Huckabee Lends His Halo to a Strange Penny Stock: Jonathan Weil
2008-01-16 00:03 (New York)
Commentary by Jonathan Weil
Jan. 16 (Bloomberg) -- Mike Huckabee wants to be president.
So what's he doing on the board at an odd penny-stock outfit
called Flagship Global Health Inc.?
Surely there are some investors who wish they'd never heard
of Flagship. Huckabee, a Republican, joined the company's board
in February 2006, while he was still governor of Arkansas. After
peaking at $23.75 in August 2006, the thinly traded stock soon
crashed. It last closed at 52 cents in over-the-counter bulletin
board trading, giving Flagship a $36 million market value.
Based in New York, Flagship says it sells memberships that
let customers tap a network of ``renowned and clinically
acclaimed physicians,'' along with referrals, quick appointments
and even air-evacuation services.
The company's founder, Fred Nazem, says he recruited
Huckabee to Flagship and has been impressed that Huckabee has
called in for board meetings during his presidential run. Nazem
says he met Huckabee through a mutual friend in 2005, shortly
after Huckabee released his book, ``Quit Digging Your Grave with
a Knife and Fork,'' about his battle with obesity.
The company hasn't done well. For the nine months ended
Sept. 30, Flagship reported a $10.1 million net loss on $151,499
of revenue. In its latest report, Flagship's outside auditor
said there was ``substantial doubt'' about the company's ability
to remain in business.
Flagship took its first step toward going public in January
2006 by buying a majority stake in a public shell company called
Finity Holdings Inc. A June 2006 proxy statement listed two Fort
Lauderdale, Florida, men, Glenn M. Gallant and Douglas R. Baetz,
as major shareholders, each holding or sharing control of 9.5
percent of Finity's stock after Flagship bought control.
No Mention
The proxy didn't mention their criminal backgrounds.
Gallant and Baetz once were Finity's largest shareholders during
the 1990s when its name was Columbia Capital Corp. A federal
jury in Denver convicted them in 2005 on felony counts of bank
fraud and conspiracy, in connection with the 1998 failure of
Boulder, Colorado-based BestBank, which did business with
Columbia. Both are serving 10-year prison sentences.
Flagship completed its takeover of Finity in June 2006,
along with a 1-for-125 reverse stock split, which essentially
wiped out the Florida men's stakes. Since then, most of
Flagship's cash has come from stock sales, including $14.2
million last July from funds managed by subsidiaries of Morgan
Stanley, which hold a 9.8 percent stake.
As for Huckabee, Flagship's financial filings contain
conflicting disclosures about some stock options granted to him
on Feb. 13, 2006. When Huckabee first disclosed the grant in a
filing on March 3, 2006, he said it consisted of 25,000 options
exercisable at 90 cents each, adjusted for the planned split.
That matched what the 2006 proxy said Huckabee's holdings would
be after the reverse merger with Finity closed.
Stock Options
Huckabee filed a separate disclosure almost a year later,
on Feb. 1, 2007, when Flagship's stock traded for $1.35. It
showed the Feb. 13, 2006, grant was for 100,000 options at the
same 90 cent exercise price. It didn't say why the number of
options granted that day had quadrupled.
So, was the grant size inaccurately reported in March 2006?
Or did Flagship grant him an additional 75,000 options sometime
later and retroactively date the grant to Feb. 13, 2006?
Whatever the case, a Dec. 21 Flagship prospectus showed
different numbers for Huckabee. It said he held 100,000 options
exercisable at 3.5 cents each and 68,750 options exercisable at
90 cents each. It's unclear when he received the options with
the 3.5 cent exercise price, because Huckabee hasn't filed any
disclosures showing such a grant. It's also unclear why his
100,000 options at 90 cents dropped to 68,750 options.
In the Race
In a statement yesterday, Huckabee said he hasn't exercised
any Flagship options. He declined to answer other questions
about his holdings. ``The company has had its share of hiccups
in launching as do most innovative ventures, but I have
confidence in the leadership team,'' said Huckabee, who receives
no cash director fees. ``Due to the presidential race, I have
not been able to be very active since May of 2007.''
Flagship executives declined to answer questions. In
November, Flagship named a new chief executive to succeed Nazem,
its largest shareholder. Last month, Flagship said Nazem had
resigned as chairman ``to pursue other ventures.''
In an interview, Nazem said it was time for someone else to
take over. ``The company's well funded now. It's on its way,''
said Nazem, who heads a New York investment firm, Nazem & Co.,
and was a longtime director at Oxford Health Plans Inc. when he
stepped in briefly as chairman in 1998 after Oxford disclosed
accounting problems. Nazem said he didn't know the details of
Huckabee's option grants. As for Gallant and Baetz, Nazem said
he didn't know at the time Flagship bought control of Finity
that they were convicted felons.
Flagship filed a prospectus Dec. 21 to let certain
investors sell 7.1 million shares. The company, which has 19
full-time employees, cautioned that it ``lacks accounting and
reporting controls,'' among other risks.
So back to the original question: Why is Huckabee still a
director at this company? He might be wise to sever his ties.
Sitting on the board at a floundering penny stock doesn't look
very presidential.
(Jonathan Weil is a Bloomberg News columnist. The opinions
expressed are his own.)
Click on {LETT <GO>} to comment on this column and write a
letter to the editor.
--Editors: James Greiff, Charles Siler
To contact the writer of this column:
Jonathan Weil in Boulder, Colorado, at +1-303-953-1748 or
jweil6@bloomberg.net
To contact the editor responsible for this column:
James Greiff at +1-212-617-5801 or jgreiff@bloomberg.net
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