Diary of Formation and Workplace Mobbing at Financial Management Group (FMG, LTD) of May 2 1987

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Diary of Formation and Workplace Mobbing at Financial Management Group (FMG, LTD) of May 2 1987

Transcript of Diary of Formation and Workplace Mobbing at Financial Management Group (FMG, LTD) of May 2 1987

  • May 2, 1987

    I I WpupOSe of this dmmmt is to recollect a l l activities that I've been involved w i t h i n Financial Planning and the formation of Financial Ma~gement Grmp, to verify and doarment seine of the activities that I've been involved in to date.

    I ' m afraid that as we go further and further there w i l l be a need for such information especially w i t h what has h a m this past week w i t h our corporate officers and board. F i r s t I would l ike to begin back in ti-& very beginning so that the f u l l scope of our activities seem to f i t into ane place and also so that of the issues that have mme up are tied into what has happmd up to this point.

    First of a l l , I started in the Financial Pl- back in 1982. After getting out of the amtracting kusiness I took six weeks and traveled across the country and came back and decided to get into the financial services industry. Being that several relatives have had dealings w i t h IDS, Investors Diversified -ices, I called the local branch in upon finding the manager Mmed R&er t Kauffinan. Bab spent -time withme, decided he w i s h e d to hire me, and that began the process.

    I was actually licensed in 1982 for securities and l i f e and was p t under the mnagement of Bob Kauffman. Shortly thereafter, I would say probably in Jwe or July, Bab was pmmDted and took a division in Tampa, Florida. Myself and )three or four other individuals who were under mgement decided that we

    wanted to fom a g r w p together so w e talked to anather district manager, Staren H. and decided that, i f he would allm, we kcdd like to plt an office together w i t h him. A t this time we did not have an office and he was mrkjng out of a sndll office in Millersville. 'Ihe people who were with me was myself, Mike Hartlett and Alan Loss. The three of us were very, very large producers, especially Mike and Alan. The three of us were probably larger than Steve's district a t that time, so a t that point we located an office a t 255 Wer Avenue, we walked under Staren H. district which increased his inmme by a t least 30% to 40% p that -&ion.

    After being involved in the business I decided that firrancial planning should be wre abjective and fee based, so I became one of the larger fee producers using fees as w e l l as mmnisSion incane. A t about the same time, I became involved in the Intermti- Association of Financial Planners. A t that time the local chapter was just being fonwd and I volun- my services to help on the board. Menbrs of the board, a t that time, was just being formed and headed by John Herr. I became m t i v e vice president and virtually helped run the chapter and helm build it to its largest m p . lhat gave m e the apportunity to meet other people, broaden my horizons and *tian as far as the financial planning h3ustry and just haw the hleperdent planners f i t into the stream of the industry. I had quite a b i t of activity and did alot for the local chapter and became very involved.

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  • mer the next several years I made a very gwd living. I was never a very big pmducer, althmgh one of the bigger ones in the Harri.skurg division. But I was not the biggest, but the premier fee producer for the division and was om of the leading in the camtry a t that time. I shortly became kmmledgable of the other pmfucts available in the financial services industry and learned very quickly that it w a s virtually inpossible to have one canpany manufacture and produce ccpnpetitive products across the line. A t this the I was setting up a dhmr meeting for the IFP that was going to sbax2ase A l e Amstrong who was one of the premier planners i n the cumtry. She was very visible and very widely m. I set up a dinner meeting for her khich attracted close of om hundred profess ionalsandotherpeopletoa~. l h i swas fouror five times larger that any ather meetirg the chapter had ever had. A f t e r the meeting I was involved in a -ion w i t h Alex regarding the financial planning hldzy and my aspirations of what was cutside of a pmpriety envimmnmt. I told her that I was thinking of lMking a m e and asked her i f she had any suggestions of wha to qeak to. A t this point in time, we were all i n Butler Avenue and Bob Kaufhan was in Georgia, running a division of ID6 back there. He, a t this time, had become one of the laqest divisional n g e r s and had shwn very high pm&active recruith-q skills. He was running one the largest shop= intheScuthEastandwasbexdtqveryprofitable for

    - II1S. Alex suggested that I call a gentlwen by the name of John &&le who was then president of Financial Services COT. a bmkerjdealer based in A t l a n t a , Georgia. A t this the Bob Kauffman was probably, as unfamiliar i f not mre unfamiliar, of the irdependent envkment available to the Fimrcial Services

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    Industry. Specifically Financial Planners.

    I phaned Bob a n d t o l d h i m t h a t I w a s ~ i n g t o l o a l c a n d ~ ~ t e l s e w a s l ~ o u t there." Before this time, a ccuple months prior, I atb&& a career conference in Florida with IRS. A t one pint I was in a roam w i t h Bob Ihufhan and 'Rmt TUmr, who was the biggest divisicmal l ~ ~ g e r a t this time with ID6. I began to disc;uss my dissatisfaction with the ccmparry and the way that they op=rate and I suggested to them that it pmbably would not be too difficult to duplicate an organization instead of bebg built araYd a proprietary that was built solely amund a non-proprietary product. A t the time they both leaked a t w and I don% m m a k e r i f they l a w , k u t the idea really didn't redlly interest them, and it just rolled off their shailders. Right after this meeting is whenIhadthedinnermeetingvithAlexandIsetupthemeetingin A t l a n t a . A s I usually did, I always leaked a t Bob Kaufhan as my mentor. H e virtually w w o f f t h e s t r e e t s a n d m m e a w a y t o w m y i n a w a y that I never I a u l d w. I always respected Bob as a very good sal.esnan, seeming to have a very high financial intellect and I looked up to him as he taught me alot. So I got on the phone and told him I was going to visi t an imkpn%& planner i n Atlanta. A t this time, Bob was bemning dissatisfied with the management of ID6 and was not very happy with the way they were using him to build areas. Vihen the areas would become profitable to him they waild mehimtoanotherdistressedamatobebuiltup. Sohewas doing a l l the work and ID6 was making a l l the mmey because they waild plt i n a m a ~ g e r for less money and so on and so forth.

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  • On Nw& 27 or 28 of 1985, I had a meeting w i t h Bob I c a u f m and Mike Hartlett a t 1 4 x b n r s m u n t on the Rahrerstawn M, Ianaster, PA. 'me pupose of the meeting was to find art i f we a u l d collectively p r t together xmething in Iancaster w i t h regards to f h i a l planning. I wwld say that e t i n g was mre of an effort on my part than anyone especially Mike Hartlett. Mike was , a t this time, also inrlependent, l e f t ID6 anl follckied me to FSC along w i t h Bob. ?he meetingwas on themorning a t 9:00 a.m. and we dkmxxxdwhat options we had as far as w i n g sanething tcgether in Iancaster. I guess the bsic reason for the meeting was to see i f Mike Hartlett wished to do sanething together w i t h us. A t this time I was qmating my practice, Mike was aperating his practice, anl the only w we had in amumn w a s a reception man adjoining ax offices. A t th is t imeBobsawthat i fwecculdputsawthbg together in Lancaster he omld pmbably ful f i l l same of his recruiting -ts, giving h i m a place to actually xecmit people to rather than using FSC in Atlanta. So that began the process of w i n g together a shop in lancster and Cerrtral PA.

    Ibesanto recruit fran that point forward into our so called plarvling firm. A t this time the plarvling firm was going to be caprised of financial planners. Sane of the f i r s t pecplethatItall#dtowasMonaRishel,Dick -, and Bab Lnrg. I spoke to other plannezs-about joining our firm and then I got the idea of adding other professionals mainly legal, a m - , & estate and ma@ insurance. It was then that I got the idea for the one stop financial firm. Tbmeitseemedapprmt-thatitwasimportanttohave a l l the individuals working tagether collectively manage one financial

    - 'affairs. It didn't seem that d i f f i d t to accaylish that i f yau had the riqht irdividuals willing to take the risk of at tmpthq such a project sod who had

    ' the clientele where they didn't have to rely on attracting new clientele. W e l l , ~ t h i n g l e d t o a M t h e r a n d w e s o o n b e g a n t o r e n U i t ~ a t ~ ~ a n d sizable grcup of individuals. I prcbably was responsible for d t i n g 90% of the local people and artside pecple, Mike was mrking with Rick Volp in Fhiladelm who he w o w w i t h a t ID6, and a hcst of others. The ini t ial core was myself, Mike, Mma, Dick Sherisahn.

    A t thistimeIranintoSattRobertsonattheZhreeMilelhsewhowasworking with Asset Mamgement. I expressed the idea to him and he became interested and became one of wr pecple. I also talked to Gmmlyn Royer who was w i t h Pru Bache and she was interested in joinhg. By February we had a fairly large group of people who were willing to ammit. F i r s t thing we had to do was find facilities and Mike f d the place available a t the OregcPl Pike location which was just urder -on. A t f i r s t we were looking for 2,000 square feet to hcuse f w or five i n a i v i d ~ ~ L ~ . A t this time I talked to Tim Lanza, people a t

    the legdl firm, and Danny Beqer as far as doing me thing with real estate. It was sqpxe3 to beanaperationfinancedandsqportedbyFSC. horn December until May FSC was pranking furd to fhmce the aperation. We nedd start up funks for fur nit^^?=, caymter systems, salaries for myself and Mike for ranaging the -tion. Mat happerred &ing this t h was that FSC was constantly premising us financing and we had yet to receive any actual m ~ n e y and the invoices d t t e d w e r e never paid by FSC.

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  • Bob then told rn that he may be willing to go intD the meeting w i t h me under the asslrmption that I did not tell them who he was or who he was w i t h . I called J&n m l e and told him I wanted to cane dawn and v i s i t him, being referred by Alex and he was very nice mer the @mne, giving me a cordial invitation to cane down and actually had me set up the meeting w i t h Ray S m i t h who was one of the sales ~ g e r s . I set up a two day meeting w i t h myself and this anonymxls person, Bab KaufBnm. W e spent two daysatFSCandwhat essentially happened is that they became infatuated w i t h Bob's recruiting skills. On the spat they offered Bcb a position within the a m p n y as far as recruiting and head of sales manqement of FSC.

    I resigned fm m6 January 1985. Bob m i n d a t ID6 and fnm Octaber to March w a s negatiating his position and pay and his -tion w i t h FSC. By March he actually decided to resign fmn ID6 and he was a k a r h d into the corporate structure of FSC. January Ist I resigned fmm IS. I was Upstairs w i t h Mike Harllett, sharing an office space and the rest of district w i t h Alan Lms was still dwEbks. A t this time, I began to build my independent practice of Financial Planning. Basically I took 95% of my clients fmm IC6 and began working w i t h them. Bob began working in the national recruiting for FSC and started attracting IDS people to FSC.

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    By the Fall of 1985 I had became w i n t e d w i t h my business l i fe , not learning m, lonely being hkprk3ent and I became frustmted. I knew that no one in Lancaster was doing a very high quality m i c e rqardbg Financial

    - laming and Financial Services. Tb me, lancaster seemedtobeahighly attractive market w i t h alot of wealth being spread cut amDng alot of different players. No one was being creative r " lg their efforts it was just three or four brokerage houses, insurance agents, banks and irdependent planners but iw one had a very strcarg p i t i o n or d a b a x e in the financiae services -.

    I visited w i t h Bcb Kauffman in the Fall of 1985 as I usually did every ccuple mths ard told him I wished to do scwthing else. A t that time he asked me i f I wanted t o cane dam to Atlanta and help him work on the concept of o n p n y awned shops. W h a I was dawn there, he mmtioned severdl positions in the corpration that I may be in- i n and he set up a meeting w i t h me and Steve Franklin. Stwe m t l y needed smmw to m a ~ g e his national sales office so khj dawn there I spoke to him, just t o verify wha t was available.

    * A t this meeting, Steve Fmnklin more of less indicated that I was a ~~kuned cut who was just leaking for a place to go. Ncrthing ever happen& and I

    left the meeting w i t h very lit t le respect for Steve Franklin.

    Bob offered me a position w i t h i n his mnpany owned store, writing cases doing p l m , doingsaneotherthings. CIhatwasearlyOctober. For thenex t th reeor four weeks I prepared myself, relwtmtly, for the transition and moved to Atlanta and tried to maintain clients up he^^ as well, and plrsue whatever Bob was doing down in Atlanta. A s th went on I f e l t I really didn't wish to move away fmn the area and that maybe the opportunity down there wasn't what I thought it was, or wasn'twhat Bab said it was.

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  • Bob ~~auffunn was the liaison and -tly was being directed by Stare Franklin ard Jdyl m l e . F'ran what I have learned over the past several years was that they never really interded to finance the aperation brt they were strirqirq us along ard using us to recruit other people to the operation. After we rexuited ten or more people it became apparent that Mike or myself did not have the managing skills required to l ~ ~ g e such an operation. We also learned we lost our financial backing, so we had to figure out what to do with financing. A t this time we decided to raise the capital a.u-selves, finance the operation auselves with quity we raised thmqb the planners. And essentially we learned that no one i n the industry, or very few actually awn their awn business but are only a distrikrtion for a f i n a d a l product. W e a l l have seen bmkr/dealers bebg baqht and sold for very sizable m t s of m y , usually in the vacinity of $1 of quity for $1 of gross ccrmnission inmne. We began to see that we were seeing anyi&em hran $1 million of gross amnksion imxms per year w i t h the grcrup that we had. In the grarp was Ken Ray and some very m t i v e and talented people.

    T b x @ m t cur m e e t h p and discussiuns d c h were very long, durable and tiresame. mpn L&omber t o May I probably spent every other evening with Bob i n Atlanta trying to pt this deal together.

    Let me go over a couple of other things that had happened up to that time that I f d ljke mentianed in this document, before I fozget. Back in the sunmer of 1985, I was contacted by Jdyl Fhilips fmn Blue Pall National Bank. muse of )ny visibili ty w i t h the local chapter of the IFP Jdm wanted to call me and look a t the opt icus of Blue Bas11 National Bank becane involved in Financial Planning. Jchn called a meeting w i t h me ah3 I believe he was looking for scanmne to head a Financial deparbnent with inside Blue Pall National Bank or contract w i t h s~neone outside. I had 1-1/2 bar with Jdm and his suborbant, whcan I can't remember his name, I believe it was Joe. H e was the vice president of the trust m t , I believe. m y after the meeting they did not have the fiath or the confidence that I was the right person or they didn't believe that this was really what they wanted to do. But I have never M firm them s in .

    Fall of 1985, before our initial meeting, after I &idea that I was not goin g t o relocate in Atlanta, I began to look for other options in -. One of those were that a couple people pt me in tmd w i t h several banks. One was Joe S. with -th National Bank and another was Meridian Bank. Both of those irdividuals received calls fmn peoplekl I did business w i t h stating that I was looking for san&hg ard asking that they give me an btemiew. None of them !could wen goive me an interview. I received a letter fmn C c m k m e d t h stam that they had no pasitions cpa a t this time, but they would keep my ram on f i le . Fmm Meridian, I don't believe I wen received a letter. aLis is oneof t h e r e a s o n s t h a t I d o n f t h a v e v e r y ~ respect for banks, or people whowork inbanks. I donftwishtodwell into this subjed, but because of several of these eposides I just don't have mch respect for bankers, or banks what so ever.

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  • was going to receive 60,000 shares, I was to receive 40,000 shares andMike was to receive 40,000. Also, Mike ard I w e r e to receive $3,000 per month and Bob $5,000 per mnth. Bab and I had a deal as I did not believe he shaild have more of the canparry than I because I pit it together. We had an agreement &ereby I could buy 10,000 shares of his 20,000 a t anytime a t cost so we would both have 50,000 shares. I had papers drawn u p t o that, however, whenwe began t o have problens, I l e f t things drop by the wayside.

    Back in Februaq 1986, I became g o d friends w i t h Mary Lynn D i F o l c a , Kevin's sister ard Mike's wife. We were always g c d friends, but back then when Kevin left, we very close because I spent alot of tim with them. Mary Iynn was a t the time, 30 years old with three children, and she was always very tied dam with the kids, basically a housewife. She never really had a job, never worked. Itwashard forherbecauserrmtof her other frienlswerecutworking and had 01-eers. I a s k e d h e r i f s h e W d l i k e t o M p m e o u t f o r a f e w h o u r s a we& doing general clerical an3 typing. She was very excited. I tho~@t it was a chance for me to get S(II*~ thirqs done ard I liked Mary Lynn alot d we got along and I thx&t it was a chance for me to get a few extra things done. I took her on in February and before too long she was working 30 hours a week. She had a babysitter lined up for the kids, ard it was very encanraging for me to see her do this because it gave her the confidence for the f i r s t time that she could do spnethhq other than just have children. She was having a great time and I was having a great time and.= enjoyed working with Baeh other. A t that time, Bob invited .Mike and I down to the annual confererms in !Iwsm, Arizorn ard w i t h the conferenoe amangments we were allawed to take saneone,

    - such as your spouse. I asked Mary Iynn i f she wanteA to go and I don't believe she was ever on a plane before and she asked Mike and he said it waild be good for her t o meet scme of these peqle and get: involved w i t h a career. We ended up d a m a t Tucson ard that was inApri l2andwespent fmorf ivedays there. Upon meeting Bob ItoldhimIwasbringingMaryLynnoutandIhew from the start that this was a sore spot. First of a l l she was married d he couldn't urdershtd what she was doing cut there w i t h me. Semnl of a l l he didn't appreciate the whole s i b t i a n when he met her he said scauethbq to the effect that she looked very young. After the secand day w e were a l l g c d friends ard she was getthq alaq very w e l l w i t h W and Pam. In fact, Pam confided things in her that I kmm Pam never told anyone. It looked as thcaigh they liked, or a t least pretmxkd to like Mary Lynn and so anyway we all had a good time. Bcb, myself, andMikespent&of wrt im inindividualprivate meetings trying t o pt this deal together and work cut the details -idly with FSC.

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    I think it was back a t this time-we real ized that Bob was probably going to resign fran management and cannit and cane up to Lancaster. I think one of the reasons whyMaryLynn andIbecameveryclosewasthatsheremindedmesonuch

    ' of my mother in t& way that she handled her kids, family and I became infatuated w i t h that. I liked her alot. Wt haFpened was that Mike and Bob resented the fact that we had so rmch fun while we worked. We got mrk done, but we went out to lunch for an hour or so and we really enjayed things. To them that had no place in business. For me, as 1- as I got my work done, I fe l t better about my work ard it worked art for the best. mis w a s a problem an3 w i l l ccmne up later.

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  • We w e d into the building, they wmld not a l l m Mary Iynn to be back in my section, haever, Nancy A. 's desk was right ma& up against Mike's door. lhis start& all the problem w i t h Mary Lynn. She saw that and she wished to work for me, and they were not goiiig to let her. It just started problem fmn day one and it had a tmmxdms impact on the relationship between me, Mike and Bob. 'Ibis was the straw that broke the camels back as far as cur relationship was wncen-ed. Ever sincethathKpenedwestoFpedcamunicating. matwas the f i r s t m e in trying to rescind myinprtandmyomtmlsofarasthe campany was c0ncxm-d. As far as the staff was ooncerned they had a feeling that the staff should be treated as dirt and made this urderstxm3 many times to me - this is against a l l my philasophy of life. For months, because of this attitude, Mere were problems with the staff. It was because of this that the staff didn't respect them, and it was just a - f o r m t h s . Wing June, July and August, Bab w a s still d m in Atlanta and I was doing most of the work i n lancaster. Fmn J a n u a ~ ~ until Januray I took one day off

    I I for Memrial Day, one day for July 4th, one day for labor Day and cme day for 'Ihanksgiving. Mike H a r t k t t took off two of three becks, leaving m e to tend the shop. I was always the care doing all the work, recruiting, stock offering,labor ma t t e r s , drew up all the amtmcts, drew up the offering ~~ w i t h the help of the attorney. It was fiwry that I was the only one raising the mney - probably 808 of the furls. I was the only care of the principals who had outsiders investing i n the canpany. Ihe most they did: Bob Kauffman raised $5,000 frun his father in law, so not d y did I pit my cwn mney in I risked that of my clients. But they were willing to a a q t that up front. A carple times it came down to either me getting the m m q fmn my clients or us not having the financial abili ty to pay off sane of the capital resources that we had.

    Wing %pteubr we began to have pmblems w i t h Mazy Lynn and the staff and me. 'Ihis was the beginning of them hying to reduoe and dilute my control of the canpany as far as input was cancerned. It was a very emotional and dram expsriexe after alltheworkIdidtopltthisalltogethertofind those twowere trying to plsh me cut. Itrsachedthepointinoctoberor Noventer where they actually asked me i f I wanted to "get out." 'Ihqr indicated that I was not right for ma~g&, ma~gement was nat right for me, that I wasn't having fun and all this and that. Mnst of that was due to their action as far as their trying to dilute me and weaken my umfidenz. lhey c0Ntantly made fun of me i n fmnt of all the other planners a t meetings and it was just ugly. 'Ihey also tr ied to internqj my relationship w i t h Mary LyM w h i c h was ruthirq mxe than a very persad, deep fri-p.

    No care lamws this, kR the trauma was so heavy that I went mxier the care of a psychologist a t St. J@ Hospital, beginning N m m h e r and I was suffering a severe case of depression. Eecause of d z @ r e n i a being f a v d in my family, I was not afraid to go seek psydmlogical camseling. I was on medication for three months.

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  • In September they had it in their minds that they were going to get rid of Mary Lynn. And they tried every opporbmity, finally in N o v e n h r a week before Thanksgiving, they fired Mary LyM. W i t h o u t cause, for no reason, other than they just wanted her art ard felt she was incapable of whatever. It actually reached the point wfiere Bob andMikewhenarnurr].politickingthebrokersto s q p r t them thatMaryLyMwasnutdoingher jobwhic31wasmttrue . Shehad the canplete wrt of a l l the brokers. Maybe a t times there was a case wfwe sawom was unhappy w i t h her perfommce, but in general it was a ploy, a plot, fabricated by Mike and Bcb.

    After their attarpt to lmy me out and get rid of me so far as my Oontrol and my interest, I held cut reluctantly often times mxlering i f I were going to give in an3 by 0lristma.s I decided I wnuld stick it cut. 'Ihere not other alternatives, kR the nwney they offered me to get out was $2,50 a share which canes out to $100,0000. Iwantednopartsof it, sobyJanuaryIdecidedto stay.

    Bob hadseveralcanver~at i~~l~withBobIcngsayingthathewas~iedaboutmy v i a l efforts and that I was heocming slack. Ihe whole reason was that they were hamering me daJnandbeatingmeupineverywaytheycculd, cktmying my confidence. AftarIspenttimeandeffortardIbelieved inso nu& of Wmt I'd done, and they were trying to take this away franme and get me art of the picture.

    Thraqh N o v ~ and Decc&er there were meetings between myself, Scott - R c h r k x m , Alan Loss, Bob Long and (luo1ynFlayer rqanibq the activities and

    the ~ S t y l e s o f M i k e a n d B o b . ~ w e r e v e r y ~ , w e r e n o t v e r y trusting and I was always in the middle between the managerwt and financial planners. I had relatiMships with everyone and I believe that this -tend Bob and Mike ard they tried toge tmecutof thepicture, kttheplanners wxlld not allcu this because the planners did not trust Bob and Mike w i t b a r t havingme to keep them on balance.

    I raised most of the nomy, d t e d lnost of the people, p t the offering memo- together, pit the ampter system tcgether, workedwithall the ampter softwa??=, and a c t u d l l y . came up with the name Firnncial Management (;mup and the idea of having a l l the subsidiaries doing different things. My involvement was very deep, pmbably deeper than anyone in the organization.

    W - m I w a s p l t t i n g a l l t h i s t o g ~ , I w a s i n ~ w i t h A l n Y u l a t . Italked abaR having nnr@age, banking a part of a t I was doing. Nathing ever happened bebeen the two of us, but in ~anuary I received a call fran Al askhq me to see i f I a d d place any mrtgages in the east coast. H e was willing to pay me xmghly one half a point and this was a t a time, because of the activities of Bob and Mike, that I tku$~t I would give this a t ry to give me sane secwity. Should saoething fa i l in the canpany, I would have sanething to fa l l back an. A t this time I involved Scott IInbertscn and Bob ~cng and I told them we would form a three way w p and we wnuld work an a real estate project on cur awn. ' IhereasonI to ldnooneabcut th iswasthat th iswasmy ace card in case Bob and Mike ever really threw n~ out. I was mt going to give &em any relatimship, and I just TIE&& sane d t y .

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  • What we were really doing was lwkirg for 1- of 2 mil l icm dollars and up to refinance or finance new and existing realestateprojects. Wemadeafew calls, finding that ax rates are very anpetitive. A l was mre of less letting me get plqged into the major Savings and Loans and Inswaxe mnpanies. Wefam3cuttherewereveryfewpeopleinthearea, i f a n y a t a l l who could a q u b s the terms. We began having a great deal of success and what we found was that almcst everyone was allawing us to bid on their project. We created a campany called C!rekive Finance Caopany so that we would not a p x e Fm; to any liabilit ies as far as cur activities. W e agreed fmn the beginning that FIG wxild receive a m t a g e of cur activities ~IXI we figured 15% was fair since we actually mnufacturd the pIoduct wfiere FIG *en cut and used othex manufactured products. We didn't feel they were entitled to a 20 - 30% split.

    (Xle of cur amtmzts was w i t h Tony Bongoivi in New York. He a t one time dated Scott's sister apprmhmtely ten years ago. Scott maintained a loose relationship w i t h Tony, calling him one= in a while regarding business m a t t e r s and business activities. Scott called Tony one day atcut a real estate project that he i3mught . Tony said no, but he my have another project that we would be interested in. Scott asked m e to go up to New York with him to talk abcxlttheprojectand1 askedwhat itwas. He indicatedit was a mwie. I was very reluctant and hesitant to do this because nnvies t o me, tax shelters, scans, not very econcmic type investment. Me being very comxvative was not attracted, but I decided to go anyway just to get cut of town, mre or less just to get away. biten I got up then I was totally amazed a t the caliber and the people who we were associating w i t h . What I found cut was that we were working w i t h the leading recolding shdio in the world. T h e r e d t i a l s , their acccnplidxm~ts were @enmaml- they were just it. I'm not going to spend alat of time of this because just the battcm line is what is inporbnt here. After seeing the project wfien I lcoked a t what Tony was doing, and fran a business perspective there were just so nary elewnts in this project that were just truly amazing to me so far as distribution and markeI5.g and riskand eveqtAi.q else. Bottan line was a pruluct that was worth 15 to 20 million dollars being made for 4 million w i t h the ability to be one of the 1- movie, video projects of the years.

    F i r s t of a l l ycu have the leading recoxding studio in the world working on the scan3 for the project that was going to include a follaw up of Tony's previous band who- was BM Javi who was alreacty one of the hottest thing in nusic as far as alkum sales. Then you have the fact that he was going to digitize the recording which was never done before in the nnvie industzy a t a time when the vidm market is just going bananas. N o t only that, hut the label that signed the banl m MN. You put al l this together and ycu've got a penmend business w i t h alot of apportunity .

    Property of Advanced Media Group Page 11 of 13 02/17/2007

  • seeing this, I ammitt& myself to the project not kmwing h o , where or haw we were going t o raise 4 million dollars but I beliwed in the project so mplch. I guess because I saw alot of the same elements used in F% in this project, and even more. I got instincts when I raised money for Em; I was still very concerned with the risk elements to my investo~s but when I looked a t this project the risk was even less. Iess risk, mre protection with this project so I believed in this project. We spent seven or eight weeks developing the packaging the product for the investors, things have hapxwd during that time that fe l l into place perfectly - the article in lblling Stone, the marketing.

    It is May 4 th a t 4:30 a.m. and there is no d a b t inmyminlwith the articles in Rolling Stone that we have the money for the mie. lhat project in itself w i l l pmbably p t us in the forefront of the en- industry within eight W. It is mird bogglingasfarashtoncaaeofthis,butthe project is done, we did sanethjrq, we did not use Fm;, they w i l l receive no split. I guess what I 'm saying ik that because of the way Bob and Mike treated me or plshed me to go cut and do things, that did not involve Em; and I did not feel that they did not deserve to becarre a part of these things. Fran the beginning I knew Em; was going to get their piece.

    L e t me go back to an earlier developlwt amcemhg the E!mker+er. We of course thought in the beg- that we would becarre ax own broker/dealer. However, after long, bard discussion, we were to the pint of getting a license for brokerldealer, we decided we did not have the admhktmtive capacity to

    _ N f i l l what we waild need to a-lish the broker/dealer. Back in Nwember, -, Bcb started soliciting other -/dealer, l c o k h ~ ~ for three things; service, high pay cut, and equity. We knew that we had t o own our brolerldealer kusiness. 'Ihere were two players that we came a m one was Iiikkml-m cut of wshhqhl DC and the other was Financial Plame?s Group which really involves sane of the premier financial planners of the cumtry, B i l l I b q l e r , Wayne Webster, so on and so forth.

    The Iceogler grarp was strcng, large, y a q and they were doing nxghly 20 million dollars of gross canmission incane per year but there were saoe people in the organizaticm we did not feel ccmfortable with. Hikbaxd Brrx~n was a new start up, starting up when we did, was a sp l i t f m a previous bmker/Mer in D.C., that involved f m a syrdiotor to a -/dealer that no one knew anything a?xut. However, they really enticed us w i t h a very attractive equity deal. Bob maintained most of the cmmmications and mmt of the research involved in this project. It was brcqht to us in January w h i c h was IpuFplly 20% of their stock .w i th 90% payout , territorial with override for aqthirg that we did.

    Property of Advanced Media Group Page 12 of 13 02/17/2007

  • One 0 f t h e t h i n g s I m t s h a i l d b e d o n e i s t h a t s c m e a n e M d b e d o w n t h e r e 1- a t their tmdiq department, along with the capability of FSC. I tried to get people down there several tims and I suggestd Qmlyn Royer because of what had haFpened to her. Finally Peter Pnneros and Ken Ray bent down, and this was probably during U a x h . Anyway, this whole thing was dcne w i t h very l i t t l e mmmicaticn as far as me, Bob and Mike. lbre of less, Bob wculd go cut and do scanethirq and wculd fee3 back to us, but we redlly had very l i t t l e involvement with what we in- to do w i t h M Bnmn. One thing Bob irdmted w a s t h a t i f w e b e n t d o w n t o K i b b a r d m w e w c u l d n o t f i n d i r m c h , they were just starting up, they were new, they had rmghly 10,000 sq. foot of office space, a few staff people and the system of operation. He did feel they w e r e capable of fulfilling cur needs.

    We began the transformation of licensing fmpn FSC to Hilhxd-Bnmn and we prcbably had 60% to 70% of the in house w l e to FSC, Alan Inss, Scott Robertsan, Rich Bravenuan, Keith Waters, R x M Dellinger, Kazly Radcliffe, along with Barry Schuttler and sapne of the other satelites. A t this point Tan 'I\uner was free ard clear and he was looking for scsne direction. By the week of Apr i l 19th Tcm was up v i s i t k g with Bob all week seeking that direction and he was also visiting w i t h Hibbard Bnmn so it looked like Tan wculd also b e a m involved.

    I also negotiated the courtship of Tony Pascoti and got him involved. Fran the perid of A p r i l 1st on, wfien we began transferring license, one of the main

    Property of Advanced Media Group Page 13 of 13 02/17/2007