Hop-On Inc (HPNN)

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Hop-On CEO indicted

Todd Wallack, Chronicle Staff Writer
Published 4:00 am, Friday, April 18, 2003

Hop-On.com chief executive Peter Michaels, the Southern California impresario who gained fame for touting a disposable cell phone, has been arrested for allegedly defrauding investors in connection with a defunct online gambling company.

A federal indictment made public Thursday accused Michaels and others of raising $12 million to $18 million on behalf of World Wide Web Casinos (WWWC) with the help of telemarketers, glossy brochures and false representations. It also accused Michaels of pocketing some of the money.

"Fantastic," said Michael Harb, an accountant who invested $70,000 in the gambling venture six years ago and has been able to recover only half his money. He said some other investors lost their homes.

The Chronicle first raised questions about Michaels and the cell phone venture more than a year ago, citing their connections to the online gambling firm.

Specifically, the indictment said Michaels and others "cosmetically modified" an existing casino software program to make it look as if WWWC had created its own new program.

Michaels and another executive also promised to forgo a salary until the firm generated enough cash to pay them, but instead paid themselves with investors' money, according to the charges.

In addition, Michaels used $17,000 of shareholder funds to pay his credit card bills and spent an additional $131,000 on a yacht, the indictment contends. WWWC also signed a $500,000 contract with another firm, Binky Roo Software, which was secretly controlled by Michaels, according to the documents.

The indictment names Michaels and four other men (Greg Boretz, Robert Rey, James Beck and Charles Woods) connected with WWWC and a related firm that raised money for WWWC, Tri Star Wireless Communications, for conspiring to commit securities and mail fraud. The California Department of Corporations and the U.S. attorney for the Southern District of California handled the case.

WWWC shut down about three years ago after it was raided by state investigators, and WWWC shares were converted into stock in Hop-On, Michaels' latest venture.

Hop-On then gained widespread attention after issuing press releases touting a disposable cell phone for between $30 and $40.

Time magazine dubbed the phone one of the best inventions of 2001. And Michaels promoted the device everywhere, including cable channels such CNBC and BusinessWeek magazine. Its stock rose above $1.50 per share in over-the- counter trading.

But The Chronicle found that two sample Hop-On phones sent to the paper were actually modified Nokias in a new plastic casing. Michaels later explained those were prototypes.

Despite promises that the phones would be shipped to thousands of stores in 2001, the phones are still not widely available.

Walgreens, which agreed last year to test market the phones in a few Southern California stores, said it has received fewer than 200 phones to date.

At least two other distributors canceled their orders with Hop-On.

Hop-On and Michaels sued The Chronicle for libel a year ago but dropped the suit a few months later. The law firm that handled the case, Henderson, Humphrey & O'Shea later sued Michaels for $40,000 in unpaid bills. They are now in settlement talks, said attorney J. Scott Humphrey.

Michaels and his current attorney did not return calls seeking comment.

http://www.sfgate.com/business/article/Hop-On-CEO-indicted-2621739.php