David Wallace and Costa Bajjali fined by the SEC for BizRadio related issues! Will Investors Be Made Whole?

May 24, 2011

David Wallace is the author of “One Nation Under Blog: Forget the Fact and Believe What I Say” – wow…I was reminded of that as I began this post and thought how telling.  David and Costa wanted investors in their private placements and it seemed that they wanted investors to “forget the facts” and believe what they said…although what they said led to massive losses when they over invested in the money losing BizRadio driven by Dan “The Money Man” Frishberg.

Fined by the SEC for their roles in misleading investors – David Wallace and Costa Bajjali each have agreed to pay a $60,000 fine.  The SEC news release states the following:

On May 20, 2011, the Commission filed suit in U.S. District Court for the Southern District of Texas against Houston area real estate developers David Wallace and Costa Bajjali in connection with two fund offerings. This suit is a related case to SEC v. Albert Fase Kaleta and Kaleta Capital Management, Case No. 4:09-cv-03674 (filed November 13, 2009) and SEC v. Daniel Sholom Frishberg, Case No. 4:11-cv-01097 (filed March 23, 2011).

The Commission’s complaint alleges that from November 2006 through December 2008, Wallace and Bajjali offered and sold interests in the Wallace Bajjali Investment Fund II, L.P. (“WB Fund”) and the Laffer Frishberg Wallace Economic Opportunity Fund, L.P. (“LFW Fund”). The complaint further alleges that the private placement memoranda (“PPMs”) for these funds stated that investment in any one business would be limited—to 33% in WB Fund and 20% in the LFW Fund.  Both funds exceeded the PPMs’ stated limitations by investing heavily in Business Radio Networks, L.P. d/b/a BizRadio, a struggling media company. As a result, they subjected the Funds’ investors to substantially greater investment risk than the Fund’s written materials disclosed.

The complaint alleges that Wallace and Bajjali violated the Sections 17(a)(2) and (a)(3) of the Securities Act of 1933. Without admitting or denying the Commission’s allegations, Wallace and Bajjali each consented to the entry of a permanent injunction and to pay a $60,000 civil penalty.

The actual SEC Complaint is here:  SEC Complaint – David Wallace Costa Bajjali

The Amarillo Globe News reports the following:

“When we sell the real estate,” Wallace said, “we believe we will be able to absorb whatever we’ve written off as it relates to news radio.”

In written disclosures related to the securities offerings, the suit says, Wallace and Bajjali told investors the funds’ investments in any one business would be limited to no more than 33 percent from the Wallace Bajjali Investment Fund and no more than 20 percent from the Laffer Frishberg Wallace Economic Opportunity Fund.

By May 2007, $6.5 million, or 40 percent, of $16 million raised under the Wallace Bajjali Fund had been invested in BizRadio, the suit says. By the time the Opportunity Fund closed in December 2008, roughly 57 percent, or $4 million, of about $7 million raised had been invested in BizRadio, the suit says.

The result was that Wallace and Bajjali, “subjected the Funds’ investors to substantially greater investment risk than the Funds’ written materials disclosed,” according to SEC filings.

Wallace called it a “technical” problem, saying he and Bajjali thought other money was being raised for the two funds that would have ensured that the limits were not surpassed.

The $120,000 fine wasn’t the only payment Wallace and Bajjali had to make in this case. Last November, in negotiations with Thomas Taylor III, the Houston attorney who is overseeing the SEC-ordered receivership of KCM, Wallace has paid back $92,348 and Bajjali has paid back $45,550 to date, according to the publicly available information. At that time, Taylor said negotiations are ongoing about further repayments by Wallace and Bajjali.

REALLY DAVID A TECHNICAL PROBLEM?

Sorry, but sometimes you have to call bull s**t when you see it.  Technical problem my ass!  David and Costa got their hands slapped when most who lost substantial monies likely feel that more is in order.  It is not a TECHNICAL PROBLEM when you substantially commit massive funds into an investment that you know is a losing proposition hoping that more investor funds would be forthcoming so that you could then avoid the TECHNICAL ISSUE.

SO HERE’S THE QUESTION DAVID – If, as you stated, when you sell the real estate you will be able to absorb what you’ve written off related to news radio – does that mean that the investors who lost millions at your hand will be made whole?  WILL INVESTORS BE MADE WHOLE?  That’s a question those who lost millions would like an answer to.  DAVID WHAT’S THE ANSWER?

THE NEXT QUESTION:  For those who were lucky enough not to be sucked into the Dan Frishberg scambus…doesn’t that mean that their gains (you know when the real estate sells) will be less?  David…REALLY DOESN’T EVERYONE LOSE HERE?

Put clearly – David – if you had followed the terms of your investment private placement memorandum – BizRadio and Dan Frishberg would have been out of business long ago and you would have not been embarrassed at their hand.

The Amarillo report also says:

“We have been impressed with the level of transparency in this issue, as David Wallace has kept us informed throughout the SEC process,” Amarillo Mayor-elect Paul Harpole said in a Wallace Bajjali news release. “We are pleased with this positive resolution and appreciate Wallace Bajjali’s forthright, thorough and ongoing communication about the issue.”

Melissa Dailey, executive director of Downtown Amarillo Inc., the nonprofit group leading downtown redevelopment, said in a statement: “The SEC review ended with a settlement announcement noting a single technical error regarding a Fund managed by Wallace and Bajjali.”

Perhaps David has figured out – stick to Real Estate and out of Radio!  My hope is that the profits from the Amarillo venture might be used to pay the investment losses from David’s mind fart in investing in BizRadio.

YOUR COMMENTS ARE WELCOME!


David Wallace – Proposed Downtown Master Developer Questioned by The Amarillo Independent

November 16, 2010

As many who have followed this blog know – Dan Frishberg, of failed BizRadio fame, along with Al Kaleta, who had his license as an investment advisor pulled by the SEC, were coupled with David Wallace as a interesting trio – whose clients, in large part, lost millions with respect to Wallace’s BizRadio funding investments from his other investment funds.

Today reporters from The Amarillo Independent called into question a proposed development that David Wallace is pitching to the City of Amarillo.  There article is reprinted below in full.

What’s it all about, Wallace?

By Gina Haschke, Greg Rohloff and George Schwarz
The Amarillo Independent

The principals in the development firm that the Amarillo City Commission is considering as the master developer for downtown revitalization are no strangers to litigation, with one of the firm’s showcase Houston area projects the subject of a foreclosure and lawsuit. And, those same principals, David G. Wallace, and Costa Bajjali, are on the periphery of an ongoing Securities and Exchange Commission fraud investigation.

Last Tuesday, Wallace, co-founder and chief executive officer of Wallace Bajjali Development Partners, L.P., impressed city commissioners and staff with a presentation touting his experience with developments in his hometown of Sugar Land, where he served as mayor until 2008. He also touted his firm’s developments in other cities, including Waco and the Houston area.

But at least one development has soured — the Creekmont Plaza mixed use commercial development in Fort Bend County.

According to a petition filed June 10, 2010, Frost National Bank foreclosed on the Creekmont Plaza Development in Missouri City.

The two men took out a loan of more than $1.9 million with Frost in August 2008 as the general and limited partners in Creekmont Plaza Partners, L.P. and personally guaranteed the loan.

“Despite demand for payment of the balance due, Mr. Wallace and Mr. Bajjali have failed to pay the balance due,” the petition alleges.

The petition states that the property was sold in a foreclosure sale in April at the Fort Bend County Courthouse. But the sale, which brought $1.1 million, was almost $820,000 short of the loan amount. At that time, taxes on the property were also overdue.

“The delinquent taxes for the years 2007 through 2009 were in the amount of $157,494 if paid in March of 2010, plus the 2010 taxes and the Defendants are jointly and severally liable to Plaintiff for the taxes plus interest thereon as allowed by law,” the petition alleges.

The petition asks for payment of the shortfall of the sale, interest, court costs and lawyer’s fees.

All the defendants have entered a general denial and, as of Monday, the case is set for trial in March 2011, according to Harris County District Court records.

A search of additional Harris County District Court records shows Wallace involved in several other lawsuits, including litigation in 1995 with Mark Thatcher, son of former British Prime Minister Margaret Thatcher and Wallace’s former business partner in several United States-based businesses.

How much Downtown Amarillo, Inc. is aware of all the court actions isn’t clear.

Melissa Dailey, executive director of Downtown Amarillo, Inc., said she had done “quite a bit” of background research on the firm. She said she had not looked into the Thatcher alliance in detail, but added, “I’m more interested in his development activities here in the United States.”

When asked about a Securities and Exchange Commission investigation, she said she was “aware of the situation.”

It has little negative reflection on Wallace Bajjali, Dailey said, adding, “In fact, it’s a positive.”

Daily wouldn’t discuss the matter further, saying instead Wallace would talk about it when he was in Amarillo in the next week or two “because he knows the details much more intimately than I do.”

Several calls and repeated messages left for Wallace for comment were not returned.

The SEC investigation focuses on Kaleta Capital Management, or KCM, and a Houston business known as BizRadio, and may yet reach Wallace and Bajjali or some of their business entities.

The year-old litigation — the SEC filed suit Nov. 13, 2009,— names Albert Kaleta and KCM as defendants in a claim that they defrauded investors of $10 million.

According to a July 2010 update on the receivership website, “Based upon the recent inclusion of BizRadio in the Receivership Estate, negotiations have now been commenced with respect to potential liability of the Wallace Bajjali entities and their principals with respect to investments by members of the public in BizRadio directly, and in other related investment vehicles. To date no agreements have been reached with respect to these matters.”

On Monday, Thomas L. Taylor III, the Houston attorney who is overseeing the SEC-ordered receivership of KCM, said neither Wallace nor Bajjali or their entities are yet named in any of the court papers but he would also neither confirm nor deny that they could be pulled into the federal investigation at a later time.

In negotiations with Taylor, Wallace has paid back $92,348 and Bajjali has paid back $45,550 to date, according to the publicly available information.

Taylor said negotiations are ongoing about further repayments by Wallace and Bajjali.

Nevertheless, DAI’s Dailey said Monday, “We have not come across anything negative. When we looked into it in detail, it all was positive.”

I find it interesting that a comment was made that “We have not come across anything negative.  When we looked into it in detail, it all was positive.”  Really?  Just gotta ask these questions:

  • If Frost National Bank foreclosed on the Creekmont Plaza Development in Missouri City and Mr. Wallace and Mr. Bajjali have failed to pay the balance due, how can that be positive?
  • If over 60% of the funds invested in the Laffer, Frishberg, Wallace fund were funneled into BizRadio which David Wallace has stated was a failed business, how can he be trusted to protect the assets of his investors (or the City of Amarillo’s assets) when due diligence would clearly be called into question?
  • Since David Wallace and Wallace Bajjali were integral in the financial operations of BizRadio and Al Kaleta has been busted by the SEC and Daniel Frishberg is being investigated – how can the City Fathers assume that the fingers of justice might move just a bit further to pull in David Wallace?

Wallace Bajjali might do a great job for the City of Amarillo.  However, to say that after looking into issues all looks good is like your finger in a pot of boiling water and then saying its cool.  Where there is smoke there is usually fire.

I’m just saying…

YOUR COMMENTS ARE WELCOME!


BizRadio – Due Diligence and the David Wallace Investment Funds

May 17, 2010

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

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

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

The investor report goes on to say:

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

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

SO LET ME JUST PUT THE CARDS ON THE TABLE!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Independence – not a chance.

Due Diligence – no way.

Greed and hubris – likely!

AGAIN – YOUR COMMENTS ARE WELCOME!


Dan Frishberg speaks – addressing investor concerns!

May 2, 2010
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.

BizRadio’s Plan

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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!


David Wallace and BizRadio – the story continues… UPDATED 4-16-2010

April 15, 2010

“David Wallace is a nice guy.”  I can’t begin to tell you how many people who have called me today have said those words within the first five minutes of our conversation.  “But”…is how the next sentences or paragraphs began as they shared their thoughts on my blog.

I appreciate comments that are made, either publically or privately, and do my best to filter through the emotion and get to material that is worth continuing to discuss.  One thing I promise…this blog will be shorter and easier.  Perhaps this will be (close to) the “rest of the story” regarding David Wallace’s involvement with BizRadio.

I asked in several ways what David Wallace did regarding his due diligence efforts related to his investments in BizRadio.  Now, let me say, I would likely do the same thing (paint myself in the best light possible – especially with the SEC looking carefully at BizRadio, etc.), but David seemingly left out some important information.  According to what I believe to be true, David Wallace was a founding Board member of BizRadio.  So let me see:

  • I establish funds to invest in real estate deals, etc.
  • I (assumed to be correct) become a founding Board member of a “new company” called BizRadio.
  • Money flows into my private placement investments which I (David Wallace) am a General Partner in and have a fiduciary duty to the investors as agent for, and
  • I invest in a new venture that has yet to make any money and in an industry in which I have no experience.

That is not due diligence in my opinion.  It may not be criminal (which I believe to be true), but it sure appears to be a problem legally when those investors bring civil suits against the General Partner for failure to perform his fiduciary duties and/or proper due diligence.

Sometime in 2008 David’s term as Mayor of Sugarland expired and David took a more active role in BizRadio – doing what I assume he referred to as their “Pathway to Profitability.”  Now…at that time David had to see what was going on.  He had to know what was happening, yet, on behalf of his investors (I think in the Laffer Frishberg Wallace fund) David continued to pour money into the hemorrhaging company called BizRadio.  My question is WHY?

One of the first principles of sound investing is not to chase a losing investment down.  If you buy a stock for $100 and it loses value to $90, then to $80 – somewhere you stop.  You cut your losses, protect your assets and get the hell out of Dodge.  David clearly said in our interview that at some point in 2008 he saw that it wasn’t turning around…  So why would he continue to put investment assets at risk?  Again, criminal?  Na…doubt it.  But, from a civil perspective it isn’t pretty.  There seem to be too many opportunities for David to have protected assets under his management instead of funding a sinking ship.

When the SEC audits the records (if they audit the records on David’s investments) it is possible that they will find an investment inflow into David’s accounts (say $200,000 from an Al Kaleta source) and an almost immediate outflow of $150,000 into BizRadio so they could make payroll.  While I haven’t seen the records directly, the reality is – that flow of money does not portend of a person who is just making investments on behalf of his investor clients.  Rather, it signifies a person who has a direct active involvement in a business enterprise that is portrayed as an investment.  That may be a turning point.

Lastly, David Wallace’s groups represented the largest shareholder of BizRadio.  The largest shareholder in any company has clout – Big Clout.  So, it stands to reason that David should have had the ability to control BizRadio via exercising his shareholder vote.  Yet, he could not.  BizRadio was Dan Frishberg.  Without Dan, one could question whether BizRadio would survive.  Now, investing in real estate is one thing – that is a tangible product.  Investing in BizRadio is quite another – especially when the investment is based on one single personality controlled by his wife.  So, I have to ask this – when you realize that your shares don’t carry sufficient weight to exercise prudent business control, why would you continue to funnel more money into the investment?

I don’t expect answers to the questions.  Rather I suspect that the answers will come in due time as investors seek their counsel to determine an effective course of action and/or the SEC seeks to expand it’s look into the motives behind massive funds flowing into BizRadio.  For now, BizRadio is valueless.  The motives and actions of others who have assets, well that’s another story that is yet to play out.

To read my prior blog see here.

UPDATE 4-16-2010

According to financials from the Laffer, Frishberg, Wallace Economic Opportunity Fund – while David Wallace has stated that he became concerned in 2008 – the financial flow seemed to increase in 2009 – which infers that he either (1) was less concerned about his fiduciary duty to protect investor assets, or (2) he had a culpable active role in investor losses in LFW fund.  See the numbers below:

LFW Economic Opportunity Fund, LP
Cumulative As of
% 6/30/09 12/31/08
Cost Cost
Real Estate holdings 20% 1,388,114 28% 1,216,704
Biz radio 66% 4,552,909 62% 2,688,837
Less: Loss recorded (990,732) (787,247)
Net Biz Radio 3,562,177 1,901,590
CEN, Inc 21% 1,450,620 30% 1,309,676
Business Diversified 204,784 195,674
Current Assets 46,601 297,242
Net $6,652,296 $4,920,886
Partners equity 6,880,476 4,320,000
Current Liabilities 993,383 1,473,820
Biz Radio loss (990,732) (787,247)
Other Expenses (230,831.00) (85,688)
Total equity $6,652,295.95 $4,920,885.00

Notice the numbers in blue above are for 2008 showing the money flow into BizRadio at $2.7 million (rounded) and within six months – for the period ended 6.30.2009 another $1.8 million flowed into BizRadio.

I don’t profess to be a financial expert, but I don’t see any substantive effort to diversify the investments in this fund.  Rather, from the outside looking in it appears that the relationship with Kaleta and Frishberg was too close and, while circumstantial, there sure appears to be some truth to the claims made by many close to the situation – that David Wallace was knee deep in the operations of BizRadio which clouded his judgment as a General Partner and fiduciary agent for those who invested in his funds.

Lastly…I had a comment from an 88 year old individual who invested the great majority of his/her life savings into this fund.  According to the fund prospectus investments could be received from “Qualified Accredited Investors”!  I would like to know how and 88 year old investor placing their life savings in such a fund could be considered a “Qualified Accredited Investor?”  Who did the due diligence on the investors?

YOUR COMMENTS ARE WELCOME.


BizRadio: An Interview with David Wallace about the Dan Frishberg – Al Kaleta fiasco!

April 14, 2010

As I pen this latest blog entry I am reminded that it has been several months since I was first told by a friend in Houston that, as he put it, “We have our own little Madoff in play here in Houston.”  At the time I wasn’t sure what he was referring to, but now, after several months have past I have come to see an amazing story unfold – the rise and fall of BizRadio with Dan Frishberg at the helm.

Like any good story there are twists and turns and if there is one thing that is for sure – this story isn’t over.

One thing however that has perplexed me is how someone with David Wallace’s reputation could end up being caught in the web of deceit and lies that has come, from the investment community, to be known as BizRadio – now affectionately referred to as “the sound of your money going!”  Many an investor invested in private equity funds only to find out that their investments went into what seems to have been a never ending money pit known as BizRadio.

Not that BizRadio was destined to fail – quite the contrary – under effective management BizRadio could have been a success (well maybe).  But, few today, with hindsight being 20/20, would say that Dan Frishberg and/or Albert Kaleta represented effective management.  In fact, it appears that their motivation was self-serving and that BizRadio was their mouthpiece for attracting investment monies and was nothing more than a “loss leader” designed to fund their RIA and personal gain.

David Wallace, on the other hand, has enjoyed success in politics and business.  Yet, his name has been tarnished due to his involvement with Dan Frishberg, Al Kaleta and BizRadio.  And, as I have followed this story, I have come to wonder about David, his involvement and mostly wonder if David Wallace got (as I put it) sucked into Dan Frishberg’s vision of the illusion he created called BizRadio.

Based on my past and understanding of people…I believe that acceptance of responsibility and transparency can lead to nothing but good.  Therefore, I asked David Wallace several weeks ago if we could have a conversation about this whole BizRadio business.  Like with Dan Frishberg, I suggested to David that I would be willing to send him my questions in writing.  I assumed that if I were willing to be transparent in my intentions and questions, David might be willing to participate with his answers.

Below are the questions and answers David provided me.

1. You have established several investment funds.  When did you first begin your focus as a “general partner” for private equity funds?

DW Responds – I have been involved in real estate and private equity investing since 1982.

2. How did you first attract your investors?

DW Responds – Generally, all of the various investments have been through Reg D Private Placements. Generally, all of the investors have been Accredited, High Net Worth investors.

3. What investments were the fund investments to be invested in?  By the way, these questions may produce answers that are before your involvement with BizRadio and Dan Frishberg (I don’t know).

DW Responds – The various Investment Funds (since 1982) have had different target investments. Some real estate, some private equity, some turn-around, some combination of each, etc.

4. Was the Wallace Bajjali Development Partners one of your first funds?

DW Responds – No

5. Were any of the Wallace Bajjali funds (assets) invested in BizRadio?

DW Responds – Yes. Wallace Bajjali has been involved in three separate investment funds. These funds have invested in about 25 separate real estate transactions, and 2 private equity transactions. Some of the real estate transactions are mixed use in nature, so for each asset, there may be four or five separate developments, i.e. on one of our tracts of land we are developing Assisted Living, Independent Living, Age-restricted patio homes, Memory Care Facility, etc. One of the private equity investments was BizRadio.

6. If so, what percentage of the fund assets (not based on appreciated property, but based on cash invested) was invested in BizRadio?

DW Responds – We structured several transactions where we were able to get a co-investor (to our fund) to provide equity capital for a transaction, which in some cases, eliminated our requirement to come up with significant capital. In short, we did not have to come up with all of the equity, yet still received the majority of the equity upside. Based on the three funds that Wallace Bajjali was involved, and when including this co-investment equity for the benefit of the funds, about 15% of the equity capital was invested into BizRadio. Excluding the co-investment equity that we raised, about 25% of the equity was invested into BizRadio.

7. When did you first come to know Al Kaleta (assuming you knew him)?  How did you come to know him?

DW Responds – I think I first met Al Kaleta around 2000 through a mutual friend. I believe I met him through a service organization (I was the president of the Sugar Land Exchange Club).

8. When and how did you first come to know Daniel Frishberg?

DW Responds – I had a pretty bad accident (a drowning) in 2001. I was on life support, in a coma, etc. for a while, and following about a 6-month recovery, I was introduced to Dan Frishberg when he wanted to interview me on the radio about my drowning experience, and more importantly, the power of prayer in a community.

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

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

10. By the way, how did the L, F, W, Economic fund… get connected with funneling (investing) money into BizRadio?

DW Responds – At the time of creation of the LFW Fund, and when the dollars were invested, the strategy appeared to have merit and the intent was for the LFW Fund to realize a reasonable return.

11. What was LFW promised that would cause it to invest so heavily in BR?

DW Responds – The investment was based on the investment returns that were being promised by the then-current management team.

12. I have been told that Dan used BizRadio to expand his investment reach and increase his assets under management.  Would you agree with that characterization?  If not, tell me your perception of BizRadio under Dan’s direction?

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

13. As you know there are folks (investors) who feel that their dollars were misguided or misapplied (one called it funneled) into a money losing proposition called BizRadio and they feel that they were scammed.  Looking back, do you feel that they were scammed?  BY THE WAY, I KNOW THIS IS A TOUGH QUESTION.  And if so, were you scammed into directing money into BizRadio?

DW Responds – I continue to feel today that the BizRadio strategy can be a good strategy, as long as there is no conflict of interest and as long as you have good management execution. For example, having the RIA, Online Trading Academy, radio station, station content company, etc. all UNDER ONE UMBRELLA ENTITY, makes a lot of sense. Therefore, there is no opportunity for conflict of interest. This is the structure that we recommended during the 2008-2009 timeframe. However, based on the conversations that we have had (over the past 18-months) with numerous investors, BizRadio employees, stakeholders, etc., I am not certain that the investor’s interest (initial investors, our fund investors, and other lenders to BizRadio) were placed in the highest fiduciary role by the BizRadio senior management team.

14. You are respected as a smart young man.  My gut tells me you were scammed.  Do you feel that you’ve been had?

DW Responds – I am not going to comment on the level of intelligence, but suffice it to say that there are countless investors that have invested millions of dollars (alongside our funds) based on a strategic plan, BizRadio offering documents, story, revised strategic plan, etc., etc., and all of us are having to reserve for 100% of the investment that we made into BizRadio. It is a shame for a strategy that should have worked, if it were not for poor execution. I am certain that the SEC (or other governmental agency) will determine the motivation of the BizRadio senior management team. I will leave it up to them to determine if people were misled or “scammed” as you put it. Nevertheless, please keep in mind that the Wallace Bajjali back-end interest only kicks in following certain IRR thresholds to the investors. A write off of BizRadio has a tremendous economic hit to all concerned.

15. There is an SEC investigation that goes well beyond Albert Kaleta.  Do you feel that your financial connection with Dan Frishberg Kaleta in any way taints you as a General Partner in this private equity funds? and/or Al

DW Responds – Frishberg , Jordan & Stewart Advisors (and ultimately Frishberg & Kaleta) raised capital and had their investors allocate a portion of their capital into three of our investment funds. In many respects, we were one of several investments that these investors made at the recommendation and advice of their financial advisor. We believed in BizRadio and, for quite some time, trusted Dan Frishberg. We were disappointed in his conduct, and continue to be surprised at the extent to which he misled us and others. Having said that, the connection by our investment into BizRadio, does not represent our finest investment hour. We continue to focus our time and energy on realizing some return of our investment in BizRadio, and to maximize our return on the remaining 20 or so real estate properties.

16. Has the SEC sought your input into their investigation?

DW Responds – Yes.

17. Do you feel that you are under investigation by the SEC or any other governmental agency?

DW Responds – No, but I am helping them in their investigation.

18. What was Dan Frishberg’s plan (long range) for BizRadio (before the SEC busted Kaleta)?

DW Responds – The most recent plan I have heard about is that the company was looking to establish a relationship with Salem Communication to roll out the BizRadio concept into other markets. As these markets are established, then other services (RIA, Online Trading Academy , etc.) that would be owned by the overall company would benefit.

19. Do you think that Dan was capable of executing that plan and creating a successful business enterprise in BizRadio?

DW Responds – Early on, I believed in the plan and thought it had merit. I was convinced by Dan Frishberg, as were countless others, that he had the experience and the ability to execute the plan. As time passed, I assumed that he could surround himself with others having experience to execute the plan. Yet ultimately, many of these experienced folks were terminated or dismissed for numerous reasons. As time passed further, I felt that by bringing in Salem to take over all of the station operations, by having the CEO of Online Trading Academy take over numerous operations, etc., and to eliminate the operational deficiencies of the senior management team, I felt that it could be recovered. In the end, that would not work out either.

20. What role do you feel that Elisea Frishberg played in the success or downfall of BizRadio?

DW Responds – I am not sure what she contributed; it was my belief that her salary should have been reduced or eliminated as part of an overall expense reduction that Dan Frishberg promised to implement, at least in large part, but ultimately never did.

21. I can’t begin to tell you how many former employees have reached out to share their experiences while at BizRadio.  Was it that difficult a place to work?  If so, how?

DW Responds – It should not have been, but it became that way. I would defer to the employees’ comments to you, which sound like what I heard as I began to voice my own criticisms in mid- to late 2008.

22. Many investors who have (or feel that have) lost tens of thousands or hundreds of thousands hold you partially responsible for their loss.  In your opinion, is there a loss?  If so, do you feel responsible?  And, what plan of action is there to make the investors whole?

DW Responds – We made an investment based on the best information available to us at the time. Needless to say, things have changed dramatically while we were invested in BizRadio. We have made the decision to reserve 100% of our BizRadio investment as of December 31, 2009. Although we cannot control the economy, capital markets, etc., we do anticipate that the real estate investment returns should provide a full recovery of the investment capital to the investors.

GALLAGHER COMMENTS: After reading David’s answers I was still a bit perplexed.  I remember the movie “Forrest Gump” and the line where he says, “I’m not a smart man…”  Well…I’m not the sharpest knife in the drawer, but some things just don’t add up.

Let’s see…one raises money for lets say a major real estate investment.  The funds you raise are coupled with legitimate debt and you buy the property.  The assumption is as follows:  (1) you lease the property so that the lease payments pay the debt; (2) the property rises in value so that when it is sold you have a gain; and (3) the investors reap the reward from the real estate sale and appreciation.

Up till 2008 that seemed to make sense.  Then…well the crash or shall we call it “The Great Recession!”

So, let’s take look for a moment at Wallace Bajjali and what they say on their web site:

Founded by David Wallace and Costa Bajjali, Wallace Bajjali Development Partners, L.P. is a private, real estate investment and consulting firm specializing in a variety of real estate services to investors, developers and institutional owners. Using our extensive development experience, private equity funds and knowledge of public-private partnerships, we can make most projects a reality. Through economic development, we strive to create real value for communities, municipalities and our investors.

More specifically, Wallace Bajjali Development Partners focuses on the development of both commercial land into retail, office, mixed-use and town centers, and residential land into single family communities, student housing, independent living, and assisted living. We endeavor to create a true sense of community throughout all our developments.

Being a bit simple minded, what I don’t see is any reference to Wallace Bajjali investing in anything other than real estate.  But, I am open to the possibility of other investments.  Of course the question arises as to how Al Kaleta and Daniel Frishberg got involved.  David Wallace provides some insight in his answers above:

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

Hum…now what motivated Al and Dan to want to direct their clients monies into this new fund.  I have been told by many parties that Al and Dan had a motive that was not – shall we say – transparent.  In fact, I have been told by several reliable sources that Dan and Al wanted to use David as a conduit for funds.  Money laundering if you will – maybe not in the illegal sense, but as a way to redirect assets.

Here’s the example.  If Dan Frishberg, using BizRadio, told folks to invest directly in BizRadio he might have some “explaining” to do or at least he’d have a clear conflict of interest.  On the other hand, if he referred investment clients to David Wallace (who may have been unsuspecting at the time) in exchange for David investing a portion of his fund in BizRadio – Dan would avoid (at least on the surface) any conflicts.  Or…he’d be able to divert funds (my example of money laundering) – investment funds – back into his own pocket and that pocket was called BizRadio.

But the story continues…  David Wallace further stated above:

At the time of creation of the LFW Fund, and when the dollars were invested, the strategy appeared to have merit and the intent was for the LFW Fund to realize a reasonable return.

The investment was based on the investment returns that were being promised by the then-current management team.

As you look above you’ll see these answers provided by David Wallace related to the Laffer, Frishberg, Wallace fund.  Now the investment, as David put it, was “based on the investment returns that were being promised by the then-current management team.”

Still seeking answers I had the opportunity today (April 14, 2010) to talk to David Wallace via the phone.  I must say I enjoyed the conversation and David’s candor in answering my continued questions.  Below you will see my questions, David’s responses and my further comments.

So here’s a new question:  What due diligence did you perform on BizRadio to determine if the investment returns promised were based on historical fact?

DW Responds:  From a due diligence standpoint you really couldn’t have looked at a lot of historical numbers cause in the case of Houston and Dallas they were relatively young companies.  As it relates to the strategy itself, as I mentioned in some of my responses, I think the business strategy itself could be sound.  I think the concept of having ownership in the content of bringing hosts on – like an on-line trading academy – they’re connecting with the listener and there are additional products and services they can sell.  I think to the extent that you can capture that revenue where its just not a one time revenue of this is how much someone is going to pay for an hour slot – but there are also other profit opportunities – again I think it was a very sound business model.

As I looked at the due diligence, the analysis and the industry – where things were headed in the terrestrial radio industry – I thought there were some good opportunities there – as did hundreds of other investors.

Beyond the due diligence issue there are some other pieces to this puzzle that just don’t seem to fit.  David stated, in part above:

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

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

Now…the real kicker for me is why, in the Wallace Bajjali fund, you would allow Al Kaleta to take an active role in the investment of funds or allocation of assets?  As an example, I received the following which is being shared in an edited form for illustration purposes:

The first part of July, 2008, I received a telephone call from Al Kaleta.  Al informed me that he was sending a paper that needed my immediate signature.  He said it was important that I sign and send back as soon as possible.  Al Kaleta did not give me an explanation of what the paper contained and I did not ask.  I trusted Al to carry out my original intent of investing in low risk bonds.  At the time I signed the document, I was not aware that Wallace Bajjali Development Partners LC, were part owners of Biz Radio, and Al did not inform me.

NOTE: Perhaps it is not necessary to tell investors in a private placement where there money is going, but most folks could reasonably assume that Wallace Bajjali investments are not made in unrelated business ventures – like BizRadio.  The apparent practical motivation to invest in BizRadio is that is the hand that feeds you – or the money source for future investments.

The Express Mail package was delivered by DHL Express Courier on July 12, 2008. I kept the original envelope.  I kept the document until the next day and did not see anything out of order so signed it.    I don’t remember anything on the page except names and a designated place for me to sign.  I assumed that since two years had passed, my investment with Wallace Bajjali Development Partners LP was being terminated and the money was being invested back into my Fidelity account, as was the original agreement by telephone with Al Kaleta. Either the afternoon that I signed or the next day Al Kaleta again called to see if I had returned the signature page.  A copy of the Fidelity Cashiering Journal Request document with my signature that I later received does not look familiar to me.

NOTE: It is now mid-2008 when David Wallace said he was becoming concerned about BizRadio.  If David is accurate about the date, then why would he allow Al Kaleta get anywhere close to the funds invested with Wallace Bajjali?  Secondly, this investor states, “A copy of the Fidelity Cashiering Journal Request document with my signature that I later received does not look familiar to me.”  Is there an inference there that forgery could be involved on investment papers here related to Al Kaleta?

I received a Memorandum of Payment schedule in Oct. 2008, dated 10/7/2008, re 11%/(investment amount removed for privacy) and a copy of the Secured Promissory Note. I filed the document without looking at it. I did not know it was high risk investment because Al Kaleta had assured me when I set up my account in his office that only secure bond investments would be made. The first payment of interest, $XXXX was transferred to my Fidelity account #xxx-xxxxx in September, 2008.  Payment for the forth quarter 2008 was made in January, 2009 in the amount of $XXXX. Payments for the first and second quarter, 2009 were made. Payments of $XXXX for each of the third and fourth quarters are past due.

NOTE:  Now I really have some questions.  Is it possible that the investment interest amounts were made from other “fresh” investors funds and that they stopped because the Ponzi scheme crashed?  As I’ve said before, something smells Frishy.

On Nov. 20, 2009, I received an e-mail from Frishberg, Jordan & Stewart ADV, titled “The Biz Radio Network Chronicle Article Nov. 20, 2009”, with several highlights.  Referencing page 2 of 2, of “Where it Went”, I did not receive any inquiries asking if I knew I was lending to Biz Radio.  I would have answered that I did not know I was making a loan to Biz Radio.  My account is a personal retirement account, I am not a business.  I was not made aware of how risky this investment was until December of 2009.

Sad!

So here are my last questions for David Wallace which were part of our phone interview today:

When Al Kaleta and Dan Frishberg brought investors to you for your various funds, did they ask for you (or the funds) to invest a portion back into BizRadio?

DW Responds:  No.  We would have investors come in and obviously they would be qualified and they would invest in … like the West Houston fund – the capital would come in, we made real estate investments – we didn’t have any ownership in BizRadio in that fund.  In the second fund, Wallace Bajjali out of ten different transactions – nine of which were real estate and one of which was an equity investment in BizRadio.  At the time we were looking at making a private equity investment – sure we did due diligence just like all the other equity investors that made a direct investment in BizRadio – it was never a situation where there was pressure or anything.  Based on the materials we were presented, at the time, it looked like a prudent investment and a good business strategy.  It didn’t turn out that way!

I haven’t seen those materials you’re referring to.  In your opinion were those materials – the prospectus if you will – the primary product of Dan Frishberg or Al Kaleta or were the two of them in tandem?

DW Responds:  I think the two of them in tandem.  They also hired a guy – John Lundsford (spelling might be incorrect).  John came in as the Chief Financial Officer of the business.  He’s been involved in the roll up of different cable companies, and in financing radio station holding companies.  I figured that you’ve got somebody here that has raised billions of dollars for this type of an enterprise – surely as we move forward – as you look at this business plan and this private placement material – again it smelled of credibility.

David, I’m not trying to be argumentative in this question, but what expertise in evaluating the merits of radio property do you have and I think you just answered the question in your comments above?

DW Responds:  That’s why when I answered one of the questions about the management team or Daniel’s ability to execute – I basically said you surround yourself with people, like a John Lundsford.  John is a very talented person.  I think in the final analysis – I think whether John was not able to execute or was instructed to do other things – I don’t know.  Needless to say, with his pedigree the company still had problems.

Were you ever told that BizRadio was a shell company – an expense company if you will – that, at least in Dana Frishberg’s mind, it never was designed to produce a substantial enough profit to provide a fair and equitable return for investors?

DW Responds:  The concept and what we invested in was not what you just described.  The concept we invested in was how can we grow the enterprise – how can we get profitable – how can we generate a good return for our investment.   But hindsight being 20/20, I, too, have had many of those interviews with former employees and some investors – and apparently some of those investors were even told – “yea, this is nothing more than a loss leader for our RIA!”  I get incensed when I hear that!

If Dan Frishberg has said that it’s a “loss leader for his RIA” – well I’m having a hard time here.  Let me put it this way…  what I hear is that Dan Frishberg is taking investor money, placing it into BizRadio so it can pay it’s bills, so I (Dan Frishberg) can grow my RIA – which I (Dan Frishberg) personally gain benefit from but which BizRadio has not interest in.  Am I missing something?

DW Responds:  I think that what you just described is an inherently a conflict of interest.  That’s part of the reason I think the SEC continues to ask a lot of questions.

According to an investor source, the Laffer, Frishberg, Wallace Economic Opportunity Fund cannot invest more than 20% of the capital of the fund into any one investment.  How did 50+% get invested into BizRadio in contravention of the agreement?

DW Response:  Good question.  Let’s talk about the funds themselves and the way that activities take place.  When dollars come into the fund from an investor there’s a preferred return that starts ticking immediately.  So, it’s incumbent on us as the General Partner to make sure those funds are deployed immediately.  If we raise a million dollars of what’s supposed to be a $100 million dollar fund – as that million dollars comes in it gets deployed and we make an investment in real estate of whatever the case may be.  So a million dollars over supposed what would be $100 million dollars is the analysis that was taking place.

The very first investment that you make in this fund… if there’s a million dollars then its a million over a million – so you’re already 100% invested in one particular asset.  If you continue to receive assurances that the capital will continue to come in – that denominator will continue to grow – then based on sheer math it would have never been more than 20%.

In this situation, when the Frishberg and Kaleta folks stopped raising capital – for whatever reason – obviously that denominator stayed at a particular level and sure there’s more than 20% invested in BizRadio in that particular fund.

GALLAGHER COMMENT:  Of all the questions that David Wallace so kindly answered, this one struck me as a weak link.  I do completely understand the inflow of capital and outflow into investments.  No problem there.  But, put into perspective, the General Partner has a fiduciary duty to protect the investors.  So let’s say, if I were to raise $25 million to invest in real estate and it would cost $4 million to get into any one investment, would it not stand to reason that you would hold investment funds coming in – in some safe investment – until you have raised at least enough to do your first deal?  Here’s a missing link for me…why would you put the first monies (inferred from David Wallace’s comments above) into BizRadio while you were still seeking investor dollars?

It just doesn’t make sense.  Al and Daniel (as David refers to them) must have been the principle investment resource for David in the LFW Fund as David said that when they quit seeking investor dollars…the denominator changed and the terms of the agreement were violated.  Now, I’m not an attorney, but as an investor I would look to the General Partners – jointly and severally – to make me whole – if I believed that they were not prudent with investment funds.  This area still causes some concern and seems to be an area of vulnerability for David Wallace.

I haven’t asked this question before, but what was Laffer’s role in this other than lending his name to it and potentially helping raise investment funds?

DW Response: I’ve known Arthur since the late ’80’s.  And when Daniel knew that I knew Arthur he wanted to meet him and so I made the introduction.  From that it was – how can Arthur go on the radio with Daniel – how can Arthur be an advisor or consultant?  In connection with the Laffer, Frishberg, Wallace fund – Arthur actually owns a percentage of the general partner.  He was really more supposed to be an adviser and do some other services, I guess for Frishberg – I’m not sure for Frishberg and Kaleta I guess – or the radio – I don’t know all the particulars.

I am assuming that Daniel has paid him (referring to Arthur Laffer) through Frishberg and Kaleta or through his radio time on BizRadio.  I really don’t know.

What impact does the involuntary bankruptcy have you and your company?  Have you joined into this process to protect your interests?  Seems you’d want to protect your investors by being active in the bankruptcy – am I missing something?

DW Response:  Well…you don’t need to join in the process to protect your interests.   Number one we have an equity interest and we are an agent that represent some who are secured note holders.  So as a secured creditor obviously we are watching what is going on with “the involuntary.”

I called a meeting about two weeks ago of those secured note holders.  Let’s face it – some of those secured note holders are basically on the side of “let’s give BizRadio time” and some of those secured note holders are just diametrically opposed to that.   You have investors on both side of that equation.

I called a meeting of all of those secured note holders and basically said, “Guys, I need some direction.  I need a consensus as to which direction we go.  Here are the options.”  I basically said, “We can do nothing and wait.  We can foreclose on the assets.  Or we can start an involuntary petition.”  That was my recommendation.

My recommendation wearing the agent hat on behalf of these note holders was that we pursue an involuntary bankruptcy on BizRadio.  Stop the sale to Salem.  And position ourselves to get our hands on the FCC license, the collateral and maximize the return for us as secured note holders.

After I spoke for perhaps 45 minutes… one of the other secured note holders stood up and said in so many words, “Too late, I did it today.”  So that’s where they are and we’re obviously communicating with the SEC and others in connection with this.  We’re continuing to monitor this.  There are a lot of things being done by this petitioning group that filed the involuntary.

I’m going to show my ignorance here.  Apparently three creditors are required to petition and three did.  But if your recommendation to the investor group was to file an involuntary bankruptcy, then would it not make sense that you would not – add your names to – join in on – whatever, but be included in the involuntary that has been filed?

DW Response:  It doesn’t change your collateral position.  If for example, Joe Schmoe files an involuntary bankruptcy and I’m a secured creditor – it doesn’t change my secured position at all.  There is a process.  The process right now is to determine if BizRadio is insolvent?  Can they pay their debts as they fall due?

GALLAGHER COMMENTS: I still have some confusion here.  If David openly acknowledges that, as he put it, wearing the Agent hat – he had a responsibility to protect the investors, and he was recommending filing an involuntary bankruptcy, it would seem that he would join those who have already filed vs. sitting and waiting on the sidelines.

I talked late today to a bankruptcy attorney (not in Texas) just to ask for guidance and he agreed with my comment above.  While it may not improve the security interest, it certainly does strengthen the involuntary claim when more people join.  In fact, he stated that were it his client, he would join – if for no other reason than to show that he was acting fully in his Agent fiduciary capacity to protect the secured creditors.

Go figure!

As the conversation was winding down I had just one last question.

Dan Frishberg had an RIA.  It would appear pretty obvious at this time that, he used BizRadio to attract more investors – to manage their investment through his RIA – and none of that (investment returns from Dan or Al’s RIA) ever – none of that revenue – ever went back to BizRadio.  BizRadio never had an ownership interest in that.  Then somewhere along the line, Dan Frishberg transferred his assets under management or RIA to some other guy (I don’t recall his name).  So, as secured creditors in BizRadio, since BizRadio and Dan Frishberg were in essence one in the same – is there a way to pierce the veil to get access to the income that’s being generated from those assets under management so investors can be paid a reasonable return? (phew…this was a long question)

DW Response:  Suffice it to say, we’re working with the SEC in connection with things like that.

CONCLUSION:  Going in I had the suspicion that David Wallace was suckered.  After his written response and our conversation today, I still believe that – to a point.  I believe that David – a young man – was at the outset snookered – lured in by older and wiser Al Kaleta and Daniel Frishberg – both of whom (I have come to believe) knew exactly what they were doing.  David became an investment conduit and I’m not sure he saw that at the outset.

Once in, however, I believe that David came to rely on Al and Daniel to be the primary source of his investment capital and once on the money tit it’s hard to get off.  It’s addictive.  Then…it went too far and I feel (of course David could tell me that I’m wrong) that David did what he could to salvage a bad situation and perhaps in that process lost his objectivity.  If David has a vulnerability it would be a shareholder suit alleging lack of fiduciary duty in his role as General Partner and Agent.  Is David guilty of criminal activity – I don’t think so and I don’t think that any law enforcement would pursue that against David.

What I do think is that David will learn from this experience and that due diligence and attention to fiduciary duties will rank substantially higher on his list in his very bright future.

Personally I thank David for his willingness to talk and share as openly as he did.

YOUR COMMENTS WELCOME – from this the longest blog I think I’ve ever written.


BizRadio – Looking from the inside out… Was there a business plan to protect investors?

April 12, 2010

What rights do investors have when it comes to their investments?  If monies are p0ured into an entity – like BizRadio – do the investors have the right to know what type of business plan exists that would reasonably support a return on their investment?  And, if you believe that investors do have rights, where should that information come from if management is unwilling to transparently provide it?

Those questions have been troubling me for some time and especially since I have had the opportunity to interview several BizRadio insiders.  While several have been unwilling to share their identity, one young person was candidly open about his role in BizRadio and freely took part in an interview to share with me his beliefs and opinions about what BizRadio looked like from the inside out.  The following represents part of the interview we had together. Will his insights help in shedding light on BizRadio as it formally existed?  Not sure, but as the collapse is actively underway, perhaps this information may help others have a clearer understanding of, at least from one person’s perspective, the management (or lack thereof).

Tell me about your experience with BizRadio (that open ended question seemed to open a flood gate of expression – a portion of which is shared here):

I was hired several years ago – 2008.  As a beginning, I received an email from Elisea Frishberg letting me know that they were interested in me interning with BizRadio.  Elisea said they were intending to expand BizRadio into India and when we do expand, we want you to run the operations there, but that’s years down the road.

When I arrived they had just started making changes.  I was supposed to be working for Brent Clanton – the general manager – and he was laid off the day I started working.  So I didn’t really have a supervisor when I got to BizRadio and the first month I didn’t really do a whole lot.

After the first month I decided to take things into my own hands and I became very active.  I became much more proactive.  Therefore, at the end of my internship I received an offer to stay with them.

So what did you observe as an intern turned full time employee?

My first question was – they’re paying me, an intern, a very good salary and I wondered how they were getting their money because they had no advertising.  Some of the younger folks were telling me that – they hate their job or they hate working for the company – but by the time they were 40 they be like – millionaires – because of how much money BizRadio was paying them.

NOTE: I felt like a point was being made but, likewise, it included an exaggeration – as no one practically becomes a millionaire off of wages.  Was what I was being told shared in order to gain his/her 10 minutes of fame or was it more truth than fiction?  I listened carefully to see if there were nuggets of information that would prove to be beneficial to the blog readers.

I remember at my interview, before I got the position, Elisea interviewed me and in a sense I guess she trusted my abilities, but at the same time I thought – they didn’t do a background check on me – they didn’t know what I had to offer – what my background was.  I walked into the room.  She told me about her life story – how she came from the Philippines and all that and then she just said – all right you’re hired.

As I heard this story, I began to believe that there might be some truth to the comments this individual was sharing.  Not only had this person shared the “life story” saga…but I had heard the exact same thing from others.  With skepticism I continued to listen…again hoping to find some benefit outsiders could find helpful.

She claimed that she went to law school at the University of Houston and passed the bar.  I don’t know if that is true.  On the other hand, Dan Frishberg claims he went to NYU (New York University) on a scholarship.  The fact is he doesn’t have a college degree.  I know this because I created his Wikipedia page…  I know his background.  I know what he’s all about.

NOTE: I don’t know whether the above statements are factual, but I am doing some research to determine if both claims are correct.  Did Elisea Frishberg graduate from the University of Houston with a law degree and did she pass the bar?  Likewise, did Dan Frishberg, in fact, attend NYU and does he have a college degree?

Tell me more about what you observed related to day-to-day operations.

Dan Frishberg never cared about his employees, he only cared about himself.  He would come into the office for his radio show and that’s pretty much it.

The investment side of the business was run by Al Kaleta who I think you know.  (Fact is I don’t know Al Kaleta, but know of him through what has been written, the SEC ruling and what has been shared from investors, etc.)

They had a lady named Sonja (perhaps spelled wrong).  She is not a CFA and did not pass the series 7 exam and as best I could tell she was giving investment advice to prospective and current investors.

STOP: If this is true, then my guess is Al Kaleta may be in bigger trouble than he might think.  Perhaps too – Sonja?

It seemed shady from the beginning.  But at first I didn’t care.  I was getting a paycheck and I didn’t care how I got a paycheck.  I didn’t care too much about what was going on behind the scenes.

But at the same time everyone knew that something was wrong – from top to bottom.

Now David Wallace came on board to try to turn BizRadio around.  Within, like, two months he completely cut off ties.  What I mean by “completely cut off ties” is that he completely abandoned BizRadio.  He turned a blind eye to it.

NOTE:  I have communicated with David Wallace via email and he has been kind enough to answer a series of questions so please keep an eye out on this blog for my exchange with David…it is enlightening!

What happened to the money flowing into BizRadio (or do you know)?

Well after the Kaleta filing came out they moved all the money they had from the BizRadio account to his personal account because that they were afraid that the SEC would freeze their account.

Dan Frishberg’s assistant called me and said he wanted to meet.  So we set up a meeting at his house for the next morning.  I went to his house and after giving me drinks he completely blasted me.  I could sue you for violating your non-complete agreement (oh but there was no non-complete agreement).  He made me feel really bad as he said that I was unethical, a liar, this and that…because I left the company.  Then he said that he would forgive me if I came back to work for us.  And then he went on about BizRadio saying we’re doing big things – we’re expanding to China – we’re going to start a hedge fund – our trading business is expanding –  our money really is growing.  Come back and work for us.

I remember driving home feeling really bad about myself as he questioned my integrity and honesty.  But, a week later I sent them an email rejecting their offer.

How did BizRadio get their funds?

More than a year ago my dad was looking to put his money with a fund manager and, of course, Al Kaleta approached him and my dad set up three or four meetings with Al Kaleta.  The way Kaleta was trying to convince my mother and my father to put their money – was like you’re like family – we care about your son – I’m going to give you a discount.  You won’t have to pay this much in fees.  And my dad was very very close to putting all his life savings with Kaleta.

He called me up one day and said, was this a good idea?  At the time I was still with BizRadio and I said, “Dad, don’t do it.  There’s something very shady going on with BizRadio.”

When Kaleta was busted by the SEC – did Frishberg feel like he was going to be under investigation or did he feel like he dodged the bullet?

Well anytime your partner gets busted by the SEC you have to feel that you’re next.  Even if you’re innocent, they’re probably going to investigate.   What I’ve heard is that Frishberg has completely turned a blind eye to all these legal things.

I’ve really been pondering this.  Was David Wallace sucked in by Dan Frishberg and Al Kaleta or was David active with them in raising money and then knowingly diverting it?

Well…this is tough.  I have nothing but respect for David.  To say that David Wallace had no idea what was going on is impossible.  I was an intern and I had a clue something was going on.  I want to think that he was sucked in.  But he still knew what was going on and I think he left a little too late.

There’s a lady there who handles all the money.  Linda Sikes. (may be misspelled)  Where is Linda in all of this?

There was a CFO when I was there named John Lunsford (spelling?).  It was not his job to know where the money was coming from, rather it was to allocate the monies in the account.  John Lunsford should come out squeaky clean from all of this even though he knew exactly what was going on.

They got rid of Lunsford and I think he got something like $400,000 per year.  They got rid of him while I was there and it was a huge deal.  He was the CFO and he was leaving.

Linda Sikes (spelling) was the comptroller so all she was responsible for was making sure that people got paid.  When you say, “where does she play in all of this” – I don’t think she…  she was just doing her job.

While the interview continued…it was clear that it was winding down and comments were just repeats of earlier statements.

Of all of the blog entries written…this one has been most troubling.  Troubling in that I was dealing with an former intern and employee of BizRadio who may have had a skewed perspective on reality while employed.  Yet, in looking back over the interview and the comments made…I have to believe that this young man was smarter that I, perhaps, gave him credit for.

I did offer to keep his identity confidential which – had he desired that – would have caused me to write this entry in a different manner.  But, after the offer, I received an email from him stating the following:

Enough information has come out now, and I’m comfortable with your using my name and title (intern).

And so it is…  The BizRadio saga continues and soon there will be an interesting interview (via email) with David Wallace and it’s refreshing I might add.

FOR NOW…COMMENTS ARE WELCOME!