Foul Family Business: When The Apples Do Not Fall Far From The Tree
“I am the beneficiary of a lucky break in the genetic sweepstakes” – Isaac Asimov
Ever heard of a company called Saf-T-Lock Incorporated (LOCK)? If not, don’t worry; few people have. This company’s original name was RGB Computer & Video. It was incorporated in Florida by Franklin W. Brooks in July 1989 under the name of RGB Sales and Marketing, Inc. Its name probably referred to the Red Green Blue video signal used in the video electronics industry.
At first, it was selling video and computing equipment, like the popular Amiga computer manufactured by Commodore Electronics Ltd. When Commodore claimed insolvency in 1994, RGB, which was already losing a lot of money at the time, decided to do something else.
So in 1996, the company acquired Saf T Lok Corporation and changed its name to Saf T Lok Incorporated. The new entity wasn’t too successful until doing business with Shalom Weiss, a broker who represented foreign investors.
Mr. Weiss, who now serves an 845-year prison term for securities violations and various felonies, has been linked to mafia capo Phil Abramo of the DeCavalcante family, belonging to La Cosa Nostra.
The whole arrangement first required LOCK to pay a quarter million to a firm owned by Weiss as a “consulting agreement”. Another US$750’000 was to be given, in the form of warrants, to a Las Vegas-based PR firm controlled by the felon. Finally, Shalom Weiss asked for two more million as a finder’s fee; in exchange, Saf T Lock would get an order from D&W Enterprises.
The Weiss method was to pump up the price of LOCK thanks to bogus order and announcements, then sell his shares and get out. So, in 1997, the price of Saf T Lock stock was multiplied by thirteen in two days after some heavy manipulation. Small, gullible investors got in at the top, and then the stock lost 96% of its value.
It’s possible that Franklin Brooks never understood how evil his associate was. Then again, it didn’t take a genius to see that Weiss’ methods, to which he consented, were definitely not kosher. His son Jeffrey Brooks, a director of the company at the time, also didn’t see any problem with this way of working.
On the other side, for Jeffrey Brooks, it wasn’t the first time. In 1992, he shared authority with his brother, David Brooks, over Jeffrey Brooks Securities Incorporated. The brothers were found guilty by the SEC for failing to prevent insider trading activities involving one of the firm’s brokers.
By now, you would think that the Brooks family has really been unlucky so far, always being associated with the wrong people.
But it gets better.
David H. Brooks went on to launch DHB Capital Group, whose name was later changed to DHB Industries. Selling bullet-proof vests to the army, the company has had its own challenges.
First, Mr. Brooks failed to mention that Tactical Armor Products, a supplier to DHB, belonged in fact to his wife. Then, David was found to have used his corporate credit cards for private spending, to the tune of two million dollars. Finally, he had dumped several million dollars worth of DHB stock while it was still worth something.
For the third quarter of last year, which is the last time the company reported financials, DHB was losing 92 cents per share, as the stock was trading around four dollars. The Inside ALPHA had initiated a short position a couple of months before these results were released.
At the end of May, trading in shares of DHB was suspended. The closing price on that day was 1.57 dollars. Usually, when trading in such shares resume, it’s at a substantially lower price.
For example, we were short Vaso Active Pharmaceuticals at more than seven dollars in 2004. When it got suspended on March 31st, the closing price was 7.59 dollars. The day it reopened for trading, shares went under one dollar, losing about ninety percent in one day; it now trades for fifty-five cents as I write this.
TAKEAWAY POINTS TO CONSIDER:
- if a CEO’s father was in business with a guy who was sentenced to eight hundred years in jail
- if his brother was found guilty by the SEC
- if the CEO himself was found guilty by the SEC
- if the CEO, rather than to protect his shareholders’ interests, failed to disclose that one of his suppliers, to whom the company grants juicy contracts, belongs in fact to his wife
- and if this CEO feels that he can use his corporate credit card to pay for millions in private expenses...
Then you have two choices:
1. Either you pity this poor family for being so unlucky, or
2. You conclude that sometimes the apples don’t fall far from the tree and you can profit immensely on the downside.
About the Author:
Marc Mayor is the owner and chief advisor of Swiss-based Inside-Alpha. Mayor's Inside Alpha stock investment strategy has now verifiably beaten the S&P Index by at least 18% for six years running with 5 times less risk regardless of up, down, or sideways markets.
Foul Family Business: When The Apples Do Not Fall Far From The Tree
