BizRadio – Due Diligence and the David Wallace Investment Funds

November 15 2007 – a letter sent to investors from David Wallace stated the following:

The third quarter of 2007 was very active for both the ongoing due diligence and development activities for Fund II’s current portfolio, as well as the future investment activities of Fund II.  During this quarter, Fund II completed one real estate development investment.  The following table reflects the equity invested in such companies:

The table reflected that of funds invested through June 30, 2007 — $3,657,170 was invested in BizRadio out of a total of $6,994,170 or over 52% was invested in one investment (and that wasn’t real estate).  And for Quarter 3 2007 an additional $1,190,047 was committed to BizRadio – again over 50% of the committed funds for Q3 2007.

The investor report goes on to say:

BizRadio Network – BizRadio provides both the creation and distribution of high-end, talk radio “business” content to an affluent audience.  The ability to reach the well-educated, affluent market is a unique niche that can be served by very few stations.  BizRadio is successful in this effort.  The distribution of the current content is a simulcast on 1320AM in Houston and 1360AM in Dallas-Fort Worth.  The current strategy is to secure capital to acquire (rather than lease) the various stations, which will result in a savings of approximately $200,000 per month by eliminating the respective lease payments.  The future business strategy is to expand the content product offering (to add a newsletter, stock-tip market letter, day-trading academy, pod casts, etc.) and to broaden the distribution network and acquire additional stations in specific key markets.  Two radio stations (one in Houston and one in Fort Worth) were secured through letters of intent during the second quarter of 2007.  However, the due diligence findings of the Dallas station caused BizRadio to terminate its discussions, and the Houston station is nearing the final negotiation of a definitive agreement.  It is anticipated that the acquisition of these stations will be funded by 50% equity, and the remaining capital will come from third-party purchase money debt.

Now for some time you know, especially for those of you who read this blog series, that I’ve been asking questions related to David Wallace’s involvement with BizRadio.  I am, and have been, confused – cause on one hand it seems that David has been a continued source of funds for BizRadio – and for many those investments have turned into substantial losses – perhaps unrecoverable losses.  On the other hand, David has said that he (as an investment general partner) did his due diligence and, seeing the ship sinking, tried to take the helm and revive BizRadio in a desperate situation.

SO LET ME JUST PUT THE CARDS ON THE TABLE!

I have been told on more than one occasion that David Wallace had lost his objectivity when it came to Al Kaleta, Daniel Frishberg and BizRadio.  David, so I’ve been told, got hooked into the Daniel Frishberg vision of BizRadio (I guess we can say he drank the Koolaid) and saw this as a way to attract continued investors into his funds.  Specifically, I was told that Daniel Frishberg effectively told David Wallace that he would funnel investors to him to help him with his “funds” (find investors so to speak) as long as he would agree to funnel money back to BizRadio.

David, on the other hand, has said that he saw the value in BizRadio and felt that the investment was worthwhile.  That’s fair.  But, here’s the rub.  If you are putting a fund together, would anyone who has a fiduciary responsibility to his/her investors ever invest 50+% into one company and, if so, into a company that had then no substantive tangible assets?

I asked David the following in an earlier blog (to see the full blog click: https://chuckgallagher.wordpress.com/2010/04/14/bizradio-an-interview-with-david-wallace-about-the-dan-frishberg-al-kaleta-fiasco/

9. I have been told that your office in Houston was across the hall (I haven’t been there David so my characterization may be inaccurate) from Dan’s BizRadio, but you weren’t seen much in his office.  Considering your funds – certainly from what I’ve been told the Laffer, Frishberg, Wallace Economic Opportunity Fund had substantial interest in BizRadio – were you active in the operation?  If so, how?  If not, why?

DW Responds – I was approached by Al when we were creating a real estate investment fund in about 2005. AL Kaleta and Daniel Frishberg indicated that they have some clients that they wanted to allocate some of their funds into real estate, and they liked our team, track record, etc. So their firm ( Frishberg , Jordan & Stewart Advisors at the time) provided some investment capital (about 70%) on the first Wallace Bajjali affiliated fund. This fund acquired 13 real estate properties. As we started to look at creating a second fund, we prepared a $10 million offering prospectus and Daniel Frishberg and Al Kaleta indicated that they felt that they could raise the capital for the fund. At some point a discussion ensued about the convenience of Wallace Bajjali leasing space on the same floor as Frishberg , Jordan & Stewart, such that if their clients would like to meet the principals, then we would be more accessible, than if we were in another location. Ultimately, the second fund was amended to raise beyond the $10 million, and up to $25 million.

Now here’s where the numbers just don’t add up.  David says, “AL Kaleta and Daniel Frishberg indicated that they have some clients that they wanted to allocate some of their funds into real estate, and they liked our team, track record, etc.” So according to David the attraction was that they would bring David clients.  Seems that we have a validation of what has been said to me on several occasions – David was lured with the promise of money for his funds.  Keep in mind those words that I have shown in “blue” here are David’s words not mine!

Yet as Daniel Frishberg and Al Kaleta funneled money into David’s funds – David (claiming due diligence) was pouring money right back into BizRadio.  And for what?  Was that money earmarked for the “acquisition” of the station (at least the license would be a tangible asset – of sorts) or were the funds being used to subsidize current operating expenses?

I’m sorry, but I don’t see true evidence of “due diligence!”  What I see is a young energetic individual (David Wallace) being caught up in the attraction of the massive illusion that Daniel Frishberg and Al Kaleta created.  David (as I see it) seemed to be interested in gaining a new source of investor funds and was willing to “sell his objectivity” (through funneling money back to BizRadio) for that gain.  Some may say that my opinion is skewed and inaccurate, but I think when this is all said and done – and the final chapter is finished – we will see that I’m closer to right than wrong.  How else can one explain such substantial investments into BizRadio in contravention of any reasonable investment advice related to diversification.  Time after time David Wallace has seemed to ignore the simple rule of diversification in favor of funding the “project” of Al Kaleta and Daniel Frishberg called – BizRadio.

NOTICE I started this off with information from 2007.    But David (again from the earlier interview) stated the following:

I began to voice my own criticisms in mid- to late 2008.

Around the 4th quarter of 2008, and continuing into the 1st quarter of 2009, it became obvious based on conversations with BizRadio employees, and ultimately Daniel Frishberg, that this was the case. At this time I worked with the existing employees of BizRadio to create a restructuring plan and “Path to Profitability” (that was provided to Daniel Frishberg and Al Kaleta) to eliminate the operating losses, but more importantly, to eliminate any conflict of interest between the RIA and BizRadio. Although there was an outward appearance that it was being well received and implemented, in the end, I feel that it was summarily dismissed.

If I were an investor I would be furious.  First, there’s the issue of diversification – grade (F).  When over 50% of the fund is invested in one asset we’ve got a problem.  Mind you, this was true at least for Q3 of Fund II in 2007 and also was true in another fund where BizRadio represented over 60% of the funds investment.

But…if, as David says, “I began to voice my own criticisms in mid- to late 2008“, then why would he not call a halt to future investments into BizRadio until his voice was heard?  David was the primary source of BizRadio’s operating capital and therefore, effectively, was in control.  The reality is – without David Wallace’s continued investments into BizRadio – BizRadio would have collapsed much sooner than later and millions of current losses would have been avoided.  In my opinion, David’s insistent involvement with BizRadio, even after he “voiced criticisms” reflected a lack of independence as a general partner in his funds and therefore will (likely) put him at personal risk for civil lawsuits.

The larger question, in my mind, is whether David Wallace will face criminal conspiracy charges – assuming criminal charges are brought against Al Kaleta, Daniel Frishberg, and Elisea Frishberg.  Did David conspire willingly to defraud investors by continuing the charade that BizRadio had a viable business plan that had a chance of success and thereby provide reasonable assurance that an investor could gain a reasonable return on their investment?

Here’s an example…  I got a call from a “former” CPA.  Seems (in short) he was a CFO of a company.  He felt that the company was doing something unethical and quit.  (By the way that was 5 years ago).  Turns out 5 years later that the US Attorney took down the company for illegal activities.  But the US Attorney also went after the former CFO.  Why?  Conspiracy.  By not reporting the fraud, he conspired to commit fraud.  Result?  Plea conviction with probation and the loss of his license.  Moral of the story…  If that guy can be convicted – wonder what would happen to David considering that the flow of defrauded investor funds seemed to continue to flow from his funds well into 2009 when it was clear that the ship was sinking?

What ultimately happens with David Wallace?  I honestly don’t know.  I suspect that his willingness to cooperate might be just the ticket to save his skin.  As David said, “…the connection by our investment into BizRadio, does not represent our finest investment hour.” Sometimes you have to call them as you see them.  I think that David’s statement is a major understatement.  All evidence suggests that David was played like a fiddle by Kaleta and Frishberg – being seduced into being a “money laundering” mechanism for Frishberg and Kaleta to convert their investor sources into BizRadio funds – all the while trying to seem as if there was independence of investment activity in play.

Independence – not a chance.

Due Diligence – no way.

Greed and hubris – likely!

AGAIN – YOUR COMMENTS ARE WELCOME!

Advertisements

7 Responses to BizRadio – Due Diligence and the David Wallace Investment Funds

  1. jammas says:

    That is why I’m perplexed as to why Wallace would want to loan more money to BizRadio in Jan 2010? Why? Then pulls the plug in Feb? He should of never invested money from the funds into Biz Radio due to the fact that there was “NO” arms lenght transactions. They were all commingling and putting their hands on all kinds of money, to dump into Frishberg’s black hole. Now I wonder if Frishberg had auhtority to write checks out of the LFW fund and the WB fund? I know for a fact that DFFS was charging the clients who were investors with Wallace a “fee” (1%-2% of fund)for those “funds” that he claims were being managed by Wallace. If the client had $100K with Wallace, Frishberg would charge anywhere from 1% up to 2% based on what the client’s fee was for DFFS. They vary. What a rip off. Frishberg was making money on everything. Am sure some clients are still being charged that fee, year after year over the same money.

  2. radioblah10 says:

    It just continues to boggle my mind why anyone would lend money to Biz Radio, even after Dan Frishberg repeatedly stating to employees and other people especially in meetings that Biz Radio was not a money maker. It never was, never will be. It was mere advertising for Frishberg’s RIA, which he personally stated many, many times. All Wallace had to do is to walk across the hall and ask anyone over there.

  3. Gail says:

    You are so blind. Your opinion of Dave is just as skewed as your opinion of Dan and Al, and only because Dave decided to “play ball” with you, and give you an interview in an effort to make himself look credible.

    Dave is just as guilty as Dan and Al, and perhaps more so, because I truly believe Dan and Al were just incompetent, while Dave was acting with knowledgeable and selfish intent. Dave kept funneling money into BizRadio, because he and his company were getting paid from investor funds just as Dan and Al were, and the reason he kept pouring money into BizRadio, is because all of the investor funds were coming from Frishberg clients. He could’ve raised funds from anyone and anywhere, but Frishberg was able to raise so much money for him, he didn’t bother to look anywhere else. Frishberg had the money, so Frishberg had the power to determine where it was allocated. Dave was more than happy to keep dumping money into BizRadio, as long as he was able to fund all of his other failing projects and keep getting paid.

    Jammas, in response to your question about why Dave would loan more money to BizRadio in January of this year then pull the plug in February, it wasn’t his choice. Dan and Al refused to send him any more money, because ALL of his projects (not just BizRadio) had yet to return a profit. Dan and Al still believed, perhaps blindly, that they could make BizRadio a successful and profitable company, but Dave started refusing to send money to BizRadio, and instead, started funneling money into his other crumbling real estate projects, and to his own wallet.

    Does anyone even know that the reason the Wallace Bajjali offices moved to Sugar Land, was because they had failed to pay rent for over six months preceding their move? They didn’t move to get away from Dan and Al, they moved because they were broke, and Dan wouldn’t keep supporting them.

    How was Wallace Bajjali able to employ ten well-paid employees, without once turning a profit, at least not in any of the projects in which Dan and Al were involved?

    Also, with all of the court records and internal documents you’ve been receiving, Chuck, I’m surprised you haven’t obtained copies of the notes showing that both David Wallace and Costa Bajjali borrowed tens of thousands of dollars in 2009 to pay their PERSONAL 2008 taxes.

    You need to dig a little deeper, start asking the right questions, and stop listening to people who are only out for themselves. While Dan may have made a lot of mistakes, he’s the only one in all of this I’ve yet see do anything to attempt to make his investors whole.

  4. jammas says:

    Think about it, he’s telling investors that he gave up on Dan when Dan would not listen as to how to run the black hole. This was mid 2009. Yet we see documents here on this website of a loan he was preparing to do with Dan and the black hole of biz radio. Why would he want to lend more money in Jan 2010? And why did he pull the plug in Feb 2010? And where was the money going to come from? What investor is still putting in money into those funds? Those funds should be closed to new investors at this point. I am confused and baffled.

  5. BizzFree says:

    Gail-
    You talk about WB’s well paid employees. What about the payroll at Biz Radio? They paid well over what the job would pay at any other “real” radio station. I know, because I was one of them…and who was footing the bill? Investor funds! No matter where it came from…it was wrong. And guess what, Frishberg is still trying to lure people with yet another Strategy Session. Best advice I have is ….RUN LITTLE LAMBS!!!

  6. Sean says:

    I invested $100K with Wallace and the money was ONLY SUPPOSED TO GO TO THE REAL ESTATE INVESTRMENTS!

  7. support says:

    disease…

    BizRadio – Due Diligence and the David Wallace Investment Funds « Motivational Speaker – Chuck Gallagher Business Ethics and Choices Expert…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: