Spongetech’s co-founder Michael Metter was forced out of his CEO job at Businesstalkradio.net last week and had to give up his six-figure income. You might remember Metter’s name when he made headline news around the world for his arrest by the FBI for securities fraud and interference with an SEC investigation. The alleged scam involved the pump and dump of a penny stock company he was CEO of called Spongetech. Metter has been out on bail since May 2010 and allowed to keep his side-job as CEO of four am radio stations he partially owned.
I was first to report last year for DealFlow Media that the SEC, in their civil fraud suit against Metter, was able to seize control of the radio station bank accounts after they discovered Metter and his Spongetech partner Steven Moskowitz had used money from a Spongetech affiliate company to lend the stations $6 million. The transaction was set up as a PIPE deal, which means it involved the sale of Spongetech stock to come up with the funds that BTR then used to pay off Barker Capital who had an asset backed lending fund that gave Metter and his radio company money to buy more radio stations. Metter had also secured his $2 million mid-country Greenwich home as collateral for the Barker Capital loan and when BTR didn’t pay Barker the money back on time they filed a lawsuit to seize the radio station assets and personal assets of BTR owners.
Luckily for Metter he had this high-flyin’ penny stock company, Spongetech, to borrow from and get Barker Capital off his back. The SEC convinced the court this move was similar to money laundering and last year the radio stations, which includes a Greenwich CT am political and business station (WGCH), were named as relief defendants in the Spongetech fraud suit. I reported in February 2010 for Greenwich Time, before Metter’s arrest, that if the SEC sued him for fraud he’d likely lose his radio stations. Well that started to come true last year when the securities regular forced the stations to be put up for sale because they didn’t have the millions needed to pay back the ill-gotten gain from Spongetech.
Today, I reported for finance trade pup Growth Capitalist Investor that court documents show some of the BTR assets have actually sold and the funds are now held by the court. The station won’t answer questions about which stations or assets have sold but I was able to confirm the SEC is telling lawyers in the case it’s only for about $100,000 (net of cost). BTR owns am stations in Pittsburg, Brockton Mass., Las Vegas, and Greenwich. FCC records show the Greenwich and Brockton stations are still owned by BTR and their call letters, WGCH / WXBR are still advertised on BTR’s website. The Las Vegas station was purchased for $3.9 million so if it’s one of the assets that just sold for around $100k that is one heck of a loss. The court appointed receiver for BTR isn’t talking either about the asset sold but by year-end new ownership likely has to be filed with the FCC.
On Friday, Rob Varnon inaccurately reported for Greenwich Time that the Brockton station has been sold for $250,000. Varnon also wrote, “Metter maintains his innocence and said funds from the loan went to pay back a hedge fund that was calling in its loan. He says he did not know the source of the funding was Spongetech.” Now that’s odd since Metter was the signatory power for BTR who received the funds from Spongetech who he was also the CEO of since 2001? SEC filings show Metter signed financial statements and 8-K’s with the SEC stating BTR’s parent Blue Star Media had gotten the loan in question so if he didn’t know where the loan came from then the SEC could just add on another regulatory violation, breach of fiduciary duties because as CEO of BTR it’s his job to know where he is borrowing money from.
These are all documented and easy to research facts Greenwich Time left out of their story. Maybe it has something to do with the fact that Metter’s replacement at the radio stations is Jeff Weber, the chair of the Greenwich Chamber of Commerce and former COO of BTR who was there when the questionable loan went down. SEC filings also show Weber owned shares in Spongetech-it’s unclear if they were ‘given’ as payment for his COO job at BTR or if he bought them on his own. Part of the SEC’s case against Spongetech is the fact that millions of penny stock shares were cashed out via illegal methods of unrestricting stock that wasn’t allowed to be sold on the market. I have to wonder if Weber received any of his Spongetech stock this way? Weber hasn’t been named as a defendant in the SEC or DOJ’s criminal case against Spongetech and also won’t return calls for comment.
Weber told the Greenwich Time last year the Greenwich station was listed for $1.25mn but I reported at Growth Capitalist Investor that people involved in the sale said they’ve haven’t gotten offers anywhere near that.
The monies held from the partial BTR assets sale are meant for defrauded Spongetech investors but my report at Growth Capitalist Investor shows there is now a ‘magical’ new secured lender who claims BTR also owes them millions. This means even if the rest of the stations end up sold, for say $500,000, the SEC will have to fight another court battle in its slow attempt to get back any relief dollars for mom and pop Spongetech investors. The only thing investors can take satisfaction in is Metter’s personal bank accounts, Greenwich home, boat and other assets are still frozen and now he doesn’t have his $8,600 bi-weekly salary coming in.