Wednesday, August 15, 2001

faces stock fraud

State, feds both look into
allegations at the
crumbled dot-com

By Tim Ruel

The state Department of Commerce and Consumer Affairs is investigating allegations of stock fraud against WorldPoint Interactive Inc., a local high-tech company already in several legal battles.

The department's Securities Enforcement Branch is looking into complaints made against WorldPoint by two of its investors and three of its former employees, said Patricia Moy, senior securities enforcement attorney.

If the state finds breaches of securities law, it can seek a cease-and-desist order against WorldPoint in court, and issue civil fines of up to $100,000 per violation, Moy said.

The state has already referred the employee claims to the U.S. Department of Labor's Pension and Welfare Benefits Administration, Moy said. The agency is a watchdog for employees.

The state investigation has been open since May, shortly after WorldPoint fired the bulk of its 100 workers in an effort to stay afloat. Two employees formally complained to the state about WorldPoint's employee stock option plan.

WorldPoint chief executive Massimo Fuchs replied yesterday: "Don't cry over spilled milk. You had a free choice."

Over the past five years, most of WorldPoint's employees bought into the stock plan instead of taking cash. Every six months, employees had the option of stock or cash. When the market for technology issues was soaring, everyone wanted stock. "People thought it was great," Fuchs said.

The employees who complained to the state say that either the stock never existed, or was purchased after the shares became worthless, Moy said. She noted that the state received a similar complaint about WorldPoint from another employee in 1999.

Fuchs dismissed the claims, saying that the stock option plan was crafted in line with the standards of the Internal Revenue Service and that the stock was purchased and is still on the books. The issue likely arose after WorldPoint downsized and the employees couldn't take their stock. Up to 400,000 shares owned by former employees remain with the company, but because of IRS rules could not be accessed, Fuchs said. "We have done nothing wrong," he said.

The state also received complaints of securities fraud in May and June from two WorldPoint investors, both of whom had invested less than $100,000 in the company, Moy said.

WorldPoint attorney James Evers dismissed the allegation, noting that WorldPoint had more than 70 individual investors who put a total of $13.5 million in convertible debt into the company.

"I think it's more a case of sour grapes than anything," said Evers.

Not all of the other investors are happy, however. WorldPoint's largest investor, Japanese businessman Hiroshi Teramachi, has already sued the company and Fuchs over a rent dispute. Fuchs, who joined WorldPoint as chief financial officer in 1996, started renting a cottage on Teramachi's million-dollar Aina Haina beachfront estate in 1997. Fuchs later moved into the main house, paying $6,000 a month, and Teramachi invested $3 million into WorldPoint.

Problems began after Teramachi's spouse moved back into the main house last year, without notice, Fuchs said. Fuchs terminated the lease agreement for the main house and stopped paying rent on the cottage as a way of getting back his deposit on the main house.

Teramachi's loan to WorldPoint matured in December, and converted to stock. Teramachi requested the money back twice, according to a May letter.

Fuchs called it a loan and refused. "We're not a bank," he said.

Fuchs has countersued Teramachi, seeking $120,000 for his deposit, back rent on the house and improvements made on the property. Fuchs, a native Swiss banker, is also seeking damages for defamation. He says Teramachi accused him of hiding WorldPoint's assets in Swiss bank accounts. The suits remain in limbo as the attorneys mull whether to move part of the claims to Circuit Court from District Court. Meanwhile, Fuchs has been preparing to move out of the property.

WorldPoint has never been profitable, and was hit hard when the state Attorney General's Office sued in June to collect $810,000 from a past-due government loan. The state originally furnished a $580,000 loan to Fuchs' predecessors in 1995, the year the company was founded in the state's Manoa Innovation Center. Fuchs claims WorldPoint owes nothing. He has until the end of the month to answer the suit, and has been seeking a settlement. Filing bankruptcy in Hawaii remains an option, said Evers, who works for bankruptcy law firm Wagner Choi & Evers.

A WorldPoint subsidiary has already filed for bankruptcy in Switzerland, where the company once had a sales office. WorldPoint closed the Swiss branch earlier this year, along with its offices in San Francisco, Dallas and Hong Kong.

WorldPoint translated businesses' Web sites into foreign languages, and took on several high-profile clients, including Nike. Last year, the firm announced plans for an initial public offering of stock, and moved into the penthouse of 1132 Bishop St.

Partly because of its passion for technology, the state entered a stock-deal discussion with WorldPoint in 1996, after the company stopped paying on the loan. The state wanted to convert the debt to stock, but had never done it before. Then the stock market began to tank, and WorldPoint never went public. In October, Fuchs offered the state cash for the loan, but the state still insisted on taking the stock. Earlier this year, after the Nasdaq stock market dipped below 2,000 points, the state dropped the offer and sued.

The plot took another twist last week, when WorldPoint and several of its creditors were sued by an auction firm hired to sell WorldPoint's assets in July. Mark Glen Auctions sued to protect itself, after the auction turned up less than $100,000 after expenses. The suit claims WorldPoint removed at least 200 items just before the auction to defraud its creditors. Fuchs said he plans to countersue for breach of contract, fraud and other claims.

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