“David Wallace is a nice guy.” I can’t begin to tell you how many people who have called me today have said those words within the first five minutes of our conversation. “But”…is how the next sentences or paragraphs began as they shared their thoughts on my blog.
I appreciate comments that are made, either publically or privately, and do my best to filter through the emotion and get to material that is worth continuing to discuss. One thing I promise…this blog will be shorter and easier. Perhaps this will be (close to) the “rest of the story” regarding David Wallace’s involvement with BizRadio.
I asked in several ways what David Wallace did regarding his due diligence efforts related to his investments in BizRadio. Now, let me say, I would likely do the same thing (paint myself in the best light possible – especially with the SEC looking carefully at BizRadio, etc.), but David seemingly left out some important information. According to what I believe to be true, David Wallace was a founding Board member of BizRadio. So let me see:
- I establish funds to invest in real estate deals, etc.
- I (assumed to be correct) become a founding Board member of a “new company” called BizRadio.
- Money flows into my private placement investments which I (David Wallace) am a General Partner in and have a fiduciary duty to the investors as agent for, and
- I invest in a new venture that has yet to make any money and in an industry in which I have no experience.
That is not due diligence in my opinion. It may not be criminal (which I believe to be true), but it sure appears to be a problem legally when those investors bring civil suits against the General Partner for failure to perform his fiduciary duties and/or proper due diligence.
Sometime in 2008 David’s term as Mayor of Sugarland expired and David took a more active role in BizRadio – doing what I assume he referred to as their “Pathway to Profitability.” Now…at that time David had to see what was going on. He had to know what was happening, yet, on behalf of his investors (I think in the Laffer Frishberg Wallace fund) David continued to pour money into the hemorrhaging company called BizRadio. My question is WHY?
One of the first principles of sound investing is not to chase a losing investment down. If you buy a stock for $100 and it loses value to $90, then to $80 – somewhere you stop. You cut your losses, protect your assets and get the hell out of Dodge. David clearly said in our interview that at some point in 2008 he saw that it wasn’t turning around… So why would he continue to put investment assets at risk? Again, criminal? Na…doubt it. But, from a civil perspective it isn’t pretty. There seem to be too many opportunities for David to have protected assets under his management instead of funding a sinking ship.
When the SEC audits the records (if they audit the records on David’s investments) it is possible that they will find an investment inflow into David’s accounts (say $200,000 from an Al Kaleta source) and an almost immediate outflow of $150,000 into BizRadio so they could make payroll. While I haven’t seen the records directly, the reality is – that flow of money does not portend of a person who is just making investments on behalf of his investor clients. Rather, it signifies a person who has a direct active involvement in a business enterprise that is portrayed as an investment. That may be a turning point.
Lastly, David Wallace’s groups represented the largest shareholder of BizRadio. The largest shareholder in any company has clout – Big Clout. So, it stands to reason that David should have had the ability to control BizRadio via exercising his shareholder vote. Yet, he could not. BizRadio was Dan Frishberg. Without Dan, one could question whether BizRadio would survive. Now, investing in real estate is one thing – that is a tangible product. Investing in BizRadio is quite another – especially when the investment is based on one single personality controlled by his wife. So, I have to ask this – when you realize that your shares don’t carry sufficient weight to exercise prudent business control, why would you continue to funnel more money into the investment?
I don’t expect answers to the questions. Rather I suspect that the answers will come in due time as investors seek their counsel to determine an effective course of action and/or the SEC seeks to expand it’s look into the motives behind massive funds flowing into BizRadio. For now, BizRadio is valueless. The motives and actions of others who have assets, well that’s another story that is yet to play out.
To read my prior blog see here.
According to financials from the Laffer, Frishberg, Wallace Economic Opportunity Fund – while David Wallace has stated that he became concerned in 2008 – the financial flow seemed to increase in 2009 – which infers that he either (1) was less concerned about his fiduciary duty to protect investor assets, or (2) he had a culpable active role in investor losses in LFW fund. See the numbers below:
|LFW Economic Opportunity Fund, LP|
|Real Estate holdings||20%||1,388,114||28%||1,216,704|
|Less: Loss recorded||(990,732)||(787,247)|
|Net Biz Radio||3,562,177||1,901,590|
|Biz Radio loss||(990,732)||(787,247)|
Notice the numbers in blue above are for 2008 showing the money flow into BizRadio at $2.7 million (rounded) and within six months – for the period ended 6.30.2009 another $1.8 million flowed into BizRadio.
I don’t profess to be a financial expert, but I don’t see any substantive effort to diversify the investments in this fund. Rather, from the outside looking in it appears that the relationship with Kaleta and Frishberg was too close and, while circumstantial, there sure appears to be some truth to the claims made by many close to the situation – that David Wallace was knee deep in the operations of BizRadio which clouded his judgment as a General Partner and fiduciary agent for those who invested in his funds.
Lastly…I had a comment from an 88 year old individual who invested the great majority of his/her life savings into this fund. According to the fund prospectus investments could be received from “Qualified Accredited Investors”! I would like to know how and 88 year old investor placing their life savings in such a fund could be considered a “Qualified Accredited Investor?” Who did the due diligence on the investors?
YOUR COMMENTS ARE WELCOME.