OK all...
Whether you think I'm nuts or not, here is my partial case regarding our former paid reporter/moderator, president of IRI, Inc.
My apologies in advance if you don't care and think this is out of line, but Mr. E has made personal for each and every GRNO sharholder whom he is threatening with his spams.
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May 10, 1997
Curious Tale of a Company Where
Criminal Background Was the Norm
By DAVID BARBOZA
In the annals of public disclosure, few news releases can match the chutzpah of one
issued less than a month ago by Genesis Insurance and Financial Services Inc., a
Chattanooga, Tenn., company that is in the process of being shut down and whose
stock has recently taken an extraordinary beating.
Buried in an announcement on April 18 about the sale of a Genesis unit was an unusual
defense of the chief executive, Mohamed Khairy Mohamed Zayed II.
"Friends, associates and business partners of the CEO," the release stated, "have long
been aware of a youthful indiscretion over a decade ago that resulted in Mr. Zayed
having fully paid a debt to society through a period of incarceration, completed over
seven years ago."
That "youthful indiscretion," the statement failed to explain, was a 1986 federal
conviction for counterfeiting and weapons possession for which Zayed was sentenced
to 78 months in prison, but was released on parole in November 1990. The Genesis
release also failed to note that Zayed, according to federal records, had a 1981 federal
drug conviction.
It is not every day that investors learn that a company is run by a convicted felon. But at
Genesis, which operated as a holding company and has changed its name several times
in recent years, it turns out that Zayed was not the exception but the rule.
Indeed, depending on how you look at it, Genesis was either a haven for criminals or a
perfect case study in the benefits of rehabilitation. Several people who worked for the
company or were associated with it also have criminal records, ranging from loan fraud
to cocaine smuggling.
And that is not counting Michael Rehtorik, the director of investor relations, who does
not have a criminal record but was barred for life from the securities industry in 1989 by
the Securities and Exchange Commission for falsely promising 22 investors that he was
using their money to buy government bonds. Almost $2 million was misappropriated,
according to the securities rap-sheet maintained by state and federal regulators.
Rehtorik did not return phone calls seeking comment.
There is no lack of companies these days in which disbarred brokers, low-rent lawyers
and assorted white-collar fixers engage in stock fraud. But the tangled tale of Genesis
suggests that the money to be made in the soaring stock market has begun to attract a
more dangerous kind of criminal to businesses that end up fleecing investors.
Beyond Genesis, several grand juries are probing the activities of small brokerage firms
that have been linked to crime figures. And just last month, two men were indicted in
Brooklyn, N.Y., on charges that they tried to hire a hit man to protect their profits in a
securities fraud they helped run.
"People who used to engage in questionable activity are now following the money to the
market," said William R. McLucas, enforcement director at the SEC.
Zayed, who is 33 now and was 23 when he most recently went to jail, defends his
actions by saying that he was a "juvenile" when his criminal offenses occurred. And of
his colleagues, he said, it was merely a "coincidence" that several had criminal records.
In a telephone interview, Zayed -- who said he was in Uruguay conducting business --
said that Tennessee state regulators and jealous critics were spreading malicious lies
about him and dredging up ancient history to undermine his company.
"None of my problems had to do with the operation of a business," he said. "Moral
turpitude, maybe. But some people think what I have done since then has been
honorable and successful."
Genesis is one of hundreds of penny stocks that attract a lot of attention from investors
even though they fly below regulators' radar. The company, for example, did not file
financial documents with the SEC and was not traded on an exchange, but rather on
Nasdaq's O-T-C bulletin board, which has no listing standards.
Nevertheless, investors enticed by aggressive stock promotions on the Internet have
lost thousands of dollars in the collapse of Genesis. Last fall, when the stock was
trading -- rarely -- for just 75 cents, it suddenly zoomed to $3.50, as hundreds of
thousands of shares changed hands. Trading volume continued to be heavy even as the
stock headed south, falling recently to 51 cents.
"I took a five-figure bath in this thing," said Jeff Silverman, a California investor who
bought shares of Genesis after reading about it on the Net. "They take these shell
companies and then hype the assets."
Such talk has caught the attention of state regulators and federal law-enforcement
officials. Last week, Tennessee officials seized Genesis, charging that a subsidiary had
operated without an insurance license. Right after that, the SEC halted trading.
A federal grand jury is also looking into Genesis, and on Thursday the Tennessee
attorney general moved to liquidate the company, citing possible state and federal
securities violations, tax evasion, mounting debt and a host of other problems.
Today, disgruntled investors cannot quite believe how easily they were duped. In
retrospect, Genesis's rise and fall seems almost farcical, replete with a stolen attache
case filled with jewels, a dummy corporation in Costa Rica and claims of $140 million
in assets that have largely vanished into thin air.
Even Paul Jennings, the lawyer Zayed has said represents Genesis, acknowledged
Thursday that he was "kind of a lost ball in tall weeds."
Although Genesis said it was expanding through mergers and acquisitions, state
regulators and law-enforcement officials now contend that the firm was acquiring
questionable assets then using the Internet and news releases to exaggerate the
company's size, which may have helped inflate its stock price. That kind of stock
manipulation may have allowed insiders to sell shares at a profit in what has come to be
known as the "pump and dump" strategy.
"Press releases issued by Genesis representing certain subsidiaries as viable entities, or
earnings representations as to Genesis and/or these subsidiaries, appear to be false,"
stated the report released on Thursday by the Tennessee attorney general's office.
The company, according to state regulators, had few operations and very little cash
flow. Regulators suspect that salaries and other expenses were paid for by illegally
issuing stock, often funneling the purchases through Canada under the name of a
dummy corporation in Costa Rica.
Zayed got control of Academy Insurance and Financial Services, a Florida-based
insurer, in late 1995. He quickly put the company through a series of name changes
before settling on Genesis, and began acquiring real estate and other holdings, usually in
exchange for restricted stock.
Before long, Genesis claimed assets of $140 million, even as several of the companies it
acquired had quickly ceased operations.
Zayed had promised to act as a "turnaround artist" for the concerns, but several former
associates said he had just let the businesses languish.
"We were a drowning company, so we didn't look the gift horse in the mouth," said
Andrew Cappocia, the former president of Imagex Inc., a medical imaging company in
Albany, N.Y., that Genesis acquired last July with a promise of $12 million in stock.
Cappocia said his business was deeply in debt when it was acquired, but the money
Genesis promised to infuse the company with did not materialize. "They never came to
New York," he said. "They were totally unreachable. I realized in October that the
situation was hopeless."
Zayed, in response, blamed Cappocia for mismanaging Imagex.
What made these stock-financed acquisitions possible was Genesis' rising share price,
which was bolstered immeasurably by the buzz about the company on the Internet.
Genesis first showed up on the Net in January 1996, when an online investment tip
sheet, the "Waaco Kid's Hot Stocks Forum," rewarded it with a listing. Within two
weeks, shares rose from about $2 to more than $6. Volume tripled, from about 9,000
shares a day in early January to about 32,000 shares two weeks later.
In May, Business Week magazine wrote about Genesis' stock surge, and six months
later, The New York Post also highlighted the company. Among those praising
Genesis were Gary Cella, president of the Investors Research Institute -- a
division of the same firm that operates the Waaco Kid's forum -- and his
colleague, Gayle Essary.
Cella and Essary said they bought shares of Genesis independently. Investors
Research Institute hired James Pratt, formerly an lawyer for Genesis, who also
held shares in the company.
But all three say that Investors Research was not involved in hyping the stock. They
said they simply passed on any information they could find about the company and
maintained an independent posture, even disseminating unfavorable information.
But online investors say most of what Investors Research distributed on the Internet
was highly favorable. Essary acknowledges that he became a believer in Genesis. So
did many others on the Net.
"People! Wake up!" said one notice posted on Silicon Investor, an online bulletin
board. "Don't be a sleeping beauty! Grab that prince by the beard while he is kissing
you."
Some people expressed doubts about the company, but for the most part the notices
were overwhelmingly positive. One excited message posted on an Internet news group
in July came from Zayed's e-mail address. The message called Genesis "a hot new
stock," adding: "This is a stock to watch, call your broker for a Buy Recommendation!"
For a time, Genesis thrived. But several odd events raised suspicions among investors
about Zayed and the company. Among them was a Chattanooga police report early this
year, which was circulated on the Net, in which Zayed reported that his luxury car was
broken into and that $200,000 worth of common stock, $26,000 in jewelry and
precious metals and $10,000 in cash was taken from two briefcases.
In January, a wire service article disclosed that Jerry Dorminey, who was in charge of a
Genesis subsidiary that was supposed to build theme parks, had been convicted of
federal securities fraud in 1978. Dorminey, who could not be reached for comment,
was dismissed by Genesis in February.
Not long after, there were news reports that Dario Jaramillo, who went to jail in 1994
for loan fraud, had sold Genesis a gemstone called corundum for $100,000 in cash.
The company valued it at $2 million, according to company documents.
Doubts about the worth of such assets, which also included a gold mine and a
purported $100 million Mexican certificate of deposit led Tennessee regulators to move
to liquidate Genesis this week.
And that has investors scratching their heads, wondering how they got involved in a
company with such a questionable past
"I would never have dreamed in a million yeas that they would have had that kind of
background," said one investor who lost thousands. "It's kind of creepy."
Copyright 1997 The New York Times Company |
