A Money Manager's Ultimate Fight Game
By Barrons
Last update: 7:12 p.m. EDT June 3, 2008
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THE RIDE OUT OF THE Amazon took two days and nights by bus, when Wallid Ismail first left home to learn jujitsu. He thought he was getting away from the jungle. But even after two decades as a champion in the kicking, jabbing, choking sport called mixed martial arts, Ismail wasn't ready for the Hollywood stock promoters he met two years ago at the Beverly Wilshire hotel. They told him his plan for a fight business would make him the richest fighter in the history of the sport. Over six months, he met their contacts at ABC and at (CBS:CBS Corp New
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CBS 21.55, -0.19, -0.9%) 's Showtime Network. But when Ismail and his wife arrived at a lawyer's office for the deal closing, no one else was there
The Hollywood bunch had taken his plan and started the business without him, says the fighter. They call it ProElite (ticker
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CBS 21.55, -0.19, -0.9%) (CBS), which is chasing the 18-to-24-year-olds who love extreme brawls like the Ultimate Fighting Championship on Spike
Ismail feels as if they stole his baby. "This is first big scandal in the sport of mixed martial arts," says Ismail, a fiery, shaven-headed man with cauliflower ears and a Portuguese lilt. "These people take my product, raise the money and kick me out."
The fighter is actually just one of many people affected by Florian Homm and Todd Ficeto, the two gents who financed ProElite and dozens of dubious companies in the past 10 years. Those stocks mostly left investors bloodied, but a tally of company filings at the Securities and Exchange Commission shows the two financiers made out with fees and securities worth hundreds of millions (see chart, Building to a Big Score). Not a bad payday for Ficeto, a young investment banker who worked his way up from a number of infamous high-pressure securities sales shops to the Hollywood charity circuit and a villa high above Malibu. Homm was a Harvard-educated headliner in Europe who ran the publicly held hedge-fund firm Absolute Capital Management Holdings (ACMH.UK) until September of last year, when he abruptly quit
FORENSIC ACCOUNTANTS FOR Absolute Capital in London found Homm's portfolios loaded with thinly traded U.S. stocks like ProElite. The stocks shared two characteristics: Homm's funds owned most of the shares and Ficeto's firm had been the banker. Absolute Capital's investigation is looking into whether the fund manager ran up the stocks' prices, then collected fees on that phony performance. With Homm's funds at the ready, Ficeto got millions in placement fees. What wasn't disclosed in the securities filings of ProElite and other Ficeto stocks is that Homm was half owner of Ficeto's banking firm. From ProElite, for example, the banking fees surpassed $3 million cash plus warrants that were worth over $100 million once Showtime got behind the cage-fighting promoters. Thanks to CBS, therefore, Homm's seeming self-dealing produced a bonanza for the two of them.
Neither Barron's nor Absolute Capital can find Homm. Ficeto and Showtime wouldn't talk to us. Still, there's plenty of evidence of Homm and Ficeto's collaboration over the 10 years leading up to their big score with ProElite. The first legal inquiry into their activities may well be the discovery now under way at a federal district court in Los Angeles, where Ismail is fighting for a piece of the venture. "I just supposed to be another guy they destroyed," says Ismail, who supports his family, his sister and his mother in Brazil. "If I don't save, I live in the street now."
Homm was the six-foot-eight-inch scion of a wealthy German family who liked to make himself out as a wunderkind. He bragged of starting his first investment company at 18. From a stint at Fidelity Investments he got a recommendation letter from Peter Lynch that led, in turn, to investing jobs at Bank Julius Baer and Tweedy, Browne. He started his own mutual-fund firm in 1993 near Frankfurt. He called it Value Management & Research. The name didn't describe Homm's investing style. Over the course of the decade he made increasingly large bets on Internet startups with little on their balance sheets or income statements. By 2001 the dot-com music stopped and his portfolio collapsed. Although the firm survived under the management of his brother-in-law, Homm departed.
He quickly started a hedge-fund business. After amassing $840 million under management, he became one of the first to take a hedge-fund firm public by listing Absolute Capital Management Holdings on London's AIM exchange in 2006. The funds showed annual investment returns of 20% or better and a financial publication nominated him "Hedge Fund Leader of the Year." He lived in sunny Mallorca off the coast of Spain and bought control of Germany's Borrusia Dortmund soccer team
Denver-based oil and gas tycoon Jack Grynberg met Homm in Barcelona in June 2005. Grynberg put $12 million into the hedge funds, impressed by Homm's top decile returns and avowed policy of investing no more than 10% in unlisted stocks. In partner letters, Homm said he shunned companies with "liberal accounting practices, sickly balance sheets and weak management." But, as investors like Grynberg ultimately learned, Homm poured their money into just such entities. Grynberg sued in a Colorado court, saying his investments lost a third of their value.
Many of Homm's dubious holdings came to him through Todd Ficeto. The young broker ran offices at notorious firms like Robert Todd and Smith Benton & Hughes, which regulators later shut down, and at La Jolla Capital, where dozens of brokers were snared by regulators in crackdowns on mob-related stock scams. Ficeto's own regulatory record remains clean, aside from two NASD fines and suspensions for penny-stock dealings and failing to rein in a trader who churned accounts and put conservative customers into the speculative shares that Ficeto and Homm were promoting.
In 1996 Ficeto went out on his own with a Los Angeles firm he named Century City Securities. The 30-year-old broker was bankrolled by a couple of Swiss investment bankers -- one of whom also ran Europe's premier producer of hardcore pornography. After taking more than $850,000 from the bankers, Ficeto refused them the ownership stake they expected, according to a lawsuit filed by the Swiss bankers in a state court in Los Angeles. Ficeto had found a new source of capital, they said: Harmon S. Hardy Jr., who settled SEC charges that he'd bribed brokers to push stocks underwritten by his brokerage firm Burnett Gray -- another place Ficeto had worked. Thereafter, said the Swiss bankers' complaint, Hardy's stake in Ficeto's firm was "purportedly" acquired by Value Management & Research, Florian Homm's mutual fund company. Ficeto settled the suit for $120,000.
Through Value Management, Homm and Ficeto became consultants, bankers, investors or touts for a string of companies that could never be mistaken for value stocks. In October 1999, they hired on as investment bankers for Stan Lee Media, a publicly held dot-com run by a convicted swindler and drug smuggler and several other executives who conned the aging Marvel comics creator into lending them his name. The executives eventually wound up in a federal court in Brooklyn, where they were convicted of having bribed brokers and analysts and of manipulating the stock. And in 2000, Value Management financed Shopnet.com, a producer of swimsuits and low-budget films that became embroiled in another Brooklyn federal prosecution charging that Shopnet was pumped and dumped by the bribed brokers at a firm controlled by the Colombo crime family.
After a brief intermission -- while Homm climbed from the wreckage at
Value Management and launched a hedge fund in 2002 -- the pair picked up where they'd left off. The hedge funds put $6 million into United Capital Mortgage, which went bust five months after Homm joined the board. A federal district judge dismissed Homm's subsequent lawsuit, saying Homm had been on notice that the mortgage broker was run by an embezzler and a convicted felon. They put $5 million behind Bio-Medical Technologies, even though its founder had been convicted four years earlier of posing as a doctor to market the company's electronic device as an arthritis treatment, without the Food and Drug Administration's approval.
Ficeto's investment-banking work seemed little more than placing the securities and notes of these companies with Homm's funds. For that, Ficeto's firm, now named Hunter World Markets, got paid lavishly. By placing $10 million worth of securities with Homm's funds for the stylish coffee shops of Java Detour (JVDT.OTC), Hunter earned $1 million in fees, plus warrants worth as much as $10 million. Footing the bill for those fees, of course, were Homm's investors and Java Detour's public shareholders.
After Homm left Absolute Capital last September, the fund management company found that as much as 40% of the valuation in some funds consisted of dubious holdings -- representing $440 million to $530 million of the $2.1 billion under management. Absolute has sequestered those stocks in a so-called side-pocket separate from its other holdings, while accountants assess their fair market value. The quotes on many of the stocks have sunk from dollars to pennies since Homm departed the firm. Absolute Capital's stock, meantime, has lost 93% of its value
The fat fees these deals paid Hunter look like self-dealing by Homm, in light of the filing at industry regulator FINRA that showed Homm as Hunter's 50% owner. This conflict was not disclosed in hundreds of SEC filings that reported on Hunter's banking deals with Homm's funds. A computer examination of those filings back through 1997 shows that Ficeto's brokerage firm (under its various names) placed almost $650 million worth of investments with funds managed by Homm over that period, in return for fees and securities worth as much as $230 million. Ficeto attorney Clifford C. Hyatt, of Pillsbury Winthrop Shaw Pittman, said Ficeto still held most of the securities he received and that the valuation of his stock and warrants was debatable.
The securities lawyer on many Hunter deals is a partner at the Los Angeles firm TroyGould, by the name of David L. Ficksman. Ficksman says he didn't know who owned Hunter and that ProElite and other stock issuers had no duty to disclose Hunter's ownership.
ISMAIL WAS NO MATCH FOR these operators. He left school at age 15 to live in the gym of Brazil's jujitsu celebrity Carson Gracie. Coming from the Brazilian boondocks, Ismail says he fought twice as hard to prove himself to the city folk. In due course, he beat every member of Gracie's famous family of professional fighters and won more than 300 bouts. He fought matches with gloves. He fought bare-knuckled beat downs that allowed anything but eye-gouging and biting. Martial arts fights became pay-per-view moneymakers in Brazil, Japan and eventually the U.S., where Las Vegas' Fertitta brothers (who run Station Casinos) have made stars of Ultimate Fighting Championship battlers like Chuck Liddell. After retiring, Ismail became a successful promoter in his own right.
In Los Angeles, Ismail liked to work out with T.R. Goodman, a trainer for football pros like former New England Patriots linebacker Willie McGinest and long-time National Hockey League forward Chris Simon. The five-foot-seven-inch Brazilian would playfully grapple with his gigantic gym-mates and sometimes best them. Goodman was Ismail's best friend in the U.S. So when the fighter mentioned plans to bring his Jungle Fight Championship bouts from Brazil to the U.S., Goodman thought of an experienced producer. "I told him I'd fix him up with some people he wouldn't have to worry about," Goodman says, ruefully
He brought Ismail to Doug DeLuca, an executive producer of the ABC talk show Jimmy Kimmel Live . DeLuca introduced the fighter, in turn, to an investor group led by Dave Marshall, who'd founded (UBET:youbet com inc com
A draft private-placement memo showed DeLuca serving as chief executive, and Ismail heading up fight promotions for $250,000 a year and 24% of the company. By late summer, they were meeting with Ken Hershman, the sports vice president for Showtime Networks.
But Ismail says his partners pressured him to sign agreements to fold his fight business and trademarks into the company before they were finalized. The fighter says he'd warned them that his ownership of the
Jungle Fight name was imperfectly documented. And he was bothered by their heavy spending, urging the venture to build a Website inexpensively rather than buy the technology by shelling out four million ProElite shares for a Malaysian dot-com called LifeLogger, which was owned by Marshall and his partners.
The fighter was clearly ignorant of the way Marshall, Ficeto and Homm had operated. None of the public companies backed by Homm and Ficeto had ever sustained a profit. And in the five years that Marshall was involved with Youbet.com as a public company, it lost a cumulative $83 million on revenues of $42 million. Shares of Youbet.com, for example, fell from a peak of $23 to become a penny stock.
ON SEPT. 29, 2006, ISMAIL and his wife went to a lawyer's office for the scheduled closing of the deal, but no one else showed up. The actual closing, and the reverse merger creating ProElite, took place on Oct. 3 without Ismail. In his place as ProElite's fight boss was Gary Shaw, a well-known boxing promoter.
Now Ismail and ProElite are slugging it out in federal court. "They kept him in until the very last minute, to raise money," says Robert Hantman, the New York attorney representing Ismail. "Then decided they didn't need him."
In court papers, ProElite says the company and Ismail simply didn't come to terms, and never signed a contract. Barron's spent more than a month seeking an interview with DeLuca, Marshall or anyone else at ProElite, but ProElite refused to comment.
After Showtime bought 20% of ProElite for $5 million in January 2007, ProElite shares traded as high as 15 bucks, which valued the company at more than $1.3 billion. As a business, however, ProElite looks much like others involving Ficeto, Homm or Marshall. Following a year of live events, pay-per-view and Showtime broadcasts, it lost $5.6 million in the March 2008 quarter, on $4.5 million in revenues. The stock's quoted now at $7.50 on the Pink Sheets bulletin board, but scarcely trades. We tried to get Showtime sports head Hershman to talk about ProElite, but the network wouldn't allow him
