www.rollcall.com Members Tangled In Firm's Troubles
December 09, 2002
Members Tangled In Firm's Troubles
By Amy Keller
A year ago, some Democrats on Capitol Hill couldn't seem to get enough of Eagle Building Technologies, a Nevada corporation with offices in Boca Raton, Fla., that claimed to have the answers for everything from airport security to anthrax.
After all, the relatively obscure company had the blessing of Meyer A. Berman, a wealthy stockbroker and prominent Democratic donor who not only was a friend of several sitting lawmakers, but also handled their personal investments.
But following a Securities and Exchange Commission investigation and subsequent civil lawsuit that charged the company and its former chief executive officer with perpetrating a massive stock fraud scheme that "capitalized on the public's anxiety post-Sept. 11," Eagle Building is clearly a name some lawmakers would rather forget.
In South Florida, Rep. Robert Wexler (D) has been dogged by questions over the past several months amid reports of his questionable financial dealings with the scandal-plagued company.
As the Boca Raton News first reported in October, Wexler already owned 2,000 shares of Eagle Building stock (purchased in September 2001) when he made an unusual $20,000 loan to the company last February.
The business arrangement raised even more eyebrows this fall when a Boca Raton News investigation revealed that members of the corporation agreed to repay the Congressman by issuing him 10,000 shares of stock.
Wexler's connections don't end there.
Chief shareholders in Eagle Building have also offered Wexler political support in the form of campaign contributions and fundraisers.
And Wexler - who maintains he knew nothing about his investments in Eagle and ended up losing money in the deals - even flew to Puerto Rico last year to attend a groundbreaking ceremony for an Eagle project.
But further investigation by Roll Call has revealed the Wexler is not the only lawmaker with financial ties to the troubled company, which is also named in several ongoing class-action suits initiated by shareholders and whose stock has plunged from a one-time high of more than $12 a share to less than $2.
Former Rep. Sam Gejdenson (D-Conn.) also played an intriguing role in Eagle Building's development, acting as government relations representative for the company after he left public office in the beginning of 2001.
And New York Rep. Gary Ackerman (D) also invested in the company on at least two separate occasions in 2001, according to his most recent financial disclosure statement. On July 26, 2001, Ackerman purchased between $1,000 and $15,000 worth of shares.
Ackerman - who did not return repeated phone calls seeking comment on his stock transactions - purchased additional stock in the company Nov. 7, 2001, which happened to be an important day for Eagle Building Technologies.
Explosive Revelations
While Eagle Building -founded in the late 1990s under a different name - had built its reputation on machinery that produced an inexpensive type of masonry material for construction, last year the company was beginning to branch off in new directions.
For months, Eagle representatives had been lobbying administration officials and key lawmakers on Capitol Hill to try to promote its products, including the Insight Detection Sentinel surveillance system, a baggage-screening device invented by an Eagle subsidiary called BioSterile Technology. Eagle claimed the system would revolutionize airport security.
A Sept. 25, 2001, press release from Eagle claimed the equipment had been tested at New York's LaGuardia Airport, which sits in Ackerman's district, and could detect "specific types of explosives, from TNT to plastic bombs, as well as illegal drugs, and other weapons."
The company's timing couldn't have been better.
Following Sept. 11, 2001, Congress was in a hurry to complete its work on the Aviation and Transportation Security Act. The legislation would require increased security in airports and include significant funding for new technology to fulfill that mission, and Eagle was eager to get into the game.
On Nov. 7 - the same day that Ackerman bought more stock in Eagle - the company received an enticing offer in the form of a letter from Rep. Jay Inslee (D-Wash.). Inslee invited Paul-Emile Desrosiers, then-president and CEO of Eagle, to demonstrate its new technology in the Cannon House Office Building the very next day.
"I would like to extend an invitation for your company to demonstrate or present your baggage screening technology for the Committee conferees on airline security, and other Members of Congress and their staff," Inslee wrote. "It is my hope that by doing so, we will increase Congress' resolve [in] achieving the goal of screening 100 percent baggage."
An aide to Wexler confirmed that the Congressman told Eagle officials to contact Inslee, who was organizing a display to demonstrate the various baggage-screening technologies available.
At the time, lawmakers were preparing to reconcile the differences between the House and Senate versions of the aviation security bill, and Inslee had sponsored an amendment that would require all airport luggage - not just carry-on bags - to be screened.
Among the other companies also invited to display their baggage screening technologies were leaders in the field such as L3 Communications and Invision Technologies.
According to sources who attended the Nov. 8 demonstration in the Cannon Caucus Room, the exhibition was a smashing success for Eagle. Dozens of lawmakers, including Wexler, stopped by to examine the remarkable equipment as it was demonstrated by the Russian scientists who had designed it.
That same day, Eagle boasted in a press release that it was "confident that the cost-effectiveness and unique dual display technology of the Sentinel will make this surveillance system the most viable option for the nation's airports and in turn restore America's confidence in air travel."
But there were several problems.
As SEC documents later revealed, the Sentinel surveillance system had previously been tested at LaGuardia - and had failed. The SECsaid the system was "never tested or approved for use in U.S. airports by the FAA," a key prerequisite before the system could even be used in American airports.
Additionally, the company failed to explain to its shareholders and Members of Congress that "neither BioSterile nor Eagle [had] the production facilities to commercially produce the Sentinel system," according to the SEC.
If the ballyhooed Sentinel was not as viable as it appeared on the surface, neither were some of Eagle's other products.
In its investigation, the SEC zeroed in on yet another misleading press release dated Oct. 26, 2001, from former Eagle Building President and CEO Anthony D'Amato, who is of no relation to former Sen. Alfonse D'Amato (R-N.Y.).
The release touted yet another invention by BioSterile that was supposed to be capable of killing any bacteria, including the frightening agent anthrax, which only nine days earlier had invaded Capitol Hill.
"As a representative of BioSterile Technology, we are prepared to provide sound answers and reasonable solutions for the U.S. government to sterilize the estimated 300 million pieces of mail being processed each day," the press release boasted.
In fact, the equipment had not been tested on killing anthrax bacteria, according to the SEC, and the company did not have the capability to produce enough machines to handle even "one-tenth of the mail processed each day."
Further complicating matters, the SEC also accused the company and D'Amato of falsifying purchase orders and bank records to inflate the revenue reported by the company in its annual and quarterly reports filed with the SEC.
The SEC alleged that Eagle and D'Amato were engaged in a "massive financial fraud by falsely recognizing millions of dollars in non-existent revenue from Eagle Building's purported sales of cement building blocks through its foreign operations in India."
The SEC filed a civil suit against the company and D'Amato in March. While neither admitting nor denying the allegations, D'Amato struck a settlement with the SEC and has been barred from acting as an officer or director of any public company.
It is unclear if anyone else will be charged with wrongdoing, or whether lawmakers connected to the company are responsible for anything but poor financial decisions.
If Eagle's claims were fooling lawmakers, they were also fooling the public.
Following its allegedly misleading statements to the press, Eagle stock nearly doubled from $5.40 per share on Sept. 24 to about $10 per share by Nov. 8, and trading volume increased from around 44,424 shares per day to about 74,547 shares per day, according to SEC documents.
Friends In High Places
While Ackerman has remained silent on his Eagle stock transactions, Wexler has publicly expressed his regrets about his association with the company and its officers.
According to his aides, he didn't realize the problems the company was facing until news stories surfaced in August.
"It upsets me to no end that I trusted the wrong people and I have been associated with this kind of conduct," Wexler recently told the Palm Beach Post, one of the several Florida papers following the saga.
The Boca Raton Congressman also announced that he would disassociate himself from the company and distance himself from Berman, the prominent Democratic contributor who sits on Eagle's board and had been handling Wexler's private investments for three years.
"Meyer Berman had complete authority to trade Congressman Wexler's account," explained Wexler Chief of Staff Eric Johnson. "He was the sole person with the authority to trade from the account, and it was his decision to invest in Eagle stock."
Berman has confirmed that arrangement to numerous newspapers in Florida.
As for the loan Wexler made to Eagle?
"The loan was a bond, a corporate bond being purchased," Johnson said. "It was once again Meyer Berman using his autonomy to purchase corporate bonds from Eagle Building.
"Subsequently, we now understand that buying corporate bonds is, in effect, loaning that company money, because you're providing them with that capital until they repay that capital in whichever form they do that," Johnson said.
In the Ft. Lauderdale Sun-Sentinel, Berman has described the $20,000 loan as part of an $11 million Eagle bond issue that came at a time when the SEC had suspended trading of the company's shares amid its numerous financial irregularities.
"Meyer's reputation," Johnson added, "is highly regarded by many Members."
Berman has played investment adviser to a number of Democratic lawmakers over the year, including Rep. Peter Deutsch (D-Fla.), who at one time relied on Berman to invest his campaign funds.
While Democratic lawmakers handed over their money to Berman to be invested, Berman was forking over large chunks of campaign cash to Democrats.
Berman gave more than $41,000 in political contributions to Democrats in the 2002 election cycle, and he was a frequent guest of exclusive Democratic fundraisers and White House dinners during the Clinton administration.
Among the recipients of his largess have been the campaign committees of Deutsch, Sen. Carl Levin (D-Mich.), Sen. Max Cleland (D-Ga.), Georgia House candidate Roger Kahn (D), Rep. Richard Gephardt (D-Mo.) and the Democratic Senatorial Campaign Committee. He also gave $10,000 to HILLPAC, Sen. Hillary Rodham Clinton's (D-N.Y.) leadership political action committee, this election cycle.
But Berman - who has been named in several class-action lawsuits brought by share holders but was not named in the SEC's documents - has publicly denied having any knowledge of the problems at Eagle and has pinned all the alleged wrongdoing on D'Amato.
While Berman told the Sun-Sentinel that he had left the investment advising business to concentrate on rebuilding Eagle, his investing career has had its own ups and downs.
In 1999, the National Association of Securities Dealers censured Berman and his firm and fined them $30,000 for a variety of violations, including improperly executing and recording short-sale stock transactions.
Meanwhile, other sources characterize Wexler's relationship with Eagle and Berman as anything but arms' length.
The Boca Raton News described a fancy fundraiser that D'Amato held at the "chic Boca Resort and Club" that was attended by at least 60 individuals and raised at least $25,000 for Wexler.
Desrosiers, the former Eagle president and CEO who succeeded D'Amato, told both the Boca Raton News and Roll Call that Berman often bragged about his connections to various lawmakers, calling Wexler one of his "key men" on Capitol Hill.
A memorandum dated March 11, 2001, from Desrosiers described a meeting in Rep. Jim McDermott's (D-Wash.) office between Eagle officials and several Members of Congress, including Wexler. The meeting was part of an an ultimately unsuccessful attempt to arrange for Eagle to assist with reconstructing buildings in India following a devastating earthquake in Gujarat.
Wexler also attended an Eagle groundbreaking ceremony in Puerto Rico last year, but his chief of staff depicted the trip as nothing more than a little constituent service and noted that the Congressman returned on the same day.
"He went down there for the groundbreaking of a company in his district," Johnson said, explaining that Berman had requested Wexler's presence at the event.
Cutting Ties, Cutting Losses
If Wexler was providing a boost to Eagle's credibility, sources close to the company say it was former Congressman Gejdenson who was opening doors for the company on Capitol Hill.
In February 2001, Gejdenson - who had lost his House seat to Rep. Rob Simmons (R-Conn.) in 2000 - was named a director and vice president of government affairs for Eagle, which at the time went by the name Eagle Capital International.
One source described in detail how Gejdenson also helped arrange numerous meetings between Eagle executives and influential members of the government, including Transportation Secretary and former Rep. Norman Mineta (D-Calif.), Federal Aviation Administrator Jane Garvey and others, to promote Eagle's various ventures.
At one point last year, the source said, Gejdenson accompanied Eagle executives to Capitol Hill, where he introduced them to House lawmakers in the dining facilities inside the Capitol and arranged other meetings where Eagle was able to promote its technologies to Members.
Gejdenson - who under House ethics rules was forbidden from lobbying any Member of Congress for at least one year - insisted during a brief phone interview that he has never lobbied for Eagle.
Gejdenson said that while he remains on the company's board he is no longer serving as the its vice president for government relations.
He abruptly cut the conversation short when asked about other sitting lawmakers' ties to the company and Berman. Berman, meanwhile, has been pumping hundreds of thousands of his own dollars into Eagle to try to rebuild the company's tattered image.
In a Nov. 26 press release, Berman touted the company's construction project in Puerto Rico, noting that 31 homes are under "active" construction and that the company expects this and other planned developments to yield revenue of $15 million and earnings of $2 million to $3 million.
"We have had to spend a great deal of energy and money to support Eagle's Salinas Project and clean house with respect to all of the haphazard promises made by the former management," Berman stated in the press release. "I am looking forward to next year, when we can start to report meaningful profits instead of making excuses for our prior management."
Those are profits that Wexler will never see.
According to Johnson, Wexler liquidated all his holdings in Eagle within the past month.
"The stock he had was transferred to Charles Schwab and sold at a loss of between $25,000 and $30,000," Johnson said. |
