Dan Frishberg – David Wallace: Anatomy of an investment scam? LAFFER FRISHBERG WALLACE ECONOMIC OPPORTUNITY FUND

Diversify!  That’s what one of the investors thought he was doing when he invested hundreds of thousands of dollars in an investment solicited by David Wallace and Daniel Frishberg.  Frishberg “The Money Man” – preached diversification on his show on BizRadio.  Little did this investor as well as scores of others know that the fund they were being lured into was nothing more than a primary source to fund the money losing venture of Daniel Frishberg – BizRadio.

Before we get into the scam…let’s look at what generally it takes for something that might have started out legitimately to become rank and foul – nothing more than a fraud.  The three components are: NEED, OPPORTUNITY and RATIONALIZATION.  As we look at how this scam unfolded – think about these three parts and perhaps it will become clear just how simple it was for Frishberg et al to move from the intelligence of the light into the dark shadows of scams and, what I believe to be, fraud.

THE OFFERING: The investor (who called me and agreed to an interview) was introduced to an investment called the LAFFER FRISHBERG WALLACE ECONOMIC OPPORTUNITY FUND apparently promoted by David Wallace, Daniel Frishberg and Art Laffer.

Art Laffer was interviewed in an article in Equities Magazine which can be read here.  In the article Mr. Laffer references BizRadio.  I have to wonder now with SEC investigations swirling if Mr. Laffer is still pleased with his affiliation with Frishberg?  But that is another topic for another day…

Initially contacted by Al Kaleta (since busted by the SEC), it was David Wallace who impressed the investor with the returns shown on other prior real estate funds.

“It was a very impressive real estate holding.   And so based upon that and based upon the offering memorandum they provided to me, I went ahead and invested $XXX hundred thousand dollars.”

Starting from the year 2008 they had reported, per the investor, a pretty significant loss from the operations of BizRadio because a portion of the money that had been collected from the investors had been invested in BizRadio.

“I started to look into to it and I read the offering documents and/or partnership documents and I notice that the partnership document strictly stated that they cannot and will not invest any more than 20% of the funds or capital into any investment account.”

It was June 2009 when they released the interim financials.

“As of June 30th I noticed the amount of money they had invested in BizRadio was like 66% of the total contributed capital.  As an example, the total funds collected from the investors was something like $6.8 million dollars and they have invested something like $4.8 million in BizRadio.”

NEED and OPPORTUNITY:  Perhaps it is speculation or perhaps it is circumstance, but what is fact is that monies collected for the LFW Economic Opportunity Fund were substantially siphoned off and funneled into the operations of money losing BizRadio.  When you address the two major components of a FRAUD you see NEED and OPPORTUNITY.

NEED seems to be clear in this case.  BizRadio could not financially survive without an influx of cash – cash raised from apparent unsuspecting investors.  Trading on the good name of David Wallace (who in my opinion now has an SEC target on his back) and the charm of Al Kaleta (now busted by the SEC), investors felt they were getting in on a good deal only to find out that not only was their investment unsafe, but that the terms of their investment agreement were apparently violated.  But back to the interview:

“I asked David Wallace…David why have you done this?”  The investor interviewee stated that about that time was when it became clear that the SEC had an interest in Kaleta and BizRadio/Frishberg.  “He tried to give me a round about answer saying really you’re comparing apples to oranges.  The BizRadio investment – the 20% – has to be compared to the market value of the real estate in all the funds.”

STOP…it appears again, if the investor interviewee is accurate in his recollection of his conversation, that at this point David Wallace is trying to cover up an inequity and perhaps therefore makes him complicit in a fraud coverup – something that has criminal implications.

“But I said that this Wallace fund is a very separate entity, you cannot combine all of the other entities fund market values to do that.  But moreover if the losses are incurred it would be reported into this fund account, not into every fund account.  Then I wrote him a very detailed letter asking for an explanation which remained unanswered.”

SURPRISE, SURPRISE, SURPRISE: The request for information or an explanation went unanswered.  What legitimate answer could be given.  An investment agreement was violated, an investor asks why, and no answer.  At this time it seems clear that the legitimate investment (?) turned scam or fraud was beginning to come unraveled.  At least Wallace was smart enough not to put his answer in writing as that might be construed as mail or wire fraud – punishable by prison.

“Then I called Dan Frishberg, as he was one of the BizRadio persons and he asked me to come over for a meeting.  Dan Frishberg now came up with the same theory as David Wallace that it was based on market value and I was just not understanding.  So I showed them my partnership agreement and I don’t know what you are saying, but here is what the partnership agreement is saying.  After that we retired to talk to David Wallace.  David Wallace then came into the room and basically told me that he really does not have to say anything.  This is how it happened and I could offer to file a lawsuit and they would respond to my lawsuit.”

WOW: Seek an investors money – fail to answer legitimate questions when called on the carpet – then suggest a lawsuit.  To the readers of this blog – what does that tell you?  When I heard these comments from the gentlemen who so kindly contacted me I was amazed!  Not only was Kaleta busted by the SEC, but David Wallace seems to be kneed deep in it with Dan Frishberg which by my calculations is unfortunate for both men.

“Why have you exposed us to something like this?”  He said back, “Well this is how it has happened.  You will obviously tell your attorney and they will ask some questions and we will answer.” Dan Frishberg said as we were leaving, “Well there is nothing much we can do.”

WHERE FROM HERE? The investor interviewee said, “I don’t know what to do.  Where do we go from here?”  In his voice I heard anguish and concern.  He, along with many others, are figuring out that the bulk of their investments have vanished.  Vanished not from a seriously declining real estate market, but vanished from a mismanaged fund that appears to have violated the terms of the agreement.  So where from here?  My guess…and please note it is only a guess…  The SEC will investigate.  Investment fund organizers will find a fate similar to that of Al Kaleta.  And, I predict that eventually the FBI or US Attorney’s office will get involved.

Was this a legitimate investment gone bad or a scam from the outset?  Perhaps that question is best left to federal investigators…but as I’ve said before – something smells “frishy”!

YOUR COMMENTS ARE WELCOME!

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10 Responses to Dan Frishberg – David Wallace: Anatomy of an investment scam? LAFFER FRISHBERG WALLACE ECONOMIC OPPORTUNITY FUND

  1. Fred Morton says:

    As of yesterday (3/16)an application was filed with the FCC whereby South Texas Broadcasting (Salem Communications) agrees to purchase the license for KTEK from BizRadio. The application can be read by anyone wanting to go to the FCC website.

  2. [...] As reported yesterday in my blog (see here), certain unnamed investors feel that they were also scammed when they invested in the Laffer [...]

  3. [...] Dan Frishberg – David Wallace: Anatomy of an investment scam? LAFFER FRISHBERG WALLACE ECONOMI… [...]

  4. Florence Reiley says:

    Thanks for the input. A good share of my Bond account was taken by Kaleta and I was given a promissary note that I had no idea why. It appeared to have my signature (name misspelled and printed by Al beside it) for a loan to Biz Radio. The note was entirely filled out by Al as my agent. I never saw the note before it was e-mailed to me by another source.

  5. James Thomas says:

    Who is the scammer here? Was the mayor of SUgarland in on it? Why don’t you hear about this on television?

  6. [...] Dan Frishberg – David Wallace: Anatomy Of An Investment Scam? Laffer Frishberg Wallace Economi… [...]

  7. Sean Reed says:

    I invested in the Wallace Baj. fund because the real estate plan looked solid.

    Now if my investment lost money due to the recession, that is one thing.

    However if my money was diverted to Biz radio or Kalleta, who struck me as a bit of a used car salesman when I met him, then I will feel defrauded.

    I tried to call David today and to his credit he called me back. Hopefully this will all get sorted out and it is/was not a scam.

    • Investing with Dan Frishbergy says:

      Sean reed,
      Any news about the Bajjalli real Estate deal? Will the investors get their money back?

      • Sean says:

        I don’t know….I spoke with David Wallace about 5 months ago and he said that the real estate investments were still solid, the question is, was it a truthful statement?

        I will give David credit for returning my call. I don’t think he is outright stealing the way Kalleta was, but we will see.

  8. Investing with Dan Frishbergy says:

    DAN FRISHBERG INVESTED MY MONEY AND HE CAUSED ME TO LOSE HUNDREDS OF THOUSANDS OF DOLLARS THAT ARE NOW FROZEN WITH THE SEC. I WILL GET PENNIES ON THE DOLLAR, YES PENNIES, BACK ON MY INVESTMENT THAT HE MADE. THE SEC TOLD ME FRISHBERG USED MY “INVESTMENT” TO PAY FOR HIS MERCEDES AS WELL AS OFFICE RENT AND MANY OTHER PERSONAL EXPENSES. HE HAS DEVASTATED MINE AND OTHERS LIVES. THE GOVERNMENT STILL HAS MY MONEY FROZEN BECAUSE OF FRISHBERGS FRAUD.
    SOME NERVE TO STILL BE ADVERTISING HIS FINANCIAL SERVICES WHEN HE OWES MORE THAN 10 MILLION TO THE INVESTORS HE RECENTLY DEFRAUDED AND DEVASTAED.

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