Editors Note: A link was added to the section referencing Fairview Police Chief John Pinzone.
Editors Note II: Former AMBER Ready CEO Kai Patterson has had his indictment dropped on all charges. The wording has been changed to that effect.
A small company in Morris County, New Jersey is evidence the first of how very bad things happen to good ideas when Wall Street gets involved.
Like most Wall Street initiated disasters AMBER Ready (AMBER stands for Americas Missing: Broadcast Emergency Response) began with some noble intentions. The backstory: In 1998, a veteran computer engineer named Kai Patterson witnessed firsthand the horror his secretary went through when her son was abducted by her estranged husband. Specifically, he was struck by law enforcement’s waste of time in trying to get recent pictures and accurate descriptions of the missing, a problem that virtually guaranteed a lower chance of safely recovering them. (The secretary’s son was found unharmed a year later.)
Fast forward to late 2008. Patterson has given up more lucrative corporate work and is now working full-time on the issue, having raised some capital from John Thomas Financial, a scrappy young investment-bank. Convinced that his old model of having a small army of marketers canvass malls, school fairs and PTA conventions for customers to sign up via personal computer is inefficient, he hired a mobile-phone applications developer called Blinglets. Unlike previous versions, this would enable any customer with a cell phone to download their children’s pictures and key identification data to a form AMBER Ready provided. In event of an emergency, within a few minutes police throughout the region could have everything they need to coordinate recovery operations.
And, like a lot of entrepreneurs at companies that are in constant capital raising mode, Patterson got crosswise with his board. There were fights over strategy and direction, over expenses, whether there was enough money to do what John Thomas Financial wanted or if the IPO process was moving fast enough. Eventually, enough was enough and he was fired in September 2009. As the dismissal occured in mid-September, Patterson withdrew money from a company bank account that he claimed was due him in back salary. The company disagreed and went to the authorities claiming that he stole the money, using forged documents that he later sought to destroy to cover his tracks. The authorities believed them. The indictment is here.
Obviously, their gambit didn’t work. Patterson’s entire indictment was dropped as of September 23, 2011.
Here’s where it all gets even more interesting.
After Patterson left Blinglets–the mobile-phone applications developer who did the heavy lifting–was also fired. They sued and filed a stem-winder of a suit. The senior vice-president who took over the CEO reigns, Frank Del Vecchio, tried to get another software company to develop a mobile-phone application but it seems to have failed spectacularly.
Here’s the rub though: They raised about $13-million in capital based on assurances that a mobile phone application was in the works and that when it launched commercially, there would be a market for it. According to a host of affidavits from former employees, the company was nowhere near the mark on either score. See here, here and here. [AMBER Ready’s lawyer did not take kindly to one affidavit provider, Retired New York Police Department Sergeant Robert Schecter, discussing his concerns with his colleagues and let him know it in no uncertain terms that if he didn’t stop, a lawsuit might be filed. As seen below, he didn’t appreciate a reporter refusing to divulge sources either and expressed a willingness to sue over it.]
Which is not to say that some people weren’t doing just fine in this increasingly odd affair. Indeed, if it weren’t for the cast of characters, this would be just another “promising product/awful execution” story.
Consider Frank Del Vecchio, the new chief executive of AMBER Ready.
It would seem logical to conclude that the CEO slot at a company desperate to simultaneously implement a new technology and take a stab at public-offering riches is no ordinary task. Frankly, it’s a hot seat but if the company is able to turn around his 250,000-share stake might prove quite valuable.
But for Del Vecchio, he has a lot less to worry about than most bootstrapping CEOs since he is also the Deputy Police Chief of Fairview, New Jersey. In fact, he has the best of both worlds: A solid income, pension and benefits from his civil-service job and another handsome income (as well as massive upside) from AMBER Ready. Most police who moonlight do some form of security work or security consulting; there appears to be no available records of a moonlighting police officer taking a company public.
Make no mistake: Running the conflict-of-interest gauntlet is probably worth it for Del Vecchio at an initial base salary of $250,000 plus $5400 a month in loan forgiveness (AMBER Ready was paying off his portion of a business loan to a series of shuttered wireless stores he had owned) and a $2,000 a month expense account. (The salary was reduced in early 2010 to $75,000 and his expense account now only covers fuel.) Working two jobs has clearly had its benefits for Del Vecchio though. According to Zillow.com, his 3500 square-foot home in the tony suburb of Ridgewood, N.J. is worth about $1-million.
Still, common sense would have it that being the second in command of a police force is often a lot of work and stress, nearly as much as trying to turn a struggling young company around. How can one person do both jobs? His former administrative assistant, Christine Cella, provided a notarized affidavit that said he essentially blends them. She said that Del Vecchio worked extensively on AMBER Ready tasks at the Fairview police department and only infrequently came in to their Rockaway, N.J. headquarters.
The laws on moonlighting in most states are fairly vague and many police departments have their own broad regulations which they enforce with varying degrees of rigor. Del Vecchio’s case, however, is not that of an officer working at night directing traffic at a big party or providing security advice for a private homeowner. His job was directly centered on using his relationships at other police and sheriff departments–units that he presumably deals with regularly in his job with the Fairview PD, or when he was Public Safety director of Bergen County from 2003-2005– to get them to approve or endorse AMBER Ready.
In a deposition he gave in late June as part of the Blinglets lawsuit, he was asked point blank about whether the Fairview police department had a policy permitting officers to have two full-time jobs. He repeatedly declined to answer, stating “I don’t think it is relevant.” In the same line of questioning, he didn’t have a sense of how many hours he regularly worked at AMBER Ready, only that it “seems as full time as anything else” and that he probably didn’t work more than 50 hours per week.
Two calls to Fairview Police chief John Pinzone were not returned. Chief Pinzone is not without his own head-scratching moment–In a letter testifying to the character and decency of one Giovanni DeMaio prior to his sentencing to 51-months imprisonment for a number of weapons violations. Pinzone infurirated prosecutors when he neglected to disclose both that he was the Fairview N.J. Police Chief and that he was dating DeMaio’s then 33-year old daughter.
As a CEO, if the deposition is any guide, Del Vecchio has a hard time recalling things. He frequently answered “I don’t recall” to rather mundane questions, like whether the CEO of John Thomas Financial was introduced to his boss at Fairview, the basis of big consulting contracts the company gave out, the amount of money the company had spent since he joined in February 2008, or even how many board of directors meetings there had been.
(He was less cooperative, however, when asked for his cell-phone records and what the Fairview PD paid him. However, according to this article, it is safe to say that he is earning well in excess of $100,000, given both his rank and that it’s the departmental average.)
In fairness to Del Vecchio, he did acknowledge that AMBER Ready didn’t have the mobile phone system that they marketed to investors. Also, he did recall that the company under his watch was issuing share certificates with another CEO’s name on them.
Perhaps most importantly, he cleared up a matter of some confusion: AMBER Ready did not have the 4000 enrollments they referenced in the S-1, but had only 600. Despite having numerous accountants and lawyers vet the document, it was only a “typo for the years.”
[Multiple phone-calls and E-mails to Del Vecchio were referred to his attorney Marc Leibman who would not comment unless I gave up the name of a source who provided me with a document. After I refused to do so, Leibman informed me that he and his client were considering preparing a defamation suit in response to this story. When I told him I hadn’t written anything yet or even asked him any questions, he ended the call.]
Enter Anastasos P. Belesis.
Better known as Tom, Belesis cuts a striking figure: Perfectly dressed, handsome and bald, he is happy to lead the charge to buff Wall Street’s public image. An unabashed Republican, Belesis’ central-casting appearance and demenor apparently caught the eye of Oliver Stone during the location scouting for his new movie and he became a technical advisor and even scored a part for himself.
He is, however, less vocal about his background in a series of heavily sanctioned and shuttered small-brokerages, several of which can only be characterized as bucket-shops (Click on the firm names for their FINRA disciplinary records: Joseph Gunnar, J.W. Bach, Harrison Securities, Ladenburg Capital Management. Tragically, First Asset Management Inc., where Belesis worked from June of 1996 to July of 1998 is closed and has no online records available. That’s ashame, because the firm was much better known as Lew Lieberbaum, one of the most heavily sanctioned penny-stock brokers of the time.) Reading the Ladenburg disciplinary record, for instance, is to be transported back into the mid-1990s, when men were men and customers were marks.
And if Belesis is quiet about the type of firm he cut his trading teeth on, he is positively monk-like about his performance at these shops. That makes some sense though as the fellow has had his fair share of customer arbitration disputes. His FINRA BrokerCheck report is here.
(John Thomas Financial as a firm has a good disciplinary record, with only one violation centering around failing to disclose a broker’s several years old regulatory infraction– The FINRA report is here. Another JTF employee, John Belesis, has a clean regulatory slate but has a pair of disclosable criminal complaints, including one for selling pot two years ago.)
Getting caught up in several big-ticket customer disputes over a decade does not invalidate a financial career, nor should it imply that one’s ethics are substandard. It does however lead to a conclusion that Belesis can get pretty comfortable being very aggressive in high-risk situations.
Which makes a lot of sense when it comes to understanding what happened to AMBER Ready.
Since 2008, various units of John Thomas Financial (whose privately held shares are owned either directly by Belesis or by a company controlled by him) have provided a series of bridge-loan financings. Its broker-dealer unit helped the company raise both equity capital and convertible debt.
All standard enough, but a close look at one private placement memorandum for an equity-capital funding offers a remarkable view into the black and white world of development-stage company private-equity. If you are the investor/lendor, its pretty hard to lose; if you are the portfolio company, you had better hope you have the next Viagra in the pipeline.
One explanation of what Belesis and his colleagues were up to might be that they were activist investors striving mightily to prep AMBER Ready for an initial public offering. A more direct reading of their actions was that they were in the business of fee harvesting and equity-stake expansion.
Doing the math, Belesis’ various John Thomas Financial units booked nearly $2.24-million in fees for arranging loans–which carried interest rates of 18% and 20%–and private placements (click here for an excel spreadsheet of their fees.) They also took in $15,000 a month in consulting fees for providing Amber Ready business advice. If the anticipated IPO had ever materialized, the various John Thomas Financial subsidiaries would have been well-positioned for a windfall, having amassed at least 2.9-million shares and 3-million warrants (the firm and its units would later come to own almost 39% of the company, or 26.9-million pre-IPO shares.)
Like many a company on the receiving end of a bridge loan, AMBER Ready was getting a lesson in Wall Street’s golden rule: He who has the gold, rules.
As the broker-dealer was able to sell debt or bring private placement funding in, the bridge loans–the capital that John Thomas Bridge & Opportunity Fund had at risk–were paid off. Thus is the beauty of being a vertically integrated financial firm.
It gets even more interesting: Deep in the various private placement memoranda were provisions for so-called penalty shares, which as the name implies, would be taken from Kai Patterson’s 75% stake in the company as a penalty for failing to meet the S-1 registration deadlines. According to the S-1, they have issued more than 6.3-million shares to holders this way.
The real story of Belesis’ influence is only alluded to in the documents though. After an equity-capital raise in the summer of 2009, Belesis was instrumental in pushing AMBER Ready to stage a promotional concert at ABC Studios in New York’s Times Square. The cost? Only $2-million. [The ads featured on the video above, where the John Thomas Financial logo is displayed as prominently as the AMBER Ready logo, cost $600,000. The legal headaches from this blowout remain however, with this lawsuit alleging that more than $475,000 was spent on public relations alone for this episode--with $354,000 allegedly still unpaid.)
Though the company’s S-1 notes wanly that the Times Square event “Did not meet expectations,” there were no shortage of other drains upon the newly-raised investor cash. Belesis, for example, seems to have had an affinity for political insiders and lobbyists, especially those on the Republican side of the aisle.
P.C. Koch, a telecom and energy lobbyist whose brother Robert married former President Bush’s sister Dorothy--and who hails from something like the first family of D.C. lobbyists--was slated to be paid $580,000 in 2008-2009 (a copy of his consulting contract is here.) It is hard to argue that the company got its money worth: Comparing the revenues from the private placement memorandum to that of the S-1 shows that in the time Koch was there, AMBER Ready went from zero revenues to $10,600. It's harder still to figure out what he did or was supposed to do. The listed phone number for Koch’s D.C. lobbying firm is no longer operational and further attempts to contact him were unsuccessful.
Koch's hiring was a source of bitter internal struggle as this E-mail exchangebetween former CEO Kai Patterson and Belesis shows. The "Hyde Park Group" referenced in this E-mail thread is Hyde Park Communications, a politically influential public relations and lobbying firm in Washington D.C whose Michael Waxman--the son of influential Congressman Henry Waxman--pitched their services for $2.5-million.
Ultimately, Koch's primary initiative for AMBER Ready was to get the company to take an $80,000 suite at the Verizon Center for a concert during the Obama Inauguration festivities. It does not appear any business emerged from this effort.
As noted, Belesis appears to be an activist investor and, per this E-mail, not one who was afraid of trying to shape the AMBER Ready to his liking. Interestingly, the lawyers he is demanding things of--from Sichenzia Ross Friedman Ference LLP-- were AMBER Ready's lawyers, not John Thomas Financial's.
Fred Brown was another addition to AMBER Ready’s growing roster of consultants added in the Spring of 2009. The President of the National Black Republican Council, and an erstwhile delegate for the Rudy Giuiliani Presidential run in 2008, he was paid $125,000 for various consulting services. According to former AMBER Ready executives, he did help land a potential contract with the New York Housing Authority, but this faded away once the mobile-phone application did not work out. Brown is better known in New York as having gotten caught up in a New York City voter-registration flap. A voice message left for Brown was not returned.
Belesis also suggested his uncle Milton Makris and his business partner Robert Christie be brought into the company and they have since been elected to the company’s board. The S-1 does not disclose the relationship between Belesis and Makris.
[FI.com reached out to Belesis for a comment last week and although John Thomas Financial’s independent general counsel Robert Bursky seemed initially open to the idea, he eventually declined to comment or to make Belesis available for an interview. The E-mails are here.]
In a story that’s alternately pathetic and baffling, the most confusing item of all is how over $13-million was raised, but according to CEO Del Vecchio’s testimony, only $7-million was put in AMBER Ready’s coffers.
As for AMBER Ready, it has merged with a direct marketing outfit called CK41 that specializes in informercials and is now known as Galaxy Media & Marketing Corp. If it ever makes it public (and incredibly, they are trying) it is sure to be quickly lost in the twilight zone of the OTC Bulletin Board.
Someone eventually is going to want an accounting of where their cash went. They will want to know why nothing got done with a cell-phone app, why there were concerts, a 32-city tour, big bucks consultants and political hacks but no product ever emerged. If they sue and get discovery, quite a tale may be told about what happens to little companies that go to the far-off corners of Wall Street to raise money.