Matt, here is some factual information On Hartcourt in there SEC filings. In Hartcourts SEC filings is a person named Robert Harper. If this where posted on the Hartcourt thread it would be deleted by the chairman even though it is 100% factual.
"Thus, it should be of more than passing interest to learn that D'Onofrio, his son Mark, and a man identified as his non-eponymous brother Robert Harper are now in the business of advising small publicly held companies through an outfit called United Atlantic Investments, described by one of its clients as "investment bankers" and by one of its associatesas "a loose-knit group that does deals."
Who ' s Riding This Horse ?
---
A Shady Tout
Backs an OTC Number
By Diana Henriques
05/09/1988
Barron's
(Copyright (c) 1988, Dow Jones & Co., Inc.)
LOS ANGELES -- No doubt about it: Ray D'Onofrio is back inbusiness.
Ray's name is not exactly a household word like, say,"Boesky" or "Vesco," so this news may not strike a chord of alarm with the investing public. And that's a pity -- indeed, perhaps a danger. For in the past 18 years, Ramon N. D'Onofrio has assembled a criminal record at least as colorful as that infamous pair, and rather more extensive.
He has pleaded guilty to criminal charges of securitiesand bankruptcy fraud and served a short stint in prison in the mid-'Seventies. His past co-defendents have included Wall Street notables and foreign financiers, some of whom he ultimately helped convict as the price of his own plea bargain with the government. His stomping grounds stretch from Long Island, where he helped loot a major dairy in the late 'Sixties, to Salt Lake City, where his stock deals again drew the attention of the Securities and Exchange Commission as recently as 1982. The one common thread in D'Onofrio's varied and peripatetic career is this: When the dust settled, lots of small investors were left holding the bag -- usually a bag of nearly worthless over-the-counter stock.
Thus, it should be of more than passing interest to learnthat D'Onofrio, his son Mark, and a man identified as his non-eponymous brother Robert Harper are now in the business of advising small publicly held companies through an outfit called United Atlantic Investments, described by one of its clients as "investment bankers" and by one of its associatesas "a loose-knit group that does deals."
No roster of those deals is available, unfortunately, and neither D'Onofrio nor anyone at United Atlantic was willing to chat about their business. But Barron's has located at least one of United Atlantic's current investment-bankingclients -- a little Oregon company called Kinesis.
Fueled by exaggerated claims about the company's products and potential, stock in Kinesis soared from early 1987 levels of around $10 a share to well past $20 a share in January only to collapse in February. With somewhere around 14 million shares outstanding, according to Kinesis, the company's market capitalization of nearly $140 million stands in dizzy contrast to its sparse assets and limited track record. And throughout this roller-coaster ride, details of the company's financial affairs have been almost impossible
to come by.
Casual as its corporate structure seems to be, United Atlantic Investments sports an impressive address: Suite 640, 1801 Avenue of the Stars, Century City, Los Angeles. But that lofty home office turns out to be a rent-a-suite arrangement that the company shares with at least two dozen other small endeavors with names like "Beverly Hills Consulting Corp." and "Fortune Care USA." Two cheery receptionists field callers for one and all. Phones jangle in the back rooms, which are back-lit by the smoggy sunlight of SouthernCalifornia.
It's a far piece from here to the Long Island flatlandswhere D'Onofrio's first notable encounter with the criminaljustice system occurred.
On Feb. 8, 1971, in a federal indictment announced by then Attorney General John Mitchell himself, the government charged that D'Onofrio had conspired with co-defendant Joseph P. Pfingst, at the time a state Supreme Court justice in New York, to take control of the W.M. Evans Dairy Co. and the Evans Amityville Dairy Inc. The defendants, the prosecutors alleged, then sold off the dairy's assets and pocketed the cash before causing the dairy to file for bankruptcy. D'Onofrio later pleaded guilty to bankruptcy fraud in federal court in New York and testified against the judge, who was convicted in April 1971. D'Onofrio was fined $10,000 and given a three-year suspended sentence with two years'probation.
Before his probationary period was over, however, D'Onofrio had other problems. In November 1971, the SEC filed its own massive civil complaint in federal court in New York against D'Onofrio and 43 other individual and corporate defendants, alleging securities fraud and stock manipulation.
A second civil complaint was filed in the same court in August 1972, charging that D'Onofrio was "the architect" of a scheme to sell the public the unregistered shares of a company called Galco Leasing Systems Inc. at "artificially inflated prices." At the same time, D'Onofrio was again indicted by a federal grand jury in Manhattan, this time on criminal charges of bribery and stock manipulation. His co-defendants included Robert R. Hagopian and Stephen Sanders, both mutual-fund managers, and John Peter Galanis, a D'Onofrio associate who later built up a dubious tax-shelter empire that has attracted its own share of prosecutorial attention. This indictment charged that D'Onofrio, Galanis and co-defendant Akiyoshi Yamada had bribed the two fund managers to buy stock at inflated values, thus manipulatingthe price of the shares.
Only a few months later, in November 1972, federal prosecutors in New York announced yet another indictment charging D'Onofrio and New York broker George C. Van Aken with bribing investment fund managers to buy overpriced, unregistered shares in two companies, Academic Development Corp. and Science Systems & Technology Inc.
By that time, however, D'Onofrio had long been a fugitivesomewhere abroad. Nonetheless, in July 1973, D'Onofrio and Van Aken were indicted in New York federal court again, along with stockbroker William I. Strub; Swiss banker Alfred Herbert, formerly of Bank Hofmann A.G. in Zurich; and Peter Rosenthal, a stock salesman. Among other things, the defendants were accused of artificially boosting the price of stock in a company called Health Evaluation Systems from $1 to $20 in four months during 1970. In tandem with this indictment, the SEC sought a permanent injunction -- ultimately granted in November 1974 -- against D'Onofrio, charging that he and other defendants had manipulated the price of shares in a company called Meridian Fast Food Services. The SEC complained that the company's shares had been artificially kited from $5 a share in July 1971 to $20 a share in February 1972, when the SEC suspended trading.
In the summer of 1973, D'Onofrio was at last apprehendedin London. Facing extradition, he came home and, in July 1973, cut a deal with federal prosecutors and the SEC. He pleaded guilty in New York federal court to a small assortment of criminal-fraud charges, was sentenced to 18 months in prison, and agreed to testify for the government in a number of other criminal and civil securities fraud cases. In November 1974, he surrendered at Eglin Air Force Base in Florida to serve his jail term, less time off for good behavior.
Then, in 1982, D'Onofrio surfaced again in an SEC civilenforcement action in Salt Lake City. This time, the SEC accused D'Onofrio, Jack R. Coombs of Salt Lake City, and three other stock promoters of scheming to sell unregistered shares in two virtually worthless "shell" corporations, Total Investment Co. and Turk Corp., at prices inflated by "false and misleading shareholder communications." Specifically, the SEC complained that the promoters arranged in 1980 to merge Total Investment with Lyn-Jay Coin Inc., a private slot-machine distribution business controlled by D'Onofrio. A similar arrangement was undertaken in 1981, when Turk Corp. was merged with Specialized Game Systems Inc. of Los Angeles,controlled by D'Onofrio and co-defendant Barry M. Woodland.
The SEC complained, in part, that the information provided to shareholders was "false and misleading" because it failed to disclose D'Onofrio's role in the mergers and his criminalbackground.
But despite that same background, the SEC settled the case when D'Onofrio and his colleagues, without admitting or denying the allegations in the complaint, consented to be permanently enjoined from violating federal securities laws. "Further," the SEC reported, "defendant D'Onofrio, in settling this action, has agreed to (1) not serve, directly or indirectly, as an officer or director of any publicly traded company for five years, and (2) annually report to the commission for five years, on any affiliation he may have had during the preceding year with any public company, directly or indirectly, as an officer, director, 'significant employee,' control person, or owner of 5% or more of any class of equity security of such entity."
That five-year period did not expire until Dec. 28, 1987-- but by then, according to people who have done business with him, D'Onofrio was already active as a financial adviser in Los Angeles. One such person is Gerry Brodsky, the president of the aforementioned Kinesis Inc., headquartered in Salem, Ore., whose shares are quoted in the pink sheets.
Brodsky says that he first got to know Ray D'Onofrio andsome of the other people at United Atlantic Investments about six years ago through the thoroughbred business. Brodsky is a bloodstock agent, he explains, and he manages some of D'Onofrio's thoroughbred horses. And what does he understand United Atlantic Investments to be? ``They're basically investment bankers,'' Brodsky explains. ``They help takecompanies public and raise the capital.''
Which was just what United Atlantic Investments did for Kinesis, Brodsky says. In January 1985, UAI found a public shell company for Kinesis to merge into -- an easy way, he notes, to gain access to the public equity markets without all the fuss of a formal prospectus and registrations with the Securities and Exchange Commission.
Some principals in United Atlantic Investments invested directly in Kinesis, Brodsky continues, and United Atlantic Investments "is obligated to finance us until we either make it or don't make it." According to Brodsky, Kinesis is a fledgling research and development endeavor trying to market several products -- horseshoes, athletic shoe insoles, athletic flooring, even a golf club -- all of which supposedly have the capacity to store and then return energy. Thus, a Kinesis-designed sneaker would absorb the impact of a runner's foot-strike and return it in the form of an extra boost for the runner's next stride.
It sounds like it was borrowed from the plot of WaltDisney's The Absent-Minded Professor. "Oh, you mean the one about 'Flubber'?" asks Brodsky with a genial laugh. "Yes, I guess it does." But there is a difference, he adds: There is no special patented material, such as the famous 'Flubber,' from which Kinesis products are made. Rather, the products employ existing compounds available from several suppliers.
And there are no chemistry professors, absent-minded orotherwise, tinkering away in some Kinesis laboratory. According to Brodsky, Kinesis "contracts everything out," including its scientific research, which is farmed out to a private Seattle company operated as a part-time venture by two members of the Kinesis board of directors.
Thus, Brodsky says, the company is able to keep itsoverhead very low; indeed, Kinesis is located in a second-floor spare room in Brodsky's modest home on a sidestreet near the Salem public library.
Besides establishing Kinesis as a public company and recruiting market-makers to trade its shares, United Atlantic Investments helped Kinesis raise money by selling shares to Ivanhoe Venture Capital Ltd. of San Diego, a "small business investment company" licensed and financed by the Small Business Administration. Until very recently, one of the general partners in Ivanhoe Venture Capital was Pacifica Management Co., just over half of which is owned by Bob Harper, who is the chairman of Kinesis and, according toseveral sources, Ray's brother.
The remainder of Pacifica Management is owned -- and the proxy on all of Pacifica shares is exercised -- by Exten Ventures Inc. of San Diego. Exten is an over-the-counter company that calls itself a "merchant banker." It advises small companies on going public and raising capital through a variety of techniques, including mergers with blind pools andsubsidiary spin-offs.
Exten Ventures has just named Ray D'Onofrio to its own board of directors. And what does D'Onofrio bring to the corporate party down in San Diego? "Oh, about 25 years' investment banking experience, plus international contacts in Europe," reports Edward F. Myers, president of Exten.
Myers says he has known D'Onofrio for years -- indeed, he acquired the shell that became Exten Ventures through D'Onofrio's firm back in 1970. The two men lost touch from 1971 until 1985, Myers continues. Then, when Myers reactivated Exten Ventures in San Diego in 1985, he got a call from D'Onofrio, who had also moved to the West Coast. The renewed acquaintance led to some business referrals,Myers added, with Exten occasionally splitting finders' feeswith United Atlantic.
As Myers explains it, United Atlantic is one of many "terribly loose-knit groups" across the country with which Exten Ventures does business. "They are two or three people who get together and work together and put deals together," he says. "I could name six more of them that we work with. It's a network. I've been in this business for 16 years. You get to know people all over the country. How do you find a blind pool? The answer is, you pick up the phone and you call five people that you know, and maybe one of them has one thatyou can use."
As for D'Onofrio's extensive criminal background, Myers says, "Yes, I was aware of it. But in my opinion, everything he's doing is trustworthy at the moment. Look, a lot of good people have a run-in with the law occasionally, and my feeling is if someone makes a mistake, he shouldn't bepenalized for life for it."
Besides, Myers adds, D'Onofrio owns a small stake in Exten and is only one of five votes on the board. "All we get from him is his expertise and advice. I wouldn't let him control the company; I wouldn't make him an officer. But I guess the point is, I feel this is all behind him."
Myers confirms that it was Ray D'Onofrio who introducedIvanhoe Venture Capital to Kinesis. "We did a big investigation on it before we invested," he recalls. "The story is this: Boeing developed a particular compound . . . a composite which has some special properties. The people who developed it sold the rights to this patent to Kinesis. They said, 'Wouldn't it be a great thing for racehorses?' So theydeveloped a horseshoe."
When advised that this story didn't remotely match what Brodsky told Barron's about the company -- that, for openers, there is no special patented material from which Kinesis products are made -- Myers cheerfully deferred to Brodsky. Anyway, Myers adds, the research done at D'Onofrio's suggestion prompted Ivanhoe Venture Capital to buy 400,000 shares of Kinesis.
Because of its modest shareholder list and limited assets,Kinesis is not required to file either a formal prospectus or any subsequent quarterly or annual financial information with the SEC or shareholders. But apparently the company has not provided such information even to all of its own officers and directors. Director DeVere Lindh, a respected engineer with Boeing Commercial Aircraft Co. and one of the part-time owners of the research company that is working on the Kinesis horseshoe, owns "somewhere between 4% and 5%" of Kinesis, he says. But Lindh says he cannot recall ever seeing a formal prospectus or any quarterly financial information, and board meetings are rare. "This may sound ridiculous, but Gerry has been handling all of that," Lindh says. "I think something is coming out soon." During a recent interview at a restaurant in Portland, Brodsky apologized that the closest thing he had to financial records on the company was a brochure publishedlast year by United Atlantic Investments.
That brochure is silent on such mundane things asownership, audits, assets, liabilities, and cash flow. But it is eloquent in its descriptions of the Kinesis horseshoe, christened the "Seattle Shoe," which "may have the potential to . . . absorb and reduce a significant amount of potentially dangerous concussive force incurred by race horses . . . . {and} temporarily store and then release the concussive force translating it to propulsive energy that reduces fatigue in horses and increases speed and endurance."
Both Brodsky and the United Atlantic Investmentspromotional material on Kinesis clearly link the development of the horseshoe to the invention of the "Seattle Foot," a patented and widely honored prosthetic device developed under a grant from the Veterans Administration and featuredrecently in DuPont Co. advertisements starring amputeeathlete Bill Denby.
But the claimed connections -- aside from their publicity value -- seem a bit tenuous. The design of the Seattle Foot was patented in 1984 by Dr. Ernest Burgess of Seattle and several colleagues, with certain rights retained by the Veterans Administration; it is made of synthetic materials trademarked by DuPont. "There's nothing special about thematerials we use," Burgess explained. "The patent is for thedesign."
So where does Kinesis come in?
As Brodsky tells it, one of his fellow investors in theownership of an injury-prone racehorse was Richard Colonel, an engineer at Boeing in Seattle. Colonel knew Lindh, who
worked with Burgess on the Seattle Foot, Brodsky continues. Colonel and Lindh formed Technology Innovations, which in turn contracted with Kinesis to develop a prototype of the Seattle Shoe for horses. Thus, any patents ultimately issued for the Seattle Shoe will actually be owned by Technology
Innovations, Brodsky says.
As for the Kinesis horseshoe itself, early test reportsare encouraging but the jury is decidedly still out, confirms Lindh. Selling the horsey set on a new and very odd contraption like the Seattle Shoe "is a lengthy process and one where you have to overcome a certain amount of preconceived misperceptions," Lindh explains. "But we're progressing at a reasonable rate, and I think that what has been said technically {about the horseshoe} has beenaccurate. That's all I can report on."
The Seattle Shoe is not expected to be put into production until September, at the earliest, and it has not been approved for use during races anywhere in America, Brodsky concedes. But, he adds, Kinesis already has expanded its horizons to other products that employ the same principles of energy storage and rebound, including a new mid-sole forhuman athletic shoes.
Here, according to the United Atlantic Investments brochure and Brodsky himself, Kinesis is really hitting its stride. In May 1987, the UAI brochure claims, Kinesis "signed a proprietary information agreement with Reebok, one of the world's largest manufacturers of human athletic and walking shoes. . . . After preliminary meetings, Kinesis entered into an agreement with Reebok for the joint testing and evaluation of the prototype. Testing is expected to be completed by October 1987, although no assurance can be given that the testing and evaluation will be successful."
Here, too, a little research raises doubts as to theaccuracy of the United Atlantic Investments information about Kinesis. John Gillis, a spokesman for Boston-based Reebok, says the contacts between the two companies were limited to a "very vague and very preliminary" proprietary information agreement. "They came in with a couple of shots at making the material in a form for a midsole, but it was nowhere near satisfactory," Gillis continues. "Then we learned that they
were using this relationship to boost their stock -- so ourlegal department jumped in."
Barry Nagler of Reebok's legal staff picks up the story. "The proprietary information agreement was terminated by letter dated Jan. 25, 1988, and sent to Kinesis," he reports. A short time later, he adds, investigators with the enforcement branch of the SEC asked Reebok for details about the Kinesis deal. "I don't know what they were looking for, but they were asking us questions similar to the ones you are asking." The SEC declined to comment on any pendinginvestigations.
While Brodsky insists there are no hard feelings between
Kinesis and Reebok, he does admit that Kinesis has egg on its face as a result of United Atlantic's European financingactivities on the company's behalf.
"We wanted to raise some funds in Europe, and our investment bankers -- United Atlantic -- went to Europe to do some private placements of stock. Somehow they contacted a company that was interested in placing our stock," Brodsky recalls. The foreign company, it turned out, was called Griffin-Hayhurst Ltd. in Gibraltar, which had put out its own newsletter "making statements about our company which were gross exaggerations," Brodsky complains. "They made a mess of things."
The Griffin-Hayhurst publication, in a curious echo of thethumbnail corporate sketch offered by Myers of Exten Ventures, reported that Kinesis "is involved in the research, testing, manufacturing and design of a high technology synthetic material. This material is currently used in products for athletic wear, golf and horse-racing."
What makes this non-existent Kinesis material special, the Gibraltar enthusiasts continued, is that "in layman's terms, it is like walking on a set of springs that, instead of bouncing you back up when you step on them, they push you forward and make you move faster."
The newsletter also repeated -- and expanded on -- theReebok connection, predicting that "the company is a particularly attractive growth opportunity since it has the
material that every shoe company will have to use if they are going to compete with Reebok. Look for a possible takeover bid from Reebok." And, in case any potential European investors remained unpersuaded, the newsletter added breathlessly: "During the month of January, we have learned that the Merrill Lynch Growth Fund in the U.S. has beenquietly acquiring substantial numbers of Kinesis stock."
The Merrill Lynch Growth Fund was doing no such thing, in January or any other month, a spokesman for the firm reports. When Merrill learned of the newsletter's claim, it reached for its own lawyers, who dispatched a huffy "cease anddesist" letter to the Kinesis office in Brodsky's home.
As the Griffin-Hayhurst fiction made the rounds in Europe, Kinesis stock soared past $20 a share late last year. It then retreated to mid-1987 levels and recently has barely drawn any quotes at all from its sole U.S. market-maker -- a development that Brodsky concedes has caused some very hard feelings among European investors who bought Kinesis sharesat $21 or more on the strength of the Gibraltar novella.
So how did United Atlantic come to enlist an overimaginative outfit like Griffin-Hayhurst as a Kinesis market-maker? "I don't know," Brodsky shrugs. "That's the first time they've operated in Europe, so far as I know. But we sat down with United Atlantic and said, 'We've got to stop this.' I think the company in Gibraltar has left -- we couldn't find them.''
Yet a telephone call by Barron's in mid-April toGriffin-Hayhurst in Gibraltar was promptly answered by a receptionist who, when asked about Kinesis, transferred the caller to someone named Jerry Sherman. Sherman confirmed that Griffin-Hayhurst still buys and sells Kinesis "for ourclients," and offered a bid-offer quote of "around $12-$14 ashare."
But when pressed for details about his company's Griffin-Hayhurst connections, Brodsky simply defers to Mark D'Onofrio at United Atlantic. "He might know," Brodsky adds. "Of course, it's a sore point with them, so if you call and say you're from Barron's, they'll probably panic." Panicked or not, neither the younger D'Onofrio nor his father would return calls from Barron's. "They told me to tell you the answer is 'no comment,'" the United Atlantic office managerreported.
For all United Atlantic's efforts on its behalf anddespite a handsome market capitalization, then, Kinesis remains an obscure company with no proven products, an uncertain pedigree and, by Brodsky's admission, no assets except its ties to the engineers at Technology Innovations --and its ownership of 10 racehorses.
Brodsky hastily explains that these last are all bargain-basement horses -- some were purchased as "test animals" in the Seattle Shoe development program. "We will learn what we can about the effectiveness of the shoes, and then we'll race them, and we'll sell them," he continues.
In fact, Brodsky's off-hand description of the current
state of Kinesis differs a bit from that portrayed so enthusiastically by United Atlantic Investments and by Myers at Exten Ventures. "We have all the problems of a small company," Brodsky concedes. "Unless one of our horses wins,we don't have any income at all."
But maybe Ray D'Onofrio will think of something.
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