Roy, here is a story which mentions Christina of CSK Securities Research who did the glowing write up on xybr. Also mentions Regis Possino the criminal disbarred attorney that was behind access1financial and Mark Bergman. Maybe xybr can get help from them yet one more time becuz xybr continues to sink!!
published in Offshore Alert on February 26, 1999.
Mezzanine Capital linked to manipulation of penny stocks
A Bermuda Stock Exchange-listed company whose minority
shareholders include subsidiaries of
the
Bank of Bermuda and financial services firm Lines Overseas
Management is caught up in what
appears to be a scheme to defraud investors on the NASDAQ over-the-counter market, we
can
disclose.
We have uncovered an astonishing list of proven abuses and allegations of fraud and
dishonesty
against individuals and companies associated with Bermuda-registered investment holding
company
Mezzanine Capital Ltd., including its Chairman and President, Eric Chess Bronk, although we
have
found nothing to incriminate LOM or the Bank of Bermuda.
Bronk, some of Mezzanine's other shareholders and firms closely-linked with Mezzanine
have
been
accused of using a variety of methods to ramp up stock prices to artificially high values so
insiders
can rake in profits.
These include entering into apparently bogus business deals, setting up sham firms and
sending
out
false and misleading press releases about the prospects of companies.
Apart from allegations of share ramping, one of the companies linked with Mezzanine,
Atlanta-based
franchise firm Uniforms for America, has been accused by several US franchise holders of
defrauding
them by taking their $25,000 franchise fee and then offering no support.
One of the most damning allegations uncovered in our investigation involves a company
whose
stock
is traded by Mezzanine, California-based XtraNet Systems, whose management includes
Bronk
and
fellow Mezzanine Capital director Gary Davies.
An officer of XtraNet has been accused of physically stealing the financial statements of a
Nevis-based Internet credit card processing company called DataBank International from its
fax
machine last month and then releasing them as XtraNet's a few days later, sending its stock
price
and trading volume soaring.
Shortly after releasing the allegedly stolen results over the Internet, XtraNet's stock went
from
about
16 cents per share to nearly $4 over a two week period before slipping back again to about
$1.50.
Trading volume, which had been almost non-existent, shot up considerably, with the biggest
dump
off occurring on February 1, when 1.8 million shares were sold.
Incredibly, XtraNet is currently featured as the 'Stock of the Month' for February by a
promoter
operating from www.hotstocknews.com, whose glowing review of XtraNet - for which it admits
it was
paid in shares - was largely based on XtraNet’s allegedly bogus financials.
XtraNet had indeed been negotiating to merge with the Nevis company and put out several
press
releases last summer announcing the deal.
However, after the deal was effectively called off in August, 1998 because the Nevis
company's
principal became suspicious of Bronk, XtraNet never announced the deal was off and,
instead, put
out
a misleading press release creating the impression that it had gone through smoothly. To
this
day,
Mezzanine's web-site at www.mezz.com still contains press releases that create the
impression the
deal went through.
Mezzanine Capital is a closed-end investment fund that was listed on the Bermuda Stock
Exchange in
the first quarter of 1995 before the current BSX regulations were in place. Its bankers are the
Bank of
Bermuda in Bermuda and its legal advisors are Conyers, Dill & Pearman.
The company was introduced to Bermuda by CD&P, which also represented another
BSX-listed
company, NimsTec, that was delisted in 1997 after we exposed its misleading and inaccurate
share
prospectus.
Indeed, Graham Collis, a senior partner of CD&P, helped prepare the share prospectuses for
both
NimsTec and Mezzanine Capital.
Although registered in Bermuda, Mezzanine is run by a group of businessmen operating out
of
California and Arizona and has 112 different shareholders from several countries, including
the
United States, Canada, Bermuda, the Cayman Islands, the Turks & Caicos Islands, Panama,
Ireland,
South Africa and Israel.
The company's President and Chairman is Eric Chess Bronk, of Irvine, California. Other
directors
are
Joseph R. Glenn (Vice President), of Phoenix, Arizona; Mitchell A. Saltz, Gary Davies and
Sloan B.
Jones, all of Scottsdale, Arizona; Carl T. Suter, of Anaheim, California; CD&P subsidiary
Codan
Services Ltd. (Resident Representative) and Bermuda-based CD&P attorney Wayne Morgan
(Assistant
Secretary).
Mezzanine's shares have never traded on the BSX. The company posts a net asset value
each
week
that can be determined solely on the whim of its directors, according to the company's share
prospectus. It appears that this NAV has deviated little from its original $10 per share, even
though
the stock in which it invests fluctuates wildly.
Mezzanine essentially sells its stock to a handful of microcap companies traded on the
NASDAQ
over-the-counter market so that it shows up as assets on these companies' books and
enhances
solvency. In return, Mezzanine usually receives stock in these companies, which it then
trades in
the
marketplace, or pays cash for Regulation ‘S’ securities.
Although the Bermuda firm of Arthur Morris & Co. appears as Mezzanine's accountants on its
prospectus, the company's accounts are done by Utah-based Schvaneveldt & Co., whose
boss
declined to comment for this story, as did all of the parties being investigated.
Mezzanine's financial statements sometimes contain remarkable items. For example, a Note
to
Mezzanine's fiscal 1997 financials stated: "In the fiscal year ended June 30, 1995, the
Company
issued 1,000,000 shares of its common stock to acquire German Bearer Bonds that they
valued at
$10,099,306. In the fiscal year ended June 30, 1996, it was discovered that there was no
established
quantifiable redemption value for the Bonds. The Company responded to this discovery by
taking
a
temporary write down of $10,099,206. The Bearer Bonds are listed as an asset of $100. The
Company is seeking a private placement to sell the Bonds."
Since Mezzanine never pays dividends to its shareholders and its shareholders are not
entitled to
redeem their shares, according to its prospectus, its very existence seems to be to provide
'assets' to
highly dubious companies, some of which have close links to Mezzanine's officers and
shareholders.
Mezzanine's officers appear to manage companies whose shares are traded by Mezzanine
and
some
of Mezzanine's shareholders also receive commissions and fees through entering into
seemingly
dubious business transactions, some of which are currently being litigated following disputes
alleging
fraud.
Mezzanine has or has had positions in the following US-based companies: XtraNet Systems,
The
Hartcourt Companies, Uniforms for America, Conectisys Corp., Phone Time Resources (now
Global
Access Pagers), Beverage Store Inc. (now Fortune Oil & Gas), Net Voice Technologies,
Paystar
Communications and Hycroft Environmental Corporation (of which we can find no trace). The
stock
of
all but the one we could not locatefluctuates between a few cents and a few dollars, while
each
firm
continually loses money.
All of the companies have an appalling track record.
Conectisys Corp. was found guilty by the SEC five months ago of participating in a stock
manipulation
scheme, although neither Mezzanine nor any of its known associates were parties to the
action.
On September 22, 1998, Conectisys Corp. was ordered by the US District Court for the
Central
District
Court of California to "disgorge $175,000 of proceeds derived from its fraudulent conduct",
according
to an SEC press release.
In related judgments against Andrew S. Pitt, Devon Investment Advisors Inc., Mike Zaman,
B&M
Capital Corp. and Smith Benton & Hughes, the defendants were ordered to disgorge a total
of
$1.06
million they had made from manipulating Conectisys stock.
"Based on the evidence presented at the trial, the court found that Pitt and Zaman together
planned
the manipulation of Conectisys stock and Zaman and Smith Benton carried out that
manipulation
with
Pitt's assistance," stated an SEC press release.
"In the course of carrying out the manipulation, Zaman and Smith Benton controlled the
number
of
Conectisys common shares available for sale on the market, dictated the prices at which
those
shares
traded, engaged in 'daisy chain' trading with market participants to fill retail customer orders
and
artificially increased the price of the stock purchased by retail customers.
"The court also found that Pitt and Conectisys offered and sold restricted stock to private
investors
based on material misrepresentations and that Pitt and Conectisys drafted a false and
misleading
business plan that was supplied to potential investors.
"Finally, the court found that Pitt, Conectisys and Devon sold unregistered securities in
violation of
Section 5 of the Securities Act."
Conectisys, which has Mezzanine shareholder Mandarin Overseas Investment Company as a
holder
of more than five per cent of its stock, reported a net loss of $2.7 million for fiscal 1997.
Accounting firm BDO Seidman, which took over the audit of Conectisys in 1996 after the
company
dismissed its previous auditors over "disagreements", said net deficiencies in the company's
working
capital of $1.24 million and $780,357 at November 30, 1997 and 1996, respectively, raised
"substantial doubt about the company's ability to continue as a going concern".
Despite the 1997 loss, the annual salary of its President, Robert Spigno, was increased to
$160,000,
while his wife, Patricia, received $80,000. All three senior officers, including the Spignos, also
received
a 'Staying Bonus' equivalent to 50 per cent of their annual salary, payable in restricted
common
stock, and each had options to buy 500,000 shares at "50 per cent of the average market
value
in
the 30 days prior to it happening", according to documents filed with the SEC.
Another company closely-linked with Mezzanine, called The Hartcourt Companies, also
featured on
the periphery of a current investigation by the SEC into alleged stock manipulation by stock
promoter
Investor's Edge, although Hartcourt has not been officially implicated.
Investor's Edge has been accused by the SEC of being paid to write glowing reviews of stock
that
were
presented to investors as impartial recommendations.
Investor's Edge recommended Hartcourt as a "strong buy" when its stock was at $1.40 but it
has
plummeted to 32 cents. Hartcourt's President Alan Viet Phan, who was interviewed as part of
the
Investor's Edge promotion, claims the promoter asked him for money but he refused to pay.
The Hartcourt Companies started an Investor's Bulletin Board for its stock last month but it
was
quickly taken down after a flood of negative messages from investors, some of whom
claimed
they
had been ripped off.
Hartcourt's President Alan Phan, whose name has appeared as a director of another
Mezzanine-related company called Uniforms for America, told us the bulletin board was
taken
down
not because of the negative postings but because "someone planted a virus" and he said it
would
be
back up again soon.
Despite the company's history of losses, Phan declared to investors that some of America's
greatest
companies were criticized by investors in their early days and he even likened himself to
Microsoft's
Bill Gates.
Hartcourt is currently suing two of Mezzanine's shareholders, Turks & Caicos
Islands-registered
Promed International and Mandarin Overseas Investment Company Ltd., claiming Hartcourt
was
defrauded in a deal to sell it 34 Alaskan gold-mines.
Hartcourt, which paid an up-front fee comprising 1.3 million Regulation 'S' Securities for the
mines,
reversed the deal when the defendants allegedly failed to provide a geological evaluation
showing
the mines were worth at least $10 million, as promised.
Hartcourt, which reported a loss of $1.6 million in 1996 and a loss of $474,372 for 1997 -
$135,000
of which was due to the company issuing preferred stock dividends - now wants its shares
back
from
Mandarin and Promed.
In another case, Eric Bronk and one of Mezzanine's other shareholders, Pagestar Inc., which
appears
to be operated out of Mezzanine's and Bronk's office in California, are co-defendants in a
class
action
lawsuit filed in California on May 12, 1998 in which they are accused of stock manipulation.
Plaintiff Joseph A. Nigro claims he was conned into investing about $40,000 worth of shares
in
Satellite Technologies Corp. and the company it merged into, Pagestar Inc., based on false
press
releases about the firm's capabilities. The company's stock went as high as $3.75 based on
hype
but
had plummeted to seven cents by September, 1997 when the alleged fraud was uncovered,
states
the complaint.
The statement of claim alleges that Bronk and the other individual co-defendants misled
Nigro so
they could "sell their own shares in the companies…and to indirectly benefit themselves by
securing
additional capital to pay their own salaries and bonuses as directors, employees and/or
officers of
the
companies."
Spigno, whose attorneys are seeking between $2 million and $3 million, claims that Pagestar
was
nothing more than a shell company with no bona fide operations, a similar claim that has
been
leveled at XtraNet Systems.
There is similar discontent among investors in Uniforms for America, which sells franchises
that
supply medical and career uniforms.
In an investment package sent out by the company two months ago, there was a report
dated
August
12, 1997 by CSK Securities Research of California forecasting Uniforms for America stock
price
would
be "in the $10 to $12 range in 1998 and in the $15 to $20 range in 1999". The reality is
that, at
February 25, 1999, Uniforms for America stock was trading for 56 cents.
Our research showed that CSK Securities is a business run from the home of Christina and
Neal
Kohlhaas, who started the company five years after being declared bankrupt in San Diego.
Uniforms for America, whose President is James D. Brockman, is facing another crisis at the
moment
and the possibility of a class action lawsuit from franchise holders who claim they have been
defrauded.
Several of the 50 existing franchise holders in the US claim they paid up to $25,000 each for
franchises but have received little or no support by the firm, as promised in contracts.
Apart from their franchise fee, some franchise holders told us they had paid Uniforms for
America
for
merchandise but the company had failed to pay the manufacturers, who in turn eventually
stopped
delivering clothes to stores. One manufacturer was owed in the region of $1 million,
according to
one
franchise holder.
It has also been claimed that Uniforms for America, which we have been told holds the
leases on
store properties, had failed to pay the rent to some landlords even though franchise holders
had
paid
the rent to Uniforms for America, leading to problems for some franchise holders.
Additionally, it was claimed that Uniforms for America has tried to force some of the more
successful
franchise holders out of business so the corporation could take over their stores.
James Brockman failed to return a message from this newsletter.
Interestingly, Uniforms for America also holds stock in the Hartcourt Companies and Phone
Time
Resources, two of the half dozen or so companies Mezzanine has links with. Additionally,
Hartcourt's
President, Alan Phan, was listed as a director of Uniforms for America last year, although he
denied
to us he had been a director.
Further evidence that there might be a widespread conspiracy to defraud investors is
provided by
the
fact that Regis Possino, a disbarred California attorney who runs Phone Time Resources, has
also
been involved with Hartcourt, as its corporate counsel (AFTER he was disbarred) and as an
'investment advisor' and is also a behind the scenes figure at Uniforms for America.
Possino's name appears in so many businesses linked with Mezzanine that it raises the
question
of
whether he might be a hidden shareholder in the company.
Apart from disbarment in 1984, Possino's history includes being imprisoned for one year in
1978
for
trying to sell $38,500 worth of marijuana to undercover Los Angeles cops, trying to place a
monthly
order for $680,000 worth of cocaine with the same officers, attempting to sell $5 million of
stolen
US
treasury bills or bearer bonds to an undercover treasury agent, undergoing a $12 million
personal
bankruptcy and interfering with a witness at his trial on the marijuana offence, leading to her
dismissal from the jury and his imprisonment for the rest of his trial.
"One evening during the trial, petitioner encountered one of the trial jurors as she was
waiting for
a
table at a restaurant," reads the official record of his appeal against disbarment.
"He approached her, initiated a conversation and bought drinks for her and her companions.
Although they did not discuss the merits of the case, petitioner asked the juror what she
thought
of
the prosecutor. He also talked to her about himself, other persons involved in the trial and
the
judge.
Learning that the juror was a religious person, petitioner discussed his own religious beliefs
with
her.
The conversation ended when the juror and her friends were called to dinner."
Details of all of the above, with the exception of his bankruptcy, which was closed in 1992
with
assets
of $229,000 and liabilities of $12.18 million, were presented to the California Bar Association
at
his
appeal against disbarment.
Although Possino's appeal against disbarment was thrown out, three of the eight members
of the
panel voted against disbarment and thought his licence should only be suspended for five
years!
The involvement of so many businessmen with dubious pasts contradicts a claim by
Mezzanine
President Eric Bronk in the company's 1997 annual return with the Bermuda Stock Exchange
that
Mezzanine invests in companies with "strong management".
Bronk declined to discuss a list of questions we sent to him. "It appears clear that if you
were
interested in doing a fair article on Mezzanine Capital that you would not have waited until
less
than
48 hours before your publication to make any inquiries," he wrote by e-mail.
"Suffice to say that neither your questions nor the quality of your newsletter appear to merit
serious
or detailed response.
"Mezzanine Capital invests in emerging microcap public companies whose stock price can, by
their
very nature, be volatile. In the companies in which it invests, Mezzanine Capital takes only a
minority
position, usually less than ten per cent, and certainly has no input into the management or
promotion of the companies". The last part of the sentence, however, is clearly false. In a
document
Mezzanine filed with the Bermuda Stock Exchange, Bronk and fellow Mezzanine director Gary
Davies
are listed as part of the 'Management' of XtraNet Systems.
Bronk is also listed as the Chief Financial Officer of XtraNet and Davies as one of its directors
in
official XtraNet documents and the telephone and fax numbers used for Mezzanine are not
only
the
same as XtraNet's but also that of Net Voice Technologies, both companies Mezzanine holds
or
has
held stock positions in.
Bronk, who is a licensed California attorney, has a colorful past. In 1991, he paid $1.1
million to
the
Federal Deposit Insurance Corporation to settle an investigation into his role in a failed
savings
and
loan institution in which regulators suspected fraud and embezzlement.
Additionally, Bronk and two of his companies were ordered to hand over an unspecified sum
of
money that was in a bank account in Los Angeles. Despite the settlement, Bronk denied any
wrongdoing.
Our research shows that he has been a defendant in nine lawsuits filed at California State
Court
and
there have been four judgments against him. Several of the cases involve allegations of
dishonesty.
We have handed over details of our research to the SEC |
