Feds wring Spongetech chief exec
Alleged 'mini-Madoff' charged with fraud: fake orders, buyers
By Aaron Elstein
May 09, 2010
CHARGED WITH FRAUD: Spongetech execs Moskowitz, left, and Metter.
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Filed Under : New York Giants, New York Mets, New York Post, Securities and Exchange Commission, Top Stories
Last week, the law caught up with Michael Metter, a purveyor of kitchen sponges and stinky stocks with a long history of evading angry creditors and clients.
In a criminal complaint, federal prosecutors charged the CEO of Spongetech Delivery Systems Inc., a tiny Manhattan company that was once a big advertiser at such places as Citi Field, Yankee Stadium and Madison Square Garden, with conspiracy to commit fraud and obstruction of justice. The feds allege no fewer than 99% of Spongetech's purported sales were fake and Mr. Metter pocketed millions in illegal gains by pumping his company's stock price. He then sold billions of near-worthless shares to gullible investors. If convicted, the 58-year-old faces up to five years in prison.
Mr. Metter is intimately familiar with courthouses. He has been sued repeatedly over the years, instigated litigation of his own and declared personal bankruptcy. Last Wednesday, however, marked the first time he entered one as a defendant in a criminal case. Dressed in a blue blazer, open-collared shirt and rumpled khakis, he quietly responded, “Yes, sir” and “Yes, Your Honor” as a federal magistrate asked if he understood his rights. The judge granted his request that he be allowed to travel to Lancaster, Pa., this weekend to attend his son's college graduation.
Charges “vigorously” denied
For people who have been fleeced by Mr. Metter over the years, the comeuppance has been a long time coming. “He's a mini-Madoff,” says Duane Townsend, a 76-year-old oncologist in Utah who lost $450,000 from buying toxic stocks at a brokerage firm Mr. Metter presided over in the mid-1990s.
The criminal charges are just the latest and most serious of Mr. Metter's legal problems. The Securities and Exchange Commission filed civil charges last week, and the New York Mets, Giants and Madison Square Garden are just a few of the parties that have sued his company for failing to pay its advertising bills.
Mr. Metter's lawyer, Jeffrey Sklaroff, says his client “vigorously denies” the government's charges and “looks forward to his day in court, where he is confident that he will be fully vindicated.”
(Spongetech's COO, Steven Moskowitz, faces the same criminal and SEC charges. His lawyer wouldn't comment.)
Mr. Metter and Spongetech have also contested the charges brought by the sports teams. In addition, he and his company last month sued the New York Post and its reporter who wrote a series of articles questioning its sponge sales.
Before getting into the sponge business, Mr. Metter worked on Wall Street for at least 14 years, according to industry records. There, he developed a lengthy track record for defrauding customers. Along the way, he bought a large house on a 2-acre lot on a quiet lane in Greenwich, Conn., which he used last week to secure his $2 million bail, and a yacht called The Phoenix.
Mr. Metter was fired from Prudential-Bache Securities in 1989 for violating procedures concerning client orders, according to regulatory filings. In the mid-'90s, he was president of a place called J.J. Morgan & Co., which changed its named to First Cambridge Securities after J.P. Morgan sued. Clients included Mr. Townsend, who got cold-called from a broker offering him a shot at initial public offerings in small technology companies. Mr. Townsend says he invested $100,000 and sent more after the stocks initially rose. The stocks collapsed subsequently, but when Mr. Townsend wanted out, First Cambridge wouldn't let him leave.
“I would speak to Metter, and he'd say, 'Just stick with it; it'll get better,' but it never did,” recalls Mr. Townsend, who filed a fraud claim in 1998 and was awarded $457,000 by an arbitrator.
But Mr. Metter told his client that he had no intention of paying the award, according to a suit Mr. Townsend filed in federal court in 2000. A judge confirmed the arbitration award. Still, Mr. Metter wouldn't pay, even though his compensation that year was $242,000, according to court records. Mr. Townsend ultimately settled for $30,000, which Mr. Metter paid by refinancing the mortgage held in his spouse's name on his Greenwich home.
Mr. Townsend's case was just one of several to hit Mr. Metter at about the same time. An arbitrator awarded another cheated First Cambridge client $108,000 and granted $250,000 to another defrauded customer at Mr. Metter's next firm, Madison Capital Markets. In April 2001, a month after a fourth angry investor sought $550,000 in damages, Mr. Metter filed for bankruptcy. In his petition, he listed $30,000 in assets and $5.1 million in liabilities, including a lease for a Bentley.
“Keep your mouth shut”
All the investor complaints drove Mr. Metter away from Wall Street to a new career—as a sponge salesman. With Mr. Moskowitz, he launched Spongetech around 2002.
Soon, however, Mr. Metter was back with a new venture. After five years of dormancy, he started hyping Spongetech's stock in 2007 by issuing a press release saying a South African company agreed to buy 1.5 million car wash sponges, according to the government's complaint.
Subsequently, Spongetech proclaimed big sales to clients in South America and Dubai and introduced a SpongeBob SquarePants sponge. The company even hired a stock promoter in Brooklyn who paid vendors with gift cards he'd purchased, the government says, and Mr. Moskowitz allegedly invented a fake lawyer named David Bomart who drafted “opinions” approving their actions.
The hype worked. Spongetech's stock, which traded for pennies, quintupled in value, and Mr. Metter and Mr. Moskowitz sold 2.5 billion shares, the government says, using a portion of their millions in profits to buy ads with the Yankees and other teams to further raise their company's profile. At Spongetech's peak last summer, Mr. Metter was at his hard-selling best, touting the wonders of its product at an investor conference.
“We are really a technology company—even though when you look at it, you believe it to be a sponge,” he declared, waving a yellow sponge. “Anything that is put into this sponge will stay in it until it is activated with water and mechanically squeezing [sic]. Look at this sponge as an alternative to bottles.”
By last September, Spongetech claimed it had $70 million in orders.
Not true, the government says. Prosecutors allege that Mr. Metter and his partner fabricated 99% of the company's revenue, and when investigators started sniffing around, the men generated fake sales documents and created phony offices for nonexistent clients. When a representative from the company's primary supplier got suspicious, Mr. Metter told him to butt out.
“Mind your own business,” Mr. Metter snapped, according to prosecutors. “If you know what's good for you, you'll keep your mouth shut.”
Filed Under : New York Giants, New York Mets, New York Post, Securities and Exchange Commission, Top Stories
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