Mark J Shubin. Had some business dealing with Wallace J Hilliard.
Scott W. Rothstein is a disbarred lawyer and the former managing shareholder, chairman, and chief executive officer of the now-defunct Rothstein Rosenfeldt Adler law firm.
He was accused of funding his philanthropy, political contributions, law firm salaries, and an extravagant lifestyle with a massive 1.2 billion dollar Ponzi scheme.
As the Scott Rothstein's bogus scheme revved up in 2008, monster investor George Levin, flying high with Ponzi profits, began buying aircraft.
It is believed that Levin, who was a close associate of Rothstein's, took money off the table from the Ponzi to buy the planes.
Levin sold one of those planes for about $1.1 million on November 23 -- a few weeks after the Ponzi scheme collapsed. I'm told the sale went down offshore in Barbados. The buyer was a Delaware-registered company called Mark IV Aviation, which is actually owned by a mysterious fellow named Mark Shubin.
“Mark Shubin was Wally Hilliard’s business partner in a number of airplanes, including a $35 million Gulfstream."
Shubin’s company, Sky Bus, Inc., for example, shared ownership of at least four private jets with Hilliard’s Plane 1 Leasing, two of which had what we considered to be “unusual” tail numbers: “N11UN” and “N111UN.”
SKY BUS, INC. is an Domestic for Profit business incorporated in Florida, USA on June 15, 2000.
Shubin was appointed director at Tactical Air Defense Services, Inc alongside Alexis Korybut.
Alexis C. Korybut had founded Sterling Financial Investment Group with Charles Patrick García and John Curry. Korybut is the son of Naples Fl. architect Kasimir Korybut.
Charles Patrick García served in staff officer assignments for U.S. Strategic Air Command at Offutt Air Force Base, Nebraska and at the United States Southern Command then located in Panama. In late 1997, García was working at the Greenberg Traurig law firm in Miami, advising banks and Savings and Loans institutions.
In 1997, with $800,000 in personal funds and seed money from family and friends, García bought assets of Agora Securities of Miami and relocated it to a Mizner Park office in Boca Raton. With two other associates, Alexis C. Korybut and John Curry, García founded the “Sterling Financial Investment Group (SFIG).”
During the 23-day launch of the Iraq war, he was Telemundo’s behind-the-desk military expert. After the 9/11 attacks García’s company issued press releases seeking to have him invited to comment on the threat from biological warfare, and he soon made appearances discussing the issue.
In 1995, Tim Mahoney and business partner, Lenny Sokolow, started Union Atlantic, LLC, a venture capital firm. His inability to get the firm listed on vFinance.com, a fledgling matchmaking Web site for venture capitalists and cash-hungry entrepreneurs, led him and Sokolow to purchase the website in 1998, merging it with Union Atlantic.
Gary Fears is associated with Tactical Air Defense Services, Inc.
Gary Fears received his B.A. in Government from South Illinois University, with additional degrees in Business Management, Marketing and Economics. He also completed his M.S. in Urban Studies at South Illinois University.
Fears has served the State of Illinois as Chief of the Office of Community Services and subsequently as Deputy Secretary of Transportation.
He has developed a number of commercial properties in the greater St. Louis area, including hotels, restaurants, shopping centers and mixed-use commercial developments.
As an early investor in Dent Wizard, Fears developed and grew the company into Dent Wizard International, a highly successful business that today leads the paintless dent removal industry in service and the development of new technologies in its field, both in the United States and in foreign markets. The company was sold to Cox Enterprises in 1999.
Gary Fears was the first to get involved with gambling enterprises by founding Metro Tourism. Metro Tourism is the forerunner of Argosy, which today is a leader in the riverboat casino industry. He has also been involved with Indian gaming ventures for over ten years, including the opening of the most successful Class II facility at Coconut Creek in Florida, with a profit approaching $100 million a year.
Fears has actively continued the development of Indian Casinos and providing financing for TADS.
He is also an advisor and lobbyist for several foreign nations and entities. Clients include Kingdom of Morocco, Senegal and Party Gaming.
Firm Finds Bumpson The Road To Wealth: March 30, 2003
Fifteen years ago, Charles Garcia, a former Air Force captain and intelligence analyst, was advising the White House on combating drug traffickers in Colombia, Bolivia and Ecuador.
A picture of the former White House fellow shaking hands with President Reagan hangs at the Mizner Park offices of Sterling Financial Investment Group.
Today, at age 42, Garcia serves as chairman and CEO of the Boca Raton-based investment bank. The company boasts 225 employees, $420 million in brokerage assets and revenues that jumped to almost $24 million in 2002 from $80,500 in 1997.
This meteoric growth made the firm the eighth fastest-growing private company in the country in 2002, according to Inc. magazine. Earlier, in 2000, Hispanic Business magazine called Garcia one of the 100 most influential Hispanics in America.
While Sterling is a fraction of the size of national brokerages such as Merrill Lynch, which had more than $18 billion in revenue last year, Garcia hopes Sterling's name will be just as well known among investors in five years.
"We want to be anywhere there's a big Hispanic presence," Garcia said.
Sterling counts on attracting wealthy Latin American clients and benefiting from the growth in South Florida's and the nation's Hispanic populations.
But the boutique firm has garnered some unwanted attention, and its financial management has been questioned in a lawsuit. It was fined in a headline-grabbing case involving improper research tactics. Its mass hiring of brokers from a firm cited for unethical business practices caused a culture clash. And the departure of three executives last year left its top ranks temporarily thinned.
Garcia says these distractions haven't affected his goals for Sterling.
"We've done well, with a few bumps in the road," he said.
BUILDING UP ITS BRAND
When Garcia founded Sterling in 1997 after moving to Boca Raton from New York three years earlier, he said, he had only three employees and worked out of a broom closet rented from Bear Stearns' Mizner Park offices. He had acquired experience in the financial sector as co-manager of the Thrift Value Fund, a Boca Raton-based hedge fund run by his father-in-law, Seymour Holtzman.
For Sterling, he had a vision of a firm that would be known for accurate and thorough research.
Today, client Clarke Adams, a partner at the Scottsdale, Ariz.-based hedge fund Petros Capital, says he likes how Sterling digs deep for investors.
"They tend to do original research on a lot of firms not normally followed by the Street," he said. "They emphasize the negatives of the company as well as the positive."
Sterling, named after Garcia's son, also does financial and estate planning for wealthy individuals and trades stocks and bonds on behalf of institutional investors. Its research arm issues reports with buy and sell recommendations on about 50 publicly traded health-care and biotech companies. The company also serves as an investment bank for companies looking to raise capital.
While most firms have shied away from unstable Latin markets, Garcia bet early on that Sterling could thrive there. Sterling has set up eight offices in Latin American countries -- from his native country of Panama to Chile, he said. One of Sterling's investment analysts, Santiago Maggi, has appeared on CNN's Spanish broadcasts. And Garcia says he often travels to Latin America to speak at financial conferences.
"Latin Americans love to be with brand names, and we're building that," he said.
Locally, the firm's also building its brand name. Sterling sponsored a Swiss art exhibit last December in Miami, and Garcia donated $100,000 in 2000 to help build the Boca Raton Museum of Art and amphitheater in Mizner Park.
One source for his success in the financial world, Garcia says, is his management philosophy: "I hire people smarter than me and let them do their jobs."
TOO LITTLE SUPERVISION
But regulators say Sterling erred by not supervising its employees carefully enough, as reported on the front page of The Wall Street Journal last August.
Sterling drug stock analyst David Risk and his brother, research associate Doug Risk, got confidential information about a clinical trial being held at the Palm Beach Medical Center for an insomnia medication being developed by Neurocrine BioSciences Inc. David enrolled as a subject in the trial. But his brother, Doug, actually went to the clinic and posed as David for the trial. David Risk then issued a warning to investors about the drug based on information Doug relayed to him.
In October 2002, the National Association of Securities Dealers took its first action against the 6-year-old firm. The NASD fined the Risks, Sterling, and director of research Steve Kirsch a total of $90,000.
The Risks' attorney, Andrew Cotzin, said earlier this month that the brothers were not available for comment. He said the fines were "fairly stiff coming from the NASD, given this didn't involve any fraud on the public." In a statement e-mailed through a Sterling spokesman, Kirsch said, "We appreciate and respect the NASD's role in this matter and look at this situation as a learning experience."
Then, after an annual inspection in December, the NASD slapped the firm with $131,000 in fines for a series of separate violations. These included letting Chief Operating Officer Bernard Golembe supervise workers without an appropriate license for a year and failing to maintain evidence in 1999 and 2000 of internal inspections, which include a periodic examination of customer accounts to look for unusual activity or abuses.
Regulators said Sterling also failed to disclose to investors approached for a private placement offering that it had a relationship with the company for which it was raising capital, Mahwah, N.J.-based DOBI Medical Systems.
Sterling didn't reveal it had made loans to DOBI and would be paid back in shares of the medical company. The NASD fined Sterling President Alexis Korybut $35,000 and suspended him for 20 days. A company spokesperson said Korybut was not available to comment.
Garcia acknowledged the errors and said the firm is learning from its mistakes. He said the fines after the Risk brothers' incident and the annual inspection caused Sterling to "completely revamp how we do our research."
For instance, he said, Steve Kirsch no longer serves as director of institutional sales and director of research -- generally a conflict of interest federal regulators have been cracking down on after discovering research analysts were giving favorable ratings to companies in hopes of winning lucrative investment banking business. Kirsch is now senior managing director.
Also, if the firm is about to issue a report on a company, and it detects "unusual movement" in customer accounts holding stock of that company -- an indication of possible insider trading -- the report won't be issued, Garcia said. Sterling also added staff to its legal and compliance departments to help prevent such errors, he said.
GRAPPLING WITH GROWTH
Sterling has also faced difficulties trying to digest business deals and manage growth, and questions about its financial management have surfaced.
One situation he wished he had handled differently, Garcia said, was a deal in 2000 with Boca Raton-based Joseph Charles & Associates, which had filed for Chapter 11 bankruptcy. Sterling agreed to hire 140 of the firm's brokers and keep most for at least six months. But Joseph Charles & Associates had a record of at least 10 regulatory fines in a five-year period from the NASD and regulators in three states for violating securities laws, including using false and misleading advertising.
The deal was appealing, Garcia said, because the company had $21 million in yearly revenues and more assets and brokers than Sterling. "What we underestimated was the culture clash."
Garcia said he fired all but about 30 of the brokers. Some failed drug tests, he said, and many were too accustomed to Joseph Charles & Associate's focus on practices such as cold-calling investors to buy stocks, whereas Sterling has relationships with long-established clients and uses referrals.
All told, the move cost Sterling about $3 million, Garcia said. Sterling has walked away from five acquisition opportunities since then, he says, because internal discussions "all went back to how bad the Joseph Charles transaction went."
Garcia says the firm is on solid ground financially, but the company has yet to have a profitable year. The company should become profitable by May, he says, after some cost-cutting is implemented.
A former manager, however, raised questions about the firm's financial management as part of a lawsuit filed after he was fired in April 2002. Sterling sued Robert Keyser, who managed the firm's retail operations in Boca Raton, a week after he was fired in a dispute over his management style. The suit named him, broker John Keyser and broker Albert Poliak for violating noncompete clauses in their contracts. It's not unusual for such conflicts to arise between employers and former employees.The suit says the three were soliciting other employees to leave Sterling and start their own firm.
In a signed affidavit, Robert Keyser said he never solicited employees, but had been concerned about Sterling's financial security.
"It was common knowledge among the accounting personnel that there was financial mismanagement by Charles Garcia, including but not limited to, payment of personal income taxes from corporate assets and payment of charitable contributions from the assets of Sterling Financial as well as other extravagant travel expenses by Mr. Garcia and Mr. Korybut," Keyser said in the affidavit.
Garcia called the allegations about his personal tax payments and extravagant travel expenses "ridiculous." He and Korybut own about 80 percent of Sterling's shares and will spend the money as they see fit when it comes to charitable contributions, he said. And he pledged $100,000 to be paid in a five-year period to the Boca Raton Museum of Art in 2000 because he felt the company should support the community, he said.
In his affidavit, Keyser said he also thought the departure of some top executives didn't bode well for the company.
Other employees who left in 2002 included COO Marty Rauch, Chief Financial Officer Robert Spitler and executive Brad Baker. The three executives left to pursue other interests, the company said. Garcia noted that Rauch and Baker were brought on to manage an online venture that failed.
At least five brokers left after the Keyser suit, as did top health-care analyst Bob Wasserman. The suit was eventually settled, but most involved declined to comment because certain undisclosed matters are still in arbitration.
As for the others, Garcia says turnover is a constant in his industry, especially for a firm as young as his. "We're continually trying to get better people, but when you're small it's harder," he said.
`AHEAD OF THE CURVE'
Despite past problems, Garcia believes the future holds promise. Sterling plans to continue expanding in Latin America, with projected openings of offices in Argentina and Bolivia in the second quarter of 2003.
While Bank of America and Citigroup have acquired stakes of banks in Mexico, Sterling wants to target a different niche -- investment banking services in Latin America.
What sets Sterling apart, says Sterling President Korybut, is how the company approaches each Latin American country differently.
For instance, investors in Ecuador are more likely to buy conservative securities such as bonds, while Panamanians are more accustomed to an American influence, "so equities appeal to them," he said.
The firm also wants to take advantage of explosive growth in the Hispanic population here and abroad by tapping brokers who have already established relationships with Hispanic clients. Such brokers "are sitting on a gold mine because they're sitting on all those relationships," Garcia said.
Friends and peers say Garcia is using his military, business and Hispanic background to lay the groundwork for what will be a successful firm.
"I think Charlie believes in the model he's setting up," said Richard D. Steinberg, president of Steinberg Global Asset Management in Boca Raton. "He's thinking ahead of the curve."
As for Garcia, he hasn't ruled out a move into politics.
A Republican, Garcia has already made a name for himself through his service. In February 2002, President Bush appointed him to an advisory commission for the White House Initiative on Educational Excellence for Hispanic Americans. A year earlier, Gov. Jeb Bush put him on the Florida Board of Education and the Federal Judicial Nominating Commission for South Florida. He has also been a Latin American intelligence analyst.
Garcia says an elected office is something he'd consider when he's closer to retirement.
"Hopefully in 18 or 20 years you're a little wiser and have created some wealth behind you," he said, adding that creating wealth makes political candidates more credible and less subject to special interest groups.
Requiem for a Heavyweight Gary Triano's sensational murder remains unsolved after five years. November 01, 2001
It was what struggling high roller Gary Triano needed. A little comfort. A little loving from his friends in an extended birthday party on the weekend, five years ago, before he hit 53. The birthday boy finished up a round of golf at La Paloma Country Club, where he clung to membership despite receiving notice two weeks earlier that he would be cut off because he was not paid up on dues and fees.
He joined partners in the clubhouse afterward, and as the fall sun began to set he headed to his borrowed 1989 Lincoln Town Car. Triano was on his way to meet another set of friends gathered for a "surprise" party. He stopped to talk to someone in the parking lot, exchanged pleasantries, then slid his big body - 6-feet-2, 241 pounds--into the Lincoln.
Next to the Lincoln, Keisho Kudo was parked in his minivan, reading a golf magazine while waiting for a friend to finish his round. Kudo saw a well-worn, faded old Monte Carlo pull out of the lot.
Meanwhile, Triano noticed a blue canvas bag on the passenger side of the Lincoln. A birthday gift? A birthday gag? He leaned over and reached to a wood box--like a cigar box--in the bag.
The blast blew open Triano's skull, splitting it apart by an inch and a half on the right part of his forehead for a length of more than four inches, leaving a bridge of bone. Metal from the pipe bomb flew into his brain. His hair was singed, his eyes ruptured. His right hand, except for his pinky, was blown off, sent flying like the windshield and other parts of the car that rocketed up to 200 yards and into La Paloma's swimming pool. Triano's right arm was broken above the elbow and the blast split his thick abdomen and severely cut his liver.
The hands on the dial-less gold Movado on his left wrist stopped at 5:38 p.m.
The explosion blew out the passenger window of Kudo's van, cutting and bruising him. Kudo required only minor attention at Tucson Medical Center--testimony that the hit, though the device was called simple, even crude by some experts, was one of artistic precision.
From the parking lot, a maroon Explorer, driven by a man on a cell phone, pulled away. The driver, a club member, was cleared, as were the driver and passengers of the Monte Carlo. They were club employees. A man Kudo saw next to Triano's car turned out to be a member of that day's golf party.
Triano was pronounced dead at 5:40. A University of Arizona cardiologist, Dr. Samuel Butman, told the Arizona Daily Star's medical reporter, Jane Erikson, that he was to meet friends for drinks at the country club. He heard the explosion as he walked near the pro shop. He ran to the parking lot and toward the car. He saw Triano's blanched body. He reached to feel a pulse, then backed away when he saw flames and smoke from the dash.
In all likelihood, Triano was killed instantly. Only an instant to erase a man who came to symbolize Tucson real estate boom and bust, and speculation roller coasters. A mercurial sort who showed off an association with Donald Trump, who burned through millions of dollars and who pined for his children lost in a nasty divorce.
GUS FOTINOS HAD played La Paloma with Triano numerous times. On this day, November 1, 1996, he was in the next foursome.
"I was in the clubhouse when I heard the boom," Fotinos said. "One member came in as white as could be. I started to go out and then another member came in and said there was a car bomb and it got Gary Triano and his face and chest have been blown off. I didn't need to see that."
While awaiting cops, paramedics and others summoned by Butman and other 911 calls, members and employees milled about taking looks and, at least in small measure, contaminating a scene in which debris from the car, the bomb and Triano's body had been scattered.
Fotinos liked Triano.
"I've been here 50 years. He was a man about town. I don't think there was anybody in business who didn't know him. He was extremely smart. I enjoyed our relationship.
"I was in absolute shock," said Fotinos, a partner in one Triano real estate deal. "I would never anticipate this sort of thing happening to anybody, let alone to one of my friends."
There have been plenty of hits in Tucson. Drug-trade executions are common in the desert, and in quiet family homes in front of parents or kids. Mobster Charles "Bats" Bataglia was grabbed in the mid-1980s outside El Conquistador. Told to make sure his body would be intact to send a message, his killers dumped him in Avra Valley, unaware of ravenous coyotes.
Still, Triano's hit, which remains unsolved, caught the Tucson media flat-footed and exposed its terrible dearth of sources gained through the kind of old school reporting that corporate bosses at the dailies and television stations neither understand nor appreciate. The Weekly is not excused, either. Though hampered by "official" sources, including the Bureau of Alcohol Tobacco and Firearms, which put out false information that the bomb used "black powder," the Star did benefit from the experience of the late John F. Rawlinson, once a premier investigative reporter who wasn't afraid to check Joe Bonanno's garbage, and fast work by Joe Salkowski and probing by Enric Volante. Salkowski, for example, blitzed the courthouse, and uncovered the 74 lawsuits--some relevant, some frivolous--involving the litigious Triano.
The hit also befitted Triano's flamboyance, his friends concede: a spectacular explosion at the exclusive La Paloma, closing down traffic east and west of 3800 E. Sunrise Drive at rush hour the weekend before the presidential election.
Smart, clever and conniving, Triano grew up in Tucson and graduated from Rincon High School. He earned a degree in accounting from the University of Arizona and also completed a number of law school classes.
Friends and associates say he frequently was ahead of the lawyers.
And he was always willing to take a chance. He was far from a gifted athlete. At tennis he was paired with the better players for doubles. It didn't matter at golf; he bet large each hole and ran up big debts. He could lose $10,000 on a game of golf, adding emphasis to John Feinstein's book A Good Walk Spoiled.
He also was in $30,000 each to two Las Vegas casinos.
The rules, Triano thought, were trifling things that didn't always apply to him.
Such as in 1973, at just 29, when he mapped out a run for the City Council even though he was building a house well outside the city in the Catalina Foothills. With his name yanked off the ballot, Triano brashly but unsuccessfully sued to challenge city election laws that require candidate residency in wards for at least a year.
THROUGH THE STALLED search for Triano's killer(s), friends have grown quiet. Some received warning visits from people who felt they shot off their mouths.
They and sheriff's investigators say Triano had built up some enemies, including an ex-wife and ex-girlfriend; the Tohono O'odham Indian Nation; the Las Vegas casinos; and Chinese investors and speculators seeking a casino in the Gulf of Tonkin.
Some partners-turned-adversaries were simply stubborn, not murderous, and took it out on the money end. Triano and an "adviser"--not a suit, but a big guy who can consult with fists and boot heels--were surprised that Charles H. Keating, the S&L slickster whose conviction was ultimately overturned after he served time in the federal prison in Tucson, once declined to pay Triano his money on a real estate deal. Triano's adviser announced, calmly, that he would then take off one of Keating's ears. Keating's lineup of suits grew nervous, but Keating kept both ears. Triano lacked leverage. And Keating did what his talent allowed. He stiffed Triano.
Triano got seriously upside-down on a parcel he was going to develop on the west side near Tucson Mountain Park, owing relatives of then-U.S. Sen. Dennis DeConcini, D-Ariz., much of the $850,000 he used for the 209-acre Park Point development. Not to worry. He got the Pima County Board of Supervisors to bail him out in 1988, swapping 23 acres of land on East Ajo Way in exchange for the Tucson Mountains property that was added to the park. The county paid off his debt. But Triano borrowed against his newly acquired 23 acres and soon lost it all. The county ended up paying for it more than once when it needed the property for a baseball spring training complex.
Triano did not endear himself to the Tohono O'odham tribe, even though the tribe and Triano and his partners amassed a fortune with high-stakes bingo. Papago Bingo--using the derogatory name the tribe shed 17 years ago--was the precursor to the Tohono O'odham Desert Diamond casinos that lure millions of dollars away from gamblers at slot machines, keno, poker and, yes, bingo.
Triano and partners Louis Cohn and Richard Hickey, with whom Triano shared a Sabino Canyon home before the murder, raised a $1.2 million loan for the tribe to build its first bingo hall in 1983. Triano and his partners created a management arm to run Papago Bingo in exchange for 40 percent of the profits. But tribal leaders wanted more for themselves, and less for Triano and his crew of non-Indians.
The fight escalated as the bingo hall evolved in the early 1990s with the addition of slot machines. The association was further tainted when the Star's Volante reported in 1992 that 80 of the 225 slots acquired by the tribe were leased or purchased from two New Jersey manufacturers with close ties to the Mafia. Triano, the Star reported, was not directly involved in ordering the machines.
But by 1993, a year before Triano filed a spectacular bankruptcy--one in which he listed $40 million in debts--the tribe forced Triano out.
Triano had five children from three women. Two of them, ex-wife No. 2, Pamela Phillips, and girlfriend Robin Gardner, had at various times developed a hatred for Triano that manifested itself in volatile relations, breakups, fights and, with Phillips, bitter and petty court battles. Only Triano's first wife, Mary Cram, who lives in a big home not far from Triano's last office on East Fourth Street, seemed beyond those battles. Investigators say she even used her money to keep the stream of cash going to Pam just to keep Gary Triano out of the slammer for failure to pay child support.
Triano and Mary Cram had a daughter, Heather, now 31, and son, Brian, 30. Everyone gathered recently for a wedding in Tucson.
Triano was splitting with Pam, who grew up in Tucson Country Club privilege, when the Tohono O'odham diverted his revenue stream. They had two children, now 14 and 11 and in Aspen with their mother, who is 44.
Pam Phillips and Gary Triano enjoyed a high-visibility lifestyle. They entertained Donald Trump and Marla Maples, even taking them to a UA basketball game in what was then showboat Triano's chief mode of conveyance--a rented stretch limo. His limo rides became so regular, and so much of a joke, at the UA games that longtime Chevy dealer R.B. "Buck" O'Rielly, in a rare flash of humor, once knocked on the window of a limo parked conspicuously outside McKale Center and told the driver to go home. Triano, O'Rielly assured the driver, had made other arrangements with friends.
Today, friends say that Pam Phillips is a devoted mother. She is active in real estate and Republican politics in Aspen. Friends also say that it is money that she truly loves. She did not return calls.
In Tucson, she was one of the few women to work in the late 1980s in commercial real estate. At Grubb & Ellis, then a leading brokerage, she used her beauty to pursue listings, deals and commissions. Pam cared little about state conflict of interest laws in 1987 when she sat on a county Bond Advisory Committee and voted to support a proposed county purchase of the sprawling Empire-Cienega ranches southeast of Tucson. Grubb & Ellis was handling the sale and stood to make millions from a deal that would have cost county taxpayers $35 million. The county eventually lost out to a federal purchase of the ranches.
One of Pam Phillips' friends, Ron Caviglia, a political insider who brokered a number of county real estate deals ranging from river bottom to the former bank building that is headquarters to the sheriff's department on East Benson Highway, said back then that "Pam will rip your heart out for a commission."
She booted Triano from their Skyline Country Club home in the summer of 1993, and the two exchanged thick files of vitriol in the ensuing divorce. She sought three restraining orders against him and complained that he was prone to violence, carted a loaded gun around on the front seat of his car--an El Dorado with "Triano" vanity plates--mixed booze and antidepressants, threw things, tore her clothes and called or showed up at all hours.
"My household help has been scared away," she complained in court papers.
It was on stage in Superior Court, battling over divorce matters in March 1994, that Pam became infuriated when she thought Triano was mocking her with laughter. In the hall during a break, she threw water on him. She was cited.
She also took out a restraining order in Aspen, saying a friend had told her that Triano announced that if it weren't for their kids, she'd be dead.
The children she is raising in Aspen were the beneficiaries of Triano's $2 million life insurance policy. Phillips was questioned and considered a suspect by sheriff's investigators and brass at one time. Unlike others, including a gaming figure who was connected to Triano's play for a Chinese casino, she declined a lie-detector test. That was on the advice of her lawyer, who objected to her being singled out for a test he said was unreliable and inadmissible in court.
In Tucson, Triano frequented the Olive Tree restaurant, where he would have lamb chops and share a bottle of wine with proprietor John Condiss, an ex-cop, on the patio. Triano was never without a cell phone, Condiss remembers, but it wasn't for playing the big shot. He was on the phone with his kids in Aspen.
"He loved and missed his kids," Condiss says.
He and Triano talked about business or just B.S.ed. He was a good customer and was good to my help."
With at least one exception. A stunningly beautiful hostess who was attending the UA said she was repulsed by Triano's constant groping as well as his money flashing.
"He liked them young," says a Triano pal who also is friendly with Pam.
THE SHERIFF'S department coordinated a multi-agency task force after the murder. It met daily. Eventually, work wound down. The task force was scaled back and then disbanded.
There were conflicts with ATF. When the materials of the bomb were identified--the battery and other material including the blue canvas bag--top sheriff's brass pushed for a press conference showing some of the items in an attempt to spur calls from someone who might have sold them. ATF quashed it.
Investigators still won't say whether the bomb was detonated by remote device, or set.
Was there anything special in the bag to entice Triano?
"Don't read too much into it," says one person close to the investigation. "It was around his birthday. He never locked his car. He thought this was part of the birthday, 'the guys left me a surprise.'"
Sgt. Michael O'Connor is an unassuming and energetic head of homicide for Sheriff Clarence Dupnik, a Democrat who has held office since 1980. Though O'Connor would like to have the Triano case solved, its five-year history does not panic him.
"As time goes on, it can actually help investigators," O'Connor says. "The longer the case goes on, the more information trickles out. People who had alliances, no longer do. Things happen--divorces, or splits in business. Some may have fallen out of grace. Time has a way of working for us, in my experience."
Pam remains what O'Connor calls a "loose end." She is not, he says, "completely excluded" as a suspect.
What makes that end even more loose is the vanishing of Ron Young, described by authorities here and in Colorado as a "bad guy." He also is described as a boyfriend of Pam's and someone she had some business deals with. Wanted on weapons and fraud charges in Aspen, he slipped out of sight around the time of the Triano murder and hasn't been seen since.
Ed Piccolo, an investigator with the District Attorney's Office in Glenwood Springs, near Aspen, says that Young is believed to be in the Bahamas.
Investigators also explored Triano's business and personal relationships that arose when his New Frontier Investments alighted in the East Grant Road office of John Kenneth Orms, who also is known as J. Kenneth Orms or Ken Orms. He is the founder of Platinum Luxury Real Estate and Platinum Mortgage and Financial Services Inc. A former marketing instructor, Orms has been nearly as flamboyant as Triano in selling his services on television and on a radio program on KTKT. He talks about Fed Chairman Alan Greenspan as if he is a confidante and boasts fast mortgages made faster by "drive-by" appraisals and papers that a spouse can sign later. Orms boasted about a Democratic challenge to popular U.S. Rep. Jim Kolbe, R-Ariz., in 1994, but backed out well before filing papers.
It was at Platinum that Triano fell in with Robin Gardner, a Virginian 22 years his junior. She had Triano's child, but Triano refused to marry her. That touched off a series of storms and exchanges of accusations of abuse and violence. Triano, a year before he was killed, called 911 to report that Gardner threw a vase at him in the garage of his Sabino Canyon home.
Like Triano, Orms avails himself of the courts. Last December, he had his lawyer Mark Clark sue the Westin La Paloma and Troon Golf for not activating New Frontier's $25,000 corporate membership. Orms acquired New Frontier in 1998. In the claim, he contends the bombing was too embarrassing for La Paloma. The suit was dismissed with prejudice, meaning it cannot be refiled.
On May 4, 2000, two days before his 56th birthday, Orms put Clark into action again, this time to sue Gardner in Pima County Superior Court alleging that she owed him money on a loan for her 1994 white convertible Mustang and that she had to return a diamond engagement ring that, he claimed in court papers, was worth $10,000. The engagement was broken off two months earlier.
Court papers show a rocky relationship here, too, with Gardner having Orms cited for disturbing her at her temporary Oro Valley home just two months after their January 2000 engagement. She said Orms on March 11, 2000 threatened her and hit her in the face. He was cited in municipal court and completed probation. Another time, Orms went to her house, gave her $500 in cash and said "there's more where this came from" if she would agree to have dinner with him at his house.
Gardner, and her lawyer William Walker, turned the tables several weeks ago, winning a stunning jury award for $919,000 after Walker was able to show that Gardner was improperly denied commissions and pay and was the victim of breach of contract, assault, slander and infliction of emotional distress.
Sgt. O'Connor called Gardner "extremely cooperative." Orms also satisfied investigators. Neither could be reached for comment.
Triano was working on several things, big and small, when he was killed: a system to bleed hydraulic brakes, and a casino on the Chinese island of Hainan, in the Gulf of Tonkin. This would be the first such casino in China, and Triano wanted the action. Michael Tsang, a Tucson businessman, was one link. Financing was coming from the Illinois-based Fears family. Despite his squabbles with Triano, Gary Fears scoffed at any suggestion that he had anything to do with Triano's murder. He agreed to a polygraph exam. Authorities, he said, were wasting his and their time.
But the Triano-Phillips divorce provided another level of scrutiny for the Fears-Triano venture. Phillips' lawyer, doing what he should do, was keen to examine all of Triano's income. He questioned a tax document Fears sent Triano claiming payment of $100,000 for the China casino work. The player on the other side was Tong Shi Jun. Tong and Triano also clashed, and he left his temporary residence in Tucson.
But O'Connor says that it appears everyone in the China deal "reconciled with one another."
TRIANO'S BODY, BLACKENED by powder, burned and punctured, sat slightly slumping in his friend's Lincoln for seven hours before the county's Chief Medical Examiner, Dr. Bruce O. Parks, could arrive. He stayed about five feet from the car. From there he could see the huge gash in Triano's right leg.
When they brought Triano's body to the morgue for what would be a 9-and-a-quarter-hour autopsy, an apron covered the back of the head. It was full of blood, as was a sheet that lined the bag on Triano's back. Black, charcoal-like dust covered the areas of the wounds. Parts of his right hand and tendon were brought in a separate bag. The stump and the injured left hand were covered with white paper bags. Triano's shirt, which bore GLT on the collar, was torn and melted onto the body.
Despite his weight, Triano, alive, was in pretty good shape. His organs were in good condition, except for damage by the blast. He could have lived to be an old, old man. He had minimal coronary atherosclerosis. Same with the aorta and the brain, which was "sectioned coronally" in the autopsy.
If he and the boys drank the day of the murder, it had been early or the booze had already washed out of his system. Only caffeine showed on the lab tests. Triano had recently eaten tortillas or tortilla chips, olives, green chile, tomato and onion.
Salsa at the club. Real food at the party later.
His gray slacks were torn. Inside a front pocket were a broken plastic divot tool and a dime. In the other pocket were another dime and two pennies.
Gary Lee Triano, the man who put together million-dollar deals and pissed away tens of thousands of dollars on bad golf, was dead with 22 cents.
In the rush then and in the slow-moving, hope-for-a-break investigation now, it may not be the big things that count after all. It may not be the big debts, the domestic volatility, the casino or other deals. It may be the small stuff. It may be in the phone records, old and new, that are of interest again to investigators.
For all his high-powered borrowing and dealing, for all his name-dropping, his ability to be seen, his connections with politicians, for his acumen, it may be, according to O'Connor, a minor investor, somewhere, who simply had enough of what he thought was Triano's bullshit.
"What always has intrigued me," O'Connor says, "is for all his familiarity with politicians and connections to the high end, he was dealing sometimes or living on the dark side with what I consider hard-working people but low-rent. [Maybe] a little old lady, who has given him her life's savings or $1,000, $2,000, $3,000, and getting the feeling that he is ripping them off. He had plenty of those. What if one of them has a former Navy SEAL doing some handiwork or errands for them and all they hear is the complaining about Triano? What if they said one day, 'want me to take care of that for you?'"
Intrigue Idles Soviet-Era Jet In Michigan Plane With a Past Drew a Dragnet; 231-Ton 'Albatross' July 12, 2010
MARQUETTE, Mich.—One morning last July, a Russian-made military plane landed at an airport near this Lake Superior town.
Nine men with foreign accents disembarked. Some went off to eat and shop. When they returned, a flock of federal agents and local police were waiting. Five men were taken to jail.
The plane, an Ilyushin IL-78, had come from Texas, bound for Pakistan. "All of us were trying to figure out what they were picking up or smuggling," says Cheryl Hill, assistant prosecutor of Marquette County. Capt. David Lemire of the Marquette County Sheriff's Office says, "People to this day still ask, 'What's up with that plane?"'
Not much. Nearly a year later, the 231-ton Cold War leftover remains at Sawyer International Airport, leaking fuel and luring birds.
It's an albatross of sorts for this Upper Peninsula county, which owns the airport and went months without being paid almost $4,000 for storage and maintenance.
Ms. Hill and others here still aren't sure why the plane wound up in their backyard, but now, she says, "I can't get rid of the damn thing."
The Soviet Union used similar Ilyushins in its 1980s war with Afghanistan. The tankers are equipped to refuel jets in midair and can be converted for carrying cargo or fighting fires.
The aircraft stranded in Michigan was built in 1988, says Gary Fears, a Boca Raton, Fla., entrepreneur whose family trust controls Air Support Systems LLC, which bought the Ilyushin for about $4 million in 2005.
Mr. Fears, 64 years old, has helped develop casinos in Illinois and Florida and has been involved in real-estate development, steak houses and an auto-body repair business. He envisioned retooling the Ilyushin for fire fighting after living in fire-ravaged California in the early 2000s.
The plane is "breathtaking in terms of its capabilities," he says, adding that it can spread fire retardant "across five football fields in one pass."
The plane sat idle at a Grayson County, Texas, airport for three years without a job. Last year, North American Tactical Aviation Inc., a privately held concern in Newark, Del., that buys and sells used military aircraft, leased the plane.
NATA planned to fly it to Pakistan and court the military as a customer, company president Dwight Barnell says.
On July 16 last year, the Federal Aviation Administration granted a "ferry permit" for the plane to leave Texas. The next morning, the Ilyushin took off with a crew of Ukrainians and others hired by NATA.
Originally, the plane was to fly directly to Iceland and stop briefly before proceeding to Pakistan. But it left Texas without securing U.S. Customs and Border Protection permission to leave the country. It stopped in Michigan to finalize that, Mr. Barnell says.
The Ilyushin landed on Sawyer's 2.3-mile-long runway, set amid vast stands of jack pine. The airport, about 17 miles south of Marquette, is itself a Cold War relic, a former Air Force base built in the 1950s to defend against Soviet attack. Budget cuts closed it in 1995, but it reopened as a commercial airport and today handles about 400 flights a month.
Airport officials snapped photographs as the Ilyushin swooped in. The crew had called ahead to order more than $45,000 of fuel.
A different call came to the county Sheriff's Office: A Texas lawyer claimed the Iluyshin had been stolen, police say. Documents showed a Texas judge had ordered the plane grounded because Mr. Fears' company owed $62,400 to a maintenance firm for fuel, repairs and storage at the Texas airport.
Mr. Fears disputes owing anything to the firm, Air-1 Flight Support Inc., and says he and the crew were unaware of the judge's order.
Air-1 owner Victor Miller says he informed Mr. Fears and the crew of the order. After the plane left Texas, Mr. Miller tracked it on the Internet and had his lawyer call Michigan. "If that airplane left the country, I was never going to get anything out of it," he says.
Up in Michigan, Ms. Hill, the prosecutor, told police they lacked jurisdiction; the plane could buy fuel and go. But most of the crew had scattered to nearby stores and restaurants.
Chatting with two crew members who spoke English, Sheriff's Detective Lt. Stephen Kangas learned the plane was going to Pakistan. But the men weren't clear on what they planned to do there, Lt. Kangas says. He called the local FBI.
Soon the airport was swarming with agents from the FBI, FAA and Transportation Security Administration, while Immigration and Customs Enforcement agents drove over from Sault Ste. Marie, Mich.
Inside the plane, police saw gauges marked in Cyrillic script, packages of ramen noodles, an American flag and a stringer of dried fish. Nero the drug-sniffing dog found nothing illegal.
Sometime after midnight, Customs Enforcement agents cuffed five Ukrainian crew members and took them to jail for having expired visas. Several days later, the men were allowed to return to Ukraine. The others, including two U.S. citizens, left town.
Efforts to interview the crew members were unsuccessful.
At the airport, gawkers cruised the perimeter seeking a glimpse of the plane. One man wrote on a television news website, "I wonder how these bozos can have free access to U.S. airspace with a heavy aircraft, and I am not allowed a few simple carry-on items?"
While the feds investigated, a Marquette County Circuit judge and Customs and Border Protection separately ordered the plane held. Workers blocked it with dump trucks and a snowplow. When fuel started leaking from the wings, Ms. Hill worried winter snow and ice might collapse a wing and cause a costly spill.
Customs and Border Protection released the plane in February and fined Mr. Fears' company $2,500 for lacking a license to take the plane out of the country. The Marquette judge awarded the Ilyushin to Air-1, the Texas maintenance firm.
Last Friday, Mr. Fears' attorneys asked the judge to put yet another hold on the plane, alleging Air-1's Mr. Miller recently sold it to Temco Industries Inc. of Wilmington, Del., for $60,000, "a fraction of what the Aircraft is worth." Temco couldn't be reached; Mr. Miller didn't respond to calls or emails Monday.
Starlings are nesting in the Ilyushin's tail and pigeons flutter in and out of an engine. Ms. Hill says she'd love to see the plane leave Michigan, although, "If they want to donate it to us, we'll take it."
Idled jet may move Owners look to use Sawyer hangar for inspection March 10, 2012
K.I. SAWYER - The Marquette County Board approved a temporary lease this week to help a Spanish company inspect and remove a Ukrainian jet that has sat at Sawyer International Airport for almost three years.
The Ilyushin IL-78 tanker jet has been parked at Sawyer since it landed there July 17, 2009. The jet was making a fueling stop at the former U.S. Air Force base en route from Texas to Pakistan. An extensive legal dispute followed, involving several entities, over non-payment of $63,910 for goods and services.
Marquette County Circuit Court Judge Thomas Solka eventually awarded possession of the jet to Headlands Limited of Gibraltar, Spain, a company that said it had a $1 million lien on the plane.
Sawyer Operations Manager Scott Erbisch said representatives of Headlands Limited recently requested use of an aircraft hangar at Sawyer to perform a detailed inspection of the plane away from the winter weather in preparation for flight.
Among the potential problems Headland Limited could encounter include the aircraft sitting for months with thousands of gallons of fuel onboard, exposure to the elements over an extended period and birds nesting in the plane.
"Airport staff is working with civil counsel and the risk manager to provide Headlands officials a license agreement and insurance requirements for future occupancy of Hangar 663 for their temporary use, estimated at six to eight weeks," Erbisch said in a memo to the county board.
Erbisch said because of the size of the tail section, the plane will only partially fit into the hangar.
The county board approved the temporary lease request.
The plane will not be moved into the hangar until a $35,000 payment, from a financial institution approved to conduct business in Marquette County, is received. Sawyer Airport Manager Keith Kaspari said the fee was increased from $25,000 because of Headlands Limited being an international company.
"We get the fees up front," Kaspari said. "That way, we would not be caught short."
The money will pay for fees associated with daily use of the hangar, electricity and gas heat and snow removal services needed to move the plane from its current position outside the terminal to the hangar.
At the end of the first month of occupancy, the county will check with Headlands Limited to gauge its progress. Depending on the progress rate, additional fees may be required by the county to cover anticipated expenses.
"Once all bills have been paid, any unexpended fees paid to Marquette County will be returned to Headlands officials no later than 90 days after the end of their temporary lease period," Erbisch said.
With the county having approved the arrangement, the next step will be to have Headlands Limited approve the pact and send its payment to the county. The plane would be expected to be moved into the hangar soon afterward.
“It’s interesting that the guys who came here to help move the plane actually were Russian nationals,” says Cheryl Hill, a prosecutor in Marquette, Michigan.
Hill is referring to a gargantuan Soviet military aircraft worth millions of dollars that has been stranded for the better part of the last year at a former U.S. Air Force Strategic Air Command base in the Upper Peninsula of Michigan.
The spring thaw has melted the snow that accumulated around the aircraft over the winter, but mysteries surrounding its presence at Sawyer International Airport remain. A fuel-leaking Cold War relic, the 94-ton behemoth has been the subject of both curiosity and consternation in Marquette since it touched down in July. Almost immediately, five members of the Ilyushin IL-78’s nine-man Ukrainian crew were deported for visa violations.
Hill, the local official charged with interim custody of the plane, recalls that one of the foreign-born aviators dispatched by the U.S. Customs Service to move the plane off the runway told her that he had flown the same aircraft during the Soviet Union’s war in Afghanistan in the 1980s. She mentions the coincidence as an aside, her prosecutorial inquisitiveness piqued more by the plane’s flight plan from last summer. “I think that the more interesting question is, what were they going to do with it in Pakistan?” Hill says. “Were they running guns? Were they running drugs? Were they running people? You could drive tanks in there.”
The prosecutor’s suspicions raise a litany of other issues regarding accountability and transparency in the increasingly privatized war on terror, including the extent of U.S. military intelligence involvement, the veil of secrecy enveloping de facto covert operations, the purposes of such clandestine actions and who ultimately is profiting from the expansion of the wars now being waged in Afghanistan and Pakistan.
The covert nature of the aircraft’s mission and those involved in carrying it out would never have come to light if not for a dispute over a maintenance bill.
Victor Miller, owner of Air 1 Flight Services of Sherman, Texas, filed suit against Air Support Systems LLC in June 2009, alleging that the company owed more than $70,000 in maintenance fees accrued during the two-and-a-half years the plane was mothballed at the North Texas Regional Airport. After the Ukrainian crew took off with the plane the next month, it was grounded in Michigan, as a result of a restraining order, before it could leave U.S. airspace.
The registered owner of the plane is Gary R. Fears, a former Downstate Illinois powerbroker who now resides in South Florida. Fears dismisses the imbroglio over the plane as much ado about nothing.
“The whole thing was a huge misunderstanding,” says the 63-year-old Fears, who maintains his corporate address at his lawyer’s office in St. Louis County, Missouri.
The leaseholder of the plane is North American Tactical Aviation Inc. (NATA), a corporation with the same Wilmington, Delaware, address as Air Support Systems LLC, a Fears-owned company with one asset: the grounded plane. That the corporations share the same Delaware incorporation address could easily be attributed to coincidence, but bankruptcy records filed on behalf of Air Support Systems in St. Louis last fall provide more details as to who invested money in the aircraft or lent money for its purchase.
The outstanding creditors listed in the filing include a private mercenary group, a shadowy front company in Gibraltar and an Illinois gambling executive with alleged ties to the Chicago mob. On October 23, a judge in Marquette County, Michigan, ruled in Miller’s favor and awarded him the plane as payment for the unpaid debt. To prevent the tanker from being taken, Fears countered by filing for Chapter 11 protection for Air Support Systems on October 28 in federal bankruptcy court in St. Louis.
“That stayed all of the action,” says Hill, the Marquette County prosecutor. On Dec. 17, Fears reversed his legal strategy and had his St. Louis bankruptcy attorney dismiss the case he had filed less than two months earlier. In March, the Michigan court’s ruling was upheld.
The decision is the latest twist in the bizarre legal dispute. The latest Michigan court ruling follows a decision by the Department of Homeland Security to release the plane. Miller could not be reached for comment, but Fears maintains that he is still the legitimate owner.
Buying a foreign military aircraft is not like other business transactions. Before Fears could get his hands on the IL-78, the federal government had to allow its importation. North American Tactical Aviation, the shadowy corporation that leased the plane from Fears after he purchased it, initially obtained permission to bring the plane to the United States. It is also the company involved in the failed effort to fly the plane to Pakistan last summer.
“I’m told that NATA [North American Tactical Aviation] had a contract to take the plane to Pakistan in support of the allied efforts there,” Fears says. He emphasizes that the mission had been officially sanctioned. “We bought the plane from the Ukrainian government. The Air Force wrote a letter in support of the importation of it, saying they thought the plane had potential use in support of U.S. training requirements. The refueling system on that airplane is common to many, many other countries.
“I view it as a logical and good thing to support the [war] effort,” says Fears. “It’s not to say that I agree politically with all efforts. I thought the Iraq war had a noble purpose and was grossly mishandled by the Bush administration, billions of dollars and thousands of American lives wasted. It was as bad as Vietnam in terms of misuse of assets. I view Afghanistan as far more complicated a question than Iraq, and I don’t know what the right answers are there. I’m glad I’m not the guy making the decisions.”
Nevertheless, while the wars rage on, Fears views the purchase of the Ukrainian military aircraft as a pragmatic business choice and sound investment. Though he says that the plane was a one-time deal and that he is not a broker of military hardware, records related to his abortive bankruptcy filing on behalf of Air Support Systems show that his acquisition of the plane was not carried out alone. Fears received venture capital from an international security firm operated by former high-ranking military officials. The records show that Trident Response Group of Dallas sank more than $2.5 million into Air Support Systems for the purchase of “future aircraft” on December 5, 2005. The Federal Aviation Administration issued Air Support Systems a certificate of registration for the IL-78 nine months later.
Former Navy SEAL Clint Bruce, a graduate of the U.S. Naval Academy, and businessman C. Dewey Elliott III founded TRG. Bruce is lauded on the Trident website as a past commander of SEAL platoons “engaged in direct support of the Global War on Terror.” Elliott, a fellow Annapolis alum, is listed as having been a “senior consultant with Washington and Boston-based firms where he supported intelligence, systems acquisitions and financial management for DoD [Department of Defense], Fortune 500 and multi-national clients.” The website shows Lt. Col. John B. Skinner III, an active Marine Corps Reserve officer, as TRG’s vice president of operations. The board of directors includes retired Marine Corps Gen. Jack Davis, a former federal agent and state law enforcement officer; and John W. Wroten, a Naval Academy grad, former Marine captain and retired vice president of Electronic Data Systems.
The involvement of former Navy personnel in backing the purchase of a military aircraft seems normal enough, but the other creditors come from widely divergent backgrounds.
For instance, Headlands Ltd., a front company in Gibraltar, has more than $1.1 million tied up in the IL-78, according to the bankruptcy filing, By no small coincidence, Headlands’ address is in the same location as a mail drop for Russell De Leon. He is the husband of Ruth Parasol, the founder of PartyGaming, an online gambling company that has employed Fears’ lobbying services. Together De Leon and Parasol own 40 percent of PartyGaming. They reside in Gibraltar.
Parasol, who grew up in affluent Marin County, Calif., founded PartyGaming with profits from her family’s pornography business. Her father, Richard Parasol, a Holocaust survivor and former Israeli Army officer, opened a string of massage parlors in San Francisco’s Tenderloin district in the early 1970s. After graduating from law school, Ruth Parasol joined the family business, which by then was operating phone sex chat lines. The father and daughter then diversified, investing in Internet Entertainment Group Ltd., an online pornography company. In 1997 Ruth Parasol shifted her interests exclusively to online gambling, which proved even more profitable than the sex trade.
But after President George W. Bush signed a law banning online gambling in 2006, Internet gaming profits took a nosedive. In response, PartyGaming hired Avatar Enterprises Inc., Fears’ lobbying firm. Lobbying records show that Avatar used influential Republican and Democratic lobbyists to work on PartyGaming’s efforts to lift the ban. The Republican, Robert Kjellander, an Illinois lobbyist and former GOP national treasurer, is a close confidante of former White House adviser Karl Rove. The Democrat, Steven Schwadron, is a former chief of staff for Rep. Bill Delahunt of Massachusetts.
Congressional lobbying records show Schwadron represented Avatar on two legislative issues: Internet gaming and “legislation relating to wildfire prevention and suppression.”
Aside from being a midair refueling tanker, the IL-78 is touted by both Fears and NATA as a superb firefighting aircraft.
Fears says there is nothing mysterious about his business relationship with either Kjellander or Schwadron. “I knew Bob (Kjellander) from Springfield years ago, [and] Steve works for a law firm I use in D.C.,” says Fears. “Neither one of them are partners in Avatar. If someone is giving you advice … on the project, then better to be safe than sorry — you register them as having worked on that as well.”
The other major creditor of Air Support Systems is Chicago businessman Kevin Flynn, a casino executive and former gaming partner of Fears. The bankruptcy filing shows that in April 2008 Flynn secured a $1.3 million interest in the IL-78. Fears and Flynn crossed paths years earlier, when Flynn operated the Blue Chip Casino in Indiana. The two were later involved in a failed Indian casino development in California.
In 2001, the Illinois Gaming Board yanked Flynn’s long-dormant state license because two of his investors allegedly had ties to the Chicago mob.
At the time of the revocation, Flynn and his father, Donald Flynn, a former executive of Waste Management Inc., were seeking to transfer their existing gaming license from the shuttered Silver Eagle casino in East Dubuque, Illinois, so they could operate the proposed Emerald Casino in Rosemont, a Chicago suburb. Investors in the casino deal included a lineup of heavy hitters, including associates of Chicago Mayor Richard Daley.
But the state gaming board pulled the Flynns’ license because investors Nick Boscarino and Joseph Salamone were alleged to have ties to organized crime. Salamone, an Oak Park grocer, is the brother of Vito Salamone, a mob soldier who had originally been listed as a casino shareholder. Boscarino is a former Teamster official with close ties to Rosemont Mayor Donald E. Stephens. Boscarino and Stephens once owned a forklift rental company along with organized crime figure William Daddano Jr. The gaming board also cited Emerald for hiring a construction company owned by the wife of Peter M. DiFronzo, the brother of Chicago mob boss John “No Nose” DiFronzo.
The gaming board concluded that Flynn had displayed a “contentious pattern … of providing misleading information to the board and its staff.”
“Other than his disagreement with the Illinois Gaming Board,” says Fears, “I don’t know any infraction of any kind that Kevin [Flynn] has ever been involved in.”
The story of how Fears and his odd cast of creditors ended up with a grounded Ukrainian behemoth leaking fuel on the tarmac of an isolated airstrip in the Upper Peninsula of Michigan began four years ago.
The IL-78, which was formerly owned by the Ukrainian Air Force, departed Kiev on May 23, 2006, according to flight records. It refueled in Reykjavik, Iceland, before landing the next day at the North Texas Regional Airport, formerly Perrin Air Force Base, in Sherman, Texas. Tactical Air Defense Services, a private military-related start-up company formed by Fears, ran the operational arm of its enterprise at the airport, says retired U.S. Air Force Gen. Charles Searock.
“It was, at the time, the location of a training school wherein we were going to train foreign pilots,” says Searock, a seasoned combat pilot who flew more than 150 B-52 missions during the Vietnam War. The principal officers of TADS, Victor Miller and Mark Daniels, had signed up Searock to oversee the International Tactical Training Center, an ambitious program aimed at providing flight training for NATO pilots and others. Miller also owned and operated Air 1 Flight Services, an aviation maintenance service, at the same airport.
Neither Miller or Daniels could be reached for comment, but a lawsuit filed by the two men last year in Palm Beach County (Florida) Circuit Court provides a glimpse of what apparently transpired.
In March 2005, according to the suit, Fears and a group of Florida investors approached Miller and Daniels to offer financing for their company AeroGroup Inc., a Utah-incorporated military flight training contractor. At that time, AeroGroup had a pending contract to buy the IL-78 and other foreign military aircraft from NATA.
Fears and the other investors claimed that they had obtained control of a publicly traded Nevada mining company, Natalma Industries Inc., and intended to change its name to Tactical Air Defense Services Inc. The intended purpose of the newly formed entity was to raise tens of millions of dollars to bankroll the purchase of assets on behalf of AeroGroup, specifically to buy the IL-78, according to the lawsuit. Toward these ends, Fears solicited start-up capital from Jeff Horan of JT Hanco, according to the lawsuit.
However, the suit claims, instead of backing AeroGroup Fears diverted funds to set up Air Support Systems, which then bought the IL-78 for itself. In Air Support’s 2009 bankruptcy filing, Horan’s name is listed with Trident Response Group, the Dallas-based security firm, as having invested more than $2.5 million in the IL-78.
Miller and Daniels further alleged that when TADS purchased AeroGroup’s assets in 2006 the Florida investors were still contending that tens of millions of dollars would soon be available.
A TADS prospectus states that the company was angling to team up with an unnamed competitor [NATA] to provide combat and midair refueling training with the IL-78 and other foreign aircraft. “We have a good chance of being awarded the contract,” the TADS document says.
But the deal never materialized.
“This whole thing was predicated on Air Force contracts that were being negotiated by Mr. Mark Daniels,” says Searock. The contracts, however, were never finalized. As a result, “when they went public with TADS it did not generate the income or the investors as they anticipated,” Searock says.
From Searock’s perspective, everything seemed to be on the level. “We would meet quarterly, sometimes more often, with Mr. Fears and the guys from Florida,” he recalls. “We met in Florida. We met a couple times in Dallas, as he was passing through, and a couple times he came to Sherman. I had no problem with him. We were involved in a lot of different things, including the tanker. There was no reason for me to suspect that these guys weren’t on the up-and-up, if they poured $5 or $6 million into getting this airplane [the IL-78] and having it totally refurbished and delivered. That was an expensive scheme, if it was a scheme.”
But Searock became disenchanted with his employers after he says he shelled out his own cash to cover operating expenses and wasn’t reimbursed. He resigned from his position at the end of 2006 and sued TADS and all of the principal players, including Fears, for back pay.
Miller and Daniels dropped their Florida lawsuit in April 2009 after reaching a settlement agreement with Fears and other investors. As owner of Air 1 Flight Services, however, Miller placed a lien for unpaid service costs on the IL-78 in Texas in June 2009.
Shortly before noon on July 17, 2009, a nine-member Ukrainian crew hired by NATA boarded the IL-78 and took off from North Texas Regional Airport. The flight plan called for the craft to refuel at Wittman Regional Airport, in Oshkosh, Wis., before leaving U.S. airspace and heading to Pakistan. Alerted to the plane’s departure, Miller filed a restraining order, and the plane was diverted to Sawyer International Airport, in Gwinn, Mich., where it has been stranded ever since as a result of litigation.
Despite the Michigan court ruling that favors Miller’s cause, Fears doesn’t believe that the lawsuit has any more validity than the earlier case filed in Florida that Miller and his partner chose not to pursue.
“Air Support Systems owns the plane. It’s registered with the FAA,” says Fears. “The whole thing was a huge misunderstanding and blown out of proportion by the press. Victor Miller and those guys checked with the FAA, found where the plane was at and called the local authorities and said, ‘They have left in violation of a court order.’” But Fears says there’s one problem with that allegation: “ NATA was never served with that court order.”
Fears says Miller’s aviation firm, Air 1 Flight Services, has been out of business for two years. “I can show you the agreement that Victor Miller signed and the release on the lien that shows those bills’ being paid,” says Fears. “It was a phony claim by a company that didn’t exist.
“This is a military aircraft — and it is going over to support the U.S. Air Force allied efforts over there [Afghanistan-Pakistan].”
In 1968, as a young man, Fears stumped for Democratic presidential candidate U.S. Sen. Eugene McCarthy of Wisconsin, who campaigned against the Vietnam War. Today, more than four decades later, he appears comfortable with the concept of profiting from warfare. When asked about his role as a modern day privateer, he paraphrases President George W. Bush’s first secretary of defense: “I think maybe it was [Donald] Rumsfeld who said, ‘If it’s not firing a gun, we should look at privatizing it.’”
Asked whether his activities are somehow involved with covert CIA operations, Fears laughs. “Not that I’m aware of,” he says. “I wish there was something that exciting to all this stuff that I was a CIA guy, but that’s not the case.”
Between 1994 and 1996, Parasol joined with Seth Warshavsky to start several companies developing adult phone sex services. In 1995, they formed Internet Entertainment Group Ltd., and launched an adult rated “peep show” website, Clublove.com. In 1996, Parasol sold her interest in these companies, though she continued to attend industry trade show gatherings until 2004 to promote her online casino to affiliates and web masters.
Ian Eisenberg, son of Joel Eisenberg, became close friends with and mentor to Seth Warshavsky.
Sex Sells By Frank Rose Young, ambitious Seth Warshavsky is the Bob Guccione of the 1990s.
Seth Warshavsky has seen the future, and it works. Especially for him: at 24, the fresh-faced entrepreneur with the Beaver Cleaver grin heads an online empire that he expects will gross US$20 million in 1997 - its second year of existence. Despite its innocuous-sounding name, his Internet Entertainment Group Inc. is an empire of sex - of virtual vulvas and clickable dildos and strippers on live video, all directed from a steel-and-glass office tower high above the downtown Seattle waterfront. "Sex sells," he confided recently in a husky, world-weary voice that could have come from a man three times his age. "If widgets sold as good as sex, I'd be selling widgets - but, unfortunately, they don't."
Short and trim and nattily attired in pleated tan slacks and a designer sport shirt with rolled-up sleeves, Warshavsky looks innocent only on first glance. On closer inspection, with his stiff, buzz-cut hair and a vibrantly toothy grin, he suggests some sort of wolverine-entrepreneur crossbreed - tightly coiled, relentlessly focused, ferociously clever.
Yes, he's discovered the obvious - sex sells, and sells well on the Internet. But as the Net has evolved from military-academic conduit to wankers' paradise, he's been quicker to profit, others in the business agree, than almost anyone else in cyberspace.
"You really never lose," he continued. "It's cheaper to produce than mainstream content, and it's easier to sell."
According to Naughty Linx, an online index maintained by JMR Creations of Boston, the Web boasts some 28,000 sex sites, about half of which are set up to make money. They run the gamut, from slick business propositions like Warshavsky's ClubLove and The Playboy Cyber Club to small-time operations like The Masturbation Home Page, set up by a Houston computer programmer for folks who want to share their auto-amatory adventures online. There are informational sites - everything from Cyberqueer Australia, the gay guide to everything Down Under, to the Emergency Contraception Page, for people who think about pregnancy too late. There are specialty sites like RealDoll, where for $3,999 and up you can order "the world's finest love doll," and She-Males On-Line, which reportedly racked up an inordinate number of hits from nasa.gov and senate.gov when it went up last spring. There's even a site called Struggling with Pornography, for born-again Christians trying to wrestle with their addiction. One victim's novel solution to the problem of hotels that offer X-rated movies: cut a slit into a length of rubber tubing, slide the TV-set plug into the slit, secure it with a bicycle lock, and hide the key in a safe-deposit box - or, if that gets you too hot, just take a pair of shears and chop off the plug.
Twenty-eight thousand of these things sounds like a lot, until you realize that Network Solutions Inc., the company that assigns most of the top-level domain names in the US, has issued more than 1.5 million names - and it's only one of 200 such registries around the world. And while sex on the Net is undeniably popular - the Long Island, New York-based market research firm Media Metrix reports that 30 percent of American households with Internet access visit an adult site at least once a month - there aren't many people getting rich off it.
Most commercial sex sites are amateur jobs that collect a penny or two for each click on an ad banner but aren't set up to generate real money. One sex-site operator estimates that only about 50 sites gross $1,000 a day or more, of which only 20 or so take in upwards of $3,000 and fewer than a dozen earn more than $5,000. The big-bucks operations are run by marketing professionals like Warshavsky, not college kids or moonlighting computer engineers, and they make their money through a combination of membership fees and sales of goods and services.
Just how much they're bringing in is hard to determine, since few release figures and most industry analysts pretend they don't exist. A rare exception is Forrester Research of Cambridge, Massachusetts, which has gone so far as to venture that sex sites account for at least 10 percent of Web-based retail in the US - an estimate that would give them revenues north of $100 million for 1997.
People in the business, however, say that figure is far too low. James Mann, a spokesman for Naughty Linx, estimates worldwide revenues for sex sites - the majority of which are US-based - at $1.2 billion; Steve Becker, the independent New York-based new media and marketing consultant who guides the Penthouse Web site, puts them closer to $3 billion.
Despite these wildly divergent estimates, everyone does agree on one thing: within the information-and-entertainment category - sales of online content, as opposed to consumer goods and financial services - commercial sex sites are almost the only ones in the black. Other content providers, operating in an environment that puts any offering that doesn't promise an orgasm at a competitive disadvantage, are still trying to come up with a viable business model. ESPN SportsZone may be one of the most popular content sites on the Web, but most of what it offers is free. Online game developers can't figure out whether to impose a flat fee or charge by the hour or rely on ad sales. USA Today had to cut the monthly subscription fee on its Web site from $15 to $13 and finally to nothing. Among major print publications, only The Wall Street Journal has managed to impose a blanket subscription fee.
"Sex and money," observes Mike Wheeler, president of MSNBC Desktop Video, a Web-based video news service for the corporate market. "Those are the two areas you can charge for."
The economics of sex are startling only because they're so seldom considered. Earlier this year, U.S. News & World Report characterized sex in the United States as an $8 billion-plus industry - bigger than Hollywood movies, bigger than the record business. In economic terms, sex is considered highly inelastic: the price can be raised, and demand won't fall. It's a staple of the hotel industry's in-house pay-per-view system - what else are you going to do on a Tuesday night at the airport Hyatt? - and a major profit center for both cable providers and long distance carriers. Likewise, consultant Steve Becker claims that every major Internet service provider has conceded to him that sex sites - which the ISPs host for a fee - are a cash cow.
"Nobody wants to admit that their network is being used to distribute smut," says Jeffrey Rayport of the Harvard Business School, "but in fact, it's a very profitable part of their business." But while telcos like MCI and AT&T and cable companies like TCI can make money off sex without being identified with it, retail outlets are not so fortunate. This perhaps explains why Blockbuster Video refuses to stock sex tapes, a decision that's done a great deal to help independent video stores stay afloat.
The Internet is hardly the first new technology whose adoption curve has been driven by sex. Cable TV, pay-per-view, camcorders, videocassettes - most of the home-entertainment innovations of the past 30 years have won acceptance by catering to humans' fixation on the love act in all its variants. The advantage they offered over adult movie theaters, as Pee-wee Herman discovered to his chagrin, was privacy. The failure of the laserdisc, on the other hand, is at least partly related to the refusal of Sony and Philips, which controlled the technology, to permit the pressing of X-rated discs. Sony has apparently learned its lesson: executives at Vivid Video, one of the top adult film companies in the United States, say the Japanese entertainment-and-electronics giant has been quite cooperative with its new DVD format, even loaning out demo players and big-screen TVs. As well they might, since no one else has come up with a convincing use for multiple camera angles.
"With sex, you're hitting a few key areas," says Warshavsky, seated behind a sleek mahogany desk across from a framed clipping from The Wall Street Journal - a story on Internet sex that landed his mug on page one and hinted at the circumstances behind his rise. Number one: it's anonymous. Number two: everybody has a desire for it." His eyes widen in wonderment. "Everybody. Number three: it's a very impulsive purchase - and you provide them with immediate delivery so they can gratify their desire."
One other thing about sex: on the Net, it's still the kind of wide-open business an aggressive 24-year-old can dominate. According to Media Metrix, Warshavsky's flagship site, ClubLove, draws far less traffic than brand-name sites like those run by Penthouse and Playboy - yet people in the business say IEG is financially more lucrative than all of them.
Warshavsky's secret is his ability to wholesale live video to hundreds of other sites across the Web. Those strippers you'll find on PenthouseLive and other popular sites - Vivid Video, Buttsville, AlleyKatz? They're the same ones strutting their stuff at ClubLove. The buff dudes on VividMan and Steel-City? Same story.
All told, IEG has business arrangements with some 1,400 adult sites - approximately 5 percent of the Web's total. About 1,100 take part in its ClickBucks program, running banners for IEG sites and collecting two and a half cents for every hit. Another 300 have signed up for IEG's "turnkey" products, Sex Fantasy, SeXXXvision, and Virtual Girl, running live video they could never afford to produce themselves and getting 35 percent of the revenue that comes in. Twenty more are sophisticated "private label" sites like AlleyKatz, PenthouseLive, and Buttsville, running customized content on IEG's servers. Counting these last, Warshavsky claims 400,000 subscribers to 29 sites.
"Seth is a pioneer," says Steven Hirsch, the 36-year-old president of Vivid Video Inc. "He has vision. He's very talented and very creative, and in this industry there are only a few people like that." Consultant Steve Becker picks his words more carefully: "In today's business world, success requires audacity, and Warshavsky certainly has an adequate measure of that." Another colleague is blunter: "Warshavsky is a really different guy," he says, "and this is a really different industry."
Like most of the other big players in Net sex, Warshavsky got his start not in software or the media, but in phone sex. The moguls of audiotext are a small and rather contentious bunch, all but unknown outside their industry: Ian Eisenberg, a young Seattle businessman whose father, Joel Eisenberg, was one of the pioneers of phone sex in the '80s; Ted Liebowitz, a New York phone-sex and adult-entertainment entrepreneur who operates out of a posh brownstone on Manhattan's East Side; Steve Becker, who had run a conferencing service, 550-LOVE, and other New York phone-sex lines years before hooking up with Penthouse. Sex on the Net was a natural for them, and not just because it was about sex.
"Phone sex was the first leap into interactivity," says Steffani Martin of Albamar Inc., a New York Web-sex firm that owns the Babes4U site and is also in the phone-sex business with Eisenberg. "It's interactive in a way that video could never be. Everybody's moving to computers, but it's the same group of people."
"What is the Net?" asks Tim Elliott, president of the TeleServices Industry Association, a Los Angeles-based trade group for the audiotext industry. "It's just a phone call with pictures."
Unlike their counterparts from newspapers and magazines and Hollywood, the audiotext crowd didn't try to adapt a linear medium to the demands of cyberspace. They didn't worry about narrative flow - about the conventions of beginning, middle, and end - because in phone sex the climax is user supplied. Instead they thought in terms of action flow and response - presenting a menu of potential actions that requires a response that will generate more actions, ad infinitum. They thought about default modes, about what happens if someone makes the wrong response or no response at all. They were steeped in servers and connectivity and the technical requirements for catering to free-floating, computer-facilitated, user-directed fantasy.
They also brought to the Web a certain entrepreneurial panache not found among the corporate types who dominate online commerce. Though they like to present themselves as a multibillion-dollar industry as deserving of respect as any other, they still glory in tales of past scams - like the legendary "Here Comes Santa" infomercial, often attributed to Joel Eisenberg, which ran on a Seattle television station in December 1989. The setup was worthy of the most devilish phone phreak: put a guy in a Santa suit on TV and have him tell the kiddies they can talk to Santa personally if they hold their telephone receivers up to the set - just as it emits a tone that connects them, for a hefty toll. The television station knocked Santa off the air 10 minutes into the show when its switchboard lit up with calls from enraged parents, but still ...
Warshavsky joined this bunch in 1990, when he was 17 - too young, he admits, to make a phone-sex call himself. He'd just settled into a studio apartment in downtown Seattle, having moved out of his parents' house in the middle-class suburb of Bellevue and dropped out of Bellevue High. He'd run a computer bulletin board in grade school, but now he valeted cars to support himself and ran a little clothing business on the side, selling embroidered shirts to Nordstrom's and a couple of boutiques.
Warshavsky, watching late-night cable TV with a friend named Josh, saw a 30-minute infomercial for a phone-sex operation called Rhonda's Phone Club. These guys must be making a fortune! Warshavsky cried - why don't we start our own line? Three weeks and $7,000 in credit card indebtedness later, J&S Communications was in business. Their number was 1-800-GET-SOME. "I still have that number," Warshavsky says proudly.
Back then, that was all he had. When a customer called in, an answering service would take down his credit card info and page Warshavsky, who would have a woman call back and talk dirty to him. Soon Warshavsky was getting calls from 50 to 60 strangers a day at $39.95 per call. He bought his friend out a year or so after they started, and, by 1995, with annual revenues hitting $60 million, he was a major player in the phone-sex business.
But that September, the Federal Communications Commission issued an advisory against the use of 10XXX numbers, a long distance billing system without which the audiotext business would be limited to 800 and 900 numbers. The Supreme Court had already upheld a law sponsored by Senator Jesse Helms, the North Carolina Republican, blocking 900-number phone-sex calls except for those who asked the phone company in writing to have the restriction lifted. In the meantime, phone-sex entrepreneurs, Warshavsky among them, had come to rely on 10XXX long distance calls routed to such enterprising Third World countries as Guyana and São Tomé and billed directly to the customer's phone number - precisely the revenue stream the FCC now threatened to dry up. With 800 numbers, the only way to collect money was to ask for the customer's credit card number - something many people were loathe to give out. The gravy train in phone sex was clearly ending.
But what if you could combine the interactivity of phone sex with the visual capabilities of the World Wide Web? What if the Internet really was just a telephone with pictures? Warshavsky had been cruising the Net, and he wasn't impressed with what he saw. "Everything seemed so ... Webbish," he recalls - so text-based and plain. He'd even put up his own Web page using CUSeeMe, the interactive video technology developed at Cornell University, but the results were, as he puts it, "crap."
Then he stumbled across a site called Sizzle that offered live, streaming video from a strip club in Vancouver. "It was unbelievable! This was not just phone sex, this was not just Hustler magazine, this was not just video sex. This was all of it in one - a true multimedia experience that encompasses every facet of entertainment. I'd never seen anything like it."
Warshavsky flew to Vancouver and met with the five partners of Starnet Communications International Inc., the people behind Sizzle. They talked about a joint venture, but the discussions went nowhere. "We couldn't come to terms," says Warshavsky. "We wanted to take an extremely aggressive approach to the Net - to take a high risk and see what came back. I think we scared them. So we decided to copy or knock off what they were doing, and we took it to a whole new level."
"We gave him a full rundown on what our Net business was like," recalls Jason King, a Starnet vice president, "and he decided to do it himself. We were not too thrilled with how things ended up."
Warshavsky's site, then called CandyLand, went up in January 1996. His competitors from phone sex were already on the Web or would soon follow. They all brought lots of cash: being well capitalized, they could afford to innovate in ways many other content providers could not. "Most people don't invest the type of money we invest in infrastructure," says Warshavsky, who by his own account has put some $3 million into IEG's sites - enough to pay for 12 SGI servers, 12 Pentium-based video servers, two Oracle servers for credit card processing, two T3 connections, and 48 PCs for point-to-point videoconferencing and long distance telephone billing. "The Net follows the money," says Rod Collen, a star graphic designer at IEG. "The military had the money to create it, and the sex industry has the money to expand it."
How is sex changing the Web? Most obviously in graphics: no matter how you feel about the content, sex sites are among the most visually dazzling around. IEG employs three programmers and eight graphic designers who are encouraged to be as creative as possible and who, unlike their counterparts at Microsoft or CBS, have no corporate image to worry about. Much of their time is spent working on compression techniques to make the sites look cool while downloading quickly with a 28.8 modem.
"This is a dream job for a graphic designer," boasts Collen, a sandy-haired 27-year-old who wears a Vandyke beard and a T-shirt and works in a bullpen lined with Macintosh and Windows NT machines. "We're on the cutting edge of everything. If there's a new technology out there and we want to add it to the site, it's not hard to convince management."
Sex sites are on the cutting edge in other areas as well - in database management (it's not easy serving up all those JPEGs), in online payment systems designed to make it easy to make credit card charges on the Internet. Every day, IEG's 20 customer-service workers get faxes from people afraid to send their credit card numbers over the Net. Customer service also has to deal with piles of bank notices about people who've denied their credit card charges - a perennial problem for the phone-sex industry, and now for Web sex as well.
"With sex comes shame," one worker quips. "It doesn't matter if it's virtual or not."
Warshavsky recently launched a new company, Interfund Financial Services, to deal with these issues by facilitating "impulse friendly" online commerce. With IFS, customers can submit an encrypted credit card number through dedicated lines, put their charges on their phone bill, or even have their bank account debited directly.
Like Microsoft's Wallet, Bill Gates's online payment service, IFS is intended to give small Web site operators the ability to collect money easily and inexpensively. Unlike the Wallet, it won't involve a cumbersome download-and-installation process, which Warshavsky likens to 7-Eleven erecting a hurdle in front of its cash registers. "If you're going to take money from somebody," he says, "you want to make it the easiest thing in the world."
Equally significant are the video technologies that will complete the transformation of the Web from a static medium to an active one. "Everyone was saying there's going to be great live videoconferencing technology, everyone thought that was wonderful - and then nothing," says Christophe Pettus of Blowfish, a San Francisco-based online retailer of erotic merchandise. "The technology that's making that real is delivering erotic entertainment. This is in fact the killer app - though most mainstream businesspeople are still in denial about that."
Not so adult filmmakers. Today, the Web is no more than a promotional device for the adult movie industry, which this year is expected to generate nearly $5 billion from video sales and rentals. But the prospect of worldwide video-on-demand via the Web, with its ease of distribution and its potential for easily circumventing local and national obscenity laws, has visions of dollar signs dancing across the San Fernando Valley, the pocket of northern LA sprawl where the US porn industry is headquartered. David James, a partner at Vivid Video, says that within a few years, video-on-demand will be the company's biggest revenue source, outstripping even sales of videocassettes.
Warshavsky has been thinking ahead as well, trying to get in position for convergence. When the Internet morphs into TV and the dozens of channels now available via cable or satellite become countless millions, the only content with any reach will be branded offerings (HBO, MSN, Penthouse) or those that make it onto some sort of channel guide. So he's been talking with Time Warner, with Viacom, with The Microsoft Network. He even retained Korn/Ferry International, the executive recruiting firm, to find a vice president of business development who could make deals with the giant media conglomerates - though in the end he hired someone with a sex-industry background.
At the moment, of course, Web video is still in the nickelodeon era: the images are tiny and fuzzy, and on 28.8 modems they're hopelessly jerky as well. Even so, this is the heart of Warshavsky's business, accounting for 65 percent of the traffic on his Web sites and forming the basis for his lucrative series of partnerships. And because people will pay to watch strippers on live video when they won't watch much else, he has one of the leading laboratories for its development.
Last year, for example, anyone who wanted to see IEG's live strip shows had to first download Xing Technology's StreamWorks, close their browser, install the program, and then relaunch the browser - a time-consuming process, not to mention a distracting one. What if you forgot where you downloaded it? What if you weren't tech-savvy enough to try? What if you were just too horny to wait? "Sex," as Warshavsky is fond of pointing out, "is a completely impulsive purchase." And at $49.95 per 30-minute clip, every lost impulse counts.
So his programmers developed software that would push the video directly to the customer's computer. It took them about a month. When push video was implemented in November of last year, IEG's income from live video shot up 30 percent. It now accounts for 40 percent of the company's revenues, with membership fees contributing another 35 percent and online games, pay-per-view movies, and sales of dildos and other sex toys making up the rest. "That's what it's going to take to make money on the Net," Warshavsky declares. "Ease of use and instant gratification."
If your email in-box is anything like mine has been lately, you probably awoke one morning last summer to find a message from the ravishing porn star Felecia, who appears on the Net exclusively for IEG. Subject: RIDE KYLIE IRELAND HARD! It seems the lovely Ms. Ireland, star of the recent release Smooth Ride, was scheduled to appear that weekend in the Arcade, the live-video section of the ClubLove Web site.
ClubLove features many other virtual locales: the Video Theatre, which offers downloadable QuickTime videos and pay-per-view movies; the Dressing Room, which enables you to pick up bios and photos of ClubLove's performers and send them email; The Gallery, where you can down-load photos of the ClubLove Girls and stills of people engaged in most of the nonviolent sex acts that two or more living adult humans can conceivably engage in; the Yellow Pages, a phone-sex directory; and the Sexual Relief Map, pinpointing strip joints, adult bookstores, and escort services across the country. But none of these measure up to the Arcade - the virtual peep show, the cash cow of the company, the future.
"We view the Net as an interactive TV-type thing," Warshavsky declared, clicking off his cell phone. We were in his black 740-series BMW, driven by a denim-clad young chauffeur because Warshavsky lost his license after racking up 20-odd moving violations in five years. Cutting through IEG's once-seedy downtown neighborhood, where X-rated businesses like Champ Arcade and Fantasy Unlimited are fast giving way to trendy restaurants and high-rise condos, we headed for the dockside loft building where the ClubLove Girls do their thing.
"Right now, it's a novelty," Warshavsky continued in his rasping, nasal voice. "But when the mediums converge and you have true interactive TV, it's going to be unbelievable. You could be watching CNN and your stock quotes would pop up onscreen. You could be reading Penthouse magazine and an adult film star would pop up and talk to you in broadcast quality - 30 frames a second, truly interactive. Anything could happen!"
Well, almost anything.
A few minutes later, we pulled up at a renovated brick warehouse and took an elevator upstairs. Striding down a long corridor to a door marked "IEG - Employees Only," Warshavsky knocked and was admitted by a slender, 30ish woman wearing a loose-fitting housedress and glasses: Mara Mehren, his director of talent. Mehren, the den mother of IEG's live video operation, supervises the 14 young women who work in shifts on four stage sets that have been built inside the loft - bedroom, health club, shower, and dungeon. Except for the occasional visit from Warshavsky or a technician, it's a females-only environment; the seven men who strip for Manhole, IEG's gay site, work out of Mehren's house in a suburb 30 miles away.
For a few hours every other weekend, the Arcade features stars like Felecia and Kylie Ireland - sex heroines whose promotional appearances fuel not just their XXX video careers but their marketability on the exotic-dance circuit, where the real money is. The women who staff the Arcade full time, however, are unknowns, many of them students and artists who use their $20 an hour to cover the rent.
Women like Laura, a slim, peroxide-blond Annie Lennox look-alike, who told me when I went back the next day, "I can't believe I actually get paid to work here. I mean, come to a really nice environment to goof around nude for the benefit of unseen admirers - what could be better?"
"Working for Warshavsky makes everything worth it," Mehren averred as she stroked Oreo, her black-and-white Pekingese, while sitting at a bank of monitors on which various young women were enthusiastically exposing themselves.
Though Mehren once worked for Ian Eisenberg, she's been with Warshavsky for years, ever since he convinced her to run the talent end of his phone-sex operation. "I love the guy," she continued enthusiastically. "He's a very demanding man, he expects perfection - but he's got weaknesses, too." Weaknesses? "Oh, candy, food - bring him a muffin in the morning and he's happy. He's a little kid, you know. And the majority of this is all his creativity."
We were sitting in a dingy, bare-bones loft jammed willy-nilly with electronics; cables snaked down from the ceiling and fans whirred ceaselessly, fighting the heat of the overhead lights. Directly across from the monitors were two 8- by 8-foot cubicles, the bedroom and the health club (which came complete with little powder-blue weights, courtesy of the set-design firm Warshavsky hired to do the decor). The dungeon and the shower were around the corner; tucked in the closet of the shower room were a pair of T1 connections to pipe the video back to headquarters. A series of Panasonic controllers under the first four monitors allowed Mehren to manipulate the camera in each cubicle with a joystick. A fifth monitor let her see who was logged on and for how long.
Because no one was online when I was there - early afternoon Pacific time - the sites were running canned video from earlier performances. If someone had logged on, Laura would have dashed into the selected cubicle and started moaning and pulling at her leotard on cue. Despite such periodic lulls, Mehren maintained that business is remarkably steady: 24 hours a day, seven days a week, 52 weeks a year. Generally, there's a rush on the dungeon at three or four in the morning and another on the health club a few hours later. "Holidays don't apply," she said. "But tax day is a little slow."
The Arcade opened a couple of months after IEG's first Web site went up - "Let's see," Mehren mused, thinking back to her previous cat as she tried to pinpoint the date, "when did Snowflake pass away?" It draws college kids, women, guys throwing bachelor parties, but mostly it draws businessmen and professionals logging on from work. The demographics, which IEG gets by sharing data with credit card companies, are 90 percent male, 70 percent living in the US, and 70 percent between 18 and 40. "And if you ask them," said Amber, a performer who had just wandered out from the bedroom, "they're all tall, dark, and handsome. Every one."
Amber gets to ask because ClubLove has a phone connection that allows customers to call in on an 800 number while watching on live video. Each cubicle is equipped with a boom mike and a speaker box, so viewers and performers alike can hear everything in the room - including anyone who calls in.
"It's really disconcerting," said Laura, hugging her knees to her chest as she sat on a mat on the bare wood floor. "Suddenly, the phone will pop on and a man will say hello, and when another one pops on it's like two kids tugging on your arm. A lot of them are very clear about what they want to see and what they want you to say. You get guys who want to see your ass - but I actually get more requests from guys to wave at them than to show my ass."
Wave at them?
"Yeah. It's really important for them to know it's live."
The ClubLove Girls have their regulars: the New York insurance man who checks in every night before leaving the office and going home to his wife, the Southern gent who's too courtly to ask for anything naughty but has no problem logging on several times a day. Many send email, which is answered by customer-service employees, and some even send gifts, like the Italian attorney's self-published book of short stories I saw floating around IEG's downtown headquarters. "They're smart and well behaved," said Laura. "And unlike phone sex, our guys say thank you when they're done. Believe me, it's much appreciated."
Even so, the work can be challenging. One day, a girl named Lisa had a bunch of guys on the phone in the bedroom when one of them had a technical problem. Another viewer tried to help him, and before long they all forgot about Lisa and lapsed into computer talk - "what kind of system they had, my modem is faster than your modem, you know how guys get," Amber recalled. "There were seven or eight minutes when Lisa was doing nothing."
"The worst part of it," Mehren put in, "was that Lisa's a Mac person, and they all had PCs and they were dogging Macs. But Lisa was very good - she just let them talk. It was like this computer nerd's-" "Fantasy," Amber sniffed.
Mara Mehren may regard her boss as a pussycat, but it's an opinion few others seem to share. He's certainly controversial within the phone-sex industry: though no one would talk on the record, several of his fellow entrepreneurs are said to be furious over business relationships gone sour. One industry leader recalls finding Warshavsky laid out on the floor at the Century Plaza Hotel and Tower in Los Angeles during an audiotext trade show - punched unconscious, he was told, by an irate colleague.
"Seth is probably the most hated person in the business," says a partner in AlleyKatz, which IEG supplies with live video and other services. "I think it's mostly jealousy."
Even among his own workers, Warshavsky can arouse extreme emotions. In a recent six-month period, for example, he went through two different project managers. "He's a tough guy to work for," admits Derek Newman, IEG's staff counsel, a 26-year-old Pepperdine Law grad. "He stresses people out. He's very intense. He doesn't stop and ask how your day is. He's not a people person. But he's got a big heart." Newman tells a story about how Warshavsky uncomplainingly let his customer-service chief bring her infant to the office for months on end. "He's very generous," Newman concludes. "But he's not the most human person."
Or the most connected. Siblings?He's an only child.Parents?His father, a cable-system salesman, and his mother, the assistant to an insurance executive, moved to Seattle from Queens when Seth was 7.Newman, who considers himself Warshavsky's closest friend, asked to meet them for years. But Warshavsky never talked about them and rarely saw them, and whenever Newman brought it up, he made an excuse. Finally, he and Warshavsky ran into the couple on the street. "They seemed normal enough to me," Newman recalls.
Warshavsky does have some hobbies, but they all seem to involve speed. When he was banned from the road, he bought a powerboat that could do 70 mph on Puget Sound. "He's very scary when he's in that boat," Newman confides. Two months ago Warshavsky got his license back, a prospect that truly filled his friend with dread. Mostly, however, he works - 10 to 12 hours a day, seven days a week. "He's the most driven person I've ever come in contact with," Newman concludes.
Over dinner at Nishino, a pristine Japanese restaurant in an upscale Seattle minimall, I asked Warshavsky whether he was surprised at his success. He seemed more surprised at the question. "It all happened so rapidly, I never really looked at it," he said. "I like to think about what I'm doing next."
Role models? He looked at me blankly. "Mainly, I set goals for myself," he said. "Financial goals, new areas to get into.Every goal I've set for myself, I've achieved."
Well, there had been one role model, he admitted: Ian Eisenberg. Though only a few years older than Warshavsky, Eisenberg was already established in the phone-sex business, thanks to his father. "I was always fascinated by him," Warshavsky said. "I always wanted to try to reach his level." When he started out, Warshavsky asked Eisenberg for advice. Eisenberg wasn't in the habit of giving pointers to would-be competitors, but this kid seemed so innocent that he invited him over and coached him through the business.
A few years later, the two were suing each other. By that time, Warshavsky's little phone-sex operation had snowballed into a multimillion-dollar enterprise that rivaled Eisenberg's in scope and ambition. From 50 calls a day, he'd gone to 200, and then to 500. He'd opened his own service bureau - a fulfillment operation in the San Fernando Valley called Telecom Development Company that supplied sex and psychics to handle his own calls and, for a fee, other people's as well. Then, realizing that he could run calls through Canada and bill customers $3.99 a minute in long distance charges that cost about one-tenth of that, he opened an operation in Vancouver. Eventually he went in with two partners and formed a company called WKP Inc. to build his own long distance network.
Along the way, Warshavsky and Eisenberg became involved in a joint effort to develop software that would automate their calls. The software worked beautifully - but then, according to Derek Newman, Warshavsky became convinced that Eisenberg was going to use it as a Trojan horse to bring down his entire operation. He had his hard drives mirrored; shortly afterward, Newman maintains, a programmer dialed into Warshavsky's system, ostensibly to install an upgrade, and wiped out everything. Warshavsky phoned Eisenberg to announce triumphantly that he'd mirrored his drives. After Warshavsky sued Eisenberg for damages, Eisenberg countersued on the grounds that Warshavsky hadn't codeveloped the software at all but was merely entitled to beta test it.
Eisenberg - who declined to comment for this article - won an injunction forcing Warshavsky to develop his own software. Then the FCC advisory pushed them both out of the 10XXX long distance business and into 800 and 900 numbers, which cut revenues considerably.
A few months later, when Warshavsky had his live video operation up, he applied to the Internet the business model that prevailed in phone sex - the idea of establishing a service bureau to handle not just his own business, but others' as well. Just as he'd pitched his service bureau to would-be phone-sex tycoons ("You don't want to run your own lines, you want to run your lines through me - then all you'll have to do is sit back and let the money come in!"), now he could sign up small-time entrepreneurs who'd created their own X-rated Web sites. Guys like Kizzy and Cheese, the Hollywood duo behind AlleyKatz.
Kizzy and Cheese - they prefer not to use their real names - live and work in a rambling house in the lush, bougainvillea-strewn landscape of the Hollywood Hills, a few blocks above the Mondrian Hotel and the perpetual hubbub of the Sunset Strip. They got started in January 1995 after Kizzy, who's 30, convinced Cheese, 28, to go in with him on a porn stars' fan club run via mail order and the Web.
Until then, both had rattled around the lower echelons of showbiz. Cheese was a trainee/assistant at Intertalent, a once-hot Hollywood talent agency, before going to GoldenVoice, the concert promoter for Lollapalooza and other events. Kizzy wrote screenplays and hung with agent friends, whom he sometimes helped out with little adventures - like the midnight move in which several people from International Creative Management absconded with their Rolodexes and PCs to form an upstart agency called Endeavor. Kizzy's idea, which he got while dating a makeup artist who worked on porn shoots, was to form a fan club with four of the top female stars in adult films. Just as Planet Hollywood uses its association with Arnold Schwarzenegger and Sly Stallone to sell burgers, AlleyKatz would use Ashlyn Gere and her pals to sell porn. It sounded good, but it was slow getting off the ground: in the first year, the pair often found themselves stumbling down to the mailbox in hopes of finding a $25 check so they could buy lunch.
"He got in touch and said, 'You guys come on board,'" recalled Kizzy, sitting in gym shorts and a T-shirt at a dining table on the top floor of their hillside house. Cheese was still in his boxer shorts, though it was past noon. "He had all these services we didn't have - live video, pay-per-view. He added us to his big picture, so now all our lookers can see everything." It's paid off: with three sites on the Web - AlleyKatz, Erotivision, and the new gay site, Steel-City - the two stand to gross, by Kizzy's figures, some $2 million this year. Last summer they sold half their business to a pair of Beverly Hills real-estate developers for $1 million and put the money into a gaming Web site called Sportsbook, which will offer baccarat and roulette and take bets on sporting events from their new base in Aruba.
For Warshavsky, AlleyKatz was an easy sell. He had a tougher time marketing his services to General Media Inc., which publishes Penthouse. But last spring, after calling on GMI for more than a year, he signed a five-year exclusive to supply the PenthouseLive site with live video.
Warshavsky sees this as a step toward the larger goal of securing mainstream distribution for his X-rated content. But a visit to GMI's New York offices, in a Park Avenue tower across from the headquarters of Chase Manhattan Bank, suggested that executives there may view things differently.
"One thing we're putting together that's very exciting," said Steve Becker, a rotund figure in black jeans and T-shirt, "is the ability to offer turnkey adult Web sites for entrepreneurs with the Net in their blood." What IEG is doing now, with SeXXXvision and the like? "Yes, but in a substantially more effective way, because in addition to the product, we'll provide an unparalleled level of marketing support." And future joint ventures with Warshavsky? "We'll talk to anybody," Becker replied evenly.
A gnomelike individual with a salt-and-pepper beard and ponytail, Becker brings to the business a messianic fervor, or at least a smoother patter than Warshavsky's. "We're talking about creating not just a site, but an organism!" he exclaimed. "We see ourselves evolving into a 24-hour multichannel interactive broadcast facility that will include user-generated channels created on the fly, so you can create your own live, interactive channel by clicking on a button, just like a chat room on AOL today. The consumers are the content! It's a very exciting time to be alive - like three weeks after Gutenberg invented the printing press."
When he wasn't spouting Renaissance, Becker talked about the Penthouse sites in terms that recalled the earliest days of the online experience. "We want to be not just a place people visit, but a community they participate in," he said. "But different from the AOL vision of community - one driven by human needs, by the need to see and be seen. We intend to be a joyous nexus in the lives of our users - and there's money in that."
Meanwhile, Warshavsky has been looking for new areas to get into on the Web. His philosophy resembles that of Penthouse founder Bob Guccione: start with sex and then go mainstream. He's even hoping to float an initial public offering in the next four to six months. "Our goal is not only to be an adult content provider," he says. "We want to be the Viacom of new media."
Last summer IEG launched its first nonsex site, the Psychic Zone, in partnership with Quintel Entertainment, the New York company behind the Psychic Readers Network, a 900-number service with celebrity endorsements from the likes of Billy Dee Williams. The content may be different, but the setup is much like ClubLove's: a subscription fee gives you access to such offerings as indecipherable Russian tea-leaf readings ("Will I get rich today?" "The leaves reveal an image of dry wood") and a Love and Romance message board, while for an extra $49.95 you get a half hour with a psychic on live video. Although psychics have long been a mainstay of audiotext, IEG's is apparently the first interactive psychic Web site. "But the demographics of psychic telephone lines are low-income black people who don't have computers," Warshavsky says, "so this should be interesting to see."
Another site IEG was readying for launch, and one that might well prove useful to extreme fans of ClubLove and other X-rated Web sites, is Formlawyer.com - the online bankruptcy site, created in partnership with Tele-Lawyer, a Huntington Beach, California, firm that offers legal advice via audiotext. For $79 (no subscription fee on this one), users can go through the entire filing process online. There's more in the works - a joint venture with International Cel Art Marketing, a Maryland firm, to set up a site for selling art, and an interactive music site that will sell records and offer concert and band info. "The next step is diversification into every level of entertainment possible," says Newman. "There should come a time when people think 'entertainment on the Internet' and say, 'IEG.'"
Inevitably, however, there will be a few hiccups along the way. Warshavsky wandered out of his office one afternoon, having just hung up the phone, with a what-do-I-do-now? look on his face. "One of our psychics is a transsexual," he announced to no one in particular. "She says we can't put her in the same space as all the other girls because she can't handle the energy." He struggled to wrap his mind around the problem. "It's going to interfere with her psychic vibes - is that what it is?"
It was a Monday evening, and Warshavsky, as usual, was on his ever-present cell phone. "Wanna see something really awful and disgusting?" he was asking. "Fisting! I found it through Yahoo! They show all sorts of stuff. They ask, 'Are you 18? Yes or No' - but anybody can go in there. It's awful!"
One thing all the big Web-sex players agree on is the need to keep the sites free of kids. When the Communications Decency Act was struck down, Warshavsky even wrote an op-ed piece for The Houston Chronicle, urging Congress to pass "constitutionally sound legislation" that would prevent minors from accessing adult sites and yet doesn't infringe on free speech. It's not surprising he'd want to keep kids out, given legal penalties that make them the cyberporn equivalent of jailbait. But even without the legal complications, as an executive at Ted Liebowitz's Worldwide Media Group points out, "it's not profitable luring minors."
The ideal Web-sex consumer is over 18, with surging hormones, the latest technology, and plenty of free time and disposable income - in other words, a college student. Interestingly, Naughty Linx reports that hits on its site drop 22 percent every June and pick up again in September.
Happily for Warshavsky and his competitors, the technology for screening out minors and the technology for collecting money are the same. Credit cards, which aren't supposed to be issued to anyone under 18, were even acknowledged by the CDA as an acceptable screening device. (Kids can get their hands on their parents' cards, but that's the parents' problem.) So the dozens of big-time sex-site operators who charge a subscription fee are better protected than the thousands of hobbyists who put up a site for their own amuse-ment - most of whom are also liable for copyright infringement, since their online galleries are usually made up of photos they scan in from magazines or pirate from other Web sites.
Even without the CDA, there's a limit to what most professionally run Web sites in the US will show. Like other publications, they have to meet the Supreme Court's obscenity test, which means they must abide by contemporary community standards, cannot appeal to a prurient interest in sex, and must show some serious scientific, literary, artistic, or political merit (the SLAPS test). Like cable providers, most commercial Web sites interpret the law to mean no hardcore material - genital penetration, for instance. Even ClubLove's Hardcore Gallery is not, in the technical sense, hardcore. Such material isn't hard to find on sites based outside the US, especially from the Netherlands, but one of the few major US sites that seems willing to risk it is Amateur Hardcore, run by a Florida company called WebPower.
"We feel that at some point there will be legal action taken against a US-based site that shows hardcore material," says Steven Hirsch of Vivid Video, which supplies softcore films to the Playboy Channel in addition to producing hardcore sex videos and assorted new-media products. "We're a high-profile company. We'll have to see what happens with some of the people who take that shot."
Meanwhile, the Internet is shaping up as the medium that could finally make local pornography standards obsolete. Last June, a federal judge overturned New York State's version of the CDA, ruling that state censorship threatens to paralyze development of the Net and violates the Constitution, which gives Congress alone the power to regulate interstate commerce. "It's very exciting," says Derek Newman, who studied under Whitewater prosecutor Kenneth Starr at Pepperdine. But it's the only part of his job Newman would say he does find exciting.
Clean-cut and proper in a pinstripe suit, blue eyes flashing beneath a shock of coal-black hair, Newman brings to Net sex the straight-arrow look and bearing of the consummate Young Republican. "What we're doing is providing entertainment that is protected by the First Amendment," he says. "We're adhering to capitalist principles and a strict construction of the Constitution. I don't see a problem with people doing business just to make money - that's what business is. But what I get off on is the philosophy behind the business rather than the product itself. I'm not really at all involved in the product. I don't know if I'd like to be, either."
And Warshavsky? I didn't see him as someone whose real interest was sex. Newman concurs. "Power is big with him," he says. "Money is big with him. The two run hand in hand."
"This is a high-margin product that's in demand," Warshavsky says with a shrug of resignation. "People want to pay top dollar for it." But for himself? "I don't mix business with pleasure. The women at the Arcade - that doesn't excite me. When we first saw that commercial" - the phone-sex infomercial on cable TV that started him in the business - "it was like, 'Hey, not only will we make a fortune, but we'll meet tons of women!' That lasted about a week. It's just so normal for me now."
As it is for everyone at IEG. The place is full of well-socialized young people, some hip, some square, who spend their days surrounded by raw sexual imagery but then go home and use their sex organs to make babies. Rod Collen, whose first child was born this fall, admits to feeling threatened when he started at IEG and was put to work designing the gay site. "I thought they were playing a joke on me," he says. "I almost felt like walking out. But once you're in an area like this, you see adult film stars come in - they're real people, they're nice. It doesn't feel like you're walking into an adult film shop anymore. Sometimes it even feels like work."
"I think everybody who enters the adult industry probably has reservations," says IEG's project manager, 30-year-old David Hopkins, a computer-industry vet who also had his first child this fall. "But I don't have any problems with the industry, and I was faced with the option of looking myself in the eye and saying 'hypocrite,' or simply viewing it as another job."
There are a few people in the business - most of them women - who actually do view the Net as a way to challenge sexual norms. "It's a new language of sexuality," declared Madeleine Altmann, a 34-year-old video artist who's a partner in the Babes4U Web site.
A slim woman with sandy brown hair in a pageboy cut, Altmann was sitting in a grungy lower Manhattan loft in white riding pants, one boot on a coffee table, as her "babes" stripped in cubicles a few feet away. "With video/phone sex, you can ask somebody to do kinky things, but it's still completely anonymous. Something like this has never existed before in our history. I'd love to tie up a man, to see his balls tied up - but I'm not going to, because, as an American I'm uncomfortable talking about sexuality." I couldn't see that stopping her, but it seemed unwise to interrupt. "Now I'm able to act out my fantasy with another human being, but I don't have to go to some weird place, ask somebody to come to my house, and put myself in a compromising situation. Suddenly, on the Net, this is not a fantasy anymore."
How is the Web changing sex? There's little question that with its anonymity factor, the Internet will revolutionize the sex industry just as the VCR did 20 years ago. In the 1980s the adult cinema, long a First Amendment battleground, simply withered and died; the corner video store may well do likewise, once people can watch other people having sex without ever having to show their faces. But will the illusion of privacy afforded by the Web merely encourage people to retreat deeper into their closets? "The VCR has gone a long way to legitimize consumption of adult material," says Christophe Pettus of Blowfish. "And yet if everyone who rented adult videotapes was as vocal as the people who own guns, you could not get elected to public office in the United States without talking about how often you whack off to porn."
This is the paradox of sex in America: economically paramount, politically toxic. Politicians in their jeremiads against porn on the Net may vastly overstate its pervasiveness , but they're right about the essential threat. The Internet has become the new frontier where raw capitalism shoots it out with the puritanical impulse, the twin faces of American Calvinism dogging one another as they have for centuries.
In Warshavsky's glowing electronic pornocopia ($9.95 per month, MasterCard and Visa accepted) lies the central contradiction of the American psyche, the commandment to work hard and prosper ramming up against the injunction to choke off earthly pleasure. If there's anything revolutionary about all this, it's what would-be censors fear - that sex is everywhere on the Net. Now that, as Pettus puts it, "everyone's kid has put up a porn page," how can it be roped off into a perv zone? For the populace at large as for the folks at IEG, sex threatens to become simply normal.
But Warshavsky is no revolutionary. Being a good capitalist, he doesn't care what the Net does for sexuality, just what it does for him. It's a medium to be exploited, just as he exploited telephony and others exploited video and print.
Attitudes? "I don't think they'll change," he says. "It may replace dirty magazines or peep shows, but that's about it. I mean, you can't fall in love with a computer" - he screws up his face for a moment's reflection - "I don't think."
FRIDAY, MARCH 4, 2011 FORMER UBS CLIENT SENTENCED FOR HIDING MILLIONS IN OFFSHORE BANK ACCOUNTS
Paid $2.1 Million Penalty to IRS
SEATTLE – Arthur Joel Eisenberg of Seattle was sentenced today to three years probation by U.S. District Court Judge John Coughenour, the Justice Department and the Internal Revenue Service (IRS) announced today. Eisenberg pleaded guilty in December 2010 to willfully filing a false individual income tax return.
According to court documents filed in this case and statements made in court, Eisenberg admitted to filing a false tax return for 2004 in which he failed to report that he had an interest in or signature authority over financial accounts at UBS AG, one of Switzerland’s largest banks. He also admitted failing to report the income earned on his UBS financial accounts on his tax return. At the end of 2004, the total balance of Eisenberg’s various UBS financial accounts exceeded $3.1 million.
As part of his guilty plea, Eisenberg admitted that he opened a bank account at UBS in the Cayman Islands as early as 1983. The assets held in the account were later transferred to UBS AG in Zurich. In May of 2004, Eisenberg authorized and caused the formation of a Hong Kong corporation named East West Universal Limited and promptly transferred his assets from his existing UBS account to a new UBS account in the name of the corporation. However, Eisenberg continued to be the beneficial owner of the account and earned income from it through 2008. In 2008, Eisenberg instructed UBS to close the account and transfer the funds in the account to another large global Swiss bank headquartered in Zurich. The highest year-end balance of Eisenberg’s various accounts occurred in 2007 and exceeded $4.2 million.
Eisenberg paid a $2.1 million penalty for failing to file a Report of Foreign Bank or Financial Account (FBAR) form. An FBAR is a form separate from an income tax return that a taxpayer is required to file with the IRS every June to disclose additional information about foreign financial accounts over which the taxpayer has signature authority or other control over, and which had an aggregate value exceeding $10,000 at any time during the year. Acting Deputy Assistant Attorney General for Offshore Matters Bruce Salad of the Justice Department’s Tax Division and Jenny A. Durkan, U.S. Attorney for the Western District of Washington, commended the investigative efforts of the IRS agents involved in this case, as well as trial attorney Stephanie M. Carowan of the Tax Division and Assistant U.S. Attorney Nicholas W. Brown who prosecuted the case.
Gary Fears is a business associate of William F. Cellini who was involved with Tony Rezko who was given money by Nadhmi Auchi.
Argosy Gaming Company was an Alton, Illinois based casino operator.
The company through the political connections of its chairman William F. Cellini received the first gambling license in Illinois in modern times. It began operations in September, 1991 with the opening of the Alton Belle Casino. Among the biggest initial investors was John Connors, brother of tennis champion Jimmy Connors, Illinois attorney and Democratic power-broker L. Thomas Lakin, as well as other influential St. Louis area businessmen. Jimmy Connors would later become a substantial investor with both brothers maintaining a 19 percent share after it went public. It traded on the New York Stock Exchange under the ticker symbol "AGSY. The company toyed with bankruptcy in the late 1990s with John Connors personally declaring Chapter 7 bankruptcy.
A filing in a civil lawsuit against former attorney and political heavyweight Tom Lakin questions whether he has ever admitted to sexually abusing a boy.
The issue will be discussed next month during a hearing in St. Clair County Circuit Court.
Lakin, 72, pleaded no-contest in 2011 in Madison County to criminal charges that he sexually molested a 15-year-old boy.
As part of the plea, Lakin signed a document stating he agrees to "the truth" of the prosecution's allegations.
Lakin now is being sued by the boy and the boy's family.
Lakin's attorney in the civil lawsuit, Clyde Kuehn of Belleville, wants the lawsuit dismissed. Kuehn this month filed an affidavit from Ben Allen, the attorney who represented Lakin in criminal court. Allen, in the affidavit, said Lakin never admitted to any sexual abuse in his no-contest plea.
Allen said he and the prosecutor agreed to let the judge decide Lakin's guilt in a "stipulated bench trial," which would allow Lakin to maintain his innocence.
"We proceeded with the stipulated bench trial upon that understanding. We stipulated that the state's evidence, if believed, would be legally sufficient to establish the offense of aggravated criminal sexual abuse, and we allowed the court to render a finding of guilt on that basis without actually litigating any of the facts," Allen wrote in his affidavit.
But Ed Unsell, the attorney for the boy and his family, argues that Lakin essentially admitted guilt in the no-contest plea.
"I believe the proceedings in the criminal trial render him civilly liable," Unsell said Monday.
The issue is important, because if the judge in the civil lawsuit finds that Lakin has already admitted guilt in criminal court, Unsell would not have to prove the allegations himself.
Lakin pleaded guilty in federal court in 2008 to distributing cocaine to a minor, but as part of a plea agreement in that case, prosecutors dismissed a charge that he took an underage boy to his beach home in Malibu, Calif., with intent to have sex.
Lakin received a six-year prison sentence on the federal charges. Lakin also received a six-year sentence on the Madison County charge, to be served at the same time as the federal sentence.
According to the federal Bureau of Prisons website, Lakin is scheduled to be released from federal custody on Nov. 30. He is currently in a halfway house in St. Louis.
The civil lawsuit names "John Doe" as a plaintiff. The next action on the civil case is scheduled for Nov. 21 when, according to an order by Associate Judge Heinz Rudolf, pending motions will be heard.
Tom Lakin, the former Democratic powerbroker and legal heavyweight accused of hosting drug-fueled sex parties with minors, will spend more of his six-year federal prison sentence behind bars than expected, according to the Federal Bureau of Prisons website.
Lakin, who once headed the powerful Lakin Law Firm in Wood River, pleaded guilty in 2008 in federal court of possession with the intent to deliver cocaine, distributing cocaine to a person under 21 and maintaining a drug-involved premises.
In return for the plea, federal prosecutors dropped their sole sex-related charge that claimed Lakin took a minor to his second home in Malibu, Calif., with the intent of having oral sex.
Lakin was sentenced to six years in federal prison. His projected release date was Nov. 30, 2012, several years short of six years because of his participation in a special drug program. But the prison's website has now moved back his release date to Nov. 30, 2013, which would be in line with the full 85 percent of the prison sentence that federal prisoners must normally serve.
Edmond Ross, a spokesman for the Federal Bureau of Prisons, said he can't comment on any specific inmate. He said projected release dates can be changed for a variety of reasons.
Lakin pleaded no contest last year to a state charge of aggravated criminal sexual abuse, but was given no additional prison time beyond the federal prison term.
Ed Unsell, a Madison County lawyer who is suing Lakin, saying he arranged for a 15-year-old boy to watch him have sex with women and then engaged him in a sex act, said the added state conviction made Lakin a sex offender, and would most likely disqualify him from the federal program that gave him an earlier release.
"When he was first sentenced, he was not a convicted sex offender," Unsell said. "The Bureau of Prisons probably realized it and adjusted his release date."
When Lakin pleaded no contest last October to the state sex charge, his defense attorney, Ben Allen, and the appellate prosecutor referred to it as a simple "housekeeping" matter.
"They said it was housekeeping, but they left behind a lot of dirt," Unsell said.
Lakin continues to serve his sentence at a low-security federal prison in Fort Worth, Texas.
Ross, the prison spokesman, said the drug program has strict guidelines, but wouldn't say if that's the reason why Lakin will spend more time in prison.
St. Petersburg Times, published July 1, 2001
Gary Fears quietly became a major player in the Coconut Creek Casino without the knowledge of city, tribe officials. Gary Fears began his quest to win a casino management contract from the Seminole Tribe in 1996 with an expensive gift.
With a deed for land worth $1.7-million, Fears gave the tribe property it needed to build its newest gambling hall, the $34-million Coconut Creek Casino in Broward County, near Fort Lauderdale.
Later, Fears asked Seminole Chairman James Billie what else he wanted. Billie, a pilot and aviation enthusiast, mentioned Fears' $670,000 Turbo Commander aircraft.
"I know I can't afford it," Billie told Fears, according to court papers, "and if you did it illegally and gave me an airplane, that would put us both in hot water."
The Turbo Commander soon appeared at the tribe's Big Cypress airfield anyway. Billie simply took an unlimited loan of the aircraft, signaling the beginning of a close, working relationship with Fears, a 55-year-old political fundraiser, hotel developer and steakhouse owner who had dodged controversy in Illinois before coming to South Florida.
Despite Fears' generosity, he was blocked from winning the lucrative management contract at Coconut Creek by persistent questions in his background.
Because the casino would need city water and sewer, the contract with the Seminoles needed the blessing of the city of Coconut Creek. Doubts about Fears surfaced after City Manager John Kelly spoke with the National Indian Gaming Commission, the federal agency that regulates Indian gambling.
"Fears' name surfaced in conversations with the NIGC," Kelly said. After that, "I said nothing with his name on it would go to our city commission."
But, according to documents obtained by the St. Petersburg Times, Fears and at least two associates ended up quietly gaining a financial interest in the Coconut Creek casino.
In a sworn deposition given in a civil case over tribal casinos in September 2000 -- eight months after the casino opened -- Fears acknowledged being "the largest and probably majority" shareholder in a partnership that owns the gambling hall and leases it to the tribe. Fears testified that the 10-year lease is structured so that the tribe makes its payments based only on the casino's profits.
Billie confirmed the arrangement in a deposition given in the same civil case, saying Fears and his partners agreed to build the casino "and as the gaming came along we would pay them back and then we'd split moneys."
Fears' involvement was news to Coconut Creek officials.
It also surprised Jim Shore, the Seminoles' general counsel. Shore said the tribe's legal department had been left out of the loop in the Coconut Creek negotiations, with Billie handling many of the key details.
Federal agents involved in an investigation of Billie and possible corruption within the tribe took an interest in the Coconut Creek casino plans more than three years ago. Kelly said a U.S. Customs agent and an IRS agent said they were "looking into Indian gaming" and wondered if any unusual overtures had been made to his city commissioners. Kelly said he knew of none.
The investigation has intensified. FBI agents have attended tribal council meetings, delved into tribal investments in Nicaragua and secured the grand jury cooperation of Charles Kirkpatrick, the tribe's former chief pilot.
The federal investigation helped spark a grass-roots re-examination of tribal leadership. In recent weeks, the Tribal Council suspended Billie over allegations of misconduct and fired most of his top staff, including administrator Tim Cox, who used Billie's backing to put together a secret hotel deal in Nicaragua.
At the same time, the tribe has been embarrassed by disclosures of illegal deals with other Seminole casino partners.
In 1999, the National Indian Gaming Commission fined the tribe $3-million for failing to gain regulatory approval for a management contract executed by Billie and Pan American & Associates for operation of the Immokalee casino.
This year, a federal appeals court upheld the record $3.4-million fine against JPW Consultants, a company run by James Weisman that operated the tribe's Hollywood casino without approval by the National Indian Gaming Commission.
Fears says the tribe's latest casino deal, the Coconut Creek lease, is not merely an end run around his failure to get a management contract. He said the lease was put together to enable him to recoup money plowed into the casino effort.
But Fears refused to divulge the identity of his partners or to disclose what percentage of the Coconut Creek gambling receipts pay the lease.
"Some things aren't your business," Fears said.
In his deposition, taken several weeks after the Coconut Creek casino opened, Billie said he had "other business" with Fears and had received gifts from him "a bunch of times."
Fears said he gave some items to Billie, including a $100 hunting knife, presents for Billie's sons and a few meals.
As for business deals, Fears said Billie approached him with several, including a Hard Rock Hotel venture in Nicaragua.
"I passed on everything," Fears said.
As one of the initial investors in Argosy Gaming, Fears is no stranger to the gambling business. His family stirred controversy by making a fortune in the Alton Belle, an Illinois gambling boat, while bypassing state regulatory scrutiny.
Fears and his son Victor initially submitted, then withdrew, license applications "because of problems with a background check," said Jim Wagner, deputy administrator of investigations for the Illinois Gaming Board.
Days before the riverboat license was approved, Victor Fears sold his stake to family friend and Republican powerbroker William Cellini. Victor Fears later bought Cellini's shares and made a significant profit, a process allowing him to avoid an Illinois background check.
Cellini and Gary Fears were at the center of another controversy involving their borrowing of $28.9-million in state tax money in 1982 to build two Illinois hotels.
State officials said the politically connected businessmen defaulted on loan payments and by 1995 owed Illinois taxpayers $40-million. They settled by agreeing to pay $10-million.
In his September deposition, given as part of a suit against Fears concerning tribal casino deals, Gary Fears identified three of his partners in the Coconut Creek lease: his son, Victor, 35; George Krug Jr., 53, an executive with the K-Five construction company in Lemont, Ill.; and Alan Ginsburg, 62, president of CED Construction in Maitland.
Ginsburg did not return calls. His attorney, Paul Filzer, declined to answer questions about Coconut Creek.
Krug and Victor Fears were part of Gary Fears' Gaming Management International, a company seeking the management contract at Coconut Creek. Both men had encounters with law enforcement that met the criteria for review by investigators at the National Indian Gaming Commission.
One of Krug's firms was involved in a bid-rigging and antitrust scandal in the 1970s. Krug was granted immunity from prosecution in the case in exchange for his testimony at a trial that resulted in several convictions. Subsequently, in a 1992 application for an Illinois license for the Empress River Casino, the state gaming board determined that Krug "did not meet did the requirements for licensing," records show.
One of Krug's companies, GJR Leasing, originally bought the Coconut Creek property that Fears gave the Seminoles in 1996. Krug's company sold it to Fears' company for $1.7-million, and another company Fears controlled later deeded the property to the tribe.
Although the casino lease was intended to recoup his investments, Gary Fears said, his company took a tax write-off for the land donation after failing to win a casino management contract.
Victor Fears' legal problem occurred in January 1997, when the Gulfport businessman's Ford Explorer was stopped by police in an area known for prostitution in St. Petersburg. Officers stopped the vehicle when they saw a woman holding cash leave the Explorer.
A vehicle search turned up several pieces of crack cocaine. Victor Fears told police he had "previous crack problems" and had sought counseling. Police arrested him on a cocaine possession charge.
Two months later, the Pinellas-Pasco State Attorney's Office decided the traffic stop leading to the arrest was improper. All charges were dropped, and an attorney for Fears had the record expunged.
Still, his admission to police that he had a cocaine problem could have posed problems during a background check by the National Indian Gaming Commission.
Two other men associated with Gary Fears' company, Stephen Weil and Thomas Utterback, ended up in prison after being convicted of money laundering.
The federal investigation into Seminole gambling activities led to Weil, a financial analyst who, despite a federal perjury conviction, had signed a contract with Fears in 1994 to raise capital for Gaming Management International. Weil was fired after four months for non-performance, Gary Fears said.
In 1998, Weil was caught in a federal sting dubbed "Operation Cops and Indians." He was charged with conspiring to launder $425,000 given him by federal agents posing as drug traffickers.
Prosecutors said Weil intended to launder the purported drug proceeds through the Seminole Tribe, but claimed he was turned away because he had too little cash.
Weil, 65, was convicted after a jury trial in Miami and sentenced last year to 83 months in prison.
Utterback, a Missouri lawyer, is listed in documents as one of the first directors of Fears' company. He also was president of the holding company that owned the plane Fears lent the Tribe.
Utterback, 54, was arrested in Geneva in 1998 with four suitcases containing $3.24-million in $10 and $20 bills. The cash was reported to be the proceeds of illegal drug sales. Utterback pleaded guilty to money laundering and was sentenced to three years in prison.
Prospective airport owner has checkered past May 29, 2004 at 12:00AM updated Jul 3, 2013 at 3:34PM
Seattle businessman Joel (pronounced Jo-el) Eisenberg gave Island County officials reason to feel hopeful about the long-awaited resurrection of the Oak Harbor airport, but not all those who know him are enthused.
Eisenberg met with the Joint Council of Governments Wednesday to propose a private-public venture for the airport. He told them he would be the owner of the property by months end. He is currently chairman of a company called International Telcom, Ltd.
Brooke Barnes, who lives adjacent to the airstrip on Monroe Landing Road, said Eisenberg is not the owner, but just one of many note-holders left hanging when Harbor Airlines ceased business. Barnes and the other note-holders dont know how to contact owner Richard Boehlke.
Eisenberg has filed a lawsuit in Island County to gain control and ownership of the airport from the other creditors. The entrepreneur is no stranger to lawsuits and airports.
According to a Seattle Post-Intelligencer report in 1988, Eisenberg was the subject of fraud and bankruptcy proceedings in the 1970s related to his operation of an air travel club.
In that case a King County judge ordered him to pay $200,000 to 3,000 Seattle-area residents who paid for pleasure flights on Airclub International that never took off. Eisenberg was ordered to never operate an air travel club again.
Eisenberg said those fraud charges were the result of not being able to refund customers after the company went bankrupt.
It was a question of whether I should have known it was going out of business, he said.
Another company he owned, Aeroamerica, was the subject of a state attorney general fraud case, in which he was fined about $140,000. That company also went out of business, in 1982.
Eisenberg made the news again in 1993 with the Seattle Times headline: Porn-network operator agrees to pay $20,000 to settle civil case.
In that case the Federal Trade Commission alleged that five corporations owned by Eisenberg, also known as Jack Starworth, pressured people to pay for 900 and 976 prefix calls on their phone bills, which were charged through his business.
Eisenberg admitted some of the phone lines were used for sexually explicit conversations, which is not illegal in itself.
His fault in that case, he said, was in not following through with the threat to sue for nonpayment, thus committing fraud. He said he settled at $20,000 to avoid higher legal costs.
During a lengthy divorce in 1991 Eisenberg was accused by his estranged wife of wiretapping her phone line and taping calls. His attorney argued that there was a question of whether the law invoked by Eisenbergs wife applied to family-type situations.
Eisenberg said the charges were dropped when the divorce was settled.
According to a press release on the International Telcom Web site, Eisenberg was also involved in a lawsuit in Puerto Rico in 1999, in which he sued Puerto Rico Telephone for creating a monopoly in the phone service business and shutting out his competing business. He gave up that fight and left the Puerto Rican phone business in 2001.
While Barnes holds the principal note on the airport property, Eisenberg said he is running the airstrip now, renting hangars and selling fuel. Barnes, who lives next to the airstrip, said he would like to run it but that he and Eisenberg have not talked.
No bids at Oak Harbor airport auction Jun 18, 2008 at 12:00AM updated Jul 3, 2013 at 10:48AM
The first of two auctions for the Oak Harbor Airport was completely uneventful last Friday morning.
A handful of people gathered outside the Island County Law and Justice Center to witness the sheriffs auction ordered by Superior Court Judge Alan Hancock at the conclusion of a tangled lawsuit that began in 2002.
But not a peep was uttered during the bidding period. The amount required to settle the judgment was $944,000, so the minimum bid would have had to top that.
The lack of action basically meant that Joel Eisenberg, owner of Air International LLC, won the auction. Both he and his attorney, John Du Wors of Seattle, said beforehand that they didnt expect anyone to bid. The attorney even admitted that the airport, formally named the Wes Lupien Airport, probably isnt worth the minimum bid.
Plus, the litigation that has enmeshed the airport for so long isnt over. The auction resolved one of three lawsuits. The others involve the first position deed of trust and appointment of a receiver.
Nobody wants to buy an airport subject to a deed, Du Wors said.
Yet the legal wrangling hasnt stopped service out of the airport. Tim Brooks, director of flight operations for Seattle-based Kenmore Air, said flights will almost certainly continue no matter what happens in court.
Kenmore is there for the long haul in the community, he said. Any scenario that would play out would leave us as an integral part of the airport.
Nevertheless, he keeps an eye on the lawsuits. Our land use attorney said its the most convoluted land use cases hes ever seen, he said.
In an interview, Eisenberg said hell be glad to finally have ownership of the airport without any legal caveats. He said he plans to make improvements to the facility once the title is free and clear.
Whidbey Island is a wonderful place and it deserves better than it is getting, he said.
Eisenberg, a Seattle area resident, said he retired after a diverse career. He is most famous as a pioneer of the 976 phone call industry in the 1980s. He said the subject matter ranged from Santa Claus for kids to very adult chat.
The first position debt is owned by Brooke Barnes, Whidbey resident and owner of Lonesome Polecat LLC. He filed a notice of trustee sale to recoup his $95,000 investment and then a lot more. In all, he wants to collect $793,000 in a public auction scheduled for July 18.
That auction may not occur. Du Wors said he is going to argue to the judge that the first position debt is invalid because it expired. He explained that, under state law, Barnes had to file a claim within six years or the statute of limitations comes into play.
Du Wors said people have offered to cure Barnes debt, but he refused because of his greedy desire to own the airport without paying retail price.
Pigs eat, hogs get slaughtered, Du Wors said.
Du Wors claims that the ceaseless litigation is the fault of Barnes, who he claimed files lawsuits as a hobby.
So far, Barnes has lost every round in court. In the major lawsuit over the second position, Island County Superior Court Judge Alan Hancock granted Air Internationals claim for foreclosure and dismissed Barnes claims against Air International, Eisenberg and Oak Harbor residents William and Geri Morgan last December, court documents show.
In April, Judge Vickie Churchill denied Barnes motion to appoint a receiver to collect revenues from the airport.
Its been seven years since the Gig Harbor-based Harbor Air abruptly ceased operations at the airport after falling into financial trouble. The company, owned by Rick Boehlke, controlled the property and flew commercial flights from the airport on Monroe Landing Road.
The airport was scheduled for auction in 2001 after Harbor Air stopped paying the mortgage, but Air International swooped in to purchased the debt.