There are time when finding a beginning point is a challenge. As a business ethics speaker and author, I follow many stories – some shinning the bright light on positive ethical behavior and others illuminating sad situations for the victims of greed and hubris. As this story unfolds…I am sensing more and more that the latter is certainly what is coming to light.
Most who have followed this story in this blog know the background. It does not need to be repeated. But if this is your first read then follow these links to prior reports and you’ll get a sense of the broader picture. Blog 1. Blog 2. Blog 3. Blog 4. Blog 5. Blog 6. Blog 7. Blog 8. Blog 9. (O.K. it’s a big story)…
Early this week I began receiving reports that BizRadio was off the air on 1110 AM in Houston. Why, I wondered? Then as quickly as it seemed the question was asked…answers seemed to flow in. “They failed to pay the electric bill,” one source told me. “What,” I thought. “That can’t be.” As I heard what I was told I elected not to take action in my blog for something that seemed, to me, so far fetched. After all, how can Daniel Frishberg “The Money Man”, who just a month or so ago got $180,000 from Rehan Siddiqi, be unable to afford the electric bill? I was perplexed.
Then, voluntarily another source, called me to tell me that BizRadio was nearly bankrupt (their words not mine) and that, sure enough, the failure to pay the bill was the reason the show was off the air for a day. Quite amazed…I began to wonder how those folks who drank the koolaid regarding how great BizRadio (as an investment) would be. Then a trend began to emerge… so follow this story (told in brief).
Bernie Madoff (we’ve all heard of him) was a brilliant man. My guess is he was quite adept at investing and likely knew more about money, investing and how the monetary system worked that I would ever know. Any way, Bernie created many victims in his wake. How? He lured them into the PIT.
What prey tell is the PIT. Follow along now. First, Bernie promised something that the average person could not get with their investments… He PROMISED (that’s the ‘P’ in PIT) an above average return like 12% say? Now, everyone knew that no one could invest their money and get 12%… It just was not a return that was available to the common man. Second, Bernie supported his investment brilliance with a well thought out ILLUSION (you got it, ILLUSION is the ‘I’ in PIT). Bernie’s illusion was created in house by teams of people who made fake statements that supported his investment claims. Lastly, Bernie started his scam with those closest to him by creating a veil of TRUST. People who put their funds with Bernie felt that they were secure and fortunate to be with one of the best and brightest. The ILLUSION was filled with glamor and supported by TRUST. The outcome… Well if you’re reading this you know that.
IS IT POSSIBLE THAT SOMETHING SIMILAR IS HAPPENING HERE…?
Then today I was sent by several sources a copy of the Receivers report for KCM (Kaleta Capital Management). With a background in accounting, I found the read enlightening and UNFORTUNATELY supportive of my concerns. The picture is not complete, but the more that comes to light the more I am beginning to sense that many investors have been sucked into the PIT.
LET’S LOOK AT SOME OF THE REPORTS INFORMATION:
On January 13, 2010, Receiver met with a majority of the 56 investors who have invested in KCM promissory notes. Some note holders also participated in the meeting in person or telephonically by conference call.
In broadest terms, KCM offered and sold securities in the form of promissory notes to members of the public through which it raised approximately $10 million from 56 public investors. The proceeds of the offering were then loaned to various business entities and individuals who used the funds — at least primarily — for operating capital. The two largest borrowers — BusinessRadio Network, L.P. d/b/a BizRadio (“Biz Radio”), and Daniel Frishberg Financial Services, Inc. d/b/a DFFS Capital Management, Inc. — were affiliated with KCM through common management and ownership. Certain of the other borrowers had business connections with KCM and its management if not actual common ownership and management.
While it is only an opinion, it would seem that (at least) some of the 56 public investors were not assuming their investments were going to a close knit group of people who had a business that was, in many ways, self serving. At least some of the investors have stated that to me in various forms.
Financially it is interesting that the KCM Promissory Notes Reconciliation does not reconcile with the KCM Notes Receivable spreadsheet. No reason to get technical here. It is amazing (I wanted to say comical, but nothing about this is funny) that folks who raised millions and/or managed millions can’t even get a reconciled set of books.
But according to the Notes Receivable Worksheet almost $8.7 is outstanding:
N/R-WB West Houston Realty Fund 360,176.35
N/R-Chris Connolly 5,000.00
N/R-Albert Kaleta 250,000.00
N/R-Brian D’Armas 160,937.50
N/R Daniel Frishberg Financial 1,609,990.26
N/R-Costa Bajjali 16,940.00
N/R-Wallace Bajjali 89,217.00
N/R-David Wallace 101,000.00
N/R-BusinessRadio Network, LP 5,230,497.10
N/R-Laffer Frishberg Wallace 875,236.35
Total Principal Outstanding $ 8,698,994.56
To date, only two of KCM’s outstanding notes have been fully retired. The first retired note was a note in the principal amount of $106,979.90 executed in 2008 evidencing a personal loan by KCM to Daniel Frishberg apparently as purchase money for a residence.
The second retired note was in the amount of $15,000 from Wallace and Bajjali related to a real estate development project nearing completion. Other borrowers have indicated an intent to re-pay in the near term but concrete commitments have not been made.
Early on it was reported that Frishberg felt the need to repay KCM so that he could distance himself personally from Kaleta since Kaleta and KCM were in deep and high profile with the SEC. I was told that Frishberg wanted as much distance as he could get (considering however how tied he is to Kaleta – the distance isn’t far). Further, it was reported that Frishberg was moving as much out of his name as possible so that if the SEC came calling they would find him to be clean (or without assets under his control). I have attempted to interview Mr. Frishberg even in writing, but as of this date I have received no response. NO SURPRISE.
The last part of the Receiver’s report is of greatest concern (if you’re an investor):
Of greatest concern are outstanding notes of the two largest borrowers, BizRadio ($4,990,741.60) and Frishberg & Kaleta ($1,238,000.00) or Daniel Frishberg Financial Services ($1,609,990.26) depending on which internal KCM records are reviewed. The Receiver has met with counsel to these two borrowers and transmitted to them the Receiver’s expectations with respect to arrangements for repayment. Counsel for these entities have indicated that significant recapitalizations may be required to enable repayment. The Receiver has expressed a willingness to maintain a certain amount of flexibility with respect to repayment arrangements. But, it also has been made clear to the borrowers that very substantial cash reductions will be required along with detailed proposals for repayment in full. As the Receiver has stated to the investors, all rights are reserved with respect to individuals and affiliates of the borrowers should repayment not be forthcoming within a reasonable, foreseeable time.
Also, based upon representations to the Staff of the SEC prior to the commencement of the action, it was anticipated that KCM would have in the range of $500,000 in liquid assets on hand. As of the institution of the Receivership, however, there were virtually no cash assets on deposit.
The picture is bleak. BizRadio seems to be imploding. Frishberg owes the folks from whom he bought it and there are liens against it to protect Wallace Bajjali and another entity. So, if Frishberg loses 1110 AM it does not appear that the KCM investors will see any repayment of their investment from what would appear to be the biggest asset. Perhaps I am wrong, but it seems the writing is on the wall.
The larger question that is looming in my mind is what about Daniel Frishberg? Did Frishberg use Kaleta as a front man for ill gotten “investments” to support BizRadio? If so, did those investors know the truth? Perhaps they did (although I’m hearing from a few that they didn’t). Was BizRadio just part of a grand ILLUSION to create the aura of DANIEL FRISHBERG – THE MONEY MAN? Did the investors just lose their money in a legitimate investment that went south (it happens) or did Frishberg (through Kaleta, Wallace and others) lure them into a big giant PIT?
This is not the end of the story…just the continuation of a story unfolding.
NEWS FLASH…10:31 P.M. – “Re: Biz Radio/Kaleta Capital Management – “Wowzer!
Just confirmed Daniel held a staff meeting today and announced that Salem will be repurchasing KTEK for $3.5-million (which, as I recall, was about what that Sidiki fellow was going to pay for it last month…)”
Now starting to wonder if Frishberg might need a primer in pre-prison preparation for the failed PROMISE of what appears to be a PONZI type program. This is the sound of investor money sinking into a deep PIT.
COMMENTS ARE WELCOME!