Securities Commish, Ex-CEO Imply Fraud

Golf Entertainment Inc., the Springdale penny stock company, and an outside entity called Genesis Trust may have been more ambitious than originally thought.

Instead of just a May 5 stock disbursement of 15 million shares to Genesis, which was valued soon thereafter at $2.18 million, new documents filed in federal court by the Arkansas Securities Department indicate that executives at the public company secretly decided the next day to issue an additional 175 million shares.

That would have brought the total outstanding shares of Golf, which has changed its name to Sienna Broadcasting Corp., to 200 million. If valued conservatively at a nickel per share, that action would have represented new market capitalization of $8.75 million. And shares during that time frame were consistently sold by Genesis at 6-10 cents per share.

Additional court documents show that a material relationship existed between the two entities — in the form of a shared brokerage account by at least one Golf/Sienna executive and a Genesis trustee — both before and after Golf/Sienna relocated to Arkansas in December 2001 and began a new business plan.

Also, Golf/Sienna’s former two-time CEO, Michael Daniels of Las Vegas, said he resigned after concluding that the company was a stock scam and that insiders had hoped to pump the market capitalization up to $20 million. He also accused the company’s chief operating officer, Jim Bolt, of forging his name on official documents and of bouncing $2,500 worth of checks to him last year.

Two other former business associates allege improprieties, and evidence uncovered by state securities regulators indicates that Golf/Sienna made false statements to a federal court.

Executives at Golf/Sienna did not respond to written questions, which included requests for the minutes of board meetings. Additional attempts to contact company officials were made, but rejected, in person and via telephone. Earlier articles that appeared in this publication are the subject of litigation filed by Golf/Sienna and a Genesis trustee.

After Golf/Sienna failed to make a scheduled $291,000 payment in mid-September to acquire low-power television station KVAP-LP, Channels 20/71 in Springdale, it changed its business focus to “reentering the equipment leasing market” and reactivating former company divisions to use them as a vehicle for acquisitions. SEC filings also say it’s focused on cable advertising opportunities.

Stock Issuance

John Dodge, Golf/Sienna’s vice president and general counsel, wrote a letter May 9, 2002, to the American Stock Transfer and Trust Co. (AmStock), a New York transfer agent and registrar for public companies. He said Golf/Sienna’s board had three days earlier approved the issuance of an additional 175 million shares of common stock, growing its total outstanding to 200 million.

Because penny stocks such as Golf/Sienna do not typically have access to traditional sources of capital, they often use shares in the company as currency.

Genesis had just been awarded 15 million shares to settle a curious lawsuit it had filed against Golf/Sienna in U.S. District Court at Fayetteville on April 30. That action tripled the outstanding shares of Golf/Sienna but didn’t rate a disclosure to the Securities and Exchange Commission and public until July 17.

Nowhere did the company make a public statement regarding the authorization of 175 million shares. Such notifications are required by law, according to the SEC’s Web site, when an event would be considered “material” by an investor. Golf/Sienna’s 175 million share issuance, for example, would have diluted the value of existing shares by about 90 percent.

Beginning with its Sept. 30 quarterly report, Golf/Sienna did start listing 100 million authorized shares in the equity description on its balance sheet. But no other explanation was given. That and other inconsistencies were enough to prompt action by state securities regulators.

Johnson Steps In

Dodge’s letter to AmStock was made public March 10. That’s when Arkansas Securities Commissioner Michael B. Johnson included it and other evidence of improprieties in a federal court motion to intervene in Genesis’ suit against Golf/Sienna.

The Arkansas Securities Department declared in September the 15-million share award illegal because Golf/Sienna had never registered the shares in question with the state commissioner as required by law. But exhibits filed with Johnson’s March 10 motion include more dramatic evidence of improprieties.

Johnson provided brokerage account statements from Arvest Asset Management Co. and Morgan Keegan & Co. that suggest the relationship between Golf/Sienna and Genesis was well within “arms length.” Such close alliances can create the opportunity for entities to conspire to artificially inflate asset values on a public company’s balance sheet, according to SEC literature, making the company appear stronger to potential investors that it really is.

The Northwest Arkansas Business Journal and its Little Rock sister publication, Arkansas Business, reported on Aug. 19 that the relationship between Golf/Sienna and Genesis was inappropriately close, despite the company’s claims to the contrary.

Johnson’s evidence includes one account at Arvest Asset Management that from at least May 2001 to February 2002 was shared by Dodge and Charlie Rusk, a former senior trustee of Genesis. The account had a balance of $60,000.

By March 2002, Dodge’s name had been replaced on the account by that of Melvin Robinson, a trustee of Genesis. Earlier this month, Robinson filed a $12 million libel suit against Arkansas Business Publishing Group, owner of the Business Journal and Arkansas Business, and three of its employees.

Ex-CEO Speaks Out

Michael Daniels was from 1994-99 president and chairman of LEC Technologies of Alpharetta, Ga., a precursor to Golf Entertainment. The firm has undergone numerous name changes during its 22 years of public reporting. During Daniels’ tenure, when annual revenue averaged $36 million, the company’s focus was on equipment leasing. It later changing to an Internet-based golf course management firm, hence the name Golf Entertainment Inc.

But Golf couldn’t get over the $40 million revenue hump, Daniels said, and sought investors to take the company back private. Daniels said Ron Farrell of Atlanta bought the company and that disagreements about the sale led to Daniels’ dismissal.

Daniels, who had been making $500,000 annually, sued and got a $340,000 settlement. He also got restricted stock in the company, which at the time was trading at 3 cents per share.

In December 2001, Golf/Sienna relocated to Springdale. When Daniels saw the company’s stock spike by about 25 cents in mid-January 2002 and its average daily volume jump from a couple hundred shares to 340,000, he became interested because he wanted the trading restrictions lifted from his stock. Daniels phoned Golf/Sienna and spoke with Bolt, he said during an interview this February.

Daniels said he was soon invited to serve on the board of directors, and he agreed since he hadn’t wanted to leave the company in the first place. During the following months, Daniels said, he became suspicious.

He was never included in any board meetings nor provided with minutes of those meetings. Daniels said he agreed to serve as chairman, president and CEO when Tim Brooker stepped down on Aug. 22 — days after the Business Journal and Arkansas Business stories appeared — based on a continued promise that Golf/Sienna would resurrect its equipment leasing division.

Daniels said he directed Bolt and Dodge to dispense with several ongoing legal battles and to refocus on company business. But the Aug. 23 SEC “news event” filing that announced Daniels’ return also announced the continuation of legal action against a group of supposed Internet stock bashers.

Daniels said his “conformed signature,” a marking that indicates an executive has signed an original document, was forged on the filing. He was furious and phoned Bolt immediately.

“I told [Bolt], ‘You have to take that back because it’s not what I originally saw or agreed to,” Daniels said.

The filing has never been amended.

Additional Allegations

After the company began bouncing checks to Daniels, copies of which he has supplied to the Business Journal and Arkansas prosecutors, he said he’d had enough. He resigned in September, and Golf/Sienna claims to have been conducting a nationwide search to replace him.

Daniels said that he now believes the penny stock was intended “from the start” to be a vehicle for a “pump-and-dump” stock scheme. He said he simply got “sucked in,” and he now regrets his participation.

In SEC documents, Golf/Sienna said “Daniels did not express any disagreement” at the time of his departure. But Daniels said that is blatantly untrue.

“[Bolt] is a forger. He’s a manipulator. He’s a scam artist,” Daniels said. “They did, they ran that little [company] in there and they wanted to get the price of their stock up to, I don’t know, a dollar per share. They [originally] had 25 million shares to play with. Let’s say 20 million because five million shares were out in the flow. That’s $20 million. That’s a good scam, a good scam.”

According to public records, Bolt has three felony convictions dating back to 1975: impersonating a police officer, mail fraud and making false statements to a federally insured bank in federal court, and theft of property.

During the 1985 conclusion to the case involving mail fraud, styled USA v. Bolt, the 10th U.S. Circuit of Appeals had this to say:

“Our review of the evidence establishes that Bolt was involved in elaborate schemes to defraud various companies and individuals. These schemes were built upon a fictitious business enterprise known as Saturation Systems … The government has aptly described this business as being an enterprise which included a group of imaginary products and services …”

Securities Regulators

The Arkansas Securities Department’s motion to intervene in Genesis v. Golf suggests that Genesis misrepresented several facts to the U.S. District Court in Fayetteville:

• Bruce Bokony, general counsel for the securities department, wrote that Genesis’ complaint said it did not receive 2.125 million “marketable” shares of Golf/Sienna stock as part of its settlement for a previous debenture agreement — the reason the suit was filed to begin with. But AmStock provided documentation that Genesis did receive those shares from Golf/Sienna.

Furthermore, records show that Genesis trustees began selling those shares in January 2002 and continued to sell them even after filing a complaint in U.S. District Judge Jimm Hendren’s court that said the shares hadn’t been received. All of those shares, Bokony wrote, have now been sold or transferred.

• Kevin O’Donnell, the New York lawyer who supposedly gave his legal blessing to remove trade restrictions from the shares awarded by Golf/Sienna to Genesis, could not be located. The securities department found that the post office box listed for O’Donnell belonged to the Bank of New York. The phone number given for O’Donnell belongs to the bank’s depository receipts division as does the fax number provided to AmStock.

• Bokony appears to conclude that no public auction was held, despite Golf/Sienna’s claims in SEC filings, to transfer assets from Genesis to Golf/Sienna.

An itemized listing of equipment allegedly sold at auction in December 2001 — with such things as two Panasonic digital cameras selling for $25,780 among the total proceeds of $1.028 million — appears on the former stationary of Springdale auctioneer Stephanie Vaughn. But Vaughn told both the securities department and the Business Journal that she never conducted any auction for Genesis or Golf/Sienna. She suggested that Bolt could have obtained her stationary from his former printing business in Rogers, where she had her business cards and stationary made.

“Bolt talked to me one time about doing an auction, asking what it would entail,” Vaughn said. “I told him my commission fee would be 10 percent and we’d have to pay an attorney to go over all the documents, plus inquire to the SEC to see what the rules and regulations were … He never followed up with me after that.”

Vaughn said she had received 500 shares of stock from Bolt once for an old debt. AmStock records show that a total of 11,000 shares were dispersed from Golf/Sienna to her on May 15, 2002. She could not be reached for comment on the discrepancy.

• Retired Air Force Lt. Col. F. Joe Hart of Pea Ridge said in a Feb. 25 Benton County Circuit Court pleading that he was approached by Bolt in 2001 about serving as trustee of a trust that would be formed to finance Golf Entertainment. Hart declined, his answer said, but was later told that “a friend in Bentonville” would be the trustee.

When asked if he was told who the “friend” was, Hart said, “Yes. Mel Robinson.”

Hart, who spent 17 years in contract administration with the Air Force, recently won a default judgment for a $10,000 personal loan given to Bolt. Several SEC records indicate, however, that Bolt had booked the secured promissory note as “notes payable and long-term debt” in Golf/Sienna’s financial statements. Another lawsuit Hart filed against Golf/Sienna executives regarding a $6,000 loan is still pending.

• AmStock records show that on May 13, 2002, the company dispersed 425,000 shares (worth about 8 cents per share, or $34,000, that day), to an individual named Richard Simpson. The address given for Simpson was 2104 S. Walton Blvd., Suite 5, which was the address of the Genesis Trust.

The identity of Richard Simpson could not be determined.

Going Forward

Golf/Sienna, which says it has 3,200 shareholders, announced in its third-quarter report released Nov. 22 that it had signed a one-year contract with Ozark Wireless TV Inc., a multipoint microwave distribution system (MMDS) in Springdale.

Golf/Sienna was to be the exclusive production/marketing agent for the sale of Ozark Wireless’ local TV advertising.

Edwin Watts, president of Ozark Wireless, said his company has about 400 subscribers and that it’s working to grow its offering from about a dozen Spanish-language channels to 30 in Spanish and more than 40 in English. He said the programming formerly carried on Golf/Sienna’s Spanish-language station is now carried by his station and that his contract with Golf/Sienna allows them to sell ads on one channel.

The contract gives Golf/Sienna 20 percent of the net advertising revenue from TV spots it originates for Ozark Wireless; 40 percent of infomercial bookings; 10 percent of paid religious, nonprofit and other “carriage by accommodation” programming; and 20 percent of revenue from any spots airing locally on El Mercado, a popular Spanish-language channel.

The contract is in direct contradiction of Golf/Sienna’s quarterly report, which said the company would retain 80 percent of the gross revenue from conventional ads aired by Ozark Wireless. Golf/Sienna also reported that the MMDS was growing its number of channels to more than 100.

Watts said Golf/Sienna approached him about selling advertising, but he has not heard from the company since last fall and is considering giving the 30-days notice required to cancel the contract.

Golf/Sienna, in its last SEC filing, also suggested that it’s considering pursuing a regulation “D” private offering to raise funds for the company. It said the net price per share would be 55 cents, but the company will weigh its options first.

Golf/Sienna also said it’s considering a $10 million dollar private placement offering to finance a “warehouse line” of credit to facilitate its re-entry into the leasing business.

Golf/Sienna’s officers also said they are paid a maximum of $48,000 annually, with a salary/bonus cap of $94,000. The same filings say the officers have no stock options.

To read about the SEC’s involvement, click here.

To read what Arkansas Attorney General Mike Beebe says about white collar crime, click here.

To read about a number of business improprieties, click here.

To read more about the company’s legal battles, click here.

To read another story about the company, click here.