quote.bloomberg.com of Bill Gates' Ex-Con Friend Continues: Christopher Byron
By Christopher Byron
Weston, Connecticut, June 14 (Bloomberg) -- Last week we reported on the activities of a convicted bank swindler named Andrew Evans, who happens to have been, until the mid-1990s if not later, a close friend and financial adviser to Microsoft Corp. Chairman William Gates III.
Now, the resignation of a board member in an Evans- controlled holding company named Zero.Net Inc., and the submission of some amended Securities and Exchange Commission filings by two Evans-linked investment vehicles, raise more questions about the activities of this unusual investment world figure.
This column pointed out last Wednesday that beginning in autumn 1999, Evans effectively gained control of virtually the entire float, or shares available for public trading, of an obscure Internet stock named Envision Development Corp.
This sent Envision's stock soaring from about $6 a share last October to close to $75 in May, even as almost all of the rest of the dot-com sector was crashing -- an anomaly that raises obvious questions about whether a free and open market in the company's shares actually existed.
With Envision now at about $47, the Marlboro, Massachusetts- based company -- which claims to be an Internet portal business - - has a market value of $403 million. But Envision has reported only $2.29 million in revenue for the fiscal year ended Jan. 29. The company's financial statements show no earnings and no operating cash flow, and its balance sheet shows only about $3.6 million of cash remaining from its initial stock sale in September.
Conflicting Statements
In last Wednesday's column, we drew attention to the fact that Evans, while gaining control of Envision's float, had simultaneously filed statements to the SEC that conflicted with a press release issued by the company concerning the dates on which one of the Evans investment vehicles had made its purchases.
Twenty-four hours after that column was published, the two entities that we had linked to Evans -- a Channel Islands company named Alta Ltd., and a San Francisco-based investment firm named Dominion Income Management Corp. -- filed documents with the SEC to amend their earlier filings.
But the new filings raise still more questions about when -- and in what amounts and at what prices -- the Evans-linked entities acquired their Envision shares.
According to one of Dominion's earlier filings, some 1.55 million shares, representing 44 percent of Envision's float, was acquired on Sept. 29. That is the date on which Envision, known then as Perfumania.com Inc., went public in a Cruttendon Roth- underwritten initial public offering. A second SEC filing says that an additional 952,900 shares were acquired less than eight weeks later, on Nov. 22, giving the group control of 72 percent of the float.
Shares and Prices
Evans now contends that the two purchases, totaling 2.5 million shares, were acquired in small, open-market purchases over the eight-week period in question. The amended filings give the dates, quantities, and prices for the transactions.
Unfortunately, the amended filings give purchase prices for the shares that, in many instances, are below the lowest publicly quoted prices for Envision's American Stock Exchange-listed shares on the dates the purchases reportedly occurred. And in at least one instance, the quantity of stock reportedly acquired -- 265,000 shares on Nov. 11 -- is more than three times the total number of shares that were traded on that date. Evans and Envision declined to be interviewed for this column.
Meanwhile, a prominent advertising executive -- John Wren, president and chief executive of New York-based Omnicom Group Inc., the biggest U.S. advertising firm in terms of revenue -- has resigned from the board of an Evans-controlled private company named Zero.Net Inc. less than a month after joining, according to a trade publication.
`Significant Equity Investment'
SEC filings show that Zero.Net -- a wholly owned subsidiary of Evans' Dominion Income Management -- owns 35 percent of Envision.
Wren's membership on the Zero.Net board was disclosed in an April 26 press release by the company announcing a ``significant equity investment'' from Omnicom. ``We believe Zero.Net's business strategy, which focuses on Internet infrastructure and technology within the business-to-business marketplace, addresses the fastest growing part of the new economy,'' Wren is quoted in the release as saying. ``We look forward to assisting Zero.Net in the pursuit of this strategy.''
How much of Zero.Net is actually owned by Ominicom isn't clear. Nor is it clear why Wren abruptly resigned from the Zero.Net board. Neither Wren nor Omnicom representatives returned calls seeking comment.
Less Than Expected
According to O'Dwyer's PR Daily, an online newsletter published by industry commentator Jack O'Dwyer, Wren said in an interview last week that he left the board after learning that Omnicom's ``substantial investment'' in Zero.Net wasn't for a 10 percent stake as he had thought, but was for only 4 percent of Zero.Net's equity. According to O'Dwyer, Wren said his departure from Zero.Net's board shouldn't be read as ``disapproval'' of the Evans-owned company.
Why Wren -- and, it would appear, Omnicom itself -- wouldn't have bothered to nail down exactly how much of Zero.Net's equity they were actually acquiring until after they had made the investment is unclear. Yet the April 26 press release shows that this is exactly what transpired. The release states unambiguously that, as of that date, the Omnicom investment had already been received by Zero.Net and Wren had already joined Zero.Net's board.
It isn't known whether Omnicom has now asked for its investment to be returned.
What exactly Wren thought Omnicom would be getting from its investment in Zero.Net is also unclear. The April 26 press release announcing Omnicom's investment states that Zero.Net has ``investments in over 25 Internet companies.'' But the Zero.Net Web site lists affiliations with only 20 companies.
Value of Portfolio
The press release further says that Zero.Net maintains a ``network of majority owned or control positions'' in its investments. But there is no way to verify the claim independently of Zero.Net because only five of the companies listed on its Web site are publicly traded, and the site offers no information as to the nature of Zero.Net's financial interests -- if any -- in the 15 private companies on the list.
As best as can be determined from SEC filings, the stakes that Zero.net claims to hold in its portfolio of publicly traded companies have a market value of about $207 million. But the companies themselves are hardly impressive investments.
For example, the Zero.Net Web site claims an unspecified relationship with an OTC Bulletin Board stock named TeleHubLink Corp. TeleHubLink, based in Burlington, Massachusetts, describes itself as ``a high technology holding company.'' TeleHubLink has filed only one timely 10-Q (quarterly financial) report with the SEC since December 1998 and is more than a month delinquent in filing its 1999 10-K annual report.
Auditor's Warning
TeleHubLink's latest financial report, for the quarter ended Oct. 30, states that the company, which appears to have been concocted out of the merger of a defunct shopping mall retailer and a Canadian penny stock, hasn't generated ``any meaningful revenue'' since May 1997. What exactly Zero.Net's interest in TeleHubLink is remains unclear.
Another company in the group -- B2Bstores.com Inc. -- went public in February as a ``development stage'' company at $8 a share. The prospectus contained an auditor's ``going concern'' flag already attached to it, warning that the company would likely not be able to stay in business without the proceeds of the IPO. The company's latest quarterly SEC filing, shows that since going public, B2Bstores.com has generated less than $4,000 in revenue.
SEC filings indicate that Zero.Net holds 1 million shares of B2Bstores.com, representing 12.5 percent of the equity. The filings show that Zero.Net acquired the shares directly from the company on March 13 at $7 each, when the open market price for the stock was more than $18. The price of B2Bstores.com subsequently collapsed, and the stock now trades for about $3.50.
Data Return
The Zero.Net Web site also lists Data Return Corp. as an affiliate. But SEC filings show that, at most, Zero.Net holds barely 6.8 percent of the company's equity. Data Return has crashed from more than $94 a share in early March to about $21, giving Zero.Net's shares a market value of approximately $50 million.
SEC records show that Zero.Net holds barely one-third of one percent -- or 65,000 shares -- of yet another publicly traded company listed on the Web site: SmartServ Online Inc. This OTC Bulletin Board stock sells for around $64 a share, giving the Zero.Net block a value of about $4.2 million.
But SmartServ Online, which, like TeleHubLink has a history of delinquent SEC filings, has all of 19 employees on its payroll, and reports trailing 1999 revenue of only $2.4 million. SmartServ is also drowning in red ink, with operating losses of roughly $2.5 million during the period and even deeper losses on the bottom line.
With Zero.Net's public portfolio alone having a market value of more than $200 million, it is reasonable to assume that a 10 percent stake in Zero.Net would have cost Omnicom at least $20 million.
An investment of that magnitude would clearly have been of interest to Omnicom shareholders -- especially when one considers that, as part of the investment, Omnicom's president and CEO had joined Zero.Net's board.
No Mention
But Omnicom's latest 10-Q filing, covering the period when the investment occurred, says nothing about the Zero.Net investment, or the fact that Wren had joined the company's board.
Omnicom appears to have become involved in Zero.Net as a result of another Omnicom official, Davis Weinstock II, head of a New York financial public relations firm -- Clark & Weinstock -- that is owned by Omnicom. Weinstock, whose firm's clients include Microsoft in its antitrust case with the U.S. Justice Department, has a son -- James ``Jake'' Weinstock, 28 -- who was introduced to Evans last winter by a venture capitalist, Thomas Weisel.
Apparently hoping to curry favor in the New York media world, Evans offered the Weinstock boy a job as CEO of Zero.Net, and young Weinstock accepted. Thereafter, his father discussed an Omnicom investment in Zero.Net with Wren, and Wren obliged -- apparently without resolving the issue of how much of Zero.Net's equity Omnicom would receive for its money.
Instead, as Wren acknowledged to columnist Jack O'Dwyer last week, the investment appears to have been made largely as an expression of Omnicom's confidence in the business acumen of Jake Weinstock. Now, everyone involved in this messy affair clearly wishes he'd been more careful from the start. |
