Gary, Unfortunately I think she's been warming up! Read this.
From darling to dead on Wall Street
Amid claims of mob influence, stock of Akron maker of computer displays soars, then sinks; SEC, among others, wants to know who made the money Death threat claimed. Former IMP financial consultant
testifies he was told to keep quiet -- or else
BY ROGER J. MEZGER
AND GLENN GAMBOA
Beacon Journal business writers
March 4, 1997
Interactive MultiMedia Publishers Inc. was always supposed to be big.
P. Joseph Vertucci, founder of the Akron company, told practically anyone who would listen about his dream to plant IMP's touch-screen computer displays at sports arenas, college campuses and golf courses around the country. These free-standing information and entertainment
stations, called kiosks, were to generate millions in advertising profits for Vertucci and the other stockholders in the publicly held company. And for one month early last year -- while it still looked like IMP might land a contract to put its kiosks in nearly 10,000
golf-course pro shops nationwide -- Vertucci's vision seemed to be taking hold. IMP was a darling of Wall Street. Its stock value increased more than 1,300 percent that month, launching the
company's worth to $40 million -- about 400 times its reported sales for the previous quarter. But that brief flirtation with bigness was just a blip on a computer screen for the little company headquartered in the basement of a Highland Square high-rise. Today, IMP is broke. It hasn't sold anything in a year. And amid allegations of fraud, blackmail and embezzlement -- not to mention intimidation, threats of death and links to organized crime -- the company has become the target of a federal investigation into alleged stock manipulation.
No one has been paid at IMP for months. Only Vertucci and one or two other die-hard employees remain on the job. And last month, the company was temporarily locked out of its West Market Street offices because of overdue rent. Meanwhile, hundreds of shareholders around the country are holding essentially worthless IMP stock that, just a year ago, was valued in the millions. And everyone from the Securities and Exchange Commission to unpaid former employees is trying to figure
out who -- if anyone -- profited from the sudden surge in the
company's stock price this time last year and its dramatic plunge to practically nothing since. With potential millions at stake, allegations are flying in all directions -- including intimations that organized crime may have had a piece of the IMP action and is anxious to keep its role quiet.
One former insider testified under oath last month that he
was told he "could wind up at the bottom of a river" if he
revealed what he knows about the company's internal
dealings.
Douglas G. Furth of Aurora, who worked as a financial
consultant to IMP for a few months last fall, has testified that
IMP officials schemed with a Chicago stockbroker and
others to artificially drive up the price of the company's
stock for their own gain -- a federal offense.
Profits from the sale of this inflated stock, Furth alleges,
were funneled back through a series of front companies
and bank accounts to Vertucci and the others.
Furth also testified that potential witnesses in the SEC
investigation into IMP have been threatened with death if
they tell what they know -- a situation, he concedes, that
"sounded like something out of a Godfather movie."
In recent interviews, Vertucci acknowledged that IMP's
money is gone, but denied the mob is involved and denied
taking part in any scheme to manipulate IMP's stock price.
"I mean, that's just so far off the wall," Vertucci said.
He blames others for IMP's woes, including former
business partners, brokers he says are unscrupulous, the
fickleness of Wall Street and the Furth brothers -- Douglas
and his brother, Thomas, who briefly served as the
company's lawyer last fall.
Vertucci says the Furths tried to blackmail him by
threatening to sabotage a kiosk contract that IMP was
negotiating with the prestigious U.S. Golf Association.
What they really wanted, Vertucci says, was to steal his
company.
The Furths deny those allegations.
Subpoenas issued
The SEC, meanwhile, has been trying to sort out the IMP
mess since at least last fall.
Officially, the federal agency will neither confirm nor deny
that it is investigating. But according to records and
interviews, the SEC has issued subpoenas for thousands
of pages of documents relating to IMP and has demanded
that Vertucci and others show up in Washington to answer
questions about the company's dealings.
The federal probe of this little Akron company takes on
added significance because it comes as allegations of
mob involvement in stock dealings are causing increasing
worry on Wall Street and in Washington.
As the high-flying stock market continues to set records,
SEC officials are warning that the potential of big-money
payoffs can make stock investment -- especially in small
companies like IMP -- a tempting target for the
unscrupulous.
Even SEC Chairman Arthur Levitt has spoken about the
"enormous damage" that criminals can wreak on unwary
investors.
The remarkable run-up in IMP's share price last year shows
how a bull market can reward small companies with big
ideas. But according to former insiders, it was IMP's
aggressive courting of the market that brought the
company to the brink of disaster. And then pushed it over.
$8 million in sales forecast
Just one year ago, IMP seemed poised to step into the
small-company spotlight. Vertucci was forecasting that
sales would soon reach $8 million and that his work force
of 18 would triple.
A Chicago broker for La Jolla Capital Financial Corp., a
big trader in IMP stock at the time, was predicting that IMP
would become "the Microsoft of multimedia." The company
was "rapidly becoming a leader in a high-growth, exciting
industry," according to cheerleaders on the Internet. And
the national media were starting to call, profiling Vertucci
and tagging IMP as one to watch.
All for a company that still was less than a year old.
IMP was born, under somewhat unusual circumstances, in
April 1995. Vertucci merged one of his several privately
held companies into Fujacorp Industries Inc., a public
company with no assets or operations -- called a "shell."
Though it existed only on paper, Fujacorp traded on the
Nasdaq Bulletin Board, home to many low-priced or
"penny" stocks.
The merger gave Vertucci a company with publicly traded
stock, but without the costs and the regulatory requirements
of an initial public stock offering.
He changed Fujacorp's name to Interactive MultiMedia
Publishers Inc., and IMP's stock started trading under the
ticker symbol DROM.
A former director of institutional research at Northeastern
Ohio Universities College of Medicine and a multimedia
program developer, Vertucci initially planned for the
company to produce medical and educational CD-ROMs
for multimedia computers.
He said at the time of IMP's creation that the company had
$37.6 million in assets -- mainly copyrights for various
software programs that he had held and that the new
company acquired. Going public, he said, "enables the
company to become a major competitor in the international
marketplace for the production and sale of CD-ROM titles."
Focus soon shifts
But IMP soon shifted its focus from the crowded software
industry to developing its computer kiosks -- hoping to
make money by selling multimedia advertising spots to go
along with the sports information and other entertainment
they featured.
Shortly after IMP's creation, Vertucci was quoted in an
investors' newsletter as saying that the company's software
copyrights had been reappraised at $82 million -- up from
$37 million just a few months before.
But investors didn't really begin to notice the company until
early 1996, when IMP said it was working on a project that
could eventually put kiosks in the pro shops of nearly
10,000 golf courses that are members of the U.S. Golf
Association.
From Feb. 7, 1996, to March 1, 1996, IMP's share price
jumped 1,322 percent -- from 56 cents a share to as high
as $8.
During that period, as enthusiasts touted the stock on the
Internet, more than 1.7 million of IMP's 5 million outstanding
shares changed hands -- even though only about 200,000
shares were available to the stock-buying public. The rest
were controlled by a handful of people, principally Vertucci,
according to company and SEC documents.
Decline quickly sets in
The stock surge was short-lived, however. Almost
immediately after its March 1 high, IMP's stock began a
steady decline in price.
During the early summer of 1996, with the stock slide in full
swing, IMP trumpeted the $82 million copyright valuation on
its World Wide Web site.
But by August 1996, the company acknowledged under
pressure from the SEC that neither $37 million nor $82
million was a fair assessment of its copyrights' value. The
correct figure, IMP said, was just $7 million.
Under orders from the SEC, IMP publicly apologized for
the misinformation, removed it from its Web site and
promised to correct the company's filings with the federal agency. It still has not done so.
In October, meanwhile, with the stock price still falling and
no sales to speak of, a half-dozen of IMP's few remaining
employees left en masse because Vertucci was unable to
pay them.
Then, on Dec. 4, the SEC suspended all trading of IMP's
stock for 10 days, citing questions about the accuracy of
information the company had provided about its finances
and its stock. It was one of only 10 trading halts imposed
by the SEC last year on the stock market's more than
31,000 public companies.
La Jolla Capital a constant
While the SEC has declined to say whether -- or what -- it
is investigating, the circumstances surrounding the IMP
trading halt are eerily similar to another penny-stock case
the SEC pursued last year.
Over three trading days in May, the stock price of a small
California company, Comparator Systems Corp. of
Newport Beach, surged 3,000 percent -- even though the
company's only product, a fingerprint identification system,
had few buyers. At the center of the heavy Comparator
trading was the same company that had pushed IMP stock
just a few months before, La Jolla Capital Financial Corp.
The SEC stopped Comparator's stock from trading and
filed suit -- resulting in a partial settlement in which
company officials admitted no wrongdoing. Litigation
continues to determine whether the company will pay any
fines.
But the settlement has been little comfort to the small
investors who bought Comparator stock during the frenzy,
thinking it was about to take off. Kirk Hulett is a San Diego
lawyer whose firm is pursuing a $300 million shareholders'
class-action suit against Comparator, its former chief
executive officer and La Jolla Capital Financial.
The SEC can impose fines and sanctions, Hulett said, "but
they're not entitled -- they have no jurisdiction -- to get back
money for investors. It's one of the sad realities, frankly, of
the SEC."
Although IMP is far smaller than Comparator, the sad
reality of worthless stock is hitting home for small IMP
investors as well, many of whom held on to their shares as
their price dwindled to nothing.
Emerges with something
Others, like Stephen McGuire, are glad they dumped the
stock when there still was something to salvage.
McGuire, a maintenance man who used to work in the
Highland Square building where IMP's office is located,
bought 2,000 shares of IMP stock in 1995 for about $400 --
on the advice, he says, of Joe Vertucci.
McGuire passed up his chance to cash in big last year --
again, he says, on the advice of Vertucci -- when the
shares he bought for about 20 cents each were trading as
high as $8 apiece.
IMP "could go as high as $10," he says Vertucci told him.
So, while McGuire waited, the stock began its death spiral.
McGuire bailed out in September, when his shares were
still worth about 38 cents each.
In short, the stock he could have sold six months earlier for
$16,000 brought him only about $760.
"There were probably so many people just like me (who)
did the same thing," he says.
Still, McGuire considers himself lucky. Unlike some others,
he didn't lose his money.
"This whole thing was a debacle for the shareholders," said
Douglas Furth. "The worst thing about this is that there are
a lot of innocent people that have been hurt."
Trading halt a surprise
Hired as a financial consultant by IMP in September to help
boost the staggering company's fortunes, Douglas Furth
said the SEC's December trading halt caught him
completely off guard.
He said he started asking questions -- and the more he
found out, the angrier he got.
"What the hell is all of this about?" Furth said in a memo
faxed to Vertucci the day of the SEC action.
It's one of several documents tagged as exhibits to Furth's
sworn testimony, which is part of the official record in a
lawsuit filed in Summit County Common Pleas Court by
former Vertucci employee Richard L. Herbruck.
Herbruck accuses Vertucci and associates of stock fraud
and other offenses, and claims they owe him hundreds of
thousands of dollars.
In a recent deposition in the case -- official, sworn
testimony taken at the office of Herbruck's lawyer, R. Scott
Haley -- Douglas Furth named a Chicago stockbroker,
Bruce Straughn, as an accomplice of Vertucci's in what
Furth claimed was a deliberate scheme to artificially drive
up IMP's stock price last year.
At the time, Straughn was manager of the Chicago office of
La Jolla Capital Financial Corp. -- a San Diego-based
brokerage and investment-banking firm that specializes in
penny stocks like IMP and Comparator. During last year's
run-up in IMP's stock price, La Jolla Capital was the largest
"market maker" in IMP -- that is, it sought buyers and
sellers for the stock.
Straughn left La Jolla Capital on Oct. 31, according to
Harold "B.J." Gallison Jr., La Jolla Capital's president.
Gallison said he doesn't know why Straughn left, but he
denied that his company was involved in any manipulation
of IMP's stock price.
"That's absolutely absurd," Gallison said. "There's no
factual basis and nothing could be proved in that regard."
Repeated attempts were made to reach Straughn by
phone, e-mail and pager. Straughn returned one call last
week, but the reporter was not there to receive it. Straughn
could not be reached since.
Fraudulent scheme alleged
In his recent testimony in the Summit County court case
and in documents attached as exhibits, Douglas Furth said
that Vertucci's misstatements about the value of IMP's
copyrights were only the beginning of an alleged
stock-manipulation scheme.
"It is now clear that (Vertucci) has been intimately involved
in a fraudulent scheme to embezzle money from IMP and
the shareholders virtually from its inception as a public
entity," Furth wrote in a December memo tagged as an
exhibit to his deposition.
Furth said in his sworn statement that Vertucci "spilled his
guts" about the alleged stock-manipulation conspiracy in a
Dec. 6 meeting -- two days after the SEC trading halt.
The federal agency has subpoenaed Vertucci and others
with current or former ties to IMP, including Furth and his
brother, Thomas. The SEC also has asked Vertucci for
information about any dealings involving IMP, La Jolla
Capital Financial and Straughn.
Douglas Furth testified that he and his brother -- whom
Furth recommended as IMP's attorney after another lawyer
quit because of unpaid legal bills -- have received
repeated threats not to cooperate with the SEC
investigation or with the civil case.
In a December phone conversation, Douglas Furth
testified, Straughn suggested that he had ties to organized
crime and urged the Furths "to induce Joe Vertucci to
cooperate with him in exchange for our lives ... and
substantial payments."
Furth said Straughn also warned, "If Joe doesn't
cooperate, he's liable to get himself whacked."
In memos that are now exhibits to his testimony, Furth said
that in addition to telling him in December that "people can
get whacked" for not cooperating with IMP insiders,
Straughn advised him that "we protect our friends."
Some blame accepted
Vertucci insists that organized crime has not been involved
in IMP. "I don't believe the mob's in our deal," he said.
He accepts some of the blame for IMP's woes, but
generously shares it as well with Gallison of La Jolla
Capital Financial, the SEC, former business partners and
former employees.
In fact, he shares blame with just about everyone except
Bruce Straughn -- who, despite having once publicly
questioned Vertucci's ability to run a business, signed a
consulting contract with IMP in November in return for what
at the time was about $400,000 worth of IMP stock.
As for the Furth brothers, Vertucci accuses them of
threatening in December to sabotage IMP's pending kiosk
contract with the USGA unless Vertucci paid them off.
That high-visibility deal -- perhaps Vertucci's last chance to
keep the company afloat -- eventually failed to go through.
Without saying why, USGA official Dean Knuth says the
association "has decided not to enter into a contract with
that company."
Vertucci also claims the Furths tried to harm IMP so they
could take over the company.
That, Thomas Furth responded, "would be like fighting over
the keys to the Titanic."
No pressured payoff
In his sworn testimony, Douglas Furth said that he and his
brother never told the golf association about IMP's
problems. Nor did they try to pressure a payoff, he said.
Rather, Furth said, when they severed their ties to Vertucci,
they demanded to be paid what they felt they were owed
under their contracts.
Douglas Furth admits to feeling frightened by some of the
things he has heard in recent months. But he testified that
it's only a matter of time before what he says is the truth
about IMP emerges.
"No matter who they intimidate, they can't erase material
facts and things that have already happened and are a
matter of record," Furth testified.
"By my way of thinking, (this) house of cards is about to
come tumbling down."
IMP investor turns profit
Akron maintenance worker gets tip from top, but
holds on as stock soars, only cashing in during free
fall; experts say he's lucky he didn't lose his modest
stake
BY GLENN GAMBOA
AND ROGER J. MEZGER
Beacon Journal business writers
Stephen L. McGuire never owned stock before.
But when P. Joseph Vertucci, chairman and founder of
Interactive MultiMedia Publishers Inc. in Akron, suggested
that McGuire invest some money in the growing company,
he thought it would be a good idea.
Vertucci told him, "'You should invest in it ... because good
things will happen,' and all this. So we did," said McGuire,
then a maintenance worker in IMP's building. "I mean, you
know, you hear it from the owner and you think, 'Well, I'm
hearing it right from the horse's mouth.' You know?"
McGuire, now a maintenance worker for Summit
Management, and his wife, Susan, a secretary, found a
broker and bought 2,000 shares of IMP for $400 shortly
after the company went public in April 1995.
When the stock was soaring to $8 early last March, the
McGuires, both 43, thought about selling.
But McGuire said Vertucci was telling him, "'Hold off -- it'll
go to 10.' And like a fool, I didn't (sell). Joe's advice was
just to let it ride."
McGuire said Vertucci told him the stock was a good
long-term investment.
"But then, all of a sudden, I started seeing all kinds of
problems at the company and stuff and it started declining,"
said McGuire. "And I thought, 'Boy, I'd better get rid of this
before I lose it all.'"
The McGuires sold in September at about 38 cents a
share, pulling in about $760. The brokerage fee and taxes
came out of that.
"I think we actually made about 250 or 300 bucks -- but
could have lost it," he said.
Financial planners would consider the McGuires lucky
because they didn't lose their money.
As the stock market continues setting records for growth
and investment returns are higher than they have ever
been, Wall Street looks like an increasingly attractive
option.
However, experts caution that it is also increasingly risky.
Eric Tyson, author of Personal Finance for Dummies , said
that he usually discourages individual investors from putting
a lot of cash in individual stocks. All his own money is in
mutual funds.
"Chances are, you are not going to do better than the best
money managers," said Tyson, who also teaches personal
finance at the University of California at Berkeley.
"If you could beat them on a regular basis from home, then
you are in the wrong occupation," said Tyson. "People
make millions of dollars managing other people's money. It
would be a shame to waste that talent."
As the stock market continues to fly high, it becomes
easier for people to pick a stock or snag a tip that will
make them a lot of money, Tyson said.
Lots of people are making lots of money these days, he
said, which creates a false sense of accomplishment.
"They attribute the success to stock-picking ability," he
said. "But in reality, the rising market is raising all the
boats. Since the crash of 1987, we have had almost a
decade now of relatively uninterrupted climbing. At some
point, the stock market is going to stink."
Tyson said the people who will be hurt when the
long-awaited correction comes won't be professional
investors. It will be the individuals who have a lot of money
in a few stocks.
"They will get clobbered," he said.
Even Arthur Levitt, chairman of the Securities and
Exchange Commission, warns investors to be careful.
"Although most people in the securities industry are honest,
some are not," said Levitt, in a speech last summer in
Philadelphia. "And they can do enormous damage to
people's lives."
Levitt said investors should be especially wary of stock tips
that come from people they don't know.
"Cold calling can be a legitimate sales technique if a
broker is trying to open a door, establish a relationship or
get to know a client's situation and needs," said Levitt. "But
you don't need a rule to tell you that you shouldn't buy
securities from someone you've never met, who calls you
with a 'hot stock' or 'inside tip.' There's a cardinal rule in
investing: If it sounds too good to be true, it probably is."
McGuire said now he knows better.
He realized he bought the stock without knowing enough
about the company.
His broker didn't follow the company or know anything
about it.
"And he thought that maybe I did, being a maintenance
man there and in the halls," McGuire said. But McGuire's
knowledge of the company came only from what he heard
from Vertucci and other employees.
"So I really didn't know that much about it, about the
business thing and what they were doing."
Experts say investors should be diligent about doing their
homework on any company before they invest. And they
should be even more diligent about a company with a
"penny stock," one whose stock literally trades for less than
a dollar, because those companies are riskier investments
and more likely to be subject to wild fluctuations in price.
"A penny stock is nothing to fool with," said McGuire. "The
main thing is, you just have to watch. You just have to kind
of keep an eye on it. I mean, I learned."
Kind interesting reading, huh?
B. for the source... beaconjournal.com |
