FBI accuses four NW Arkansas men of wire fraud

Arkansas Business, August 21, 2006 by Gwen Moritz

THE FBI FILED A CRIMINAL COMPLAINT last week alleging that four northwest Arkansas men were involved in wire fraud in a scheme to drum up investments in a company that they claimed had developed a breakthrough treatment for cancer.

The defendants are familiar names to readers of Arkansas Business and Northwest Arkansas Business Journal: Jim Bolt, John Dodge, Mel Robinson and Leroy Hoback. Bolt, Dodge and Robinson were involved in a company called Golf Entertainment (and later Sienna Broadcasting) that was the subject of investigative reporting by the Business Journal and Arkansas Business dating back to 2002.

Bolt and Robinson have prior criminal convictions and were incarcerated at the Federal Correctional Institution in El Reno, Okla., at the same time in the mid-1990s.

Hoback and five out-of-state residents were involved in selling unregistered investments in foreign currencies that last year drew a cease-and-desist order from Arkansas Securities Commissioner Michael Johnson.

In an affidavit attached to the complaint filed in U.S. District Court for the Western District of Arkansas, Special Agent Michael Patkus of the FBI described a sting operation against the defendants and their pharmaceutical company, Shimoda-Atlantic.

In June, Bolt, Dodge and Robinson sued the National Association of Securities Dealers for helping the FBI create and perpetrate a "fraudulent securities scheme" against their company. They have also accused the FBI of entrapment.

According to Patkus' affidavit, the FBI became aware of Shimoda-Atlantic in February 2005. Because the company's Web site invited potential investors to e-mail for additional information, another special agent sent an e-mail in early April 2005 in which he pretended to be a Florida financial consultant representing some clients who might be interested in investing.

Using the name "John Firo," the FBI agent exchanged e-mails with Shimoda-Atlantic officials using the names "Paul McLouth" and "Lynn Owen." McLouth's actual identity isn't clear--"'McLouth' is a suspected alias of one of the defendants," Patkus wrote in the affidavit--but Owen is allegedly an alias for Mel Robinson.

At first the company claimed to be "under contract for sale to a foreign subsidiary of a division of Pfizer," but that deal supposedly fell through. Among other things, Shimoda-Atlantic sent "Fire" a CD-ROM containing a 68-page PowerPoint presentation making various claims about the company and its primary product, a drug called Xenavex that it claimed was already approved by the Food & Drug Administration for the treatment of "cardiology conditions," herpes simplex and eczema.

In fact, according to Patkus' affidavit, the FDA has not approved Xenavex for any purpose.

The discussions continued by e-mail through the summer and fall of 2005 and culminated with a Feb. 21 meeting in Rogers between the four defendants, "Fire" and another person identified only as "CW"--a cooperating witness. "Fire" and "CW" told Dodge and Hoback that the investment was too speculative for them, but they said they had a client--a "wealthy Middle Eastern businessman"--who might be interested. "Fire" and "CW" sought a kickback if they were able to persuade the client to invest.

In March, according to the affidavit, "Fire" told Robinson by telephone that the client had agreed to invest $2.5 million in Shimoda-Atlantic in exchange for a 20 percent interest in the company. A few days later, Robinson agreed to pay "Fire" a 10 percent kickback if the client invested $2.5 million and 15 percent if "Fire" could persuade him to increase the investment to $3 million.

Dodge, who is a licensed attorney in Arkansas, then faxed "Fire" a written agreement spelling out a $325,000 kickback and a cash-flow statement in which the kickback was "hidden" in an expense line for "accrued salaries payable."

"Fire" and "CW" met with Bolt, Dodge, Robinson and Hoback in Rogers again on May 9, and the hidden kickback in the cash-flow statement was discussed again at that meeting, according to Patkus' affidavit. But when the supposed investor--actually an undercover law enforcement official--was introduced to the defendants later that day, he was given a different story about the "accrued salaries payable" expense item and was never informed of the fee that was to be paid to "Fire" and "CW."

The FBI concluded that the telephone calls, faxes and e-mails were used to further a scheme that included misrepresentations about the Xenavex drug and kickback agreements that were not disclosed to the potential investor.

BY GWEN MORITZ

gmoritz@abpg.com