Reid Breitman->Kiosks, Cocaine, and Khashoggi.
05 December 2001, 22:00
by staff
In the world of troubled dot-coms, you aren't likely to find a more baroquely tangled intrigue than the one enveloping GenesisIntermedia.com of Van Nuys, California--a company that claims to operate such oddly unrelated businesses as a car rental company, a consumer telemarketing company, a coupon business, and a network of shopping mall Web kiosks.
Behind this company--or linked to it in one way or another--is a cast of characters the likes of which are not often seen even in a penny-stock souk, let alone the Nasdaq National Market, where Genesis is (or at least, was) traded (Nasdaq: GENI). Within this yarn also lurks a cautionary tale for any investor seeking to make a quick killing on a volatile, low-priced stock like Genesis, which since spring has soared from $6.50 to $25 and then back again.
The lesson: do your due diligence. Then run like mad from any company that turns out to be owned--even in part--by investors who are trying to hide their identities behind a veil of anonymous-sounding investment companies. You just never know when the regulators might show up and halt trading in the shares. That's exactly what happened to investors in Genesis at the end of September.
So who's behind the veil? First, a fugitive Saudi arms merchant who is wanted on a warrant for bank fraud in Thailand, and at least two different drug dealers with felony rap sheets, one of whom is deceased and had ties to the Central Intelligence Agency. Two regional brokerage companies, one in Minnesota and the other in New Jersey, have also gotten swept up in the story, as has the New York financier Carl Icahn, who had the misfortune to extend a $100 million credit line to Genesis in June in exchange for some warrants in the company's stock.
Nasdaq market regulators halted trading in Genesis to seek "additional information" from the company in apparent response to some confused--and confusing--public statements as to whether its stock had undergone a three-for-one split. A September 5 company press release disclosing the plan said the split would take place on September 24. One day later, the company issued a follow-up announcement in which the date of the split was more vague.
But on September 19, Genesis announced that it was postponing the split, citing market turmoil in the wake of the September 11 terrorist attacks. Genesis shares took quite a hit when the entire market plunged; they fell from $17 on September 10 to $13 by September 19. The stock continued to crumble, and by the morning of September 25 it had slumped to $8.30 per share--at which point the company issued a perplexing statement saying that the weakness in Genesis's share price may have been the result of "certain news organizations not having updated their databases" to reflect the postponement of the split. This simply caused the stock to fall further, and by day's end it was down to $5.90. That's when regulators halted trading until the company could explain what was going on.
This left two brokerage companies, NativeNations Securities and the Stockwalk Group, exposed to millions in losses through some complex stock transactions that federal regulators are now investigating. Yet who is actually to blame in the fracas is almost a sideshow, for behind the Nasdaq announcement--which stuck Genesis shareholders with $137.5 million's worth of stock they could not sell--was a much larger story indeed.
Let's start with the largest single shareholder in Genesis: an outfit called Ultimate Holdings. Ultimate Holdings turns out to be an investment vehicle for a Saudi arms merchant named Adnan Khashoggi, who played a key role in helping broker illegal weapons traffic from the United States to Iran during the Iran/Contra affair. (Incidentally, Mr. Khashoggi and Imelda Marcos, former first lady of the Philippines, were jointly tried and acquitted of federal fraud charges in New York, and he is currently a fugitive from a bank fraud warrant in Thailand.)
Genesis's original underwriter was an outfit bearing the name Millennium Financial. The firm--now known as I-Bankers Securities--is run by a fellow named Michael Roy Fugler. Prior to becoming an investment banker and broker, Mr. Fugler worked as a criminal defense lawyer--in which capacity he handled narcotics-related cases for an Arkansas pilot named Barry Seal.
Seal kept a plane at a rural airport in Mena, Arkansas, which was eventually cited in news stories as a base of operations for alleged CIA drug trafficking in connection with covert U.S. support for the Contras. Seal is widely reported to have worked as a contract pilot for the CIA in that effort, smuggling arms to the Contras in Nicaragua and returning to Mena with cargoes of cocaine and other drugs. Seal was murdered in 1986 in Louisiana by Colombian cocaine cartel hit men. Mr. Fugler says he had absolutely no involvement with Seal except to represent him in two criminal cases involving narcotics in Florida, and a series of more routine civil actions elsewhere. He says he has never met and does not know Mr. Khashoggi.
Another company that Millennium took public is Netivation.com, which has a curious history with an Arkansas politician named Asa Hutchinson. In 1982, Mr. Hutchinson was appointed by then- President Ronald Reagan as the U.S. attorney for the district in which Mena is located. Mr. Hutchinson has publicly stated that he began researching "evidence of money laundering" in Mena when he was U.S. attorney, but that he resigned before the probe was complete. In 1999, Netivation signed a business contract with Mr. Hutchinson, by then a U.S. congressman, to undertake fund-raising for his re?lection. Mr. Hutchinson now serves in the Bush administration as the head of the U.S. Drug Enforcement Administration.
The co-underwriter of Netivation, along with Millennium, was an investment bank known as EBI Securities, which began in 1993 as the Czech Fund. One of the company's founding board members was Robert McFarlane, who had served as Mr. Reagan's National Security Advisor during the Iran/Contra scandal. In 1994, the Czech Fund changed its name to Czech Industries, and in 1995, it sold stock to the public courtesy of a Wall Street investment firm called Stratton Oakmont. By 1996, Mr. McFarlane had left Czech's board. Stratton Oakmont was subsequently shut down by the U.S. Securities & Exchange Commission for fraud and stock-rigging activities.
In 1996, Czech Industries merged with a brokerage firm called Eastbrokers International. In the process, a young Viennese stockbroker named Wolfgang Kossner became the largest stockholder in the merged entity. He had been running a brokerage called WMP Bank, which was also merged into Eastbrokers in the deal. Thereafter, Eastbrokers changed its name to Global Capital Partners and sold WMP Bank back to Mr. Kossner, who relaunched it as General Commerce Bank. Mr. Kossner was arrested by Austrian police in August in connection with the collapse of General Commerce and the apparent loss of some $1 billion in capital.
A German press report last March identified Mr. Khashoggi as holding a financial interest in WMP Bank and listed an individual named Regis Possino as being active in the bank's affairs in an unspecified way. Mr. Possino is a lawyer with a criminal record stretching back more than 15 years. He was disbarred in the mid-'80s after being convicted of selling 350 pounds of marijuana to undercover drug agents in California. In 1995, he pleaded guilty in federal court in Los Angeles to participating in a fraudulent scheme to use overvalued stock to pump up an insurance company's balance sheet.
A June 2000 financial filing with the SEC lists a company under which Mr. Possino does business--Corporate Financial Enterprises--as having the same address as an investor named Reid Breitman. Mr. Breitman's company, Corona, is listed in other SEC filings as being the largest single shareholder of Global Capital Partners.
So let's see: a fugitive arms dealer, two convicted drug dealers (one reportedly murdered by a Colombian cocaine hit squad), the scent of the CIA, and even those golden oldie memories of the Iran/Contra scandal--should we even bother to look at the company's financials? As of its latest filing, Genesis showed $54 million in assets, $63 million in liabilities, a negative net worth of $9 million, $8 million in quarterly losses, and $13 million in negative cash flow--assuming you even believe the numbers.
But don't we really know enough already? With more than 5,000 public companies to choose from, why waste another minute on this sort of dreck? Alas for the public, too few did their homework. Instead, they simply went chasing after this barking dog as it howled and growled from $6 to $25, then collapsed right back down to $6 all over again--at which point the National Association of Securities Dealers halted trading in the stock entirely. It will be interesting indeed to see what "additional information" the regulators squeeze from this mutt before trading in Genesis's shares resumes--if it ever does.
Topics: Kiosks, Cocaine, Khashoggi
