After dropping the ball on the Bernie Madoff scandall – the SEC changes its focus on Tips!

Sometimes government agencies just don’t get it…they miss the obvious and ignore competent data that’s provided through tips.  Perhaps they aren’t staffed to follow up.  Perhaps they feel that most tips are grudge tips and not credible.  Who knows?  But after the Madoff scandall – the largest Ponzi scheme in US history, the SEC has now changed their focus when it comes to tips.  Below is a well written article that shows the power of tips and it’s impact on busting fraud wide open.

(Sarah N. Lynch and Matthew Goldstein) – For more than three years, U.S. securities regulators investigated allegations of accounting fraud at a small telecom firm called China Voice Holding Corp, but could not make a case.

Then last November, they got an unexpected break. A Texas-based tax consultant doing work for a firm affiliated with China Voice contacted the U.S. Securities and Exchange Commission with information about suspicious money transfers she’d detected.

The call from Dee Dee Stone was quickly routed to a preliminary version of the SEC’s new $21 million “Tips, Complaints and Referrals” or TCR Database, which the agency later fully deployed in March. Within 24 hours, Stone, a former Internal Revenue Service agent, got a call from an SEC attorney spearheading the China Voice inquiry.

Five months later, the SEC on April 29 sued several China Voice executives, claiming they had duped investors out of $8.6 million in a Ponzi scheme. Agency lawyers say without Stone’s help, regulators may not have even discovered the scheme, let alone made a case so soon.

The alleged fraud at China Voice was small in the annals of Wall Street sins. But the SEC’s response to Stone is an indication that after dropping the ball on Bernie Madoff, the nation’s top securities cops are trying to modernize the way they handle tips and complaints about potential wrongdoing.

The TCR Database is the SEC’s most significant response to its well-documented fumbling of early tips about Madoff’s $65 billion fraud. The SEC’s new Office of Market Intelligence, which last summer also forged a first-of-its kind partnership with the Federal Bureau of Investigation, is using the database as a key tool.

The changes are part of an effort by SEC Chairman Mary Schapiro to overcome the agency’s reputation for being a step or two behind the bad guys. It is far too soon for the SEC to declare victory. But some of the agency’s harshest critics notice a change.

Among them is Harry Markopolos, the Boston-based financial analyst and fraud investigator best-known for trying to alert regulators about problems with Madoff’s operation. Markopolos said since the database went into operation, he has submitted three of his own tips. In all three cases, he heard back from an SEC attorney within days, or in one case, a few hours.

“Everything they should have done in the Madoff case they are now doing,” said Markopolos. “They have done a fantastic job of reforming themselves.”

In February 2009, Markopolos told the House Committee on Financial Services that the SEC’s “investigative ineptitude and financial illiteracy” permitted Madoff’s crimes to go on for so long.

PAPER, PENCILS & FAXES

It took the embarrassment of the Madoff scandal to drag the SEC into the 21st century when it comes to tracking tips and complaints.

Tips used to come via phone calls, e-mails, faxes and even handwritten letters into the SEC’s 11 regional offices and Washington headquarters. Before the Madoff case, the SEC’s Los Angeles office might receive a written complaint about a bad broker, for instance, and stuff the letter into a filing cabinet if it was deemed without merit. So, if later on a complaint about the same broker was sent to the SEC’s Chicago office, staff there would have no easy way of knowing about the earlier tip and connecting the dots.

Sometimes, the only way an attorney could find out if someone had looked into a complaint would be to call all the other SEC offices.

“It was a sieve, basically,” says Russ Ryan, a partner in the Washington law office of King & Spalding who spent a decade at the SEC before leaving in 2004. “It probably got better as I went along in my career, but I remember back when I first started there, it was a lot of paper and pencil type stuff.”

Now with the TCR Database, once a tip or complaint is entered into the system, about 2,300 SEC employees can see it and add new information.

“All of the plumbing was brought into one place,” said Thomas Sporkin, a nearly 19-year veteran SEC attorney in Washington, who oversees the agency’s new Market Intelligence Unit and its 41-member team.

The database is emerging alongside a new program by the FBI’s criminal profiling group in Quantico, Va. that is creating a series of behavioral composites to help agents investigate white collar crime.

The more systematic approach by the SEC and FBI comes in response to the growth and complexity of financial crimes in recent years. In the US government’s 2010 fiscal year, the FBI’s economics crime unit reports the bureau had 1,703 active securities and commodities fraud investigations, a 41 percent increase over the number of active investigations in 2008.

Over the past year, the amount of monetary penalties the SEC has imposed on wrongdoers has almost tripled, with high-profile cases against companies such as Goldman Sachs, Citigroup and Morgan Keegan for their roles in the crisis.

Sporkin’s 41-member Market Intelligence Unit last month moved into new offices in Washington that look a little bit like a Wall Street trading floor, where they process more than 100 tips, complaints and referrals that come in each day.

The group’s chief task is to ensure legitimate tips, like the one from Stone about China Voice, get routed to the right attorneys. The triage process begins with analyzing the information provided by tipsters, whistleblowers and self-regulatory organizations on an online questionnaire in the TCR Database portal.(here)

The SEC is also trying to revamp the way it uses the raw data it gathers. Sporkin’s team is working side-by-side with an FBI expert in financial crimes under a deal agreed to last August.

The FBI agent gets to look at all the tips about securities fraud as they come into Sporkin’s team. For the FBI, the partnership offers the promise of faster criminal investigations. For the SEC, it’s a chance to learn a trick or two from law enforcement.

Having an FBI agent embedded with the SEC “is really revolutionary,” Sporkin said.

Other regulators are trying to set up their own FBI partnerships, including the Commodity Futures Trading Commission, which regulates the futures and over-the-counter derivatives market. The CFTC, which declined to comment, has also been closely studying the operation of Sporkin’s team.

THE FBI EMBED

Jeffrey Horner, the FBI agent embedded with Sporkin’s group, is an accountant who worked for audit giant PriceWaterhouseCoopers before joining the bureau in 2004.

Horner says he’s not allowed to talk about specifics, but the nearly year-long partnership has led to new leads and bolstered existing FBI files.

“Some of the raw data that comes into the SEC, the (FBI) case agents may not be aware of,” he said. “So plugging them in with the SEC and the information that the SEC has can be very valuable to an ongoing investigation.”

FBI agent Horner is also sitting in on two SEC working groups examining micro-cap fraud and Chinese businesses that have done so-called reverse mergers with small U.S. shell companies. The FBI has opened its own broad investigation into reverse mergers and allegations of accounting irregularities.

Horner also uses the SEC’s tips system to drill into areas of particular interest to the FBI. Right now, for instance, he is on the lookout for tips about high-yield investment scams as well as high-priority areas such as insider-trading and market manipulation.

The real test of the partnership — and the effectiveness of the TCR Database — will lie in the kind of cases the SEC and federal prosecutors file.

An independent analysis of the work of Sporkin’s team could come when SEC Inspector General David Kotz conducts a planned audit of the Market Intelligence Unit’s triage work. Kotz, who issued a scathing report on the SEC’s failures in the Madoff affair, has called the new database an adequate response to ensure tips are “acted upon in a timely and appropriate manner.”

Former SEC lawyers and securities attorneys wonder whether more agents need to be assigned to the SEC-FBI partnership.

“My sense is that there would be so many things going across that person’s desk, I am not sure one person can manage it,” said James Cox, a law professor at the Duke University School of Law.

Officials with the SEC and the FBI don’t rule out an enhanced relationship. They note that before Horner was embedded with the SEC, the two agencies coordinated on major investigations, such as the probe into insider trading by hedge funds.

At the same time, officials say they are sensitive to law enforcement protocols prohibiting prosecutors and the FBI from sharing investigative materials, such as wiretapped conversations, with securities regulators. They say it’s easier for the FBI and SEC to work hand-in-hand before an investigation gets going to avoid any defense allegations of improper collaboration or information-sharing.

REWARDING WHISTLEBLOWERS

Sporkin’s group is a work in progress and the TCR Database has some limits. It can’t yet be cross-checked against other internal databases. The system s not advanced enough to perform more sophisticated analysis or data-mining, such as cross-checks against trading activity, company filings or news feeds.

“It will be several years before we really see whether this new system is a success,” said Bradley J. Bondi, a former SEC attorney who is now a partner with Cadwalader, Wickersham & Taft LLP. “But I think the new system is a step in the right direction.”

It’s a system Sporkin expects will become bigger and better over time, especially now that the SEC in May finalized rules for its own whistleblower program, rewarding individuals who provide the agency with a high-quality tip that leads to a successful enforcement action.

Stone’s tip about the potential Ponzi scheme at China Voice came in November 2010, after she says she grew concerned about the number of complaints she was hearing from investors in China Voice and related partnerships.

On May 31, Stone, testifying before a U.S. judge in Dallas in the China Voice case, said she learned about the new whistleblower rule only after hiring an attorney in advance of her court appearance. Her attorney, Misty Gutierrez, declined to comment; Stone didn’t return telephone calls to her consulting business, Number Crunchers.

Stone told U.S. District Judge Reed O’Connor she started reviewing the bank statements for China Voice and those related companies after hearing the complaints, and quickly concluded, “something was wrong.”

She talked about the money transfers with a friend who also once worked for the IRS and agreed the math didn’t add up. The next day, Stone said she called the SEC.

(Editing by Bill Tarrant)

Copyright 2011 Thomson Reuters.

QUESTION: Do you think that you have information that would help law enforcement in discovering or uncovering fraud?  If so, would you be willing to share that in the form of a tip?  Not asking you to do that here on this blog, but rather discuss why you would or why you wouldn’t.

YOUR COMMENTS ARE WELCOME!

Business Ethics: It is really about more than avoiding prison! Is there a little Bernie Madoff in each of US? A Guest Blog by Corey Richardson

A “Man of The Age” financier is surrounded by mystery and adoring members of the moneyed elite hungry for some of his wondrous returns. This paragon of the business class with The Midas Touch accepts only a few choice clients who seem to wither in his presence as they deliver their accumulated wealth into his magical hands – no questions asked. The returns are beyond belief, and for very good reasons. Unbeknownst to all, this wizard of the market is juggling fraudulent accounts to pay for his lavish lifestyle. The only trading is from their hands to his. The ruse comes tumbling down and the entire nation is stunned.

The scoundrel portrayed above is Charles Dickens’ character, Mr. Merdle of Little Dorrit, first published in 1857. Dickens foretold the Madoff scandal verbatim in his quintessential corruption tale, but this iniquitous business leader is an age-old archetype, and we, like Dickens, find it easy to vilify him due to the magnitude of his crimes; No stealing a crust of bread for this villain. At its polar opposite, take the “common criminal,” the savage monster seen today in T.V. cop shows, the local news, and innumerable B-movies. This standard is bloodthirsty, drug- crazed, and has a soul as black as night.

Dickens’ work is also replete with such characters.  The beauty of these caricatures is that we cannot find ourselves in either. They conveniently represent “other.” All the while we can sit comfortably in our living rooms with our sense of moral rage because we do not bilk venerable charitable funds and we do not cook meth in our kitchen. Yet, it can be argued that if we truly strive for a better world, then we need to go well beyond the knee-jerk reactions of these scenarios, and find ourselves in the moral conundrums.

Stricter regulations of the financial sector and more accountability, gun control legislation, sensible criminal sentencing laws, affordable drug rehab, etc., are important factors, but are only part of the solution. Even focusing on improvements to education and social services, which have been shown to be extremely important in crime prevention within certain groups, is still only a small part. To thoroughly understand what drives people as different as Kenneth Lay or a Gov. “Blago,” as well as a gun-totting inner-city kid with a pocket full of dope, we must understand root causes of criminal behavior, thus pointing the way for our next generation of leaders- and evaluate ourselves in our own business affairs.

“What causes criminal activity, and. who are these people who commit crimes against our society, such as … ” taking items from work, “fudging” on taxes, paying for non-business activity with a business account, inflating an insurance claim, switching labels at a store, producing unsafe products, “padding” a bill, or any number of violations of legislated standards for personal gain committed by everyday people.

Due to perception, universally known within psychology as the fundamental attribution error, these crimes are given little thought by those who commit them.   Joe Citizen justifies and minimizes these activities as “bending” the rules. And this is where we see the attribution error in effect: we tend to overestimate the role of personal factors and underestimate the “influence of situations in others, and we overestimate the situational factor and underestimate the personal factor in our own circumstances. It is the age-old “We judge others on their actions, and we judge ourselves on our intent.” Or I’m bending the rules, and he is breaking the law.

This phenomenon is not unique to the middle and upper socioeconomic strata, and equally applies to the poor. A drug dealer feels that his activities, though illegal, are still a legitimate means to earn a livable wage within his community.  The same could be said of any accountant or lawyer who “tweak’s” the system to make a little money. So, getting a television set off the back of a truck in the ghetto looks much like another’s decision to not claim income on a second job. It is all about perspective.

As we address the problem of the business class, we can facilitate the much-needed change in perspective with some cold, hard facts. Business leaders do not need to be as extraordinarily crooked as Madoff to affect a, huge societal burden. Study after-study demonstrates that “white collar” or corporate crimes, as well as middle-class crimes, ranging from tax evasion, insurance fraud, price fixing, inventory “shrinkage” (what a euphemism!), etc., weigh much more heavily than the number one Index crime, conventional property crime. Index crimes are known also as “street crimes.” They are highly visible crimes, easy to categorize and count, and are overwhelmingly committed by the poor. White collar crimes, by contrast, are difficult to detect and rarely prosecuted. Still, the economic yearly cost with respect to property crimes of the corporate America are approximately twenty times greater than conventional property crimes of index offenses, or a difference of $200 billion to $10 billion annually.

Having completed a fully accredited MBA program via a distance-based education format, I need to share that – this accomplishment – was done from an 8′ by II’ prison cell.  I was an inmate and like most “on the inside,” I readily justified my criminal acts, which occurred within my professional life, as did the drug dealer or the burglar.  So, as I approached my Business Ethics coursework, I did it with the secure knowledge that I committed a crime. This perspective, and the belief that my professors would judge my answers too with this in mind, gave me a keen eye in studying ethical queries in business.

I believe that when most students answer questions related to ethical foundations or detail their understanding of their own personal values, they do it from a perspective that they themselves could not possibly commit a crime. Such activities, such as smoking pot in the college dorm or not claiming wages from a summer job paid “under the table,” are simply not considered as crimes, which they are. Again the attribution error: “My (illegal) acts are not illegal, and certainly not unethical.

Everybody does it. It is no big deal.” And so forth. To cultivate a true ethical North in business, we must broaden our perspectives, and when an ethical dilemma arises, we can perceive it as such. No different from operations management or strategic planning. An appreciation of multiple perspectives — proffers a grand wealth of insight that will carry our next generation of leaders.

As a convict, my daily life is a direct result of criminal acts related to my work. In my studies, I can clearly see the untold millions that are affected by one unsafe product, but I can also appreciate how one man can justify criminal acts as a bad business decision, rather than a pathological act for profit with no respect for the law. To open the eyes of CEOs early in their training to the easy comparisons between corporate crime and “street” crimes, as well as offer tangible proof of the enormous societal burden of white-collar crime, would be of immeasurable value. In teaching business ethics, we must go well beyond the bland terms and definitions and the prosaic personal litanies of “What I value in the world.” We must make the coursework truly applicable and create managers and business leaders who intuitively understand how ethics within Corporate America are just as important, if not more so, as profit margins and supply chains.

Clearly, when I understand myself, I can understand Bernie Madoff or Kenneth Lay.  I believe the same could be said of us all. The equation is simple: Unbridled Financial Gain plus Opportunity, then Add the Likelihood of Detection and Fear of Prosecution. Embracing the truth of unlawful acts in our everyday lives, be it business or personal, is much harder to do than to merely vilify in a fanciful Dickensian way the corporate or government leader who betrays our trust, or even the dope dealer of the inner cities. But it will help to create leaders who view all of their work and life through a lens of principled behavior. We must begin to see the situational nature of all criminals acts, and therein lies the beginning of meaningful solutions. It is not enough to alter the number of opportunities to steal or the severity of the requisite penalties, but to go further by changing what stealing looks like by different people, changing the perceptions of illegal gains, and infusing the intrinsic value of ethical behavior.

When we see that all of us have a little of Bernie Madoff in us, only then can we begin to view our world more clearly and begin to make authentically ethical decisions as we lead our companies and organizations. We may even make significant changes in our personal lives.

Business Ethics: It is really is about more than avoiding prison.

Corey Richardson Biography:

Corey John Richardson is a former clinician, who holds a Master’s Degree in PA Studies from the University of Nebraska’s College of Medicine (Omaha) and a Bachelor’s Degree in Health Science/PA Certificate from the University of Florida’s College of Health Related Professions (Gainesville). He holds an MBA from Salve Regina University’s Graduate Business School (Newport, RI) and has completed doctoral health science coursework with a focus on prison healthcare at Spalding University (Louisville, KY). Mr. Richardson’s work has been incorporated into criminology courses at the University of Cincinnati and has been included in CURE’s congressional file on correctional healthcare in support of HR 3710. He has performed medico-legal consulting and has legal experience assisting prisoners in various civil and criminal actions. As a pro se litigant, he won a precedent-setting case on appeal against the Kentucky DOC and its Abuse of Power (published at Richardson v. Rees, 283 S.W. 3d, 257). He has also worked as a facilitator in numerous psychotherapeutic and rehabilitative programs.

Mr. Richardson has written widely about prison issues and sobriety for publications such as Spotlight on Recovery, Cell Door Magazine (the official publication of the National Death Row Assistance Network), T’he Kentuckiana News, Perspectives (the official journal of the Association for Humanistic Psychology), The Grapevine (Alcoholics Anonymous’ international publication), The Long Term View: A journal of informed opinion (Massachusetts School of Law at Andover), OUTlooks (Canada’s GLBT magazine), and others. Several of his essays have been published in the book Voices Through The Wall and he won 1st Prize in the Ford Foundation’s 2OO9 national writing competition Think Outside the Cell, published in Love lives here, too. (2010)

Mr. Richardson maintains his writing at coreyrichardson.blogspot.com and may be reached at coreyjohnrichardson@gmail.com. In 2001, he was convicted of crimes related to practicing medicine without a license and served 122 months in the Kentucky Department of Corrections; his supervising physician was given a probated sentence. Mr. Richardson has 13 years of continuous sobriety on July 14, 2011.

Bernie Madoff and Mark Madoff’s suicide – the Reality of Prison! Choices and Consequences

Doing presentations on business ethics and fraud prevention, every presentation I begin starts with the statement – “Every choice has a consequence!”  No where is this more painfully obvious then the very public unfolding of the consequences begun many years ago by Bernie Madoff.

Two years to the day – the day Bernie Madoff admitted creating the largest Ponzi scheme in US history, his son, Mark Madoff, committed suicide.  Apparently the pressure of all that was taking place (as the Madoff saga is far from over) was far too much for Mark to bear.

Some might ask, well how would you know?  The answer is simple…I’ve been there.  Having created a Ponzi scheme (not something I am proud of, but it is a fact that I openly share), I know about the emotional pressures that come with the consequences of choices I made.  The magnitude of my crime is dwarfed by that of Bernie Madoff.  Yet, pressure is pressure and likely it is all relative.

I candidly feel for Mark Madoff – knowing that his “dark night of the soul” had to be very light less in order for him to elect to end his life.  Beyond that, the pain that Bernie Madoff must feel is, too, enormous.  Even as I write this I can almost hear readers shaming me for having some compassion for Bernie.  But, honestly, I do.  The pain a father must feel knowing that his actions contributed to a depth of depression that contributed to his son taking his life is great.  I cannot honestly imagine that pain.

According to Ira Sorkin, Bernie Madoff’s attorney, Madoff will not attend the funeral of his son, Mark, out of consideration for his daughter-in-law and grandchildren.

Housed in a medium security prison for the rest of his life, Bernie Madoff has had his life reduced to working for around 12 cents per hour and wearing simple prison clothing day in and day out.  His brilliance will not be remembered.  Rather he has become the butt of jokes – “Charles Ponzi created the scheme, but Bernie Madoff with all the money!”  What a sad legacy.

As I said…I know the feelings of loss, inadequacy, hurt and what I and others have described as a “dark night of the soul.”  My new book describes my experience well.  Perhaps this excerpt will give some insight into that feeling that comes from facing a consequence that seems so great that ending a life is the only option – at least at the time.

SECOND CHANCES – excerpt:

At 7:11 p.m. that evening, I grabbed the Yellow Pages and began calling clinics─anyone who I thought might help me. Frankly, I don’t recall what I was looking up. I do remember that there were no listings under “suicide”─in fact, that wasn’t a category. So I looked up physicians, psychologists, psychiatrists, anything that started with a “P”. Honestly, I don’t remember who I did call─a proctologist, as far as I knew. The only thing that flooded my mind was I needed help.

“You’ve reached the office of Drs . . . Our office hours are from 8:30 a.m. to 5:00 p.m. Our office is closed. But if you’ll leave your name and number, we’ll be happy to call you first thing in the morning. Have a nice day!” Somehow, when you’re thinking of ending your life, “have a nice day” just doesn’t seem appropriate. And unfortunately, that’s the message I got over and over.

Calling became an obsession. It was the one thing I could do, one action that I felt in life I had some control over. “Just one more dial,” I would say to myself as I pressed the buttons on the phone, listening to the ring, hoping for an answer.

“Dr. Benson’s office.” That was the second time that day I was stunned. After getting recording after recording, I was somewhat unprepared for the possibility that someone would answer. Yet someone did.

“I need to talk with someone. I’m from out of town,” I somehow stammered.

“Actually, our office is closed. I was just walking out the door and thought this was my wife. Give us a call in the morni . . . ”  Before he could finish his sentence, I blurted, “I’m thinking of committing suicide!”

Silence─then the voice said, “Let’s talk.”

For the life of me, I can’t recall what was said between us as I lay on that lonely hotel bed. We could have talked for two minutes, twenty minutes, or two hours. I just don’t remember. What I do recall is that this total stranger, a man who I had never met, took the time to help me see past the grand illusion I had created and uncover the real me inside.

That night was the darkest night of my soul. That call that I shared didn’t make it better. It didn’t eliminate the consequences. It didn’t remove the pain. Rather, it gave me hope, hope that if I could make poor choices that would, most certainly, bring painful consequences, I also possessed the power to make positive choices with positive results.

His comment to me still resounds in my heart today. He said, “You have made a terrible mistake, but YOU are not a mistake! The choices you make moving forward will define your life forever and provide the foundation for your children’s lives. Think carefully as you make this choice!”

When he said to me, “YOU are not a mistake,” it hit me─while the past cannot be changed, the life we are given and the choices we make moving forward are the only things that count. I felt a burden lifted. I could not change the past; all I could do was face the consequences.  It was within my power to make good choices, now and in the future, that would produce a fruitful outcome. That was my destiny!

For information on how to obtain a copy of SECOND CHANCES – visit www.secondchancesbook.com or Amazon.com

CNBC Features Dan Frishberg, an investment advisor who’s under investigation by the SEC? Where are CNBC’s Ethics and Standards?

Short – sweet and to the point.  What due diligence does CNBC do when selecting their guests for appearances on their shows?

According to their web site – CNBC is the recognized world leader in business news, providing real-time financial market coverage and business information to more than 340 million homes worldwide, including more than 95 million households in the United States and Canada. The network’s Business Day programming (weekdays from 5:00 a.m.- 7:00 p.m. ET) is produced at CNBC’s headquarters in Englewood Cliffs, N.J. CNBC also includes reports from its news bureaus worldwide in Midtown Manhattan, the NASDAQ MarketSite, Washington D.C., Chicago, Los Angeles, Palo Alto, London, Singapore and CNBC’s headquarters in Englewood Cliffs, N.J.

So help me understand – what would motivate CNBC to have Dan Frishberg on as a guest spouting off his investment advice and accumen when the same Daniel Frishberg is the subject of an SEC investigation into allegations of investment fraud.  BizRadio (Dan’s former company) has failed.  Investors have lost substantial sums.  Al Kaleta, his former partner, has had his investment license pulled.  And word on the street is Dan will be next in line to have his RIA license pulled.  Likewise, criminal investigators are reviewing Dan’s financial activities with no word yet on whether an indictment will be forthcoming.

Here’s the link for those who wish to see that when I say Dan Frishberg was on the show, I’m telling the truth.  CNBC Frishberg link

So…does CNBC do any due diligence related to who they feature on their program?  And if not, what ethical standards do their adhere to if they allow someone who is at the center of a scam/fraud investigation to continue to be a spokesman.

This reminds me of Bernie Madoff getting great press right before the fall.  Just ask the victims of Frishberg’s actions if they would trust him today with their money!  Perhaps defrauded investors might want to comment on Dan’s video giving others (at least) a heads up on the Scambus that rumbling down the track.

YOUR COMMENTS ARE WELCOME!

Daniel Frishberg and the Importance of Money Management – Irony in Deception!

A day or so ago a scammed investor lamenting his/her plight said that the word is Dan Frishberg is growing tired of the negative publicity he’s receiving on the web.  It has become worry some that the choices that he’s made are producing consequences that tarnish his reputation.

My immediate response is “Every choice has a consequence!”  In fact, I shared that if Dan had taken a different path early on most of what he’s experiencing today would be quite different.  For example – had Dan shared with his followers that he’d made mistakes in his vision of BizRadio, that BizRadio was in financial trouble and that he would open the revenue source from his RIA to provide a steady stream of repayment to those who were defrauded or scammed in one way or another, I suspect the outcome would have been much more positive.

Alas…Dan “The Money Man” did not.  Rather he is desperately trying to continue to put out the message that he is “The Money Man” through a series of NEW blogs touting his expertise.  There is IRONY here.  I call it the IRONY of DECEPTION and the likely outcome is that Dan is digging the hole deeper for his ultimate demise.

I am not going to link my blog to his – as that has the effect of drawing attention to his work.  I will, however, share part of his blog comments and, after some comments, ask YOU for yours.  Perhaps I am off base and I’m man enough to accept that – so if your comments reflect a different opinion of Dan and his choices – PLEASE SHARE.

DAN STATES THE FOLLOWING:

Today I’ll share with you two general systems of money management that will help you how complex you want to take your strategy for managing the money even if you do not all. Good management of working capital is necessary to reach a compromise between liquidity and profitability. It is widely believed that if you can not manage your life, you can not begin to manage your money.

Let me repeat his comment: “It is widely believed that if you can not manage your life, you can not begin to manage your money.”  Time after time from numerous emails and phone calls, I have been told that Dan was challenged in managing his life – at least his financial life.  It is not for me to judge, but one might easily come to the conclusion that money management is an issue for Dan considering that investors money funded BizRadio and BizRadio was the “loss leader” (Dan’s comments not mine) that propelled his RIA and earned him personally a reported $700,000 per quarter.  Financial success on Dan’s part or the trappings of a successful scam – using other people’s money to accomplish his personal objective leaving other people victims?

Dan further states:  “You must understand that leveraging your money with good management can turn a relatively low investment business situation / in a dynamic Moneymaker. Wise money management is essential for a balanced and happy life. gives practical advice for managing money among others for gambling and trading of the shares. money management can mean acquiring more control over expenditure and revenue, both personal and business perspective.”

Dan seemed to practice what he preaches here.  Sure enough he turned a low investment into a good business situation (for himself) at least for a time.  Where did the BizRadio money come from?  I suspect that investors (victims) could now come out of the woodwork and share their stories of how they were suckered into believing that Dan “The Money Man” was wise and all knowing – touting the vision and ILLUSION that BizRadio was a good investment for them.  Reality Check:  BizRadio was only good for Dan.

Financial stress resulting from low skills of money management may affect our ability to make good decisions, harm our relations on the physical and mental health, and ultimately to function well in life. Indeed, deficient money management is one of the main causes of bankruptcy among unseasoned traders. Management of financial assets is an effective way to manage financial assets, one that may take place in various forms. Management services for financial assets generally provide include but not limited to, Control services, credit cards, debit cards, margin loans, automatic transfers from one account to another, and same brokerage services.

LET ME ASK A QUESTION:  How many people in the Houston – Dallas markets are suffering (I mean truly suffering) financial stress due to the representations of Al Kaleta and Daniel Frishberg?  Both are shameful representatives of the financial community.  Dan, through his actions, has caused stress to both physical and mental health of many who have lost their life savings, believing that Dan Frishberg lived up to his self proclaimed status as “The Money Man.”  Now, Dan is desperately trying to save his reputation.  What Dan fails to realize is that his actions destroyed his reputation.  Dan is effectively nothing more than a con man who hasn’t yet realized that feeding his ego off of other people’s money is costing him everything.

The sad part is this could have been different.  But then the same could be said for Bernie Madoff.  Both Dan Frishberg and Bernie Maddoff have two things in common: (1) they are both intelligent and (2) they are both crooks.  The only difference – Bernie is in prison.  Dan hasn’t been charged.  YET…

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.

White Collar Crime Sentence Reduction Requests – What Do You Think? Sholam Weiss, Gordon Grigg and Barry Stokes

Over the past several years there appear to have been a proliferation of incidences of white collar crime.  And, with increasing amount of fraud have come longer and longer sentences.  What seemed to be the overwhelming example was the sentence given to Bernie Madoff – 150 years.  But, Bernie’s sentence doesn’t come close.  Norman Schmidt got 330 years for his role in a huge investment scam.  But, convicted life-insurance swindler Sholam Weiss has time on his hands — 845 years, a record for white-collar crime.

Yep…845 years.

But, along with sentences handed out seem to come legal requests for sentence reductions.  On March 24th, 2010, Weiss’s attorney appealed for his client to be resentenced in hopes of shaving off a little time — about 800 years  worth – and he’s not the only one.   Barry Stokes, former CEO of 1Point Solutions, is currently serving a 12 ½-year sentence for siphoning $19 million from the savings accounts of others and claims he must be released from prison to seek proper medical attention.

Likewise, Gordon Grigg’s wife, Mila Grigg stepped up to the plate for her husband, citing a Nashville Post story from September that reported U.S. District Judge Robert Echols gave Stokes a reduced sentence because he cooperated with investigators and had no prior criminal history.

Let’s look at these three in brief.  The questions are:

• Are these sentences too harsh?
• Should the sentences be reduced?

According to the Associated Press:

Weiss was sentenced to 845 years in prison in February 2000 by a federal judge in Florida who said he should be removed permanently from society. Of course, Weiss wasn’t in court at the time. He had fled overseas while a jury was deliberating.

Weiss and six others were convicted or pleaded guilty in a plot that caused the 1994 collapse of the National Heritage Life Insurance Co. and cost many of the Orlando company’s 25,000 customers their life savings.

He disappeared after his nine-month trial but before the jury started deliberating. He was found guilty of all 93 counts of pocketing $125 million and given a sentence that the Department of Justice says is likely the longest ever handed down for a white-collar crime.

While on the lam, he settled in Brazil and traveled to Israel, Belgium and the United Kingdom. Investigators tracked him to Austria, where he was captured in October 2000. He was a shadow of the 260-pound man they had sought — he had lost 50 pounds, shaved his beard and had documents that identified him as Charles Dick.

Now what?  First, you have to wonder if he has a chance at a sentence reduction.  First pass…the answer would be NO!

Found by Austrian authorities his attorneys want the 11th Circuit Court of Appeals to order a new sentencing hearing hoping a judge would use different guidelines that would give him a sentence closer to 35 years or so.  But the question is – why would the government do that considering Weiss’s actions prior to sentencing.  Talking about not wanting to take responsibility…!

The Nashville Post reports the following:

As guards brought former 1Point Solutions CEO Barry Stokes down the the 8th floor corridor of Nashville’s federal courthouse this morning, he noted a scale model of the replacement courthouse that the feds have had on the drawing board for some years now. Stokes wondered aloud when the long-delayed structure would be built.

“You’ll probably be out of prison by the time they break ground,” one of his escorts sarcastically remarked.

To which Stokes replied, in apparent sincerity: “I’ll be out by midnight.”

U.S. District Judge Robert Echols this evening proved Stokes prescient, if not entirely accurate. Turning aside prosecution pleas for a sentence of nearly 22 years, Echols sentenced the admitted fraud artist to 12 and a half years in a federal penitentiary for engaging in a five-year scheme that drained some $19 million from the retirement savings accounts of thousands of people.

In his handwritten court filing labeled “motion to receive documents for appeal,” Stokes said doctors have discontinued his medication and he has concluded the only way he can receive the proper treatment “is to file appeal and get out [of prison].” Stokes then requested necessary documents to file for an appeal.  The basis for his claim is that he was transferred in prison and they discontinued his medications prescribed to him by Nashville doctors, causing him to pass out and require five days in the hospital.  He states further that he was told by Nashville physicians that he required care by specialists, “none of which practice in Southern Illinois.” (where he is now located).  Stokes said doctors found cancerous tumors on his thyroid and liver, and removed his thyroid but “they refused to operate on his liver as it was beyond their skill set.”

This is not the first time that Stokes has sought a sentence reduction due to health concerns.

Candidly, I don’t doubt the last comment as medical care is prison is minimal at best.  There is not attempt at heroic life saving attempts.

Then there is Gordon Grigg who I have written about both pre and post sentence.

The Nashville Post stated the following:

Gordon Grigg, the former “life coach” and financial advisor who operated ProTrust Management Inc., will spend the next 10 years in jail followed by three years of suspended release.

Judge Aleta Trauger handed down the sentence this afternoon following the convicted schemer’s guilty plea this spring.

Sentencing guidelines had called for between 78 and 97 months in jail and two years of suspended release. In her sentencing, Judge Trauger noted Grigg’s pattern of preying on vulnerable people and said his use of religion was an aggregating factor.

“It is not a violent offense, but it has done violence in many ways to his victims,” Trauger said from the bench. “This case had a more vicious twist than Madoff.”

During today’s sentencing hearing, Grigg victims from California, Illinois, Arkansas, North Carolina and Tennessee told of their experiences with him, painting a picture of a man who fashioned himself a savior during troubled times.

Rita Jorgensen of Franklin said Grigg “made a mockery of my faith, quoting scripture all the time.” And Steve Weiland, a former pilot now living in Davidson, N.C., said Grigg “came clothed in Jesus Christ, as a brother in God. He said, ‘I’m praying for you and I’ll take care of you.’ Well, he took care of me alright.”

A sentence beyond the “guidelines” – motivated by what the judge cited as a “pattern of preying on vulnerable individuals, people in crisis in difficult spots in their lives.”  Likewise, the judge used as a basis for an upward departure Grigg’s “use of religion” to perpetrate his fraudulent scheme.

Grigg claims in his Motion for Release pending appeal the following:

• His sentence is unreasonable since the Court provided no advance notice of their intent to have an upward departure of his sentence and hence his defense had no time to prepare to the variance.
• His sentence is unreasonable since the court relied on his victims (which he claims provided unreliable) testimony.

The Nashville Post reports the following related to Grigg:

Mila Grigg blames her husband’s lawyer for not delivering to the judge “numerous letters” that would have provided Trauger “a clearer idea of his character, his life, his ability and his desperate desire to pay restitution.”

Had Trauger received such letters, Mila Grigg said, the judge would have learned that the Grigg she sentenced to prison “work[ed] with troubled youth in North Carolina” and “coached [soccer] teams where his own children were not playing and never charged a penny … ” — among other claims.

Mila Grigg went on to claim, “His current sentence victimizes the victims who need restitution, and it is our prayer that you hear his sentencing again. This sentence was not a just sentence based on all I know about my husband and all our attorney told us that he had submitted to you.”

Mine is not to judge.  As most of my readers know – I served a federal prison sentence with probation following.  I know what these men are going through and hope that those – who will be free someday – can gain from their personal experience and use their future choices to help others.  Meanwhile – if you have been connected to either Sholam Weiss, Gordon Grigg or Barry Stokes – as a friend, relative or victim – MAKE YOUR VOICE HEARD.  Share your thoughts on whether a sentence reduction is appropriate.

COMMENTS WELCOME!

Gordon Grigg – How a massive Ponzi scheme fraud was exposed – Part One

The article stated, “Thanks to taxpayer protector and crusader of bailout transparency, Inspector General Neil Barofsky — under the guide of the ever-noble Obama administration — Tennessee is in the headlines as the home to the first exposed bailout-related criminal case. Franklin’s very own Gordon Grigg was accused by the U.S. Attorney’s Office in Nashville on Wednesday for his creation of a $10.9 million fraudulent investment scheme.”  But that’s not the total truth…the real exposure of Gordon Grigg’s fraud started well before Neil Barofsky got involved.  Frankly, it started with a little known retired US Airways pilot named Steve Wieland.

I can’t forget the call I received from Steve.  I didn’t know what to make of it at first, but quickly I began to realize that he was spewing a tale of an ongoing fraud that in many ways he uncovered.  Carefully I listened to his story and understood that not only had he been defrauded, but he became unknowingly entwined in the web of deceit having expanded the trust network that Gordon Grigg so carefully played upon.

But this story is not so much about Gordon Grigg’s fraud – that is clearly known.  Rather, this is about how the fraud was exposed and, likewise, how Grigg lured his victims into the web of deceit.  For this series of blogs I asked Steve Wieland to share with me answers to many questions I asked.  Here I will, with Steve’s help, show how easy it is to become a victim of a talented fraudster.  Let the interview begin…

HOW DID I GET SUCKED IN?

I had met Gordon Grigg in the summer of 2005. He fathered my girlfriend’s child. This child was a product of an extramarital affair between the two of them. He had moved away from our town with his family. I had just started to connect with his son where I live. He was divorced and had a new, young fiancée. He was extremely charismatic, funny and generous.

For the next two years he came to visit on multiple occasions. But in that second summer, after I met him, I became sick. I was a professional pilot and my illness caused me to lose my medical license to fly airplanes. I had broken my back and had extreme pain due to nerve damage in my feet. I was on 17 medications a day and under psychiatric care due to depression. Additionally my girlfriend and I had broken up, although we remained friends.

My finances were not going well, my airline had already taken my pension, and I was 57 years old with mandatory retirement at age 60. One day my ex-girlfriend told me I should seek financial advice from the father of her child, and now my friend, Gordon Grigg.

Interesting that many, if not most, fraudsters find victims that are susceptible or vulnerable to a scam based on their expanded need.  Steve exposed his need based on the varied circumstances he found himself in at the time.  And Gordon, being the astute fraudster saw a weak individual that became easy prey to advance his Ponzi scheme.  But back to the story…

Gordon Grigg’s website was exemplary.  He touted advising everyone from racecar drivers to foreign rock stars to country music singers and professional athletes.

Since we had been friends for over two years and my girlfriend, the mother of his child, had recommended him, I felt comfortable in having an interview with Gordon to take over my finances.

As a side note, it is quite common that a fraud is expanded to new victims based on a close relationship of trust.  Note:  Gordon first got close to create the bond of trust, so that when it was time to lure Steve in – closing the sale was easy!

This would be the first time we’d ever talked about money. He came into my home, opened his briefcase, and after four hours we had never talked about finances. Instead he talked to me about religion. He asked me how long I’d been angry at God. He told me about his own depression and how he had to commit himself for 30 days to a psychiatric ward to become normal again.

He held my hand and prayed with me. At the time, he seemed like a godsend. I mean what more could I want? Here was a man who had been a college football star, handsome charismatic, extremely versed on investing and was willing to take on my financial package. When he left my home I asked him about the finances. He just smiled and told me not to worry about it and to get myself better. He said that was the most important thing. He said he would take care of me. And believe you me, take care of me he did!

The mark of any good sales person is to first find out what motivates you and then meet those needs.  NOW CAREFUL…not all salespeople are bad or use their talents for unscrupulous means.  But, Gordon was, well lets call him, an unconscious competent.  Perhaps, at some point he became a conscious competent…in other words he was an expert at what he was doing – all be it, what he was doing was WRONG!

Two months went by and Gordon had taken  away all of my control of my finances by having me sign a limited power of attorney up to and including my will where he made himself the executor. My health was starting to come back, but nowhere like it should have been. He invested me in legitimate TD Ameritrade accounts and then sold and bought in these accounts without  my knowledge until I received the monthly statements. He would visit periodically and I would take HIM to dinner. He would tell me that in 12 months I would kiss the ground he walked on. And then he told me of some special investments that only he could make because he pooled other investor’s money. These investments would be for millions of dollars and  I alone could not make these investments without being in his pool.

I often refer to victims of Ponzi schemes as having fallen into the PIT – PROMISE, TRUST and ILLUSION.  Based on what Steve shared above, Gordon got in based on trust, created the illusion (so Steve would continue to believe) and then made promises that enticed the victim – giving the illusion that they were special – that what they would receive was unique and only offered to a select few.  Actually, in that last part they were telling the truth – only a few select people would become victims!

As it turned out, I have a friend in California who is much like myself  being medically retired from the airlines. We talk all the time and visit occasionally. After investing with Grigg, he asked me what I was doing with my dwindling investments. I told him about Grigg and what a fantastic job he was doing for me and suggested he call him. After talking with him on the phone, Grigg suggested that he fly to California and meet with my friend.

Many of the fraudsters find that they grow their fraud based on the referral of those who are fully sucked into the scam.

At the time Grigg had advertised that he had offices all over the United States. But neither one of us did due diligence to investigate any further than what Grigg had published or had promised.

Interesting, but as I interview victims of frauds one of the most common comments is, “we were so caught up in the belief that our financial needs could be met that we forgot or ignored doing due diligence.”

After two or three meetings my friend decided that  he was going to invest with Grigg as well. Grigg did the same thing to him. He took over all his finances, reinvested them, and then put hard cash in bogus investments.

We were both very happy to see our investments growing while the rest economy was falling dramatically. What we didn’t understand was that the investments were only growing because Grigg typed the statements up on his laptop and generated them to us via his website.

I told yet another pilot friend, who was and is still active, and suggested he talk to Grigg as well. Grigg made a couple of trips to Phoenix where he met with my friend, driving a lavish rental car, dressed to the nines. This friend, however was skeptical, and did some research. He found out that Grigg had a $560,000 judgment against him by the state of North Dakota. When my friend called to inform me of this I immediately called Grigg. He assured me that it was a bogus complaint made by a widow, who did not know her husband’s investments and that no one could be in the business for 20 years or more and not have a complaint. I relayed this to my friend, and although he was still skeptical, chose to invest $20,000. That is less than 10% that myself or my friend in California invested.

For PART ONE…this sets the stage.  The fraud that Gordon Grigg had taken from North Dakota to Tennessee was soon to be completely exposed.  But, for now in the time we have this is quite enough.

Let me thank Steve Wieland for his courage to step out and expose (through his experience) how a fraud is perpetrated and how easy it is to be sucked into the PIT.  I regret Steve’s loss, but know that others will, perhaps, avoid the same disaster Steve and others faced at Grigg’s hand.

I have been alerted that Steve Wieland’s perceptions of the facts (from his perspective) stated above are inaccurate and untrue.  My objective is to uncover and/or discover what motivated folks to “invest” with Gordon Grigg, to review how a Ponzi scheme takes place in reality and identify how it unraveled or was exposed.  As such,  according to the SEC:

Grigg and ProTrust defrauded at least 27 clients out of approximately $6.5 million by obtaining such funds from them and claiming to have invested them in securities that do not exist. Specifically, the Complaint alleges that the defendants have: (1) obtained control over client funds and falsely claimed to have invested such funds in fictitious securities that were described as “Private Placements;” (2) created false and fraudulent account statements reflecting the clients’ ownership of non-existent securities; (3) falsely claimed that the defendants had the ability to invest client funds in government-guaranteed commercial paper and bank debt as part of the U.S. government’s Troubled Asset Relief Program (“TARP”), and that they did invest client funds in the TARP program; and (4) falsely claimed to have partnerships and other business relationships with several of the nation’s top investment firms.

I welcome any of the 27 client “investor” victims to contact me in an effort to seek the truth about how you became involved with Grigg and ProTrust.  There are many victims in a circumstance like this, and if there is a way to expose how what happened – happened, perhaps in the future others will have the benefit of learning from others mistakes.  Likewise, if there is anything stated above that is inaccurate, please contact me with details so that corrections can be made.

STAY TUNED FOR PART TWO!

YOUR COMMENTS WELCOME!

Club Fed huh? Bernie Madoff reported beaten in Prison

It’s not unusual to hear.  From time to time when I speak to groups – whether it’s financial services, oil and gas, or manufacturing I hear the back of the room comment (most of the time under their breath), “You were sent to ‘club fed'”.  I must admit I do have a twinge of resentment when I hear that remark.  It is “fed”, but it ain’t no “club.”

Unfortunately, Bernie Madoff is find that the hard way.   The Wall Street Journal reports (full report seen here), that Bernie Madoff was attacked while an inmate in prison.

Mr. Madoff was treated for a broken nose, fractured ribs and cuts to his head and face, according to a felon currently at Butner serving time on drug charges who was familiar with his condition at the time. The details of the injuries couldn’t be independently verified.

Another inmate who recently was released from Butner after serving time for drug charges and a third person who isn’t an inmate and is familiar with Mr. Madoff’s situation both confirmed the assault.

The former inmate said the dispute centered on money the assailant thought he was owed by Mr. Madoff.

Fellow prisoners say Mr. Madoff, who is Inmate No. 61727-054 at Butner, has garnered some respect from inmates because of the breadth of his Ponzi scheme. The fraud caused about $20 billion in net losses by thousands of investors.

Since Mr. Madoff’s arrest in December 2008, five other individuals have been charged in connection with the fraud. Two have pleaded guilty; the other three have either maintained their innocence or declined to comment. Prosecutors have said there were more alleged co-conspirators in the scheme who worked at the Madoff investment firm.

Separately, prosecutors from the U.S. attorney’s office in Manhattan are building tax-fraud cases against Mr. Madoff’s brother and two sons, all of whom worked at Mr. Madoff’s investment firm, people familiar with the matter have said. Those men have said they had no knowledge of fraud.

Every choice has a consequence!

YOUR COMMENTS ARE WELCOME

Dan Frishberg and BizRadio slapped with $18 Million Lawsuit – Rehan Siddiqi and Asia Vision strike back!

As if the problems (mostly self inflicted) of Dan Frishberg and BizRadio staying on the air, and trying to continue a format that has come under intense scrutiny as of late, was not enough – now comes Rehan Siddiqi with a lawsuit claiming damages in excess of $18,000,000.  As I state in my seminars – EVERY CHOICE HAS A CONSEQUENCE – and it would seem that Frishberg’s actions are producing some consequences that far reaching and have potentially negative financial implications.

The fundamental premise of the lawsuit is as follows (please note that this is an abbreviated report of the lawsuit):

• The lawsuit claims: breach of contract, fraud and misrepresentation, conspiracy claims, breach of fiduciary duty, conversion and theft, and many many others.
• Siddiqi CEO of Asia Vision claims he’s operated and broadcasts daily radio broadcasts in the Houston market for over 12 years.  And, broadcasting generated substantial revenue and was Siddiqi’s core business without which, Siddiqi’s business would be decimated.
• Prior to November 2009 Frishberg et al approached Siddiqi about entering into a long term 5 year lease to broadcast on 1110 AM for $50,000 per month.  On November 25, 2009 Siddiqi – Asia Vision, Inc. entered into said agreement.  The agreement also provided Siddiqi a purchase option of 1110 AM for $3.5 million.
• Defendants (Frishberg et al) needing capital approached Siddiqi asking for 6 months lease in advance and agreed that if such sum were paid they would reduce the monthly lease amount to $30,000 per month requiring a payment of some $180,000.  The agreement was signed on December 29, 2009 and Siddiqi, through a series of payments, paid and Defendants accepted the total of $180,000.
• As evidence of acceptance of said agreement, Frishberg and BizRadio began broadcasting on 1180 AM on January 1, 2010 and Siddiqi – Asia Vision moved to 1110 AM for the entire month of January 2010.
• Frishberg, unable to pay the deposit required by 1180 AM, removed Siddiqi from 1110 AM on February 2010 which resulted in the beginning of legal actions and the seeking of Temporary Restraining Orders – one of which Siddiqi won and the second round went to Frishberg.

From that simple background (none of which is new news) the lawsuit states:

Plaintiffs have contractual obligations that depend on their ability to broadcast and air their radio programming.  As a direct and proximate result of Defendant’s actions, Plaintiffs have lost and continue to lose customers and clients.  Plaintiffs reputation and standing in the commercial broadcast and radio programming business have been harmed and damaged, and will continue to suffer and incur injuries.  Plaintiffs have other business interests that are directly and indirectly tied to their ability to broadcast their radio programs, which interests are now being jeopardized.  Given the financial standing of the Defendants; their fraud and investment scams; their moving of funds and money to a number of related entities; their hiding of funds and assets; and the on-going Federal SEC proceedings, Plaintiffs injuries and damages appear to be, and are likely to remain, irreparable and uncompensable.  Defendants have demonstrated a lack of sufficient funds to stay on radio station 1180 AM, and have shown that they lack the financial wherewithall to compensate Plaintiffs for the damages they have inflicted, and continue to inflict, on Plaintiffs.  Asia Vision continues to lose advertising revenue and advertisers as each day goes by with Plaintiffs being defrauded by Defendants, and with Plaintiffs being unable to broadcast their radio programming.  Siddiqi’s radio personality has been and continues to be severely damaged as a result of Defendants fraud, breaches and on-going conspiracy.

When I saw this hit…I made an effort to interview Rehan Siddiqi (not that I expected him to accept – considering the stonewall that I’ve felt from Frishberg, but delighted he did).  The questions are listed in bold and Mr. Siddiqi’s responses are quoted in blue.  The interview follows:

Mr. Siddiq, thank you for agreeing to this interview.  I have several questions related to your lawsuit.  I hope that you will consider candid answers, however, let me state up front, this will be published in my blog and, as such, do not share answers with me that you do not wish to have in the public domain.  Are we clear?

Yes.

Before we get to the content of your lawsuit, can you share with me your relationship prior to entering into this agreement with Mr. Frishberg and BizRadio?

Absolutely.  Mr. Frishberg was introduced to me by a mutual friend…a friend of mine and also one of Mr. Frishberg’s investors in a fund, I think called Wallace Bajjali.

It looked like you were listed as a Vice-President with BizRadio sometime this past fall 2009.  What was your position?

Being in the South Asian market, I come across a lot of national and local advertisers and I was asked by Mr. Al Kaleta to bring in some more business and talk with some of my current advertisers or advertisers that I know.  They were struggling.  They had a great format and perhaps some of these advertisers would want to target that market.

So you were offered commission to bring them advertisers?

Yes sir.

And, how long did you hold that position?

Actually until the day they hijacked my frequency.

I’m confused.  They reflected you on the web site as a VP of Marketing, but basically that was a commissioned sales position?  You weren’t on the payroll as a salaried person?

No.  I was basically on a project to project commission.  And, to answer your question, I was not only listed on the web site, but was given business cards by Mr. Al Kaleta.

I’m sorry I missed that, but how long were you connected with BizRadio doing sales and so forth?

I was introduced to Mr. Kaleta and Mr. Frishberg some two years ago.  Mr. Sargent Hussain suggested that he had invested with a company that owned a radio station and that I might want to know them.

You sound like a fairly young man and your suit states you’ve been broadcasting for some 12 years.  How did you get into the broadcasting business?

I was one of the very first to initiate a 24/7 South Asian radio format.  I’m from a market that’s a minority.  There are some 300,000 or more South Asians in the market.  Prior to the 24/7 format, I would broker time on stations to serve my market segment.

Let’s move on to the lawsuit.   Did you approach Frishberg and Crider about leasing/buying 1110 AM or did they approach you?

Well actually Sargent Hussain told me that Mr. Kaleta would like to meet me and maybe there is a business deal that can be made out of 1110 AM.   I met with Mr. Kaleta and we had about a 45 minute meeting.  They were not happy with 1110 AM: (a) they felt that the broker ripped them off by selling them a station that was worth $3 to $3.5 million for $7.7 million; and (b) they were not happy with the coverage from the station. They said they would like to be on 1180 AM with 24/7 coverage and a strong signal.

About that time Mr. Frishberg walked into the room and says to Mr. Kaleta, “What ever deal you need to make with the radio station needs to be made through my CEO.  We don’t know this business.  If we knew this business well we wouldn’t have bought the station for $7.7.   Now we have a radio man working for us and his name is Ron Crider.”  Mr. Frishberg gave me Mr. Crider’s phone number and said he would be in town sometime next week.

When you were approached about leasing 1110 AM – do you think now that you were being scammed at the beginning or do you think they were serious?

No…I thought they were very serious.  They had a good business plan.  The reasons they gave me for why they needed to be on 1180 AM and why I needed to be on 1110 AM and how it was going to help them and how it was going to help me … it just completely made perfect sense.

In your opinion, do you think that the funds requested (that you paid) some $180,000 were requested so that BizRadio and Frishberg could pay 1180 AM the deposit they required?

Well, they desperately needed money.  They were not getting their RIA at the time and needed cash flow.  They did not have money to pay for their payroll.   There money was with Fidelity and I was told they were going to be changing banks.  There money (with that change) would start making their RIA again and starting January 15th (2010) things would get back to normal because they would begin again getting their commission.  Apparently, that didn’t happen so they did not give 1180 AM the letter of credit and got kicked off the station.

Do you think that Frishberg truly wanted to broadcast BizRadio on 1180 AM?  If so, how did he think he could do that considering the financial meltdown that seems to have been already started when you entered into the lease?

If Frishberg didn’t want to be on 1180 AM then why would he sign a contract and give them $75,000 to broadcast in January.  I think he expected the financial maneuvering to work and he would be able to meeting the demands of 1180 AM.  At that time Frishberg was, I think, on in Dallas and certainly on in San Antonio along with Crider’s other stations through his network.  I think he got stuck with Fidelity cause they truly did not want to do business with him and he hoped the other company would quickly come in.

I had no reason to believe that Frishberg would be a problem.  To be honest I had no reason to believe that Frishberg was a scam artist, a liar, or that there was a whole fraudulent thing going on with these investors until the day he surprised me in the court by perjuring himself by saying that Ron Crider was not the CEO.

You state in your lawsuit, that Daniel Frishberg has interfered, and continues to interfere, with your business and contractual relationships.  How?

Number 1 – he took my station away.  Number 2 – all the business that I had, all the contracts that I had I basically have lost.  Plus since I had paid six months in advance, I felt that the money coming in from ad revenue would be positive cash flow that I could use to pay my loans and contracts.  Now I will be forced to default on my obligations.

The radio business is about consistency.  The contract that I have right now is a month to month contract.  I don’t even have a contract for the month of April.    I cannot sign a contract with my advertisers for April.  I have lost sponsors and advertisers.  I can’t provide a letter of credit to any station.  Why?  Frishberg took my money.

You state that Frishberg committed PERJURY in his testimony before the court?  Give me an example of what you mean?

Frishberg stated that Ron Crider was not the CEO for BizRadio.  Here’s what I believe.  They introduced me to their CEO.  Every meeting I’m in they either see me talking to him or are sitting with me in that meeting.  The money that I gave them…they put that in their account.  They send out press releases.  They put it on their web site.  They give me a business card.  Ron Crider has a business card.  Frishberg is in the meeting.  Kaleta is in the meeting.  The entire office staff is in the meeting.  Flyers, advertising and radio promos were put together.  I would never believe in the world that Frishberg was going to come in the court and say “Crider was never my CEO.”

He shocked me.  Now I am going to rewind from the day I started talking to him.  Everything this man said was a lie!

Likewise, you claim that Frishberg and BizRadio (the Defendants) stole money from you.  In the lawsuit it is referred to as Conversion and Theft.  Do you think that was there intent at the beginning or do you think that it was a result of the collapse of Frishberg’s financial position?

Once somebody lies to you, then when you look back you begin to think that all they told you was a lie.  Was it set up on me from day one, I truly believe that now.  He was trying to solve his issues, his problems and basically he did that with my money.  He (Frishberg) decided to send me an email, late in the night, hours before he was going to take me over, to give me notice.  I begged Mr. Kaleta at 1:00 o’clock in the morning, “Let me go on the air for one hour and say, hey guys there’s a problem there’s a situation, but we’re going to get that handled.”  But NO!   He was more concerned to impress his $300 million dollar investors – to let them know that Frishberg was still on the air.

He (Kaleta) decided to get me out of business.

GALLAGHER COMMENT:  I am amazed by this revelation.  I thought that Kaleta was to have NO CONTACT with investment advisers and since Frishberg and BizRadio had been enjoined by the SEC receiver – that seemed to be a gutsy – NO STUPID move.

You also claim CONSPIRACY.  From what I’ve seen and read, Ron Crider was active with you in the negotiation of the lease purchase option for 1110 AM.  Do you think Crider conspired as an agent of Frishberg?

No…I have nothing but respect for Ron Crider.   Mr. Crider has treated me with respect and fairly.

When you paid the money to BizRadio who was involved?

Mr. Al Kaleta.  He was the one who took the payment from me.  Now the question is, Mr. Al Kaleta offices next to Mr. Frishberg gives this money to Mr. Frishberg who gives it to Entravision (1180 AM).  So yes, they were using my money to pay for there other bills including the one month lease to 1180.    Only $75,000 went to 1180.  What happened to the rest of that money?  It went to payroll, office rent, etc.

Now knowing that Mr. Kaleta was to have nothing to do with Frishberg and BizRadio, with the SEC review I think they are in more trouble that they ever thought they would be.

What do you think the outcome of this will be?

You know, I really don’t know what the outcome of this lawsuit will be.   For all the fraud, scam and con artists these people appear to be, I would be glad if investors, that Mr. Frishberg is trying to get and scam, could see the facts and protect themselves and their investments.

BizRadio and Frishberg seems to lack funds to operate what they have, how do you think that you’ll gain financially if you are the victor in this lawsuit?

First, I need to be compensated for my loss, if that can truly happen.  But, if I can save the millions and millions of dollars from future potential investors from being scammed then I will have success.

GALLAGHER COMMENTS:

The story continues to unfold.  What do I think about the Siddiqi lawsuit?  While not an attorney, he damn sure has a case.  Where there is smoke there is fire and I feel soon this one will be blazing.

• One, I know that the SEC receiver is looking in every nook and cranny to find funds to make who investors who have been defrauded.
• Two, I would not be surprised if the SEC investigation focused their white hot spotlight on Frishberg.  My guess is it is there, but no one will admit to it.
• Three, if I were an investor, for any liquid asset I had, I would take it from Frishberg and invest elsewhere.  Think about this…the folks who liquidated their investments with Bernie Madoff are likely better off than those who rode that sinking ship all the way into the ocean.  Frishberg has too much baggage now to truly be effective.
• Four, I AM AMAZED that the criminal investigative arm of the SEC, FBI or IRS hasn’t yet jumped into the fray.  Seems that Kaleta got a bit of a pass.  Of course, the criminal side has a much longer statute of limitations to do their work than the civil side, so that might explain why civil first.  God help Mr. Frishberg if he finds himself on the other end of criminal investigators as they usually get their man.  Just ask “The Talented Mr. Madoff!”

As I’ve said in past blogs…MORE TO COME.

AND COMMENTS ARE WELCOME.