Re: 8/19/02 - [GECC] Longandshortreports.com: This Edition Of Profile Uncovers Indications of Fraud At GECC (Part 2 of 2)
Painting the Roses Red
In the Disney interpretation of Alice in Wonderland the Red Queen's subjects knew that a failure to fashion the environment to her liking could lead to dire consequences. Perhaps taking a clue from the Lewis Carol tale, Genesis wasted no time in using its newfound stock currency to spiff up the image of a cash-strapped company with limited revenues and a questionable business plan.
In early May 2002, Genesis paid Scott Wilding of Pembroke Pines Florida and a Wilding affiliate one million free trading shares each of Golf Entertainment stock to conduct a public awareness and promotional campaign for Golf. According to Wilding he used shares to employ a variety of e-mail and fax promotion services to tout Golf. A promoter with whom Wilding split the two million-share fees reported to LSR that he used part of his share grant to employ a group in Belgium who agreed to engage in short term purchases of Golf stock in exchange for additional free shares. Such arrangements, known as "ratio buying", create an artificial demand for stock and are usually intended to attract the attention of momentum traders to a suddenly "hot" stock.
Genesis paid otclive.com 260,000 shares of GECC stock to feature Golf in a favorable on-line "profile" and to conduct an e-mail "awareness campaign." The stock was also featured on DonPenny.com, although the site did not disclose receiving reimbursement.
If Golf was bitter about the suit and settlement, they did not show it. On May 14 CEO Brooker issued an announcement that the company had been approached by "a group of shareholders" and offered 750,000 shares of stock and $60,000 in cash in exchange for Golf's producing a Hispanic audience targeted video entitled "Welcome to America." Brooker stated that the cash would be used to retire debt and that the shares would be returned to the treasury. Brooker further stated that the transaction's revenue value to the company would be reflected in the second quarter of operations and determined " at the time of the tender". GECC is delinquent in its second quarterly filing, so the actual value assigned to the transaction is unknown.
A "group of shareholders"? We would give long odds that the group consisted of Genesis trustees Rusk and Robinson. This appears to be another artificial transaction designed to allow Golf to show substantial revenue growth (Brooker estimated the value of the contract at $250,000) based on the receipt of Golf shares during a time when they were being promoted and were expected to increase significantly in value. Golf issued subsequent promotional releases announcing the repayment of a $60,000 convertible debenture held by former CEO Farrell and the beginning of production of the video.
On June 6, 2002 CEO Brooker made the dramatic announcement that it had completed a "fully subscribed" five million dollar stock offering consisting of five million units at $1.00 per unit. Each unit consisted of one GECC share and a warrant to purchase an additional GECC share for $0.05. This placement, described by Brooker as "inked", would have required GECC to approve an increase in its last reported twenty five million authorized shares.
According to Brooker, a $2.5 million dollar escrow deposit secured the funding. Brooker also stated that an additional private placement that would close later in June would allow "GECC to activate its step by step blueprint to span the nation with Spanish language TV stations." Not bad for a six-month-old company with a single unpaid-for low power TV station in Springdale, Arkansas.
LSR attempted to locate the group behind the private placement announcement, "O. Burce (sic) Mikell and Associates" of Warrior, Alabama. No business listing was found for the group, and a search of the Alabama corporate database revealed no corporation, partnership, LLC, or fictitious name registration for such an entity. The Warrior telephone directory did contain a listing for an Oscar B. (Bruce) Mikell, whom LSR contacted.
Mr. Mikell was summoned to the telephone by his mother. He confirmed that he was the Mikell listed in the press release. Mickell stated that he was a real estate agent who had done some "offshore" deals for companies in the past. He could not explain why he was willing to pay one dollar per share for GECC at a time when it was trading for approximately ten cents on the open market. When asked who held the supposed $2.5 million escrow claimed by Brooker, Mikell stated that he could not remember. Golf has made no further comment on the completed or pending private placements.
LSR has subsequently learned that an "interim funding" loan announced by the company in February 2002 was a similarly unsupported claim. The funds were to have come from 1st Metropolitan Mortgage of Bentonville, Arkansas, which was headed by Genesis Trustee Charles Rusk. A 1st Metropolitan corporate spokesperson contacted this month regarding the loan replied, "ask them to show you the non-existent paperwork for the non-existent loan," and stated that such a loan "was never discussed or considered." We have since confirmed that Mr. Rusk is no longer affiliated with 1st Metropolitan, a mortgage lending company. He is also reported to have subsequently resigned as a Genesis trustee.
On June 14, Golf issued an additional release trumpeting its reactivation of the LEC leasing division and naming Daniels as President. The stated business plan was to lease digital broadcast equipment to television stations attempting to comply with FCC digital broadcast signal requirements. Brooker stated that the division would be capitalized through a planned $10 million "private stock placement." LEC President Daniels, who revealed to LSR staff that he was to receive a significant ownership stake in LEC, stated in the release that he hoped to rapidly grow the division to its former sales level of $30 million in annual leases. No mention was made as to whether LEC's sales tax liability issues had been resolved. GECC then announced that shareholders would receive "gratuity" shares of LEC resulting from a spin off of the corporation. GECC has made no subsequent comments on the private placements that would supposedly capitalize LEC. LEC's Nevada charter continues in "revoked" status.
GECC's promotional campaign bore fruit. Golf shares soared from $.03 to as high as $.145 and almost nineteen million shares changed hands in May and June. By contrast, shares traded up until May totaled approximately two million. Traffic on the major stock Internet boards increased dramatically, with a number of posters aggressively promoting the company as the "next big thing." Some of the posters seemed quite intimately aware of internal company information.
Alas, the paint was not to stay on the rose. Starting in June a number of public revelations made the effort to "tell GECC's story" look more like putting lipstick on a pig.
Off With Their Heads!
Relations between promoter Wilding and the trust soured rather quickly. On May 15, 2002 Genesis sent Wilding a letter announcing that his contract was terminated because his sale of shares received in exchange for his promotion activity had caused a precipitous share drop. The trust further accused him of defrauding the trust and demanded that he return all unsold shares and pay the trust $.12 for shares sold. Golf's John Dodge also wrote a letter to Wilding on that date accusing him of damaging the trust. Wilding told LSR that he felt he had honored his contract and did not comply with the demands.
Wilding reported that Dodge and Bolt called him on several occasions in July threatening to name him in a stock fraud complaint unless he contacted John Dodge of GECC and made arrangements to immediately pay Genesis Trust $100,000 and purchase one million shares of Golf on the open market. LSR asked Wilding how Bolt and Robinson of GECC could negotiate with him on behalf of an entity with which GECC had previously claimed "no material relationship." He stated that he did not know. Wilding was subsequently named as a conspirator in the amended "RICO" suit filed on August 16, 2002.
Golf message board postings took a decidedly negative turn in early June 2002. Internet posters, particularly after Golf announced and filed its "Civil RICO Suit", discovered and publicized numerous facts about COO Bolt's criminal history. The posters also discovered and revealed that the company's outstanding shares had increased to twenty two million, and that the Genesis Trust, supposedly the holder of only 3.75 million restricted shares, had in fact paid over two million free trading shares for promotional services. Other revelations included the close ties between Genesis and GECC, and details of the suit and settlement between Genesis and Golf. Company supporters-many of whom we suspect were company officers, directors and employees-declared an Internet version of total war, threatening "bashers" with lawsuits, imminent arrest, and likely imprisonment. The company issued a gag order to their transfer agent, preventing investors from discovering additional dilution of their equity.
Golf's shares began declining in value in mid-June and continued a slide through July and August. Volume declined precipitously with the exception of brief increases related to company press releases, including an August announcement that the now spun off LEC was "expanding its vision"-although not apparently to the point of paying its still delinquent Nevada filing fees. As of this writing the stock is trading at $.014 per share on almost no volume. The company has missed its deadline for filing its Q2 financial results.
Despite the company's fanciful claims of a "conspiracy" to short their stock and drive the price down, we believe that objective and documented information of corporate chicanery, the company's ill advised legal threats and actions, and a trust with fifteen million newly minted shares to sell are more likely explanations of the current share price. Golf Entertainment is in our opinion a company far more concerned with selling shares than with building a business. The techniques used by Golf to develop a market for their shares went far beyond hype and puffery. They demonstrate to us a clear intent to mislead and defraud shareholders.
Perhaps Golf's business plan was in reality similar to the one described by one of the felonious brothers in the movie, Raising Arizona. The escaped convict outlines a planned series of bank robberies from Arizona to Texas and an escape into Mexico "or until we get caught. Either way, we're set for life!" he concludes.
Like the Cheshire Cat, most OTC-BB stocks simply fade away. We predict this one will have a rather more dramatic ending.
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