GB Prabhat helped net in $200 million in revenue when he decided to quit Satyam Computer Services, one of India's largest software companies. Prabhat left his cushy job to found a startup called Anantara Solutions which received investments of $6.5 million from Helion Venture Partners, Walden International Silicon Valley Bank.

His new company focuses on Second Generation Outsourcing (SGO), a business paradigm that "radically improves first generation outsourcing which is predicated primarily on cost arbitrage."

Prabhat says “By pioneering SGO, we at Anantara Solutions are reinventing the offshore delivery model combining the efficiencies of a top-notch consulting firm and a high quality offshore delivery firm.

In 1995, he co-founded Satyam Renaissance Consulting, a then subsidiary of Satyam Computer Services. Prabhat believed strongly that, much as IT services work was beginning to be offshored, all manner of consulting services could be delivered using the onsite-offshore model with India as the hub of such services.

Prabhat is also a writer of fiction. His first novel, Chains, was published in November 2000 to critical acclaim and his second novel, Eimona, was published in 2006.

Tags: GB Prabhat, Satyam Computer Services, India, Anantara Solutions, Helion Venture Partners, Walden International, Silicon Valley Bank

Tags: BearingPoint, Hitesh Anklesaria, outsourcing vendors, offshore, security risks, Risk assessment, service providers, Vendor categorization

Hear how HP Services can help you achieve better business outcomes.

Transcript:

Tom Field: Hi, welcome to HP's Executive Podcast Series in which we'll discuss trends in business technology. I'm your host TF of CIO Magazine and today we're joined by JM, Senior Vice President and General Manager of HP Services. John, thank for joining us today.

John McCain: Thanks very much Tom. It’s good to be here.

TF: John could you start of by telling me a little bit about HP Services. I understand this is one of the best kept secrets within HP.

JM: How about that. Well let's see, we are about a $16 billion unit within HP today. We are approximately 17% of the company's overall revenues and about 20% of the profits. Today we have operations in about 170 countries and I have about 70,000 professionals on the team.

When I compare myself to the competition we're about the fourth largest IT services provider in the world. Our target customer marketplace is the Global 2000 and I serve pretty close to 100% of the Fortune 100 today. We also support, in part of our businesses in the technology services, the small and medium business place today. Our workforce and revenues come from all over the world and I have about 30% of my 70,000 professionals in offshore locations today.

The business is divided into three global lines of business. Our technology services business, which we're really well known for, and our break fix business is about half of my business. Then I have two groups that make up my professional services business. One is the consulting and integration business and the other is our outsourcing services business.

TF: What would you say is HP's services strategy, if you were to narrow it down to that?

JM: So we've been working on our strategic framework, Tom, for the past year and refining it. And we've actually built a framework that has us focused on, I'll say, four priority areas. One is our portfolio area and I'd like to talk to you about it a little bit more. Second is our go-to-market strategy, third is or delivery and infrastructure work; and the fourth area is our cost structure optimization work.

And when you look inside of each we've got a number of initiatives that kind of support those four strategic priorities. And they're all centered on kind of our mission, which is to help our customers manage and transform their IT environments to really drive business outcomes.

When I look inside the portfolio area, it's really trying to better productize our solutions so we can differentiate our offerings in the marketplace; really add some value.

In our sales priority activity I'm working on better industry consulting, market basing executives to help us drive content and accelerate our growth in the marketplace.

In the delivery area we're investing hundreds of millions of dollars of capital today in continuing to modernize our infrastructure. That's from our processes and tools all the way through our data centers and call centers.

On the cost structure area we're a large services organization, so we're always continuing to work on our cost structure. Really so we can variabalize as much of it as possible and lower our cost structure so we can compete more aggressively in the marketplace.

TF: John within this strategy what would you say are some of the specific problems that customers are coming to HP Services and asking you to help them solve?

JM: I would say in terms of problems, CIO's first of all are my primary customer. And today they are faced with sort of two challenges. One is from their CFO bosses quite often they get a lot of pressure in terms of reducing costs or improving the operational efficiencies within their own four walls. But on the other side of the table they get a lot of pressure from their business unit customers to help them drive growth, really improve business processes. I'd like to think HP Services is in a great position to really help them bridge that gap.

TF: John there's a lot of talk now within HP about business outcomes. How can HP Services help customers achieve better business outcomes?

JM: Well I think we're in a really good position because we're a large scale services organization. We have a lot of experience in the past couple of decades in building it out.

I've got a very large consulting team that's got a lot of depth and expertise around specific industries and technologies. We've got a nice unique model where we're delighted to provide customers consulting, outsourcing, or just support service, so we can line up however they need us to work with them.

TF: Now I'm sure there's not any one way, but could you detail how HP Services does work with these customers?

JM: I've had a chance to work for a couple of very large competitors of HP Services in the past ten years. And I think what really sets us apart in HP and HP Services is just the general collaborative nature of our employees. So we're a very engineering intense kind of culture and we're very collaborative in terms of trying to work with the customers. I think it really sets us apart in how we show up in the marketplace today.

TF: John we talked about HP Services and the strategy and about business outcomes. So if there one thing you want people to bear in mind when they're thinking about HP Services, what would that be?

JM: Well I'd like them to understand that we've got great depths and skills from our industry capabilities. We've got a very nice portfolio of services whether it's application, whether it's infrastructure, whether it's information management along to our outsourcing and support businesses.

So we are, as you mentioned earlier, we're a well kept secret in the marketplace today, but still fourth largest. So my request is give us an opportunity and we will exceed their expectations.

TF: Well John the secret is out now. I want to thank you for your time and your insight today.

JM: Thanks very much Tom.

TF: Listeners I want to thank you for tuning into this podcast.

To learn more about how HP is delivering technology for better business outcomes visit www.optomizetheoutcome.com. For HP I'm TF, thank you.

Bio:

John W. McCain
Senior Vice President
HP Services
Technology Solutions Group

John W. McCain leads HP Services, a business segment of the Technology Solutions Group. HP Services provides industry-leading knowledge and technologies to customers around the world. HP Services delivers end-to-end solutions across the entire IT lifecycle. In 2006, HP Services reported revenues of US$15.6 billion.

HP Services comprises three business units: Consulting and Integration, Technology Services, and Outsourcing Services.

Prior to this role, John led the Consulting and Integration business for HP. A 20 year veteran of the services industry, he has held a number of key executive positions and has led startup companies, turnarounds, and multi-billion dollar businesses. Before joining HP, John was the Chief Executive Officer for a privately held offshore Business Process Outsourcing solutions provider. Prior to this position, John was the Chief Executive Officer of North America for Capgemini where he restructured a $1 billion+ consulting, technology, and outsourcing business.

Previous to Capgemini, John spent 16 years at Electronic Data Systems (EDS) where he held a number of leadership positions. In his last position at EDS, as a Corporate Officer and President of e.Solutions, he led a global team 6,500 professionals, operating in 25 countries and grew year-over-year revenue at an average of 40%.

John holds a Bachelor of Science degree in Management and Administration from Indiana University, Bloomington and has completed postgraduate studies at the Wharton School of Business.

Tags: HP Services

The call was a little noisy, but the debate was pretty furious!

We started off with the case of WikiLeaks.  This is how WikiLeaks describes themselves:

Wikileaks is developing an uncensorable Wikipedia for untraceable mass document leaking and analysis. Our primary interest is in exposing oppressive regimes in Asia, the former Soviet bloc, Sub-Saharan Africa and the Middle East, but we also expect to be of assistance to people of all regions who wish to reveal unethical behavior in their governments and corporations. We aim for maximum political impact. Our interface is identical to Wikipedia and usable by all types of people. We have received over 1.2 million documents so far from dissident communities and anonymous sources.

Yesterday, WikiLeaks was shut down by a US Judge, at the request of Switzerland's Bank Julius Baer.  Apparently some sensitive documents from Julius Baer's offshore banking operation made their way onto the site.  Anyway, as soon as the site was shut down, mirrors sprung up in many parts of the world, including Christmas Island and Belgium. We had a spirited discussion about the legality of WikiLeaks, and whether it was, in fact, controllable.

It also looks as if there might be a full on price war about to erupt in the US mobile market.  Yesterday we heard reports that Sprint might weigh in with an unlimited calling plan as low as $60/month.  And then word leaked out this morning that T-Mobile is test marketing a new home phoneline service in Seattle and Dallas, which costs $10/month and provides unlimited US calling from home. I don't want to spend too much time on the pricing implications, but I am interested in the T-Mobile offer.   T-Mobile managers explained that the service is designed to wean customers off the land line and onto mobile altogether.   It requires a new router, which is equipped with two SIM slots, and a broadband connection. We chatted about how the service might work, and the implications. 

And finally, yesterday Skype claimed 100 billion minutes of usage since the service launched, with 276 million registered users.  It's a mind numbingly large number, but we discussed the significance of it (aside from the cute references to mammoths in their postings). 

http://www.marke tingspeak.com/audio/tim-ferriss-interview.mp3

Best-selling author Tim Ferriss is one of my heroes. His book, The 4-Hour Workweek, was an inspiration to me. In my podcast interview of him, he dispensed some life-changing advice.

So when I saw that Tim had laid out a plan on his blog for outsourcing one's inbox and never checking email again, I was psyched. I spend waaay too many hours each week on email and I'm desperate to free up some of that time.

I was hopeful that India-based virtual assistant firm Get Friday (one of the firms Tim recommended in the interview and on his blog) would be up to the task. Unfortunately, no such luck.

I was assigned "Nitin" as my VA. His English fluent not so much.

To illustrate, one of Nitin's emails I nearly deleted by mistake, thinking it was spam:

Subject: Results can be even worthier than you pay!

Methinks Nitin must also serve as virtual assistant to some offshore spammers!

Here's the rest of the email...

Dear Stephan,

Very Good Evening!

I am really exicted about our newly build relationship.I will be even happier if you will be assign me some tasks to assist you,to save your time and give value for your money.You have not assigned me any task till now,kindly take some time off and please assign me some tasks as still you have 37hrs left in your account for this month of April.

I am sending you a weekly report for the time period of 14th April to 19th April as an attachement,please have a look over it.

Your feedbacks are the keys to give you best possible service so kindly give your feedback on my work and please let me know that how can I assist you in best possible way.

Waiting for your reply!

Regards,

I shudder to think of this guy acting on my behalf, replying to my business-critical emails in Borat-speak. So I fired him, and his firm.

I realize now I could have avoided this whole debacle. Hindsight's 20/20, as they say. Rather than blindly trusting in GetFriday and their VA assignment process, I could have instead followed Tim's procedure for selecting a virtual assistant:

I found another VA, this one based out of Canada. She's a lot more money, but you get what you pay for. And no, I'm not going to tell you who it is -- she's mine, I tell you, all mine!!

I mentioned the other day that a revolt was brewing in the Democratic rank-and-file over the unconscionable trade deal with Peru that the House plans to vote on today. It’s a sad commentary on the state of the party that the only opposition from Democrats is coming from freshmen representatives within its own ranks. Specifically, the movement to stop the Peru deal from going forward is led by Illinois Rep Phil Hare, who beat his primary opponents and his Republican opponent by running against any more trade pacts like NAFTA that were one-way giveaways to global corporations and did nothing to protect workers from losing their jobs to outsourcing, nothing to help them re-train or find new jobs when their old ones disappeared.

Rep Hare can already chalk up one victory of sorts: his little rebellion forced the House leadership to delay the vote, which was scheduled for last night. That’s more than most reluctant Dems have been able to accomplish as Pelosi & Co try to rush through votes on everything from backing Bush’s telecom amnesty bill to backing Bush’s nominee for AG. Hare, in an exclusive interview with David Sirota, has one alarming question for the leadership: What’s your hurry?

PH: My whole argument on this is, what’s the rush? A new administration is coming in in 15 months, hopefully a Democratic one, but nonetheless, a new one. To put this guy [Bush] in charge of environmental and child labor and workplace safety things in these trade deals is like putting the fox in charge of the chickenhouse here. He doesn’t enforce anything we have in this country, he doesn’t enforce workplace safety in our mines - we’re always just working, slugging it out with him on mine safety - (garbled) one OSHA standard here, he reneged on the Jordanian trade deal. So I don’t care about the political victory for this guy, that he can say “We got this.” I care very much about the 2 million kids in Peru working in the mines and service industry jobs. And if they think George Bush is going to do one thing, lift one finger to put an end to that -

DS: Right. He won’t do it for us, he’s not going to do it for them.

PH: Absolutely. I mean, they’re whistling while they walk through the graveyard.

The “they” that Hare is referring to are, of course, the Democrats supporting this deal who apparently, despite 7 years of being lied to, are comfortable with the part of the deal (worked out with Bush by Pelosi, Reid & Co at secret midnight meetings in the White House) that lets the executive decide which parts of the pact to enforce and which to ignore. The fact that there are so many Democratic pols who still think Bush can be trusted is bad enough. What’s worse is that according to a new report (.doc file) by Columbia Univ Prof of Law Mark Barenberg, this deal is even worse than we thought. The WaPo’s Harold Myerson wrote in his column yesterday about the Barenberg Report and the deal in general.

The House is set to vote today on a free-trade pact with Peru. What’s not clear is why.

The Bush administration, of course, supports trade deals with just about anyone, as it has made clear by promoting an accord with Colombia, where murdering a union activist entitles the killer to a get-out-of-jail-free card. But Congress is run by the Democrats now, and some of its leaders have sought to craft a different kind of trade bill — one that takes workers’ rights and the environment almost as seriously as it does the right of global companies and investors to do what they will anywhere they roam. In particular, House Ways and Means Committee Chairman Charles Rangel and trade subcommittee Chairman Sander Levin have taken it upon themselves to devise these new-model trade bills.

How successful they’ve been is open to interpretation. “For the first time,” Levin wrote in a letter to his Democratic colleagues, “the U.S.-Peru FTA incorporates international labor standards in the trade agreement, enforceable like all other provisions.” This could be a breakthrough, since the enforcement of labor standards has generally been relegated to explicitly unenforceable side agreements in our trade pacts.

But Mark Barenberg, a Columbia University law professor who has drafted petitions for the AFL-CIO protesting the lack of labor rights in China, questions whether the Peru accord signals a breakthrough at all. The agreement, he argues in a paper released yesterday by groups opposing the pact, “does not require the Parties to comply with core labor rights” but rather with “vague, undefined, and unenforceable labor ‘principles’ and with their own domestic labor laws.” Rangel and Levin have won a pledge from the Peruvian government to toughen its labor laws, but, writes Barenberg, the agreement actually imposes lighter sanctions for labor standard violations than current trade law does.

(emphasis added)

So why is the Congress in such a hurry to pass a trade bill that’s worse than the one currently in place? Why is the leadership prepared to abandon the very provisions it got elected saying it would fight for? Those are the questions Phil Hare and his freshman cadre keep asking, and the answers they get aren’t really answers at all.

PH: The other side gets tied up in this technical stuff. “Well, we can sue them, we can subpoena them.” Yeah, we can do all that, OK? But the fact of the matter remains…. I said on the trade deal, “Just tell me. What’s the cost to us in terms of manufacturing and agriculture? That’s what I want to know.”

They couldn’t tell him. He recounts one conversation with an unnamed Dem leader in which he asked the DL what he was supposed to tell a guy in his district about a trade deal that gives a free pass to offshoring global corps when the president’s going to veto training money for workers displaced by these trade deals and they don’t have enough votes to over-ride the veto?

PH: [talking about the current training program] (Say a thousand apply.) There’s only room for 300 of them and they tell the other 700 or whatever, “Well, have you ever thought about cosmetology?” After going through school for a year! And your unemployment’s out, you have no health care. Now, what are we doing to this guy? And then one member said to me, “Well, you know, you need to talk to him about - ”

I said, “What do you want me to say to David Barty and people like that in my district?”

“Well, you know, talk to him about currency manipulation.”

He’s been there 32 years, he lost his job, he gave up two wage concessions, his wife has cancer, he has no health insurance…he went to school for nothing, and now we tell him to be a barber or beautician and I should tell him about currency manipulation. I do that and that guy’s going to punch me in the nose. And I’d deserve to get it.

Currency manipulation???? And this is a Democrat?

This party isn’t running scared. It has genuinely become nothing but a slightly less toxic version of the GOP. Its concerns are the same and it’s just as badly out of touch. Twenty years ago no Democrat would have given that answer. Not one. Today, it’s common. The “new” Democrats created by Bill Clinton and the DLC are DINO’s. Even when they talk like Democrats, they vote like Republicans. They identify with the kind of people who can’t sleep nights worrying about currency manipulation. The kind of people who think - like BushCo - that a guy who lost his job to offshoring, doesn’t have health care, and is out of work long after his unemployment runs out, ought to be worrying about currency manipulation, too. Saying shit like that was the reason Poppy Bush lost to Clinton in ‘92. But we’re supposed to jump up and down supporting these elitist assholes just because they’re - supposedly - Democrats?

Phil Hare is a hero, a guy who won’t sit still and keep his mouth shut while the “party of the working class” screws its own constituency because it’s more worried about currency manipulation than a crumbling economy or predatory corporations. He comes through as a decent guy baffled - like the rest of us - about what on earth the Donkey leadership is thinking. He knows the problems in his district and, like any non-rich human being, wants to do something about it. You know, like the old Democrats used to do. And he finds himself, much to his surprise, stymied not by Republicans but by his own party. Listen to the interview and you can hear the sadness, disappointment, and confusion in his voice all through it.

So listen and then do what David suggests:

[G]o over to Public Citizen’s website and use their tool to tell your representatives to vote against the upcoming Peru Free Trade Agreement and demand a trade policy that represents the interests of regular people - not just lobbyists.

While you’re at it, tell them Phil Hare sent you.

(Click on the links to see larger images of the slides: Cover, Avalon, Global Telcom Holding Ltd, Godels, Solomon, Barber & Co., International Tea Company, Technology Resources Inc., WES Consulting, Contracted Services, Inc, MCG Diversified Inc., Electro Energy, Ivecon, Diane Harrison, Randall Drake)

One of the problems with stock spam, is that it preys on the get rich quick mentality. Investors are encouraged to act right away and to take claims at face value. I’ve never been opposed to investing in high risk investments, but you can bet that I do my homework before I jump in. Unfortunately, too many investors don’t take the time to read the SEC filings, before making an investment and when the hype dies down, they get hurt.

Another problem with stock spam is that sometimes the companies being promoted, are as much a victim to the fraud, as investors are. Some microcap companies will even issue press releases warning investors that spamming is going on. Even though these companies temporarily benefit from the attention, for legitimate businesses, the volatility can create real problems in the long term execution of a business plan.

Because GrowthStockGuru was willing to pay bulk postage rates, just to get my attention, I wanted to take a closer look at the people behind Guangzhou Global Telecom (GZGT), just to make sure they weren’t a victim, in all of this. The deeper I dug, the more ugly things looked.

It All Started With $100

In order to better understand the prospects for GZGT to succeed, you need to look at the qualifications of the key players behind the business. Because the company was formed as part of a reverse merger, it’s important to look at the pieces that make up this puzzle before the company merged. Even though, GZGT is being promoted as a Chinese stock market play, a Florida real estate company named Avalon Development Enterprises played a more important role, in creating the company.

Avalon was first formed in 1999, after Charles Godels, invested $100 into the company and filed the appropriate paperwork. Shortly thereafter his wife, Marguerite Godels also purchased 100 shares for $100. Between Aug. 2004 and and Feb. 05, the company must have needed more capital because they had another underwriting where they sold 3 shares a piece at a $1 valuation and brought in 44 more investors.

On 12/5/05, the company did a forward stock split of 4500:1 and overnight, investors saw their 332 shares turn into 1,494,000. They also filed a registration, that would allow them to sell their shares at .50 cents a piece to other investors. At this valuation, it meant that on a split adjusted basis, their $1 share price was now closer to $2,250.

On 01/08/07, Charles P. Godels, Diane J. Harrison, Madanna Yovino, Michael T. Jones, and David E. Dunn all resigned from Avalon’s board of directors. At that time, Allen S. Greenberg officially took over as the company’s president. Two days later, they entered into their merger transaction.

In the footnotes of the 8k filing announcing the resignations, I noticed something about Mr. Greenberg’s biography that raises some interesting questions about where the money is going to.

“from 2005 until the present, Mr. Greenberg served as the Operations and Customer Service Manager for Global Administrative Provider in Costa Rica. In that capacity, he was the client service contact for all investment advisory firms, was responsible for setting up offshore investment structures for clients, oversaw all incoming and outgoing wires via international custodian banks, and oversaw all company invoicing.”

Avalon was supposed to be a local Florida Real Estate company and yet, they brought Mr Greenberg’s in, in order to set up offshore investment structures from Costa Rica? As a Chinese company, I can understand why there would be some need for this, but while doing my research I found several offshore accounts, that can be connected to different players behind Avalon Development. I also found an alarming amount of small shell companies, that are either currently trying to get listed or who have tried, but failed to go public. If GZGT really is a once in a lifetime opportunity, why have so many investors utilized accounts, that are beyond the immediate reach of the US Government?

Investors Cool To Hurricane Real Estate, China Gets Bubble Fever

Investor were tuning out Real Estate, so if Avalon wanted to make a splash they needed access to a hot sexy growth market that investors like right now. They decided on a Chinese phone card company and agreed to buy them out with stock. In order to get access to Global Telecom Holding Limited,(herein referred to as GTHL) Avalon issued 39,817,500 of restricted common stock, in exchange for 100% of the company. During the merger, the company also executed another forward split, this time at 8.75 - 1.

After completing the merger, they had 52,890,000 shares outstanding and could authorize up to 75,000,000. Based on Friday’s closing price of $1.95, this means that on a split adjusted basis, the original $1 per share investment is now worth $77,000 per share. Mr. Godels initial $100 investment is now worth $7.6 million or $15.2 million if you include his wife’s shares (assuming that he hasn’t sold anything along the way, of course ). Not a bad return, given that Avalon admits that Florida real estate wasn’t much of a business in their 10KSB filing.

There isn’t a lot of information about GTHL, in the SEC’s database, but we do know that GZGT’s CEO Yankuan Li was by and large the largest beneficiary of the acquisition. He ended up with about 12.3 million shares (about $23 million based on Friday’s close) When all the dust was settled, GTHL ended up with 51% of the company, but a lot of it was in restricted shares.

Investors Get Caught In PacificNet’s Tidal Wave

In Mr. Li’s bio, it’s disclosed that he worked at PacificNet (PACT) from 2004 until 2005. During that time, the company experienced unusually high trading volume and went from $2.50 a share to as high as $13, before crashing back down again to $7 per share. These gains occurred largely in late October of 2004. According to Bloomberg, Sept 04′ was the highest activity of insider buying, in PACT’s history. Currently, PACT is delinquent in their SEC filings due to back dating issues, which occurred during Mr. Li’s employment with the company. I do not believe that this will end up being a slap on the wrist, there was a lot of insider selling at the top. The company has claimed that they relied on the advice of their auditor, Clancy and Co., P.L.L.C., who has since been forced to withdraw their certifications from that time.

Three months before PACT saw their share price spike and than drop, the Public Company Accounting Oversight Board (PCAOB) performed an audit of Clancy and Co. During that Audit, they reviewed 6 of Clancy and Co’s 15 clients. I don’t know if PACT was one of those clients selected, but the PCAOB’s review did find 14 serious issues with their auditor, including “failure to properly perform procedures related to consideration of the possibility of material misstatement due to fraud.” None of this suggests, that Mr. Li was personally involved in any shenanigans, but it does raise some important questions about the corporate culture at his previous employer.

The Bankers, The Bean Counters And The Ambulance Chasers

In order to be able to underwrite stock to the public, there are a few key pieces you need in place. Mostly, bankers, attorneys and most importantly, the auditor. Information about GZGT’s banking relationships are scarce, but there is an SEC filing that references a company named Zenith Capital Management, who has agreed to buy 200,000 shares at a price of $2.50 per share. They only committed part of the money up front, which for me, would raise questions about Zenith’s credibility and their intentions to make good on these pledges, especially if GZGT falls apart, before it can get back to $2.50.

When Avalon did their 4500:1 forward stock split, Diane J. Harrison was the attorney who wrote the consenting legal opinion. Charles Godels audited the books himself, (under small business rules that allowed him to avoid an independent audit) and later on, the company brought in Randall N. Drake as their official auditor.

Mr Drake’s name shows up as the auditor in many of the companies mentioned in this article. In 2001, he audited the books of Mobile Area Networks Inc. (MANW.ob) Investors may have been hoping that MANW would make them rich, but it turned out to be a belly flop. After MANW went public, it briefly kissed $4.87 before it came crashing down to $1.00 over the next month. Today, the stock is at $0.10.

Of all of the characters in this bizarre story, Diane Harrison is the one that raises the most eyebrows. She is the attorney. She helped create Avalon. She has been involved, either as an investor or as legal council, in many different penny stocks that can be linked to Godels or his partners. On 10/27/06, the Secretary of Avalon resigned and Harrison was official brought in as the new Secretary and as a Director. Her role at GZGT is unclear, but two days before Avalon’s merger, she resigned from the board. In 1999, her husband, Michael J. Daniels, was convicted of securities fraud and spent 6 months under house arrest and 3 years on probation. He is now officially classified as a stock promoter under the SEC rules.

Daniels has had no direct affiliation with GZGT, but he can be connected to Godel s through an auditing relationship with Godels, Solomon, Barber & Company, L.L.C. Before Avalon, Daniels tried to raise financing for a company called MCFTY National. The company was originally a mailbox etc. type business, but later tried to cash in on the vitamin water craze and changed their name to the International White Tea company. When Daniels and Harrison started the company, they also brought in Steven A. Sanders and Robert Bedore. Both Sanders and Bedore have also been classified as stock promoters by the SEC.

Over the last several years, Ms. Harrison has helped to set up several other companies with Godels and/or his partners. These include WES Consulting, Ivecon, Harcom Products, Technology Resources Inc. (herein referred to as TRI), and Contracted Services Inc.

What is interesting about all of these companies, is the number of related transactions between the different individuals involved. They would not only hire each other’s employees, but there was also money changing hands, between various companies. At one point, Godels CPA practice was a significant contributor to Avalon’s revenue. Even after studying the SEC documents on these companies, I still cannot sort out all of the different players involved. If you look at the shareholders, of these investments, there does appear to be another layer to this mystery, but for now, these players are beyond the scope of my discussion on GZGT’s business.

In trying to unravel this complex piece of financial engineering, it didn’t take me long to figure out that, everything always ends up coming back to the Godels. Whether it’s the high number of family members who were shareholders of Avalon, or tracing the cash from the different related transactions, the Godels’ family name keeps popping up. It’s as if they are trying to build a dynasty for the entire family. Interestingly enough, in the GrowthStockGuru newsletter, the anonymous author who wrote the report hints that a family may be behind GZGT’s marketing attempts, by using the name Aharon Bronfman.

The Bronfman family is a famous name on Wall St. In the 1920’s, they made their fortune selling bootleg liquor to the Northern United States. After prohibition ended, the Bronfman family distilleries were some of the most profitable in Canada. Later they would buy Segrams from the Segrams family and made a killing off the whiskey. The family’s history has always been checkered with allegations that their fortune was linked to the mob.

There is no way to know for sure, whether or not the Godels are connected to Mr. Bronfman’s marketing campaign, but the subtle undertones of the alias, raise suspicions that Mr. Bronfman might be working on behalf of a family that is willing to do whatever it takes, for them to build their own dynasty.

Electro Energy Shocks Investors

Given the level of sophistication involved, in this sort of transaction, it came as no surprise, when I learned, that this wasn’t the Godels first reverse merger. They got their first taste of the profits that could be made, when they first set up MCG Diversified Inc. The company was created by the same players who keep popping up again and again. Diane Harrison wrote the legal opinion on the common stock and Randall Drake provided the auditing.

MCG was supposed to be a human resources company. A lot of their revenue came directly from Avalon. Human resource companies seemed to be a common theme among the various public filings. On most of the filings they do not include information about partnerships, but it appears that some of the recruiting gong on, was just individuals shuffling from one company to another.

Marguerite Godels owned 50% of MCG and from the filings, you can sense that she was eager to cash out. Things were on track for MCG, but they almost ran into a disaster, when Mr. Drake made a mistake that almost scuttled their plans.

Somehow, he had managed to let his registration with the PCAOB lapse, but still filed audit reports for Technology Resources Inc. and for MCG, at that time. The PCAOB denied his application for a new license, after he agreed to a settlement, where he would be allowed to get his license back, in another year.

Frustrated, with their attempts to get listed on the bulletin boards, the Godels turned their sites to the white hot alternative energy market and in 2004, they executed a reverse merger with Electro Energy. (EEEI) In exchange for the access to income statements with real revenue, MCG was forced to take a 30% position, following the completion of the merger. Even at 30% though, they still realized obscene profits, considering how little they had actually contributed to MCG’s capital. When EEEI announced their change of auditors, they never mentioned that Mr. Drake’s license was no longer current.

After the reverse merger launched, stock promoters immediately jumped in. Had you invested at the first trading price, you would still be down 79%, but if you listened to the hype, you would have lost even more money faster. On 10/11/04 Stockwire issued a press release advertising EEEI’s stock. If you jumped in then, you’d be down 84%. On 11/04/04, Capital Investor Forum Growth, suggested that you look at the stock. Had you taken, their advice you would be down 90% right now. A year later, a firm that that continues to pop up on my radar, WallSt.Net issued a press release showcasing EEEI. Had you listened to WallSt.net’s analysis, you would be down 72%.

During this sharp run up, EEEI insiders took advantage and sold out. According to SEC form 4 filings, between 10/19/04 and 11/01/04, Assari Farhad sold a significant amount of stock and options. Given the question marks surrounding the promotional activities going on while he was selling, I thought that it was notable that his form 4 filing reporting the sales, was not filed until 12/04/04.

Perhaps, the strangest part of this whole story, isn’t that someone would want to sell inflated stock, it’s how Mr. Bronfman is going about generating the hype behind this bubble. Instead of the traditional email spam, they have been targeting investors by advertising in respected business magazines. On the Friday, that the Investor’s Business Daily ran their ad, their stock jumped very sharply before seeing heavy selling at the end of the day. IBD should be ashamed of themselves for not researching the company further. Their readers trust them to provide excellent financial advice and yet, they are willing to take money from a reverse merger penny stock, without hesitation. If IBD does not issue an apology, then they have lost all credibility in my book.

So far, the only mainstream media outlet to pick up on GZGT’s innovative marketing attempts, has been Kiplingers. When the company was first approached, they knew something didn’t look right and took steps to warn their readers. Unfortunately, other business publications seem to be more than willing to sellout. Business Week and Forbes have both agreed to run the ads, regardless of how questionable this might be ethically. I would encourage both publications to take a closer look at GZGT, instead of their advertising revenue, before putting the company in front of their readers.

Just because the bulletin boards are the wild west of the investing world, doesn’t mean you still can’t arm yourself with a six shooter. Six months ago, digging through these SEC files would have been much more difficult, but thankfully, the SEC has recently released a full text search feature on their website. It didn’t getting any buzz from the press, but by building the search tool, the SEC has turned over an exponential amount of data to the public. It is a powerful tool and an important development in making sure that the public has access to good data. There is a tremendous amount of information out there, but you need to read it, especially if you are acting on a tip, that someone paid money, in order to give you.

In Mr. Bronfman’s report on GZGT, he says that GZGT’s management has a tremendous track record, but when I look at the track records of the investors involved in them going public, I see a very different picture. Many of the companies that they have been involved with have turned into a pile of rubble, after the promotions die down and the stock has been diluted. If investors want to play with high risk investments, that is OK, but just remember to do your homework before jumping in.

Disclosures - I have no positions in any company listed in this article. To the best of my knowledge, no one that I have ever come into contact with has ever invested in or shorted, any company mentioned in this article.