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Thursday, May 6, 2010

The Strange Case of Biz Radio

If you believe the worst about Biz Radio and its founder Dan Frishberg, it was nothing more than one part of an elaborate Ponzi Scheme. Frishberg is a Registered Investment Adviser (RIA) who boasted once of managing about $300 million of others' portfolios. Yet, he's seen that number grew exponentially after he launched Biz Radio which included his flagship show, the Money Man.

About four years ago, Frishberg started the hedge fund Daniel Frishberg Financial Services. The fund boasted of trying to raise $100 million into a series of diversified investments. At roughly the same time, he started Biz Radio. Biz Radio would boast of the only all business talk format in Houston, Texas. Often, Frishberg would boast of having a small but affluent audience.

That claim has come into serious question. One former employee, who worked at Biz Radio in 2008, says that many of the programs wouldn't even have 100 listeners and even the top programs wouldn't even get to 1000 listeners. Still, this employee says that most of the top on air talent and some of the support staff were making in excess of six figures yearly.

So, how were they able to do this? It appears, according to SEC filings, that the hedge fund was nothing more than a slush fund to keep this radio station going even though it hopelessly had no revenue stream to speak of. Meanwhile, the radio station expanded into other markets like Denver and San Antonio with similar results. Meanwhile, investors who thought they were investing in a sophisticated hedge fund were really having their money being poured into the bottomless pit of Biz Radio. All the while however, the credibility from having his own radio show was growing Frishberg's RIA business and it ballooned to over $300 million.

The first shoe to drop came last November. That's when the SEC charged hedge fund manager Al Kaleta with fraud. He had raised just more than $10 million from investors with claims of a pseudo bond investment. He told these investors that he was going to use their money to lend to upstart businesses at 14%, give the investors 12%, and keep two percent for himself. In reality, according to the SEC, Kaleta's fund gave all the money Frishberg's fund and that poured it into Biz Radio.

Business ethics author Chuck Gallagher has been following the case closely. Gallagher described one especially egregious case to me. In this case, Kaleta convinced an 88 year old retiree to invest in his fund and described the investment as a pseudo bond. Instead, this retirees money was used to fund Biz Radio and has mostly been lost. Following the SEC's charges, Frishberg cut ties with Kaleta however Gallagher says he's still not sure that's actually happened.

The next shoe to drop came in January of this year. That's when Biz Radio and Frishberg got into a business deal with Houston radio entrepreneur Rehan Siddiqui. Siddiqui was leasing space at another Houston radio station with a much greater frequency. in this fairly complicated deal, Siddiqui would own Biz Radio's frequency while Frishberg and Biz Radio would lease Siddiqui's old station's frequency. It turned out to be nothing more than a fraud. This deal would have Siddiqui lease to own Biz Radio's former frequency and he paid six months, or $180,000, up front. He did so at the end of 2009. Then, Biz Radio's new frequency approached it about their own lease payments. Biz Radio couldn't pay and when they couldn't, they took Sidddiqui off the air and returned to their old station. Siddiqui turned around and sued and that suit, now up to $18 million, is still making its way through court.

Finally, the last shoe to drop happened earlier today and Gallagher predicts criminal charges soon.

Today, in fact, likely by the time this is posted there will be a hearing seeking, to put it simply (cause that’s the way I think), to consolidate the SEC receiver’s power to protect investors beyond Al Kaleta and Kaleta Capital Management (KCM) to include Daniel Frishberg, Daniel Frishberg Financial Services (DFFS – his RIA), BizRadio, BizMedia and other “shadow” companies named – Frishberg Global Investments, LLC and Portnoy, LLC.

In the filing the SEC receiver states (in part) the following in the motion to the court:

  • Daniel Frishberg and Defendant Al Kaleta created a network of companies (KCM, DFFS, BizRadio, BizMedia, FGI and Portnoy) (the “FK affiliates”) – all owned and controlled by Frishberg and Kaleta
  • DFFS and F&K were investment advisory firms through which Frishberg and Kaleta developed a substantial client base

The situation remains fluid.

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