Report urges liquidation of BIC-funded businesses.

It details Brokers Investment Corp. wrongdoing charges

A special U.S. District Court-appointed officer has advised Judge Mariana Pfaelzer to wind up the activities of businesses funded through former Woodland Hills based-Brokers Investment Corp., liquidate any remaining assets, and distribute money from the asset sales to creditors and investors.

The report, filed Dec. 3 by special officer Robert Baker, was ordered by the court on May 11, when the court issued a permanent injunction on the businesses and appointed Baker to take possession and control of their funds, assets, records and other property. The court order was a result of an action brought by the Securities and Exchange Commission alleging that BIC, San Diego-based U.S. Fiberline Communications Inc. and the principals of both firms had violated securities laws.

BIC's parent company, Sovereign Capital Group of California, and its owners, Norman Shubert and Daniel Steinberg, also are defendants in the case, as is Martin May, who also had interests in BIC's partnerships.

Two weeks later, the SEC shut down BIC and revoked its license as part of an administrative proceeding to address allegations that funds BIC ostensibly collected for Fiberline "were used as part of a Ponzi scheme," said SEC attorney Bill White.

"The commission's complaint alleged that the businesses of the Fiberline companies were not profitable," said White. "Despite that," he added, "investors in earlier partnerships did receive returns on their investment through at least 1992."

The SEC has a pending lawsuit against BIC, Fiberline and their principals, said White, to force them to repay investors and pay civil penalties. The SEC's pretrial examination of witnesses and documents was suspended until the Baker report was released.

BIC has since moved to Canoga Park but no longer functions as an investment firm. "They basically are answering questions from investors regarding the status of their investments," said company attorney Michael Matthias, a partner at the downtown L.A. firm of Matthias & Berg. "They are not in the brokerage business any longer."

According to Baker's report, which focuses solely on the BIC-Fiberline dealings and does not encompass the SEC's Ponzi allegations, BIC was hired by Fiberline, a long distance carrier, in 1989 to raise outside capital for ventures in pay phone systems, PBX systems and other telecommunications projects.

Till then, the outside capital used to operate two-year-old Fiberline came from friends or family via personal loans or limited partnerships. That changed with the signing on of BIC, described by Baker in his report as a "broker in the business of direct participation sales, investment banking and stock sales." In other words, the report stated, BIC "located funds for new businesses or businesses that needed an infusion of funds."

Baker noted BIC "prepared offering memoranda and solicited investors located throughOUt the United States and abroad."

By December 1992, the report related, almost $102 million was raised from more than 4,000 investors in 46 states and eight foreign countries for the Fiberline partnerships. Baker claimed the Fiberline network grew to include more than 75 affiliated corporations or limited partnerships involved one way or the other with the firm.

Between December 1992 and May 1993, the report noted, Fiberline paid BIC 32 percent of its transaction proceeds as the "cost of doing business," according to testimony by one Fiberline principal. In addition to paying what Baker called an unusually high fee, the report noted the deals themselves were highly questionable.

Included among the deals outlined by Baker from various testimonials was a $6.4 million private placement offering backed by assets that Fiberline never owned. These assets (pay phones) allegedly were authenticated by fabricated call logs. Fiberline allegedly also raised another $5.7 million for purposes "not authorized or disclosed" in an offering for a proposed ATM card system that was never launched.

By the time he was appointed, said Baker, "Fiberline was down to six employees (from a 100 peak) ... and had a total of only approximately $6,000 in its bank accounts."

Monthly revenues were about $12,000, while monthly expenses exceeded $20,000. Computer records indicated the company had payables of at least $1.7 million. Eighteen lawsuits had been filed against the company, and eight have since yielded judgments of $936,421, according to Baker.

BIC attorney Matthias said he thought the court or the SEC would soon set a post-report hearing date to resume action in the SEC's case against BIC, Fiberline and their principals.

Matthias does not plan to initiate any action for a status hearing.

In looking briefly at the Baker report, Matthias said he noticed some errors and some incorrect statements. "So," he said, "it is very possible that we will prepare a written response and file it with the court."

Baker closed Fiberline's doors in August 1993, when the company's only remaining client went out of business. Fiberline's books and records reside in an L.A. warehouse. Office property was sold for $10,150. Under a Nov. 3 court order, 18 telecommunications switches were sold to Shared Communications Exchange for $225,000.