|For several months many of you know I’ve been writing about Biz Radio, Dan Frishberg and the rather amazing turn of events that seems to indicate potential investor fraud and the likelihood that some, if not all, of the principles involved will face the scrutiny of the federal government – both civilly and/or criminally or both.
Likewise, as you also may know, I’ve, on several occasions, asked Dan Frishberg to participate in an interview so that he could have an opportunity to share his perspective. If for no other reason, Dan could have a forum to make his side known and become, what in my opinion would be, honest and transparent. I have found over many years of making mistakes, that if you are open about the choices you’ve made and lessons that have followed, folks are at least willing to understand or try to understand. But – Dan has, thus far, ignored my requests.
Below (in blue) is reportedly a message from Dan (to an unnamed individual) that was provided to me. In essence, Dan (assuming Dan wrote this) is sharing his perspective and while he did not write this to me, it is the best information I have that might provide some insight into his thought process. PLEASE NOTE: I will make comments from time to time and my comments will be (like this writing) printed in black. Dan’s comments are always in blue in this blog.
The content below is from an email that was forwarded to me. The email was written on April 4, 2010. The original recipient was not the source of my information, however, I am appreciative of those who are willing to keep me up to date regarding what is happening in the BizRadio world.
I want to respond to some of the points you bring up. I have spent a good deal of time responding to your feelings because they are important to me. I am very troubled by the misinformation flying around. These facts are easy to check, and I encourage you to do so in order to understand what is actually going on.
I asked to attend all of the last few meetings scheduled by Wallace but was barred from coming. In the last meeting I was very resolute and I was threatened with being forcibly removed. I did not feel that would do anyone any good, so I agreed not to attend.
GALLAGHER COMMENT: I respect what Dan is saying, but I have to say, that if I were in his shoes, I would attend welcome or not. The reality is – unless he has something to hide – being open about where things are and sharing his plan to bring investors whole would do a great deal to diffuse this horrific mess.
This did in fact give investors the impression that I am avoiding the group discussion. This is not correct.
Months ago, a plan was proposed by one of your fellow investors/creditors of BizRadio and Wallace Bajjali. The plan recognized the fact that while the recession was not kind to media companies, expecially (Dan’s misspelling) the radio business, it was a good time for a Registered Investment Advisory firm. Daniel Frishberg Financial Services had done more than $70 million in new assets under management. Mr. Shaffer is an experienced businessman who has built and successfully sold businesses, and I had asked him to serve on an advisory committee I formed, along with other successful and experienced businessmen. None of these guys had any incentive to give anything but their honest opinions.
Mr.Shaffer reviewed the numbers, based on actual revenues and expenses of BizRadio and Daniel Frishberg Financial Services. He concluded that BizRadio was highly successful at generating business for financial services companies such as DFFS, Del Walmsly, Online Trading Academy, Ray Lucia and others, but was, in and of itself not likely to provide a good return on investment in the current environment.
GALLAGHER COMMENTS: Wow…that was one of the first times I’ve seen someone come up with an honest appraisal of this business. The program was a feeder to attract folks to put their assets under Dan’s management and therefore Dan could make money. BizRadio was, not however, a good investment in and of itself. Sha… Most anyone who was associate with BizRadio knew that years ago. You can’t run a radio station without substantial advertising and assume that you can make money. The question I have is – why did it take so long for Dan to figure that out? And, why would Dan take investors money to fund BizRadio when it had no practical chance of succeeding on it’s own merits? And, was he that dumb or was this a scam to grow his numbers and income at the expense of the investors?
He gave it to me straight. “If you combine BizRadio with the Investment Advisor by creating a holding company which holds both assets, it can produce a very promising company with a solid business model and will likely attract the capital it needs. On its own as a separate business, BizRadio would not be nearly as viable.”
I thought about this, consulted my wife and children and our family decided that this was the fair and honorable thing to do, and that in the long run, such a combination would be good for the BizRadio investors and would therefore be good for our family as well. Sharing our company would be a sacrifice in the short run, which would yield long term positive results for us and everyone concerned. We decided to accept and support Doug Shaffer’s plan, and to refine it.
This plan would include equity participation, has the support of many knowledgeable investors and would allow BizRadio to meet all its obligations.
GALLAGHER COMMENT: This goes to the proposal that was done in December 2009. Dan Frishberg is right here…this is the only plan that would make sense. But, here’s the question that I can’t get anyone to answer: If Dan Frishberg were committed to investors of BizRadio and supported the recommendations, then why did he transfer over the RIA to another party and not give it to BizRadio so that BizRadio could function and provide a fair return to investors? Was Dan covering his own income by not making the transfer that he says here he supported? Dan – why doesn’t BizRadio own your RIA?
I believe if you look into the plan you may also support it.
What is there to lose by getting more information? The investors’ plan does not require anything different from what we have already done with great success. In his calculations, Shaffer actually assumed much less success than we have experienced in Houston – more akin to the results our manager at the time, Daniel Stewart was producing in Dallas.
The Form of the Notes
I believe this is the issue that is at the bottom of this dispute – the hidden agenda if you will – the character of the notes now being characterized as “Secured Notes,” of WB. The following is a copy of the term sheet submitted to DFFS by Mr. Wallace personally, as the description of the offering. You should also note WB accepted these funds, but most investors did not receive the actual documentation until they requested the documents later. When clients contacted us and told us they had not received documentation, we obtained it from Wallace, but the documents were not what Wallace offered, what we approved, and what the clients signed up for. The following is the term sheet submitted by Wallace at the time the notes were being funded by our clients.
GALLAGHER COMMENTS: Stop…before you review the “terms sheet” – here (unless I’m reading this wrong) Dan is saying that Wallace Bajjali (aka David Wallace) committed fraud by saying one thing and providing another? Interesting and I’d love to hear David Wallace’s comments on Dan’s assertion.
11% / 48-Month Secured Debt Financing Trust Agreement
Lender Pool: Pool of “Individual Investors,” each owning an undivided, pro-rata interest in certain collateral and cash flow proceeds generated off of certain secured debt instruments (the “Notes”).
Agency Agreement: Wallace Bajjali Investment Fund, LP (“Agent”) shall serve as the Agent on behalf of the Lender Pool. In such Agency capacity, the Agent shall be responsible for enforcing any and all collateral and collection rights, as well as causing the Borrower to make payments for the benefit of the Individual Investors.
Borrower: The Borrower under the Notes shall be various entities affiliated, or to be affiliated, with the Agent.
Use of Proceeds: To acquire or finance certain assets consisting of real estate, the operations of various radio stations, including, but not limited to, the acquisition of the underlying FCC licenses or other private equity investments.
Advance Mechanism: The Agent shall establish an interest bearing bank or government secured account (the “Bank Account”) in which the Agent shall deposit the proceeds from the Individual Investors. While the cash proceeds are maintained in such Bank Account, the overall return for the Individual Investors shall be the interest earned on such Bank Account. However, once the cash is further deployed pursuant to the Notes, then the yield shall adjust pursuant to the interest stated on the Notes.
Loan Amount: The ultimate loan amount, as to any single advance, will be determined by the Agent, provided that such advances shall conform to the general terms as outlined herein. Each Individual Investor in the Lender Pool shall share, on a parri pasu basis, in all collateral rights, including the rights in the Bank Account, of all Individual Investors.
Loan Repayment: Final Maturity of any and all Notes must be earlier than forty-eight (48) months from the date of funding. The Notes shall maintain a provision such that the Borrower may provide a repayment of the principal amount, on an annual basis, equal to 25% of the principal amount per year. Notwithstanding the foregoing, and during said forty-eight (48) month period, the Agent has the ability, without penalty, to refund any and all cash proceeds (including all principal) to the Individual Investors should the Agent determine that it does not have an Investment available that meets the underwriting criteria as outlined herein.
Interest Rate: 11% on any advances up to a 60% Loan to Value (“LTV”) for Senior Secured Debt Instruments.
Security: Perfected first lien security interest on all tangible assets of the Borrower.
GALLAGHER COMMENT: I’m lost, but I don’t have a clue how David Wallace could promise anyone connected with this investment an 11% return. This smells of just what happens when a Ponzi scheme is beginning to collapse. Sorry, but this doesn’t seem to make sense…maybe someone else can offer some insight. IF SO PLEASE COMMENT!
Many clients have brought to our attention the fact that this “single asset note,” was not what they expected or signed up for. I have agreed with them, and have brought this to Wallace’s attention. I suggested to him at that time that changing terms after the fact would not stand, and that taking that position would create problems for his and his company. I informed him that while we have no desire to enter into conflict with him or his company, since he is associated with our clients, however we must agree with the clients that this “after the fact” separation of these notes into single asset notes may have certain benefits to him and his company, but that it was improper.
GALLAGHER COMMENT: Wonder if Dan is accurate in his characterization above – cause he sure is acting like the “white knight” there to help the investors. Seems to me that’s pure posturing.
I did not obtain an answer from Wallace about how he would deal with these client complaints, with which I clearly told him I concurred. His answer came with this new campaign to discredit me and to destroy BizRadio. This will be as damaging to Wallace investors as it will be to anyone else, but he has no skin in the game. This is a shrewd attempt to discredit me and takes attention away from this issue by causing noteholders to want to foreclose on the KTEK asset. This would free WB real estate assets. This is actually what destroys your security, not the BizRadio plan,
You may remember that one of the investors asked Wallace at his meeting how did some administrative assistant get to decide after the fact, which single asset would securitize which note. Obviously this information would have to be part of the offering from the beginning, so the investor could assess the risk. Note that Wallace failed to respond to this question at the meeting.
You would not have taken on this single asset risk, nor would I have approved it. The risks of investing in each asset are clear and disclosed in the offering Memoranda that accompanied the equity offerings.
The debt offering made sense since it was clearly touted as secured by a 60% debt to equity ratio and a diversified portfolio of assets.
To assign all of your debt to one asset is in the opinion of our attorneys improper. Also notwithstanding the “agency” language, we have a legal opinion stating that the notes are clearly liabilities of Wallace Bajjali. BizRadio owes money to WB, and WB owes the money to you, the creditor.
In our view, and according to the offering documents, you debt is secured by all the assets of WB. This is clearly described in the term sheet, which was the document we received to approve the offering.
I will be happy to discuss this issue with anyone who wishes to, and we have the emails from Wallace showing these and other variations on offers that make the intent of the offering very clear.
GALLAGHER COMMENTS: Really Dan? You’ll be happy to discuss this issue with ANYONE who wishes to? Wow! I should ask for an interview again.
You brought up the question of informing the creditors of failure to make payments. In our view and in the view of counsel, the noteholders were the Wallace Bajjalie Fund which we kept in touch with and up to date at all times. We did not know WB was trying to make you into the note-holder. However, as you note in your email, I have always made myself available to discuss these issues.
Failure to Make Material Disclosures
Two people attended the meeting to help Mr. Wallace give what in our view is a purposely incorrect impression, Dan Stewart and Dan Cofall.
- Dan Stewart and his “advisor” Dan Cofalt identified themselves at the Wallace meeting as investors. Stewart’s family has made investment, though Stewart himself has never done so. What they did not tell you, and what Wallace also never told you was that these people run a competing RIA firm, and operate a competing radio station. Stewart, Cofall and Wallace suggest that they do not believe in the potential of the BizRadio holding company plan. In fact, they were trained by me personally, and are doing that exact same business, executing the exact same plan in Dallas right now. They suggest that the plan will not work, yet it is working for them and they will try to do the exact same plan the second they get the opportunity.
- At the meeting it was suggested that the radio station could be sold for more cash than through our plan, and “it would be better to simply get 40 cents on the dollar now and walk away.” This is totally misleading. There is no legitimate buyer for close to the Salem bid. If there had been, we would have accepted it. If a better bid was to arise, offering cash, we would still gladly accept it. That is not how this is going to work out. This group’s apparent intention is to drive the company into bankruptcy so they can buy the station for much less than Salem offers. If they are successful with this scheme, and are able to get Salem to walk away, the result will be that you will receive 10 or 20 cents on the dollar, they will get a chance to buy the station for next to nothing. They would then be free execute a plan similar to Shaffer’s (which I support), but in this case, you would not be included. They would make a fortune and not share it with you. For emphasis, I again wish to note that the same people who assert that our plan will not work are now engaged in trying to do exactly the same plan – one which I taught them to do.
- Fact – Cofall, was accepting a salary from BizRadio to run our operation in Dallas in 2008 and 2009. He was charged with identifying a station for us in Dallas. When he found one on BizRadio’s nickel, he promptly resigned and contracted the station for himself. Also while working for DFFS, Stewart had secretly assumed a position on the Board of Cofall’s company.
- Fact – Cofall also operates a debt purchasing corporation, and he apparently became disgruntled when DFFS did not agree to fund Wallace’s plan for injecting capital into Cofall’s debt buying business. Wallace actually attempted to forge another roll-up with Cofall but failed for lack of investment funds.
- Fact – Stewart was an original partner in DFFS, and was fired for personal problems that were clear and not important for the purposes of this letter. You may make further inquiries on this if you wish. He had made a $30,000 investment in our firm in the early 1990’s and was bought out for approximately 400% of that, even though fired for cause by his partners. I took his side at that time, trying to win for him another chance to get his life together, but the other partners were adamant. To his credit, he did bring his life together and I immediately hired him to give him another start. Ironically, Wallace and Cofall who are using him now, were his most vocal critics when he worked for us.
- Wallace suggests that this plan, which he now “doesn’t like,” is similar to a plan he submitted years ago. In fact, the plan Wallace submitted was for another in his roll-ups, which would in effect allow him to trade shares of his real estate management company for our investment advisory firm. Please note that we immediately accepted the current investor’s plan described above. We had rejected Wallace’s plan outright, because it was simply amounted to a sale of his business to us and to our equityholders. Note that Wallace’s business has to this date, still not produced any successfully completed transactions. While we were impressed by Wallace’s hard work and articulate presentations, he has yet to produce any tangible benefit to anyone by his work. Our position has been to stand aside and wait to give him a chance to perform before investing more.
- A check of Wallace’s history before he became mayor will reveal that he was in the business of doing “turnarounds.” These turnarounds in virtually every case led to bankruptcy and few if any businesses were ever saved by his process. After becoming mayor, he apparently abandoned that idea and began an idea which I thought was terrific – creation of public/private partnerships. In his apparent distress, he seems to have reverted to the old MO of driving companies into bankruptcy- or burning down the building to save it.
GALLAGHER COMMENTS: Dan Frishberg makes many assertions here and I’d be interested in what comments might follow. I will make a few myself:
- Many people have radio programs and I suspect that they have those programs to promote their business. Dan Frishberg is no different. Rather, the question is – do these folks mislead investors and use the funds of others to promote themselves without full disclosure?
- To Frishberg’s comments that there were no legitimate buyers…apparently he felt that Siddiqi was otherwise he would not have changed from 1110 AM to 1180 AM. Likewise, Frishberg would still be on 1180 AM today if he’d had the finances to continue his show there. All evidence shows that Frishberg was more interested in the continuation of his show, rather than honoring his lease sell agreement to Siddiqi and returning money to his investors. Would it not be possible (if he had grown his RIA assets by $70 million) to have been able to get a simple $150,000 letter of credit so he could stay on 1180 AM? Seems that Dan says one thing and his actions prove (he self-servingly) will do another.
- Dan…the money man – makes some serious accusations here. Wonder what the folks identified will say (if anything) in response?
The Litany of Errors
In the interest of brevity, I will address only one egregious misrepresentation here. I hope at some point we can talk about some of the others. There are certainly things that I would handle differently the second time around. I do not wish to assert that I have been perfect or error-free in dealing with a horrible recession and a complete change of the economy. That is not my point.
I am only interested in correcting manipulative distortions and factual misrepresentations. One case in point is the acquisition of the Online Trading Academy, which the recitation at the meeting suggested was one more in a line of management snafus.
From the very beginning, we had planned to create a BizRadio Academy as one of our most important profit centers. In 2007, we began planning this operation, especially noting the apparent success of BizRadio’s customer, The Online Trading Academy Franchise operation.
We did a test and marketed a course by John Sheely and earned $70,000 on one classs which took us only two weeks to market. We also tested a smaller class by our personnel, which earned around $18,000 which sold out immediately, as well.
Having proven the concept, I approached our client, the CEO of OTA Texas and told him we were going to go into competition with him. I suggested that the most profitable thing he could do was to enter a partnership with BizRadio where he would provide content and we would market it. This would yield us significant profit with little or no extra investment by us, and would preserve OTA’s market share, since they would not be in direct competition with BizRadio.
At that time, I was experiencing a serious illness which made it very difficult for me to perform some of my management duties. I continued to do my program and to manage our DFFS portfolio, but Wallace volunteered to help with the management of BizRadio. Also, at that time, Wallace was just stepping down as Mayor of Sugarland, and I had been impressed with his performance as Mayor. Wallace agreed. As acting COO, Wallace was assigned to complete the joint venture with OTA Texas.
Instead of doing the deal as assigned, Wallace came back with a new idea. It was to purchase OTA Texas for 5 times profits. Wallace and his staff did the due diligence and determined that the company was earning a little over a million dollars a year, and the price was settled.
The purchase would be done with moneys earned by OTA. We expected to be able to add to the sales, because of the obvious synergies, and the monies expended would be accounted for as invested capital, not expense. After all the cost-cutting, Wallace believed this acquisition would allow the company to become cash flow positive in 2009. I agreed to the acquisition in this form.
For whatever reason, the OTA sales fell far short of the mark. There had apparently been a trend toward lower sales that the Wallace team had not picked up. We were able to rescind the deal based on the fact that the accounting numbers of previous years did not pan out.
We were able to get OTA Central, the franchisor, to buy back the franchise and the agreement terminated. The franchisor also terminated their agreement with the previous owner at the time. Their readiness to buy the franchise back when we asserted fraud, and the fact that they terminated their relationship with the former owner shows that there were problems with the deal itself, if not with the idea of the acquisition.
I believe the relevance of this story is that at the recent investor meeting, this acquisition was presented as “another management screw-up,” when in fact the purchase had been conceived by and executed by Wallace. This is a clear case of the kind of misleading information being disseminated by Wallace and friends. As CEO, I am always responsible for whatever happens on my watch, but the way this transaction was characterized at the recent meeting was purposely misleading.
As in all of these items, I do not ask anyone to take anything at face value. The facts here are easy to check. For example, in this case there are literally hundreds of emails and phone calls between Wallace, BizRadio’s attorneys and the sellers.
To make the situation more clear, here are some important questions to ask yourself:
- Why does the note you received read so different from the term sheet submitted at the time you made the loan? Does this benefit you? Who benefits from this shift of security?
- If BizRadio wanted to borrow money directly from you, why would it need Wallace Bajalli? Is it not clear and obvious that these notes were designed to add diversification?
- Is the current attack meant to deflect attention from the issue of these WB notes?
- Why did Cofall and Stewart not identify themselves as running a competitor Advisory firm and a competitor radio station?
- Why did Wallace not identify them as such?
- What would happen if they drive the company into bankruptcy and are able to create a forced sale of the station asset that was to provide the necessary capital to grow the company and make investors whole?
- Why are you being asked to judge the BizRadio/Salem plan without allowing the plan to be presented to you?
- If the investor plan did not have merit, why are Cofall and Stewart working the plan right now in Dallas?
- How many cents on the dollar will you get if they are able to make Salem lose interest, and are able to buy the station for a million or two when there are no other bidders?
- Would Wallace be willing to put in writing that he will accept no additional funding or jobs from anyone associated with Cofall?
GALLAGHER COMMENTS: I guess I’m missing something, but it seems that Dan Frishberg has done two things in this rather long response: (1) suggested that David Wallace is really the person who is at fault here (successfully ignoring Al Kaleta, etc. and all that he did related to BizRadio) and (2) seems to have a fixation with some guy named Cofall (apparently a competitor in the business radio market).
What I’ve yet to see is Dan Frishberg truly taking responsibility for the dramatic downfall of BizRadio and the investment that investors were duped into. But, as investigations unfold, I’m sure more will come to light. For now…here’s the best I’ve got from Dan Frishberg that shows insight into his thought process.
I welcome comments – especially from folks who can help clarify some of the comments that Dan makes here.
YOUR COMMENTS WELCOME!