A little more on the background of Par and his exploits:
Buyer, Beware!
Dizzying deals raise questions about California's fast-growing Osicom Technologies
By Bill Alpert
Updated Aug. 25, 1997 4:25 p.m. ET
Behind the Veil of Secrecy
Just a few years ago, Barry Witz and Parvinder Chadha were ponytailed promoters of penny stocks. By early this year, though, the ponytails were gone and the duo had transformed Osicom Technologies Inc., into one of California's fastest-growing companies, with $120 million in annual revenues. Chadha was being hailed as a technology visionary, and he boasted that Osicom had better technology for computer networking than its far-larger rival, Cisco Systems . Witz and Chadha also liked to note that Osicom had won multimillion-dollar orders to supply equipment to the likes of MCI Communications , GTE and NASA.
But close scrutiny of Chadha, who is Osicom's chief executive, and Witz, who until June served as an Osicom director, reveals a series of deals that have left investors tens of millions of dollars poorer over the past five years. Neither Witz nor Chadha has been charged by regulators or prosecutors with benefiting at the expense of other shareholders. But both are subjects of active criminal investigations on both sides of the Atlantic because of the pair's extensive dealings with one John J. O'Carroll, whom British investigators describe as a henchman for a guy who's been convicted of laundering $136 million for the Cali drug cartel. On top of that, a variety of firms run by Witz and Chadha, including Saratoga Brands , Builders Warehouse and Osicom, have failed to tell their shareholders that Witz was named an unindicted co-conspirator in a fraud prosecution of stock promoters linked to the Mafia.
The very first stock deal that brought Witz and Chadha together five years ago is still the object of an enforcement suit by the Securities and Exchange Commission as well as a federal criminal prosecution and two class-action suits by disappointed investors. That 1992 deal concerned Scorpion Technologies, a software firm that engaged in a massive fraud, according to testimony by former employees.
In March 1991, when Scorpion's shares were languishing, along came Barry Witz offering to remedy the situation by introducing Scorpion to the brokerage community. The genial attorney's background was impressive. He had worked at the SEC, the New York Stock Exchange and some Chicago law firms. A 350-pound workaholic who was often on the road, Witz had also worked for Carl Icahn, run an ice cream franchise, and even helped produce such movies as the 1984 Mob spoof, Johnny Dangerously.
The Scorpion board hired Witz the day before the firm's chief executive, Terry Marsh, announced new image-scanning software that would generate $12 million in revenues for the firm. With products like that, Scorpion was beginning to sound like a stock that would almost sell itself.
Soon, Scorpion President Marsh was bragging that his software was becoming "the de facto standard in the image-conversion business." Before 1991 was out, Scorpion's shares soared from 48 cents each to $7.59.
Strong earnings would appear to explain the surge. Scorpion reported 55 cents a share in earnings for 1991, on $12.5 million in sales. But come the spring of 1993, as investors awaited Scorpion's financial results for 1992, the FBI raided the company's offices and seized dozens of boxes of financial records. The National Association of Securities Dealers halted trading in the stock. When it resumed trading, it fetched a mere 19 cents a share.
Three years passed before Scorpion investors learned why the feds busted their software company. In February '96, the SEC finally accused Marsh and five others of a massive fraud that had used bank accounts and companies located in 20 countries. In a complaint filed in Manhattan's federal court, the Commission said that nearly 80% of Scorpion's reported software sales had been shams. The enthusiasm generated by those fake sales reports gave Scorpion's promoters the chance to unload 22 million of the company's shares at prices as high as $2.50 apiece, the complaint says.
The SEC also says that most of those shares were quietly distributed overseas via Regulation S of the Securities Act of 1933. Until it was tightened late last year, Reg S allowed companies to sell unregistered stock at a discount to foreigners without telling U.S. shareholders. After a brief waiting period, the foreign holders could then freely sell the shares back into the U.S., often reaping handsome profits in the process ("Easy Money," Barron's, April 19, 1996). Many Reg S violations involve foreigners acting as frontmen for U.S. investors, which is patently illegal. This is what the government says happened in the Scorpion deal.
Specifically, the SEC charges that the foreign buyers of Scorpion's Reg S shares illegally split their profits with Scorpion itself, allowing the company to get its hands on some real cash and perpetuate the ruse that it was selling lots of software. In August of '96, federal prosecutors in San Francisco brought criminal stock-fraud and money-laundering charges against Marsh and eight others. But juries will have to wait until next year to weigh the government's evidence in these cases, which are contested by all but two minor defendants.
Two class-action suits by Scorpion shareholders are also proceeding in federal courts in Manhattan and San Francisco, and one of those suits names Witz as a defendant. Roomfuls of brokerage firm records and deposition transcripts put the San Francisco class-action attorneys at Lieff Cabraser Heimann & Bernstein ahead of the government in unraveling Scorpion's dealings. The names of Par Chadha and Barry Witz appear frequently in these materials, which include recent testimony by Scorpion's ex-controller, Eric C. Brown.
"There was just massive fraud on behalf of management," Brown says in his deposition. He tells of counting the company's share of illicit stock sales and trying to figure out how much of the loot to mislabel as "software sales." Brown's sworn deposition gains credibility from the unsparing way he admits his own wrongdoing, which included phonying financial reports, lying to Scorpion's auditors and smoking pot. Such admissions can only hurt Brown's criminal defense.
Brown tried to explain his acts by noting his history of manic depression, for which he sometimes took medication. "I had just gotten over being extremely sick ... . I just wanted a job, a stable place to work," he says of his Scorpion tenure. Witz and Chadha contend that Brown's testimony is not credible.
To get Wall Street behind Scorpion's stock, Witz and an associate bribed brokers with free or discounted shares, Brown says he was told. Brown says Marsh told him "they were going out to different brokerage firms and priming the market. They would be giving shares away to different brokers." In an interview with Barron's, Witz denied this.
In his testimony, Brown describes how Scorpion made the money from stock sales appear to be the receipts of software sales. In the June 1991 quarter, Brown testified, true profits were lower than Marsh liked, so Marsh's brother Tracy sat down at his computer and printed out counterfeit purchase orders in the names of two ersatz Hong Kong distributors. "You'd better not ever tell anybody you've seen this," he says Tracy Marsh warned him.
Shortly after Brown saw Tracy Marsh forge the purchase orders, Scorpion received three cashier's checks worth over $1.2 million. Copies of the checks in the class-action evidence show they were drawn on the Chekiang First Bank accounts of two Hong Kong firms, Polastra and Rykoff, which were supposedly software distributors.
Scorpion's outside auditors from Grant Thornton once sent an assistant to visit those Hong Kong distributors, according to the depositions of Grant Thornton partners. But at the supposed address of the software firms, the auditors instead found a personnel agency owned by Michael Horne, whom Eric Brown identifies in his deposition as a "puppet" of Marsh and a Scorpion lawyer named Jack T. Dawson. The SEC has charged that the Hong Kong firms funded their $1.2 million in cashier's checks not from distribution of Scorpion software but from distribution of Scorpion stock by Horne and a sidekick. Brokerage records, included as evidence in the Scorpion shareholder suit, support that allegation. Today, Horne is a fugitive from the Scorpion criminal indictment.
Other funds flowing into Scorpion indicate the involvement of Witz. Later in 1991, in fact, Scorpion got three more cashier's checks totaling $686,000, all on the same day and all from the same Chekiang bank. This time, the money came from the bank accounts of Argyle Partners, Edgewood Partners and Helton Ventures. Signed forms and letters at U.S. brokerage firms show that these entities were all partnerships of Witz, a lawyer named Ed Fisch and a more notable third partner: Richard Kirschbaum, a man who had cut a destructive swath through the stock market in a career-long team-up with the swindler Ramon D'Onofrio.
Witz told Barron's he'd known Kirschbaum since 1987 and that the two shared an office suite in Los Angeles. But Witz says he was not aware of the man's sordid past, nor of Kirschbaum's no-contest plea to criminal stock fraud and conviction for embezzlement, until sometime after the Scorpion debacle. "With me he was a straight guy," says Witz.
Brokerage records show that Witz's Edgewood partnership contributed significantly to trading volume in Scorpion shares during the summer of '91, with Edgewood making day trades in the tens of thousands of shares. The partnerships sold almost $1.8 million of Scorpion shares through just one brokerage firm. Brown attests that the Witz partnerships split the proceeds from those stock sales with Scorpion, again to help substantiate the fake software sales. Witz flatly denies sending any money to Scorpion beyond the cash required to convert some Scorpion preferred stock to common shares. Fisch told Barron's that he had nothing to do with the trading of the partnership accounts.
In 1992, Scorpion attempted a stock registration, but official notice of an SEC investigation of the firm scared off underwriters. "Scorpion was in real trouble at this point, because it was running out of funds," Brown testified.
That's when Scorpion began issuing lots of shares offshore by using the Reg S loophole. Most of Scorpion's Reg S investors flunk a smell test. For example, an Iranian corporation called Mahsa Poust, which got 4.5 million shares, was represented by the wife of Denver stockbroker Mike Zaman, who would subsequently gain fame in 1997 when the SEC charged an assistant U.S. Attorney, Drew Pitt, with conspiring to commit stock fraud with Zaman. When deposed about the deal, Mrs. Zaman took the fifth amendment.
Two other purported buyers of Scorpion's Reg S shares were Mayfair Financial and FRM Commodities, which were represented by John J. O'Carroll, the Irishman of such keen interest to British money-laundering investigators. Before 1992 was finished, Mayfair had received almost two million shares of Scorpion stock and then sold it through a small New York broker, Green-Cohn, no doubt reaping hefty profits. The other firm O'Carroll represented, FRM Commodities, was a British corporation whose letterhead showed offices in Dublin, Geneva, London and Kuwait. FRM got even more Scorpion shares -- four million, to be exact -- and these were also sold through Green-Cohn.
It was Scorpion's biggest Reg S deal that brought Barry Witz together with Parvinder Chadha. Since 1989, Chadha and his wife Sharon had been struggling against declining sales at their publicly held maker of personal computers, Osicom Technologies. By mid-1992, the New Jersey firm had defaulted on its bank loan and was on the verge of going under. The Chadhas' lawyer brought in Witz, who knew an overseas investor willing to buy a piece of Osicom's floundering business.
That investor was a British Virgin Islands corporation called Saturn Enterprises Ltd. In exchange for a $1.25 million note and assumption of $2.5 million of Osicom bank debt, Saturn got Osicom's British computer division, which accounted for most of Osicom's revenues. Saturn turned right around and passed Osicom's U.K. unit through to Scorpion in a deal that left Saturn holding 10 million shares of Scorpion, enough to effectively control the company.
Chadha made out well, too. He got one million shares of unregistered Scorpion stock, plus a consulting contract that paid $175,000 a year. Chadha returned the million shares, which couldn't trade without being registered with the SEC, and told Scorpion to reissue the stock as Reg S shares so they could be unloaded without being registered. Chadha tells Barron's that he got $100,000 for directing the one million shares to a British firm called Wellcome-Mason, which was owned by a friend of his in London named Raghbir Singh Lamba.
The SEC alleges in its 1996 complaint that Scorpion's convoluted purchase of the Osicom subsidiary was part of the Scorpion Reg S fraud, and Eric Brown testifies that the deal's intent was to overvalue the barely profitable Osicom UK and thereby bolster Scorpion's balance sheet and place a heap of Scorpion shares in Saturn's friendly hands. Twice in his deposition, Brown says he believed that Chadha knew about the fraudulent nature of the Reg S deal, although elsewhere in his testimony Brown can't specifically recall Chadha saying he was in the know. Chadha, in an interview with Barron's, absolutely denied knowledge of any fraud.
A look at Scorpion's tortuous machinations makes clear why it has taken investigators on both sides of the Atlantic years to unravel the case. When Chadha sent the SEC a copy of the contract covering the sale of Osicom UK to Saturn, for example, the signature of Saturn's president was that of a Bolivian national, Mario V. Andrade. Curiously, in an identically dated copy of the same contract between Saturn and Chadha, one that Chadha subsequently filed with the SEC, the signature of John J. O'Carroll appears on the line where Andrade's had been. Yet Chadha says he's never dealt with O'Carroll and that the Irishman's signature must have been added sometime after Chadha himself signed the page.
What's beyond dispute is that after Saturn sold off almost all of its 10 million shares of Scorpion in the open market, whoever owned Saturn reaped millions of dollars in profits. And much of that money was wired to the Bolivian bank accounts of Andrade, Saturn and two other entities, Tecnica Asociados and Interex. Brown testified that Scorpion CEO Terry Marsh said Andrade took orders from Marsh and Scorpion attorney Jack Dawson. Andrade is now a fugitive from the Scorpion prosecution, and friends say they hear he's in Colombia.
As for Witz's role in all of this, Brown attests that two of the early Reg S investors, Mayfair and FRM, weren't really controlled by O'Carroll at all but were run by "the Three Stooges," his nickname for Witz, Fisch and Kirschbaum. Asked who had masterminded Scorpion's Reg S scheme, Brown testifies: "I think that Barry Witz came up with the idea, presented it to Terry, and Terry ran with it." Witz says he never advised Marsh to do anything illegal.
As evidence, Brown shows a July 1992 letter to Switzerland in which Witz orders O'Carroll to sign and send to Scorpion the authorization for the sale of specific Scorpion share certificates supposedly held by FRM Commodities. "It just shows that Witz is calling the game for FRM," Brown testifies. "It shows Witz has the FRM shares."
Furthermore, a January 1993 letter from O'Carroll instructs an American broker to wire FRM's profits from U.S. stock sales to a London bank account in the name of Edgewood Partners. Witz told Barron's that in Scorpion's Reg S deals, he was only acting as O'Carroll's lawyer. He suggests that FRM's wire transfers to Edgewood Partners might have been O'Carroll's way of paying one of the Edgewood partners, specifically Kirschbaum, for finding stockbroker Green-Cohn to dispose of the Reg S shares.
W itz describes O'Carroll as a professional commodities trader who at one time was the largest commodities broker operating out of Switzerland and the Middle East, with clients like the French government. A very wealthy individual, Witz adds, with an art collection, a chauffeur, homes in London and Geneva, and investments around the world. For a big-time commodities man, some of O'Carroll's investments were pretty junky, judging from the O'Carroll account statements introduced as evidence in the class-action suits against Scorpion. Besides dealing in Scorpion stock, O'Carroll was trading shares of Saratoga Brands , Luxcel and Las Vegas Entertainment Network .
The latter two stocks were underwritten by another of FRM's brokers, Westfield Financial, a now-defunct firm run by Salvatore Mazzeo, previously described by Barron's as a ringleader in stock promotions that involved associates of the Gambino and Genovese crime families (Barron's, March 21, 1988). Trading tickets show that the other side of O'Carroll's sales were often taken by Mazzeo, at Westfield, or by Mike Zaman, the indicted Colorado broker. The SEC suspended Mazzeo from the brokerage business last year, citing abuses of Reg S.
O'Carroll is also the subject of a money-laundering investigation by the U.K.'s Crown Prosecution Service, according to a memo filed in federal court in May 1996 by the U.S. Attorney for the Eastern District of New York. U.K. authorities believe O'Carroll was laundering money for Stephen Saccoccia, a Cranston, R.I., gold dealer convicted in 1993 of laundering over $136 million for the Cali drug cartel. Saccoccia, who customs officials said was tied to the Patriarca crime family, is serving 660 years in federal prison.
The memo also mentions a London bank account controlled by an O'Carroll partner that contained more than $660,000 from the 1995 sale of shares in Saratoga Brands and Hillside Bedding. Both Witz and Chadha had ties to Hillside, and during 1995, when O'Carroll's partner was apparently profiting on Saratoga shares, both Witz and Chadha were directors of Saratoga.
The memo further says that authorities are probing the involvement of O'Carroll and some unnamed U.S. citizens with offshore companies registered in the British Channel Islands and the British Virgin Islands. Persons with knowledge of the investigation say that two of the U.S. citizens being studied for their dealings with O'Carroll are Chadha and Witz.
A subpoena issued from the Brooklyn federal court demands documents showing relationships involving Saccoccia, O'Carroll, Kirschbaum, Lamba, Witz and Chadha. Witz and Chadha told Barron's that they aren't aware of any investigation of them. But authorities in both countries verify that the U.K. money-laundering investigation involving Witz and Chadha is continuing, as is at least one other criminal investigation involving Witz, Chadha and their various companies.
Without question, Chadha saw his fortunes improve after he met Witz. After selling Osicom's U.K. business to Saturn in 1992, Chadha found a new business for Osicom to get into in May of '93. Using Rand Research, a company owned in partnership with his wife, Sharon, Chadha bought a maker of fiber-optic devices, Meret Optical Communications, and then sold it to Osicom in exchange for 810,000 Osicom shares.
In September 1993, Witz asked Chadha for help with a troubled public company called Phoenix Laser Systems. The Silicon Valley firm had run through tens of millions of dollars promising to build eye-surgery lasers based on Star Wars technology. Chadha became Phoenix's chairman and went to work on a Reg S stock placement with a group of investors led by O'Carroll, who in this instance was representing Hibernian International Financial Services Co. In an interview with Barron's, Chadha said he was really trying to sabotage the Reg S deal, which he said had been put in motion by his Phoenix predecessor. The deal never did get off the ground.
By November 1993, Chadha stepped down from the chairman's post of Phoenix. He notes that he received a commendation from the Delaware Chancery court for his brief management of the company. But eventually Phoenix filed for bankruptcy protection. Early this month, an SEC complaint in a Manhattan federal court against the Phoenix managers who preceded Chadha charged that the company's laser claims and some of its stock sales were frauds.
In 1994, Witz and Chadha further revved up their deal-making, helping in the takeover of an unprofitable mattress business called Hillside Bedding. The company proceeded to sell an avalanche of stock to offshore shells. Witz, Chadha and their associates also took control of Saratoga Brands, an unprofitable public company that sold gourmet potato chips and lots of Reg S stock. This takeover maneuver was particularly dizzying. Agama Inc., which was controlled by Chadha's first cousin, Ike Suri, and Scott Halperin, a former manager of Osicom, received a $2.2 million block of Saratoga shares through an intermediary, in exchange for $67,007 of assets to be used in "designing, marketing and selling microcomputers."
Halperin acknowledges that these $67,007 in assets were the remains of Osicom's unprofitable personal-computer business, which had been transferred to Agama six months before the Saratoga transaction.
After the Saratoga Brands manuevers, Witz and Chadha came to the rescue of Builders Warehouse Association, an Arkansas building-supply chain that was failing in its quest to become another Home Depot . Again, the pair took control through complex moves, but this time, Witz and Chadha managed to be on both sides of the transaction, and in the middle, too.
I n early '95, the faltering building-supply firm took a $100, 000 loan from a British Virgin Islands company called Jardine Cho. The named director of Jardine was a London accountant, Stephen Ian Tarn. Chadha and Witz were Jardine shareholders, too, though the exact size of their holdings couldn't be learned. Witz and Chadha then became an officer and a director, respectively, of Builders Warehouse, which subsequently purchased Relialogic Technology, a computer-graphics business that was managed by the two men and partly owned by Jardine. In exchange for Relialogic, which wasn't earning any money, Builders handed over a controlling $3 million chunk of its stock to Relialogic and Jardine.
Witz took time off from his deal-making in June '95 to testify in the criminal stock fraud trial of another business associate, Eric Wynn, a young man who had served his apprenticeship in the 'Eighties as a player in the stock manipulations of Tommy Quinn and John Bertoli, two convicted men whose exploits are legends on the seamy side of Wall Street. Wynn had just finished serving two years in prison for a jewelry fraud when Witz signed on as a lawyer for a merger that Wynn was secretly orchestrating with another notable stock swindler, Barry Davis.
When federal prosecutors in Newark subsequently charged in 1993 that the merger had been a fraud, Witz testified on Wynn's behalf, to prove that it had been legit. Unfortunately for Witz, his consultations with Wynn had been picked up on wiretaps. In an embarrassing cross-examination, a prosecutor confronted Witz with a phone call that the government said showed Witz knew the deal was phony. Witz also had to admit that he allowed Wynn to trade stock in Witz's name, stock that Witz had gotten with a loan from Joe Garofalo, a pornography producer and disbarred stockbroker who pleaded guilty to racketeering for an 'Eighties stock swindle involving Kirschbaum and D'Onofrio.
Wynn was convicted in July '95, after other evidence showing he'd been trading on behalf of Richard Tienken, a business partner of Lucchese crime family capo Peter Chiodo, and Frank Coppa Sr., a Bonanno crime family capo who helped Wynn gently convince stockbrokers not to let clients sell Wynn's stocks. When Barron's asked Witz if he was just a bystander to Wynn's conspiracy, Witz attorney Lawrence S. Feld, of New York's Tenzer Greenblatt, dispatched a stern letter saying that "there is no basis whatsoever to support any accusation that Mr. Witz was identified by the government as an unindicted co-conspirator." None, except the government's bill of particulars filed April 22, 1994, in the Wynn prosecution, which lists Witz as an unindicted co-conspirator to conspiracy and securities fraud. When informed of this document, Feld said that he was unaware of it and that Witz may have forgotten about it.
Witz wasn't the only one embarrassed by his association with Wynn. Five months after Wynn's conviction, while free on bond during his appeal, Wynn attended a White House "coffee," as well as four other Clinton fundraising meetings.
Witz subsequently served as CEO of Builders Warehouse, board chairman of Saratoga Brands and director of Osicom Technologies. But none of these public companies ever disclosed Witz's role in the Wynn stock-fraud prosecution. Even today, Chadha denies knowledge of it.
Osicom, meanwhile, was busy with a string of acquisitions that included Builders Warehouse and Rockwell Network Systems, a large but unprofitable subsidiary of the aerospace firm. Thanks to such purchases, Osicom today calls itself the 15th-largest networking company in the U.S. Although each acquisition was, in Osicom's words, a turnaround situation, it's remarkable how the company somehow seems to have ended up with what it calls the best technology in the networking industry and the ability to offer customers one-stop shopping for networking gear. "If you look at our product breadth we're actually wider than Cisco, " says Ron Mackey, president of Osicom's switching division. "Probably 3Com is the only one that would be comparable."
Mackey's switching unit, which also sells networking cards and hubs, has revenues running along at a $44 million annual rate, says Chadha. Another big hunk of Osicom sells remote access routers, a market that is also served by Cisco, 3Com and Ascend Communications . Osicom shares jumped nearly two points to just under $12 in April, when Chadha's firm announced it would provide products to MCI for a U.S. Postal Service contract that could be worth $3 billion. But in reality, Osicom got only a part of that $3 billion contract, and a small part, at that: $18 million over several years, Osicom officials said in an interview.
Osicom last year also acquired an unprofitable business called DPI, which is run by Cornelius "Pete" Peterson, a lanky world champion at Masters rowing. DPI's sales of print servers, which attach a printer to a network instead of just one computer, could be $25 million for the fiscal year ending in January '98, Peterson says, and he expects that figure to rise to $100 million in three years" time. Chadha has pulled together "a tremendous group of synergistic companies," says the rowing champ, who sold DPI to Osicom for stock.
Osicom may deliver the $170 million in current-year revenues that Chadha and his team hope for, and they may come through with planned products like a satellite downlink for the Internet. But shareholders would no doubt like to see profits too, and Chadha's record of delivering tangible gains to outside shareholders does not inspire confidence. Shareholders in Osicom during its PC incarnation, for example, saw their equity drop to a negative $12 million. After Osicom became a networking firm in '93, its profits seemed to reappear, however.
Still, through Osicom's latest fiscal year, which ended in January, none of the company's reported profits have been cash from operations. Rather, they've been the intangible product of Osicom's accounting methods. In the January '93 year, for instance, Osicom's $2.09 in earnings per share came from the "extinguishment of debt" through Chadha's 1992 deal with O'Carroll, or Andrade, or whoever really controlled Saturn Enterprises. In subsequent years, earnings have come from "amortization of negative goodwill," an accounting device rarely encountered in manufacturing businesses, that says, in effect, Osicom acquisitions were worth more than Osicom paid for them. Osicom then credits its earnings with the purported difference.
A succession of three outside auditors has approved Osicom's financials, which show that operating cash flow has been heavily negative all the while. In the latest reported quarter of April '97, the negative cash flow continued, but Osicom reported earnings nonetheless. Those earnings wouldn't have been possible, however, if Osicom hadn't made several changes to its balance sheet: It increased its payables to trade creditors from 65 days of sales costs in January to 88 days in April; the company also boosted the percentage of research and development expenses that it capitalized from 24% a year earlier to 46%. The higher capitalization of R&D costs, Osicom officials say, reflected nine promising products under development.
If cash earnings haven't yet come through, then have Chadha's acquisitions boosted balance-sheet value for Osicom shareholders? Not if investors like things tangible. Taking the "new" Osicom as the starting point, Chadha says shares outstanding grew from two million in January '94 to 14 million in April '97, while book value went from $2 million to $50 million. Yet April's tangible book was really $25 million, and if one accepts Osicom's "negative goodwill" accounting, the initial $2 million was understated, making the firm in January '94 actually worth nearly $5 million.
So, thanks to Chadha's ministrations, Osicom shareholders have gone from holding more than $2.40 of tangible equity per share to $1.79. At Saratoga Brands, where Witz was board chairman, cash flow has been similarly negative and March's tangible book value this year was a penny a share.
After Barron's started placing phone calls on this story, Witz stepped down from his positions at Saratoga and Osicom, for health reasons, he says. A number of Osicom shareholders also registered their shares for sale, as the price of Osicom slid to $6 on the Nasdaq small-cap market. Osicom wants its shares listed on Nasdaq's National Market, but the request has yet to be approved.
Investors may want to wait around to see if Chadha and Witz's good works produce a profitable networking firm with technology to rival Cisco's. They may want to hold on to their Osicom shares in the hope that the Crown Prosecution's Money Laundering Investigation Team never affects Witz or Chadha. Perhaps investors can take reassurance from Pete Peterson, who says his rowing experience has made him a particularly good judge of people. "I've known Par and Barry now for almost a year," says Peterson. "They are ethical to a fault, they are visionary, they are excellent managers and they are collaborators."
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