What Happened to the Backstreet Project?
Source: Yahoo News
Four indicted in Internet cartoon case
By Carl DiOrio
Wednesday June 13 2:32 AM ET
HOLLYWOOD (Variety) - Four people connected with failed Internet animator Stan Lee Media have been indicted by a federal grand jury on charges of securities fraud.
Though Lee was not among those indicted, the famed comic scribe must surely be crying ``Excelsior!'' after a Brooklyn grand jury named his company co-founder plus a top executive, a stock analyst and a stock promoter in the alleged scheme.
The indictment, unsealed Tuesday, alleges the defendants conspired to manipulate the company's stock price through a complex series of improper transactions.
Meanwhile, there's even an inside-the-Beltway connection to this tale of legal woe. One of the defendants, SLM co-founder Peter Paul, reportedly was a big contributor to Hillary Rodham Clinton (news - web sites)'s Senate campaign and also helped finance a Hollywood tribute to former President Clinton (news - web sites) during the last Democratic convention.
Paul, 52, who never held a corporate post at the company, previously ran afoul of the law with reported missteps including a 1978 drug rap and a later conviction on federal wire fraud charges. But by the late 1990s, Paul had put all that behind him and moved onto a career as business consultant and entrepreneur; he's now believed to be living in Brazil.
Also indicted were former SLM executive vice president Stephen Gordon, 50, of Sherman Oaks, Calif.; Jeffrey Pittsburg, 57, a Long Island, N.Y.-based analyst and securities broker who wrote reports touting SLM shares; and Charles Kusche, 47, a Darien, Conn.-based stock promoter.
``The story underlying this case has no superheroes, nor is it in any way comical,'' said Alan Vinegrad, U.S. attorney for the Eastern District of New York. ``Rather, it is an all-too-real and sad account of greedy securities fraud perpetrators and unwitting victims.''
Lee and SLM CEO Ken Williams -- though untainted by the indictments after cooperating fully from the beginning of the federal investigation --have nevertheless suffered under the related collapse of the onetime high-profile Internet company.
TOUGH TENURE
Williams left a high-level executive post in digital operations on the Sony Pictures lot to take the helm of the company's day-to-day operations. Though he continues in his SLM post in a long-shot bid to resuscitate the company, Williams' tenure at SLM to date has been anything but an easy one.
The fallout for Lee has been as much personal as professional.
Lee, 78, is famous for creating comic book characters including Spider-Man and the X-Men. He co-founded SLM with Paul after witnessing his longtime professional home at Marvel Comics fall into bankruptcy reorganization.
Lee was wooed to the effort by Paul, who considers himself an expert in turning niche celebrity into brand recognition for clients, including male model Fabio.
Lee hoped SLM would provide him with greater control than Marvel in spinning entertainment enterprises from the characters created by his animated storytelling. And for a time it appeared at least a couple of the company's fledgling properties were taking hold in Hollywood.
Producer Mark Canton bought rights to turn Lee's ``7th Portal'' Web strip into a now-stalled movie project, and Paramount Parks licensed rights to the strip for a theme-park project now in operation.
Webisodes involving music artists such as the Backstreet Boys (news - web sites) and Mary J. Blige also were launched before a dramatic fall-off in the company's share price to penny stock levels caused execs to pull the plug on virtually all SLM operations.
SECRET ACCOUNTS ALLEGED
According to the newly returned indictments, defendants illegally profited from SLM stock buying shares through secret accounts and then inflating the stock price. In a related allegation, Paul and Gordon are accused of then borrowing large sums of money from Merrill Lynch through the accounts using SLM stock as collateral.
``This technique allowed Paul and Gordon, effectively, to sell their stock to (Merrill) without negatively impacting the stock price,'' the U.S. attorney's office said in a statement. ``Later ... Paul and Gordon made undisclosed payments to Pittsburg and Kusche, who purchased and arranged for others to purchase the stock.''
The process allowed the defendants to conduct transactions beneficial only to themselves, but when it was halted in late November the result for public investors was a plummeting SLM share price, prosecutors said.
Merrill Lynch was allegedly left without collateral with which to recover some $5 million the investment firm had lent to Paul, Gordon and others.
The SLM stock price slipped below $1 by Dec. 13; trading was stopped Dec. 18. SLM filed for Chapter 11 bankruptcy reorganization on Feb. 16.
Prosecutors estimated individual investors and financial institutions have lost more than $25 million as a result of the alleged stock manipulation scheme.
The stock fraud charges against each defendant carry a maximum sentence of 10 years in jail and $1 million fine. Separate conspiracy charges could bring another five years' imprisonment and a $250,000 fine.
Reuters/Variety REUTERS
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