Penny-Stock Lawyer Nears Day of Reckoning
Last December, a federal grand jury in New York indicted the former chief executive of Barron Chase, Robert T. Kirk Jr., and Prousalis on charges of defrauding investors in Busybox.com, a company that was going to sell digital pictures online. Busybox was taken public by Barron Chase in June 2000 at $5 a share. Less than a year later its stock, trading for pennies, was delisted by Nasdaq and the company went out of business.
Kirk, 46, pleaded guilty last December and is awaiting sentencing. Prousalis went on trial last month. He was charged with conspiring with Kirk to defraud investors in the IPO and with misleading investors by understating the fees he charged for working on the IPO. While the stock offering documents showed that Prousalis was to be paid $375,000, prosecutors charged he actually got $1.2 million, almost 10 percent of the $12.8 million the offering was supposed to bring in.
The offering did not raise that much money, though, the government charged, and was in danger of collapsing until Kirk and Prousalis came up with a way to complete the transaction.
As underwriter, Barron Chase promised it would sell all $12.8 million worth of stock, but the sales effort came up $2.5 million short. If all the stock could not be sold, the deal would have to have been canceled and neither the underwriter nor the lawyers would have been paid, the indictment noted.
Prousalis was "facing a serious downturn in his personal finances," prosecutors said in court documents. They described him as "leading an expensive lifestyle, including maintaining two multi-million dollar homes [in McLean and on Nantucket] and a $2 million personal aircraft."
To keep the IPO alive, the indictment alleged, "Prousalis and Kirk arranged to recycle money raised through the sale of the IPO shares." Busybox insiders took $1.3 million that had come in from early stock sales and used it to buy some of the unsold shares, the government charged. Prousalis took the last $1.2 million worth of stock as his legal fee.
Though the charges concerned only the Busybox.com IPO, Justice Department lawyers asked the court for permission to present evidence that they said showed Prousalis had been involved in half a dozen other fraudulent penny-stock offerings: the four Washington companies taken public by Stratton Oakmont and two others.
The government's star witness against Prousalis would be Jordan Belfort, a former top executive and owner of Stratton Oakmont. Belfort pleaded guilty last year to money laundering and securities fraud for his role in Stratton Oakmont. He was sentenced to four years in prison and ordered to pay back $110 million to investors.
Belfort has become a government witness in two dozen cases involving his former business associates. Prousalis's lawyers tried to block Belfort's testimony. They argued that the government was opening a second front in the case, forcing Prousalis to defend himself not only against the charges involving the Busybox.com IPO but half a dozen other stock offerings too.
In mid-June, U.S. District Judge Denise L. Cote ruled that prosecutors could not put Belfort on the witness stand to make the case that Prousalis had been involved in other shady penny-stock deals. But if Prousalis took the witness stand to deny that he intended to defraud investors, she said, then the prosecutors could call Belfort to talk about other offerings.
© 2004 The Washington Post Company