Dan Frishberg and BizRadio – The Calm Before the Storm – will it be CIVIL or CRIMINAL?

All seems quiet on the western front – well at least for Dan Frishberg in Houston that is – and BizRadio.  But don’t mistake quite for inactivity.  Sometimes what is done in quiet can have profound and very loud consequences.

So…for those who have been following here is an update.

• On June 17, 2010 an order was filed in the US District Court effectively representing an agreement between the SEC Receiver and the Court.  In the agreement the assets of BizRadio and DFFS (Daniel Frishberg Financial Services) were brought under the control of the Receiver along with the Kaleta assets.  The Agreement in its entirety can be see here.  34
• A couple of items related to this that are noteworthy:  (a) the Receiver initially was attempting to pierce the corporate veil and go after Frishberg personally.  That did not happen.  Instead the Receiver got to include directly the assets of the organizations that were first included in the SEC Receiver appointment for BizRadio and Frishberg.  (b) the order stipulates that DFFS owes Kaleta Capital Mgmt. $1.2 million.

WHAT ABOUT THE BANKRUPTCY?  It seems that since the primary assets from DFFS and BizRadio are now in the hands of the Receiver there is not practical reason to move forward with the bankruptcy.  That is over as best I can tell.  The Receivers role is to protect all people who have a vested interest in some form of monetary recovery and no sense in complicating that with another entity involved – namely a bankruptcy judge.

WHAT ABOUT THE LAWSUITS?  Now that is another matter.  I reported on a suit filed by Barbara Doreen House in an earlier blog.  On June 10, 2010 the following was issued effectively dismissing the suit since a bankruptcy action was pending.  But from what I understand from a conversation with the SEC Receiver – the bankruptcy is dismissed so what that means to Ms. House’s lawsuit and others – like the one for $18 million filed by Rehan Siddiqi I have no clue.  Here’s the paperwork from the House dismissal.  Fraud dismissal

WHAT ABOUT THE MONEY FROM THE RIA?  Ah…now that’s where the seemingly quite issue gets interesting.  Daniel Frishberg used BizRadio as his mouthpiece and voice to attract clients.  The clients trusted Dan “The Money Man” and it has been reported that Dan (at one time) was earning some $700,000 per quarter for his work with DFFS – his RIA.   Not a bad income for a suspected con artist like Dan.

Dan – realizing that he’s going down – works to preserve his income and sells his RIA to William Heath.  I have tried calling Bill Heath several times for an interview.  Surprisingly he’s never there.  Go figure.  But on May 25th, 2010 he was being deposed by the SEC Receiver so I’m sure that he knows far better than I the real truth behind the transfer.  But there is some controversy.  Between who you might ask?  Guess…  greedy Dan Frishberg who is trying to protect himself and the SEC Receiver – who is trying to protect those who have been victimized by Frishberg and Kaleta.

Frishberg says that the income from the “former” DFFS assets should go to him as he is a CONSULTANT and that the income was consulting fees.  The Receiver (and these are my words not his) would claim that the assets earned from the monies invested are assets of DFFS and therefore under his control and dominion.  Well…what would happen if Frishberg loses that argument?  UH…he’s have no income!  And I can hear many of you who read say – Rightly So!

We’ll see what happens with that battle…  Stay tuned!  (my bet is with the SEC)

WHAT ABOUT CIVIL OR CRIMINAL ISSUES?  First, (old news) Kaleta lost his license as an investment adviser and therefore has effectively been rendered impotent when it comes to a career in the investment adviser world he once roamed and played in.  I SUSPECT THE SAME WILL BE TRUE FOR FRISHBERG.  I do not have a crystal ball, but if I were a betting man I would say that soon (by the end of the summer) the SEC will rule against Frishberg and he will lose his license – the same as Kaleta.  When that happens Frishberg will be out of business.  No more license.  No more credibility.  No more inside track.  And, most of all – No more radio show to promote his scams.

Now…on the CRIMINAL SIDE.  That seems to be up for debate.  There are clearly two camps: (1) those that feel that the SEC civil is sufficient to protect the public; and (2) those who feel that Frishberg and his exploitation of the airwaves for gain should justify criminal prosecution.  The problem is – there are too many crimes out there to prosecute so the US Attorney’s office just might pass on this one.  Whether they do or don’t may, in part, be a function of whether there is sufficient public outcry for punishment beyond losing one’s license and livelihood.  WHAT ARE YOUR THOUGHTS…CIVIL ENOUGH OR SHOULD CRIMINAL FOLLOW?

As more comes to light I will be one of the first to report.  For now…all quite on the western front is a bit deceiving – cause take to the bank work is still be done to bring some right to this blatant WRONG.

YOUR COMMENTS ARE WELCOME!

BizRadio – Another day another Lawsuit! Daniel Frishberg’s legal issues continue…

When the flow of money stops the crash is deafening!  Just ask Bernie Madoff, Sir Robert Stanford, and a whole host of others who either have faced or are facing the long arm of the law for their fraudulent financial actions.  Daniel Frishberg is NO BERNIE MADOFF – he’s not that smart, but many who have contacted me over the course of the past six months have said that he is that crooked.  Guess…time and the federal government will ultimately be the judge of that.

What is certainly true is there is a long line of folks who just want their money back.  They did not wish to be scammed.  They did not wish to own a failing radio station.  They did not wish to have their investment savings manipulated by someone (or group) that had first and foremost in mind their own self interest.  All they really wanted was to invest their hard earned dollars into something that would give them a safe and secure return.  And, folks RADIO ain’t it!

Now comes Plaintiff – DRA CRT POST OAK, LP – the Landlord for the property formerly occupied by FRISHBERG FINANCIAL SERVICES, INC.  Seems that Frishberg leased the property located at 3050 Post Oak Blvd., Houston, TX starting on December 1, 2002 with an expiration date of May 31, 2011.

Oops…Daniel’s funds dried up.  Now that is no great surprise.  It started when Kaleta got in trouble with the SEC and hasn’t stopped yet.  Did Frishberg create a Ponzi scheme?  I’ve been asked that a number of times, both in emails and telephone calls.  Answer: well…kind of.  To me, it seems that Frishberg, Kaleta and others really created more of an investment scam.  I’d call it “investment adviser fraud” – in that, they sure enough sought investor dollars that – for the most part – funded their money losing business so that they could attract more investment dollars.  From that perspective, it is a type of Ponzi scheme, but in reality they just scammed folks by making them believe that they were investing in something that was low risk and, almost a sure thing!  Either way you cut it – it was a scam and clear self dealing.  But back to the lawsuit…

CAUSE OF ACTION ONE:  $90,035.59 left owing on the lease creating the suit against Frishberg Financial Services, Inc.  Demand has been made and according to the document, Frishberg Financial Services, Inc. refused and continues to fail and refuse to pay the amounts due and owing pursuant to the terms of the lease.

CAUSE OF ACTION TWO:  Claim amount of $286,321.87 for anticipatory breach of lease with Plaintiffs claiming they can prove the reasonable cash market value of the Leases Premises for the unexpired term of the lease.

CAUSE OF ACTION THREE:  Plaintiff claims pre-judgment interest at the rate of 18% per annum as allowed by the statues of the State of Texas.

CAUSE OF ACTION FOUR:  Plaintiff requests recovery of reasonable attorney’s fees.

Total request excluding attorney’s fees, court costs, pre-judgment and post-judgment interest, is $376,357.46.

THE QUESTION really is what effect the involuntary bankruptcy and request by the SEC Receiver will have on all these lawsuits?  Rehan Siddiqi sues for $18,000,000.  Several individual lawsuits have been filed and now the Landlord.  There seems to be no end to the claims against Frishberg.

BUT HERE’S HOW IT WILL END…  Daniel Frishberg will eventually lose his license as a Registered Investment Adviser and be admonished by the SEC just like Al Kaleta.  My guess is that will happen within the next three months as the SEC has less time to take action civilly than others do criminally.  Frishberg will effectively be banned from using his knowledge and talent to sway investors.  The radio run will be over and “the Money Man” will be no more.  Following that, I believe that criminal law enforcement entities will take issues with both Daniel Frishberg and Albert Kaleta into a different realm.  In fact, likely the investigation and work that the Receiver will continue to do will form the basis for a series of criminal charges that will be levied against Frishberg and Kaleta.  Based on other cases, it would be difficult not to convict Frishberg and/or Kaleta (I suspect both) on mail fraud, wire fraud and, perhaps, investment adviser fraud.

With all that is happening in the financial markets, Frishberg has far too much notoriety to avoid criminal prosecution with prison time that follows – least that’s the way it seems to me.

Screwed by Kenneth Starr – Wesley Snipes might find an unexpected benefit from his loss – NO PRISON TIME!

Smart man – Wesley Snipes – wasn’t so smart with his tax dodging that he avoided a lengthly prison sentence (which he is now appealing)…  But sometimes even some folks fall into dumb luck.  This may be the case for the actor – tax dodger – Wesley Snipes.

Go figure…  Facing three years in prison he just might win his appeal since one of the star (no pun intended) witnesses – Kenneth Starr – financial adviser to Mr. Snipes back in the ’90′s.  Kenneth I. Starr, who was arrested recently and charged with fraud and money laundering in federal court in New York, was Snipes’ financial advisor in the 1990s. Starr, a prosecution witness in Snipes’ 2008 tax-evasion trial, testified then that he told the movie star he needed to file tax returns, despite contrary advice the actor obtained from an anti-tax outfit.

Now, honestly, as a former CPA – Starr gave Snipes accurate and good advice.  But…Wesley Snipes is hoping that the arrest of his former financial advisor could help reverse the actor’s tax-charge conviction on which he has been sentenced to three years in prison.

The testimony by Starr, described by the prosecutor in his closing statement as “a competent tax professional,” was a major reason the jury convicted Snipes on three misdemeanor charges, said Robert Barnes, Snipes’ lead trial lawyer. His client was acquitted of felony charges in the case.  Barnes said he was confident the conviction would be overturned now that Starr had been arrested.

Starr “a competent tax professional” is now being discredited because of the Ponzi scheme he effected which, by the way, apparently cost Snipes some dollars.  Better lose money than time in prison.

Frankly, this is all a bit surreal, in that I, too, was a “competent tax professional” who (UNFORTUNATELY) effected a Ponzi scheme (back in the ’80′s) before it was the popular sheik thing to do.  But, when you do something wrong – and face conviction for the offense – it seems your credibility is destroyed and success of the past is surely in the past.

“Wes will pursue all legal remedies if the government doesn’t step up to the plate and drop these charges on its own,” said Barnes, who is with the Bernhoft Law Firm in Los Angeles.

A spokesman for the U.S. attorney’s office in Florida that prosecuted Snipes declined to comment on Starr’s arrest and said the government still intended to contest Snipes’ previously filed appeal.  But some legal experts said Starr’s arrest could benefit Snipes, who has not yet begun serving his sentence.

“It’s a nice thing to have landed in the laps of the defense,” said Ellen S. Podgor, a law professor at Stetson University who blogged on Snipes’ trial. “If this was in fact the star witness, and if the guy lied, then that’s pretty crucial.”

During the trial the defense contended that Starr had lied on the stand.

If Wesley Snipes gets off it will be a blow to the government and bolster the ranks of those who somehow feel that not paying or filing tax returns is actually OK.  Take it from one who spent time in prison for a tax crime – playing with the tax law is not a wise move.  Should Wesley face three years in prison for a misdemeanor?  Seems a bit of a stretch, but, for those who followed this case, Wesley did much more than not file returns…he tried to dodge the system entirely and was not nearly as dumb as he played himself to be.

But Starr’s failure might keep this star out of prison.  I’m sure that Wesley is thanking his lucky Starrs that this fell into his lap!

David A. Selter and Joanne M. Cassidy vs. Daniel Frishberg – Suit for Fraud and Breach of Fiduciary Duty – BizRadio in the news again!

Old news to some – new to others – but to me a pattern of behavior that became the undoing of BizRadio.  The two plaintiffs in this filing are, likely, not the only ones who feel they’ve been defrauded.  Of course, the outcome is up to a judge and/or jury so here I present the facts as I see them in the filing in the District Court of Harris County, Texas.

On March 9, 2010 David A. Selter and Joanne M. Cassidy filed a petition against Daniel Frishberg claiming the following:

• In 2004, in Harris County, Plaintiffs Selter and Cassidy retained Daniel Frishberg for investment advice and for help in managing their finances.  Plaintiffs entrusted a significant sum of money to Defendant Frishberg and his firm, Frishberg, Jordan, Stewart and Kaleta, to be invested.  Based on Defendant’s advice and counsel, it was agreed that Plaintiffs would only invest in low risk investments.

According to the Civil Case information sheet the sum of money was greater than $100,000

• In 2006, Defendant Frishberg recommended that Plaintiffs invest $100,000 in a start-up radio station, BizRadio, and become limited partners in the new business.  Defendant represented to Plaintiffs that the investment in BizRadio was low risk in keeping with his original advice.  Defendant controlled the general partner of BizRadio, Business Radio, Inc., and Defendant was actively seeking investors for the highly speculative venture – as Plaintiffs have now come to learn.  Plaintiffs have received absolutely no money as a result of their investment in BizRadio.

While I read the complaint – FOR FOLK WHO READ THIS – NO NEW VENTURE IS LOW RISK!  Sometimes, as a fraud prevention speaker and author I find myself amazed at how gullible folks are when they listen to someone like Frishberg say a new venture is “low risk”.  WAKE UP!

• Also in 2006, on the recommendation of Defendant Frishberg, Plaintiffs invested $100,000 in W. C. Perry Properties, LP (“Perry”) a real estate investment firm.  At the time of the recommendation, Frishberg did not disclose to Plaintiffs that he was a member of Perry’s investment committee and was an investor in Perry himself.  After Perry went bankrupt in 2008, costing Plaintiffs their entire investment, Defendant Frishberg said he would help make it up to Plaintiffs by giving them some of his shares in Wallace Bajjoli Investment Fund (“Wallace”).  Plaintiffs later learned that Wallace had a 25% interest in BizRadio, the radio station controlled by Defendant.  Wallace is now worthless.  Despite repeated requests by Plaintiffs to refund their investments, Defendant has refused.

REALITY CHECK:  Was it against the law for Frishberg not to disclose his interest in Perry?  Honestly, that’s not for me to answer, but I’m open to an attorney’s response should one be forthcoming.  Secondly, it would appear that all lost in the Perry deal so – not to be flippant – but sometimes you win and sometimes you don’t.  But expecting to get money back on a losing deal is unrealistic.  That said, what is of interest is the purported promise to “make it up to them” by giving a percentage of Wallace.  If that took place is that an admission that something was a miss in the first place?

• COUNT 1 -  BREACH OF FIDUCIARY DUTY:  Plaintiffs had a fiduciary relationship with the Defendant.  Plaintiffs had placed their confidence in Defendant Frishberg as their investment advisor and expected that he would act in good faith and in their best interest.
• Defendant breached his fiduciary duty to Plaintiffs by acting in his own self interest and not in the best interest of Plaintiffs.  Defendant had a duty to refrain from self dealing.  The investments described above were not even in keeping with Defendant’s own initial financial advice to Plaintiffs to invest only in low risk investments.  Instead, Defendant advised Plaintiffs to invest a significant percentage of their entire investment portfolio in ventures not because they were sound investments and low risk in nature but because he could benefit personally by such investments.

I’M NOT THE JUDGE – but if I were I’d find Frishberg guilty.  Based on all that has been seen thus far it is hard not to see a pattern of self dealing behavior in Frishberg and Kaleta.  I just finished ( a day or so ago ) a new blog about Kenneth Starr (see blog entry here: http://chuckgallagher.wordpress.com/2010/05/31/kenneth-starr-financial-adviser-charged-in-ponzi-scheme-how-do-the-rich-and-famous-get-caught-in-the-ponzi-scheme-trap/) who was charged with money laundering, investment adviser fraud and wire fraud.   Now, candidly I don’t know what it takes to be convicted of “investment adviser fraud” but there is certainly mounting evidence that, either that (investment adviser fraud) or something similar has happened in the BizRadio debacle.

• COUNT 2 – FRAUD – Defendant represented to Plaintiffs their investment in BizRadio would be low risk in nature in keeping with the original strategy Defendant outlined for Plaintiffs to only invest in low risk investments.
• Defendant represention to Plaintiffs was material because they would not have invested in the radio station had they known it was a high risk investment and that there was a strong possibility they would lose all of the funds they invested.

HONESTLY, I think Dan Frishberg was so caught up in the ILLUSION of BizRadio that he had no concept that this would fail.  Hindsight is 20/20, but Dan had blinders on and had no perception that BizRadio would be anything but a sure win.  NOW…that is quite normal for a person so caught up in the ILLUSION part of a scam that they fail to comprehend reality.  That does not make him any less guilty, but rather is an attempt to paint a realistic picture of where his mind might have been.

• Defendants representations to Plaintiffs were a false statement of fact or opinion, which Defendant knew Plaintiffs would justifiabily rely on because of Defendant’s special knowledge as a professional financial advisor and Defendant’s claimed knowledge of the radio business.
• Defendant made the false representation recklessly, as a positive assertion, and without knowledge of its truth or, in the alternative, made the false representation knowingly.
• Defendant had reason to expect Plaintiffs would act in reliance on the false representation because they had been relying on his financial advice and making their investments accordingly.
• Plaintiffs relied on Defendant’s false representation when investing $100,000 in BizRadio.

HUM…well, I agree that the Plaintiffs were harmed (just like throngs of others) in this sinkhole called BizRadio.  What could have been a profitable enterprise was run in the ground by (what I will label as the) greed of Daniel Frishberg.  Could it have worked?  Yes!  Did it work?  Nope…and Selter and Cassidy are but two in a long line of injured parties.

• COUNT 3 – FRAUD BY NONDISCLOSURE:  Defendant concealed material facts when he advised Plaintiffs they should invest in Perry.  Defendant never disclosed that he was on Perry’s investment committee and, in that position, was charged with raising money for Perry.
• Defendant had a duty to disclose the information to Plaintiffs because Defendant had a fiduciary relationship with Plaintiffs as detailed above.
• The information was material because it presented a conflict of interest on the part of the Defendant.  Defendant knew Plaintiffs were ignorant of the information and did not have an equal opportunity to discover the truth.  Defendant deliberately remained silent and did not disclose the information to Plaintiffs.  By deliberately remaining silent, Defendant intended for Plaintiffs to act without the information.

JUST AN OPINION – but this seems, of all claims, weakest to me.  So Frishberg was an investor.  It would seem that, had he disclosed that, it would have bolstered their reason for investing.  O.K. the investment went bad.  Everyone lost.  It happens.  But, is there a real claim here?

• COUNT 4 – NEGLIGENT MISREPRESENTATION:  Defendant represented to Plaintiffs that their investment in BizRadio and in Perry would be low risk in nature in keeping with the original strategy Defendant outline for Plaintiffs to only invest in low risk investments.  Defendant made the representation in the course of a transaction in which Defendant had an interest.  Defendant made the representation for the guidance of Plaintiffs.  Defendant’s representation was a misstatement of fact or opinion.  Defendant did not use reasonable care in communicating the information.

NEGLIGENT OR NOT – Again, opinion, yes when it comes to the BizRadio investment, but Perry – well that is a bit “greyer” in my book.

DANIEL FRISHBERG’S RESPONSE:

The Defendants (why plural as Daniel Frishberg was the only Defendant) denies each and every allegation made by Plaintiff.

CONCLUDING COMMENTS:

Well…I guess a response like that is expected.  But, it would seem that either the Plaintiffs are lying or they did in fact invest $200,000+ with Daniel Frishberg in BizRadio and Perry.  If that is true, then how can Frishberg deny that?  Was there a personal motivation to have folks invest in BizRadio?  Damn right there was – it would be hard for any jury to deny that with the evidence and pattern of behavior that took place over the second half of this past decade.  Most important though, from my perspective, is – is Daniel Frishberg guilty of “investment adviser fraud”?

If you were an investor in Perry or BizRadio do you have a similar story to tell.  Feel free to SHARE YOUR COMMENTS!