Former business associate Stockett
Copyright 1987 UMI Inc.;
Copyright The Business Journal of Portland Inc. 1987;
Business Dateline;
The Business Journal-Portland
December 14, 1987
SECTION: Vol 4; No 42; Sec 1; pg 3
LENGTH: 988 words
HEADLINE: California Regulators Take an Interest in Stockett
BYLINE: Jan Wilkerson
DATELINE: Tigard; OR; US
BODY:
A Lake Oswego man with a checkered history of trouble with regulators again is the subject of a government investigation -- this time by the California Department of Corporations.
The department alleges Larry Stockett, chairman and chief executive officer of Fibernet Communications Corp. of Tigard, violated California securities laws in a series of acquisitions. The department alleges that Fibernet failed to receive state approval before trading stock in the acquisitions of three Bay Area long-distance telephone companies in the spring of 1987.
"It's a felony for failing to register" certain stocks, said John Booker, senior trial counsel for the department. Booker added that the department is investigating whether Fibernet qualified for any exemptions from registration. If not, Stockett could face criminal charges, Booker said.
Stockett didn't return phone calls to his home by the time The Business Journal went to press last week.
Fibernet, with offices in Tigard and Metuchen, N.J., was formed when Stockett left the Lake Oswego-based Grace Communications, a now-defunct division of Grace Capital Ltd. Grace Capital filed for protection from its creditors under Chapter 11 of the federal bankruptcy code in U.S. Bankruptcy Court in Portland in April this year.
Grace Capital hopes to satisfy creditors with a bailout plan that centers around the sale of stock in a new company specializing in convenience stores and real estate. Grace Capital is taking that unusual method of reorganization because its only assets are 150,000 shares of Fibernet stock, and Fibernet disputes Grace Capital's claim to the stock.
Fibernet officials report that in its first year, Fibernet has acquired seven long-distance resellers. Resellers buy long-distance lines from major telecommunications companies -- such as US Sprint Communications Co. -- then peddle the telephone service to customers.
Fibernet acquired control of Advanced Communications Software Inc. of San Francisco and Allstate Communications Inc. of Burlingame, Calif., through stock deals in March, according to a California Department of Corporations protest filed with the California Public Utilities Commission, the agency that regulates telecommunications service in California. Later in the spring, Fibernet acquired Amptelco Inc., an Irvine, Calif., subsidiary of Allstate, Booker said.
According to the protest, Fibernet offered and sold shares of its stock to the stockholders of Allstate, Advanced Communications Software and Amptelco although the department has no records of Fibernet applying for state authorization to sell the stock.
An administrative law judge is expected to decide in the next few weeks whether the California Public Utilities Commission should begin its own investigation into Fibernet's dealings, said Joel Perlstein, an attorney in the appelate and advisory section of the California Public Utilities Commission. If the commission conducted an investigation and found Stockett at fault, the acquisitions could be voided.
The California cases aren't the first time Stockett and his companies have run afoul of regulators. In October 1985, the U.S. District Court for the Eastern District of Virginia entered a permanent injunction against Stockett and PC Telemart Inc., a Fairfax, Va., software distribution company Stockett formed in 1982. According to Securities and Exchange Commission documents filed in the Virginia case, Stockett violated the anti-fraud provisions of the federal securities laws by distributing false and misleading information.
A permanent injunction does not preclude Stockett from trading stock in all companies, but it does leave a permanent mark on Stockett's record, securities lawyers say. In many instances, a person with such an injunction could be prevented from taking advantage of exemptions from registering stock, the attorneys added.
Now California authorities and former Fibernet employees say the SEC again is investigating Stockett for violating federal securities laws by failing to register the sale of Fibernet stock. Because the SEC requires written requests for information, confirmation of a second federal investigation of Fibernet couldn't be obtained last week.
"Basically, I think if anything was done wrong, it related to Larry's hyping and promotion," said Richard Kirkwood, a former president of Fibernet. Kirkwood said he was fired when he disagreed with Stockett over "the basic running of the company" and Stockett's decision to position the long-distance reseller into new lines of business.
With a burst of publicity, Stockett launched another new division in August -- FiberPhones, a telephone that transmits still video images of callers or products at the touch of a button. Stockett also hopes to merge Fibernet with Green Pages of America, an advertising directory for the health services industry owned by Stockett's wife, Ruth Anne Stockett. Kirkwood said he was replaced by Stockett's brother, Richard Stockett, after a proxy battle for control of the company in October.
At an October shareholders' meeting, Fibernet reported net income of $ 79,040 in the quarter ended June 30, but reported a loss of $ 745,155 in the quarter ended Sept. 30.
The California Department of Corporations also alleges that Fibernet's business plan is to acquire control of long-distance resellers, cause the acquired reseller to default on payments to suppliers of long-distance service and try to negotiate a settlement to pay a fraction of the debt.
The same charges were alleged in a suit filed June 3 in U.S. District Court in Trenton, N.J., by US Sprint. US Sprint dropped the suit this fall when it appeared it had reached a settlement with Fibernet. The settlement had fallen through, so US Sprint is trying to decide how to proceed on the matter, said Bernard Bianchino, vice president and associate general counsel for US Sprint. |
