Mike Huckabee sits on the board of a New York-based company called Flagship Global Health Inc., which went public in 2006 through a seedy little reverse merger and is now failing.
The words “reverse merger” should have been Huckabee’s first clue that he was signing on to a bum deal. Reverse mergers, after all, are seedy at best.
Instead of going public through the usual regulatory process required for an initial public stock offering, a privately held company simply buys the “shell” of a failed company, whose only asset is nearly worthless but publicly tradable stock.
The sellers of these “shells” are often nefarious characters whose schemes are what turned these companies into shells in the first place.
That is why reverse mergers are more the purview of scoundrels and penny-stock hucksters than upstanding citizens who would like to be called President Huckabee.
The term “reverse merger” is a red flag in and of itself, said Ron Rizzuto, co-director of the Reiman School of Finance and the University of Denver’s Daniels College of Business.
“It raises the question, why didn’t you do a regular IPO?” he said.
While successful companies have started out with a reverse merger, the track record for this strategy is overwhelmingly grim.
“Most of them end up with problems,” said Rizzuto. “And they are not there for the long run.”
Flagship, which sells memberships to networks of “renowned physicians” and medical services, is not likely to be around for the long run, either.
The company’s stock hit a high of $23.75 in August 2006 and now trades for 32 cents as a bulletin-board issue.
Despite whatever star power Huckabee may have loaned to this misguided startup, its losses continue to mount. Flagship is upside down to the tune of $35 million since July 2002.
Jonathan Weil, a Boulder- based columnist for Bloom berg News, examined Huckabee’s role at Flagship last month.
“Sitting on the board at a floundering penny stock doesn’t look very presidential,” he concluded.
It’s also not very presidential to be mentioned in the same breath with Ed Mattar, the former CEO of Boulder’s failed BestBank, who jumped from a 27th-floor window before his sentencing on bank-fraud charges in September.
But Flagship’s seedy little reverse merger makes this possible.
Huckabee met Flagship’s founder Fred Nazem in 2005 and joined its board in February 2006.
Flagship completed a reverse merger with the shell of Finity Holdings Inc. in June 2006. Finity’s primary asset was stock that traded for a hundredth of a penny per share.
Finity’s founders and major shareholders were two goons from Fort Lauderdale, Fla. — Douglas Baetz and Glenn Gallant. They are now serving 10-year prison sentences for their role in the collapse of Mattar’s BestBank. Finity, formerly called Columbia Capital Corp., also did business with BestBank.
Through several companies, Baetz and Gallant ran a subprime credit card scheme with federally insured BestBank’s money. The bank collapsed in 1998, and it took federal prosecutors nearly a decade to put these perps in the pen.
Then Flagship swooped in, picked up the shell, then crashed and burned. They should have called it Red Flagship.
In December, Flagship said Nazem had resigned as chairman “to pursue other ventures.” In an interview, Nazem told Bloomberg’s Weil it was time for someone else to take over. He said the company is well funded and “on its way.” I couldn’t reach Nazem on Friday for comment.
All anyone can say is, what the Huck?
Isn’t this the guy who is running on the character and integrity ticket?
Officials from the Huckabee campaign did not return my phone calls and e-mails last week. Huckabee did not answer Weil’s questions either but gave him a statement indicating that he did not sell any of his Flagship stock options.
“The company has had its share of hiccups in launching as do most innovative ventures, but I have confidence in the leadership team,” Huckabee said.
Others aren’t so confident. Flagship’s regulatory filings includes this disclosure: “Our independent, registered public accounting firm has stated that there is substantial doubt about our ability to continue as a going concern.”
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to Lewis at , 303-954-1967 or alewis@denverpost.com.
