and-warrants IPO under the name Omni Multimedia Group Inc., a software firm. Denver-based Schneider Securities was the underwriter.
In 1997, Omni Multimedia went bankrupt and its assets were acquired by a group of investors led by Thomas DePetrillo, a former stockbroker from Schneider Securities. The resulting new entity thereupon changed its name to Omnet Technology Corp., and changed it again last August to Biz2Net.
Time Served
According to an affidavit filed in the suit by DePetrillo, now Biz2Net chairman, the company soon found itself strapped for cash and hired a Boston-area investment firm, H.C. Wainwright & Co., to raise between $10 million and $15 million in a private placement. The affidavit states that Wainwright forwarded one of the offering memoranda to an individual named Andy Evans.
Evans, it turns out, along with his wife, Ann Llewellyn Evans, served six months in federal prison back in the mid-1980's for borrowing more than $500,000 from a Seattle bank. At the time, Evans had been working as a stockbroker and had taken out the loan, claiming it was for a real estate purchase. In reality, he needed the money to meet regulatory capital requirements for an investment firm that he and his wife had started.
There was one other thing that made Evans a notable figure: For several years previously, he had been a close friend of Microsoft's co-founder and largest stockholder, Bill Gates -- so close, in fact, that the software billionare had become godfather to all three of Evans' children. Published reports say that when Evans pleaded guilty in federal court, Gates attended the sentencing hearing and thereafter visited his friend in prison.
Causing Embarrassment
Following his release from prison, Evans reemerged as a private investor, and through an entity named Dominion Income Management Corp. began trading stocks on behalf of Gates. In 1993, Evans gave an interview for a lengthy profile of himself in the Wall Street Journal, in which he boasted of his close ties to Gates, and sources on Wall Street say the software billionaire was embarrassed and thereafter began distancing himself from the man.
In an interview for this story, Evans declined to say whether he continues to manage money for the world's wealthiest man, saying, ``That article was very painful for us, and after it came out, Bill and I agreed to either say that we're friends if asked, or to offer a simple `no comment.''' A well-placed Wall Street source who monitors trading activities throughout the industry says Gates has conducted no business through Evans or his firm for more than two years.
Meanwhile, corporate filings and other documents show that Evans began increasingly to involve himself in low-priced and penny stock speculations. In 1996, Evans' investment vehicle, Dominion Income Management, surfaced as an investor in a $4 a share biotech startup called Novavax Inc. Dominion also took a 6 percent position in a D.H. Blair Investment Banking Corp.- controlled penny stock bearing the name ChatCom Inc., which is now trading in bankruptcy for about 3 cents a share.
Coffee and Car Parts
Similarly, there was New World Coffee Inc., a $10 stock in early 1996, which is now selling for about $2 a share. Evans invested in the retail chain in 1995 through his control of a second vehicle, Maritime Capital Partners. Evans would not say anything about Maritime Capital other than it is a ``private partnership'' with which he is affiliated.
And there was Automotive Performance Group Inc., a car parts maker, which Evans took over in 1998 using shares he held in yet another company (International Motor Sports Group Inc.) through Maritime Capital and Dominion Income Management. The stock has been trading for less than a dollar for most of the last year.
Then, in the spring of 1999, as Internet fever rose higher and higher, Evans' two investment vehicles -- and eventually a third, Alta Ltd. -- began to surface in connection with Internet- linked deals involving Zero.Net, a hitherto unknown ``Internet operating company'' in San Francisco.
No Net Worth
Though the company's Web site describes Zero.Net as having ``a 22 year history,'' the company's first known mention in the media was in May 1999 when a Vancouver, British Columbia, penny stock company named W Collect Com Inc. -- an Internet auction site -- issued a press release announcing a merger agreement with Zero.Net. The release described Zero.Net as a private company with assets consisting of a ``mature portfolio of Internet companies'' supplied by two investment entities: Dominion Income Management and Maritime Capital Partners, underscoring that for all practical purposes Zero.Net was just another Evans-controlled investment vehicle.
W Collect Com was a virtually worthless penny stock ``development company'' with a mere $30,000 of balance sheet cash, no net worth, and no income. The merger never was consummated. ``We did our due diligence and didn't like what we found,'' is all Evans will now say.
Meanwhile, Evans had taken an interest in another small-beer operation called Perfumania Inc. The Miami-based, money-losing chain of fragrance shops had filed papers with the SEC in June 1999 to spin off 33 percent of its online marketing operation in an IPO under the name Perfumania.com Inc. The offering occurred Sept. 29, 1999 at $7 a share, raising $16 million for the spun- off entity and $6.5 million for its parent.
Tip From Analyst?
Evans says he doesn't remember how he learned of the Perfumania.com offering except perhaps that an analyst at H.C. Wainwright, an underwriter on the deal, may have tipped him. ``We see dozens, even hundreds, of these things every week,'' Evans said.
Be that as it may, Evans plunged in, and on Oct. 11, Perfumania.com issued a press release stating that between Sept. 29 and Oct. 8, a company known as Dominion Income Management had acquired 1.55 million shares -- or almost half those sold in the offering -- through open market purchases once the shares had been sold to be public.
The press release described Dominion Income Management as a private investment firm with ``a long track record of successfully building private high-growth companies into successful public companies.''
Conflicting Stories
Yet the press release statement that the purchases by Dominion had been made on the open market over eight trading days conflict with statements filed later by Evans. On Oct. 12, Dominion filed a statement with the SEC saying that it had bought the shares between Sept. 29 and Oct. 7, and six months later, Evans filed a statement saying the shares had been purchased on the Sept. 29 alone. Evans now says this: ``We had a 300,000-share allocation in the IPO, and in the following days we bought another 1.2 million'' shares. If so, that would mean that more than a third of all shares traded during the period were acquired by Dominion Income Management.
In any case, having acquired almost half the public float in Perfumania.com's shares, Evans next turned his attention to Biz2Net, the company that claims Evans and his group wound up looting their business.
In an affidavit filed in support of the suit, Biz2Net Chairman DePetrillo stated that Evans had approached him after receiving the company's private placement offering memorandum from H.C. Wainwright. Evans says he did indeed learn of Biz2Net from H.C. Wainwright but, once again, says he doesn't remember who at the firm brought the deal to him.
Plot Twist
On Nov. 16, Alta Ltd., describing itself as a ``private European investment firm,'' issued a press release so confusing and convoluted that it seemed to describe a company swallowing its own tail. The release said that Alta, based in the Channel Islands, had agreed to lend Biz2Net an undisclosed sum of money, in return for which Alta would get back the proxy right to vote a majority of Biz2Net's shares in favor of selling Biz2Net to Perfumania.com. Got that?
The release quoted Evans -- identified vaguely as an ``adviser'' to Alta -- as saying that, through Alta's work on behalf of Perfumania.com, the firm had come across Biz2Net and found it to be at the ``forefront'' of its industry. What the press release didn't say, of course, was that Evans wasn't simply an ``adviser'' to Alta, he also controlled almost half the public float of Perfumania.com -- the very company that was buying Biz2Net. A week later, Alta issued a second press release elaborating on Evans' interest in the matter, describing him as a ``significant'' shareholder in Perfumania.com as well.
On Nov. 22, it became Alta's turn to file a report to the SEC that Evans now disavows. According to an Alta 13D filing on that date, Alta acquired 952,600 shares of Perfumania.com stock on Nov. 12. An SEC filing six months later says the purchase occurred on Nov. 22 and was at $8.62 a share for a total of about $8.2 million. Evans says the block wasn't purchased at once but over a period of days that simply began on Nov. 12.
Block Discount
Maybe so, but the sum total of all the shares sold in the open market between the Nov. 12 and Nov. 22 was only 736,100, or 22 percent less than the filings say Alta acquired. What's more, the average price of all shares traded during the period was $9.94 a share, meaning that the Alta block was acquired at a roughly 13 percent discount to market.
Futhermore, on at least two other occasions between the Sept. 29 initial public offering and Nov. 22 -- specifically, on Oct. 15 and Oct. 22 -- SEC filings show that Evans' investment vehicle, Dominion Income Management, had also acquired Perfumania.com shares in amounts greater than the totals traded on those days.
The transactions certainly enabled more and more of Perfumania.com's shares to pass into the hands of only one man -- Evans -- with the price rising from $7 at the IPO, to almost $75 in late April. By that time, SEC documents indicate, Evans controlled or at least influenced almost the entire public float of the stock. Asked if that was true, Evans answered, ``Well, pretty darned close, anything wrong with that?''
Sundog Technologies
Along the way, Evans added other and even junkier penny stock companies to his collection of ``e-commerce'' businesses. There was, for example, something called QVtech, an e-mail security business that had been owned by a Salt Lake City-based OTC Bulletin Board company named Sundog Technologies Inc.
For QVtech, Perfumania.com, which changed its name to Envision Development Corp. in February, paid 1.482 million shares of its stock. On the day of the purchase -- April 7 -- Evans' Envision Development stock, having been pushed into orbit, was selling for $66.25 a share. This gave the QVtech purchase a transaction value of $98.2 million when, with Sundog selling for a mere 2 cents a share, Evans could have purchased the whole company, QVtech included, on the open market for less than $500,000.
Evans maintains he didn't know Sundog was publicly traded, and that when he finally found out he couldn't get a quote on the stock. With Sundog still selling for 2 cents a share, Wall Street is saying, in effect, that the 1.482 million shares of Evans' company that Sundog now holds aren't, in reality, worth anything at all.
Inside the Bubble
In this way, Evans assembled his portfolio of ``mature Internet companies'' under the Envision Development umbrella, and watched their price shoot skyward -- the entire bubble filled with nothing but 1999 revenue of just $2.3 million, losses of $5.2 million, and per share equity of $1.66, virtually the whole of it representing the proceeds from the IPO.
Then, in April, Evans saw a way to give his rag-tag Internet incubator some legitimacy on Wall Street. This happened when a contact in San Francisco introduced him to Jake Weinstock, 28, the son of New York public relations executive Davis Weinstock.
Evans asked young Weinstock if he'd like to become CEO of a privately held company he owned named Zero.Net into which he was planning to fold the assets of Envision Development. He further explained that, thereafter, he intended to merge Zero.Net into a public company as a way to give its officers lucrative stock options in the surviving entity.
The Weinstock boy accepted and in short order a press release announcing the deal was making the rounds.
Now, says a board member, the new arrivals have grown uneasy over exactly what they've wandered into, and have brought in lawyers to try to ``sort everything out.''
``We're confident everything is OK going forward,'' says the source. ``As for what's past, well, I don't know anything about that.''
|
