As widely reported today by sources such as the LA TIMES, WIRED MAGAZINE and REUTERS, four people, including Stan Lee Media co-founder Peter Paul, have been indicted by federal prosecutors as part of an alleged $25 million stock manipulation scheme. The defendants face maximum sentences of 15 years in prison if convicted. Paul, former Stan Lee Media executive vice president Stephen Gordon, stock analyst Jeffrey Pittsburg and stock promoter Charles Kusche, have been accused of securities fraud in an attempt to manipulate the price of Stan Lee Media stock. Stan Lee has not been charged and has been portrayed as an unwilling victim. Gordon and Kusche were arrested Tuesday. Pittsburg was previously arrested. Paul, according to the published reports, is believed to be living in Brazil, where the U.S. Attorneys Office will seek his extradition. Sources describe the fraud as follows: In order to avoid a possible drop in the stock price that would likely accompany a large stock sale by key executives, Paul and Gordon began borrowing large amounts of money from Merrill Lynch through nominee accounts, using their Stan Lee Media stock for collateral. This allowed them, in effect, to sell their stock to Merrill Lynch without lowering its market price. The pair also began making secret payments to Pittsburg and Kusche, who made stock purchases and trumpeted the shares to other investors with false reports. When the payments stopped in November, the stock price plummeted, from a high of $23 to less than $1 by mid December, when the stock stopped trading. As a result of this misconduct, the company laid off almost its entire staff of 165 employees and filed for bankruptcy protection in February, 2001. Investors were left with valueless stock and Merrill Lynch with worthless loan collateral. Paul and Gordon were dismissed from the company shortly thereafter. As reported by AWN on May 8, 2001 [AWN News 05/08/01], Gordon issued a Further Declaration in a Los Angeles Superior Court action which retracted and corrected previous allegations made by Gordon against Paul, as well as detailed a series of new accusations of fraud and libel against Stan Lee Media CEO Ken Williams. Gordon alleged that Williams, the former president of Sony Digital Studios, was involved in a plan to "personally destroy" co-founder Paul and to bankrupt Stan Lee Media in order for him to acquire Stan Lee Media assets free of existing shareholders and creditors. In another strange twist in this ongoing drama, according to the LA TIMES report, Pauls attorney, Larry Klayman, told reporters that Paul contributed more than $2 million of the stock sale proceeds to Hillary Clinton's U.S. Senate campaign by helping to finance a Hollywood tribute to former President Bill Clinton during last summer's Democratic National Convention. The TIMES went on to report that Hillary Clinton's campaign said it returned a $2,000 contribution from Paul last August. However, Klayman is affiliated with the political organization Judicial Watch, which has filed a series of lawsuits against the former Clinton administration.
How could one of the most promising Internet animation companies come to such a crashing defeat? Brett D. Rogers investigates the unraveling of Stan Lee Media and the growing chorus crying foul in Heroes Wanted: Stan Lee Media Struggles to Stay Afloat.