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Synchronoss Technologies: You Probably Wouldn’t Buy a Car From These Guys

The velocity of the destruction of Synchronoss Technologies investors’ capital is brutal to behold: In less than four months, the value of their investments has been halved.

There’s a reason for that.

On Dec. 6, Bridgewater, New Jersey-based Synchronoss announced an unusual pair of transactions that radically altered its business model just weeks before the end of its fiscal year: It paid twice the then price of shares to merge with the public company Intralinks and simultaneously sold the mobile-phone activation unit, which was responsible for almost half of annual sales for Synchronoss. This prompted the Southern Investigative Reporting Foundation to take a hard look at the company’s shift in strategy, whose sheer complexity masked some troubling details.

The Form 10-K annual report for 2016, filed on Feb. 27, probably won’t inspire investor confidence, though: Instead of providing reassurance about the radical transformation afoot, it reveals a series of accounting- and disclosure-related gambits that make for a very different company than the acquisitive, growth-driven one that’s been touted in press releases and conference calls.

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The cloud services unit of Synchronoss peddles data storage and analytics software to wireless providers who use it to offer customers branded cloud storage, such as Verizon Cloud. Apart from all the hype about “the cloud,” wireless companies view it as a customer retention tool, on the view that people who are already using one cloud service to store their photos, music or address books may be less likely to jump to a rival when a better deal comes along.

Synchronoss entered the cloud storage business by purchasing FusionOne in July 2010. Then just as the cloud storage market took off, Synchronoss began rolling up a hodgepodge of other companies involved with cloud-based software, including Newbay Software in December 2012 and F-Secure’s personal cloud business in February 2015.

With Synchronoss’ breakneck pace of acquisitions, its cloud services sales expanded at a torrid 72 percent annual clip from 2010 to 2016, making this unit, by its five-year mark, the biggest contributor to the company’s sales and income. In a stroke of good fortune, the unit’s growth accelerated just as revenue from Synchronoss’ original business line, mobile phone activation, started to taper off. To that end, cloud services made for a handy marketing point in Synchronoss’ presentations to brokerage analysts and money managers.

Throughout quarterly conference calls in 2016, former Chief Financial Officer Karen Rosenberger painted an increasingly rosy picture of the cloud services unit’s annual sales estimates: In May during the first-quarter call, she projected an annual revenue spike of about 27 percent, to as high as $390 million to $400 million. By the third-quarter call in November she forecast annual growth of 32 percent, anticipating sales of $408 million to $411 million.

So Synchronos investors, who in December had incurred $850 million of debt to purchase money-losing Intralinks, were probably completely shocked by the release of the 2016 10-K in February, with cloud services sales measuring just $389.9 million, below May’s initial guidance and well under November’s estimate.

To add insult to injury, the $74 million in increased sales–proudly trumpeted in the year-end conference call as proof of cloud services’ rapid expansion–merely amounts to corporate doublespeak; it’s an object lesson in how a company can meet all its financial reporting requirements yet still make investors bust their humps to find out what’s really going on.

Synchronoss is an aggressive acquirer of other companies and business lines, and with the sales from these purchased businesses folded into its own totals, showing growth is easy.

But at this moment in time investors would be wise to examine organic revenue — that is, sales derived from Synchronoss’ existing businesses but excluding revenue from acquisitions and other one-time accounting adjustments made the previous year.

In order to calculate this, disregard the $25.82 million in revenue reclassified from the mobile phone activation unit as cloud services revenue and instead consider it a one-time, noncash adjustment. Additionally, Synchronoss made a good-sized cloud services acquisition last March, paying $124.5 million for Openwave Messaging, so ignore the $42.5 million in revenue contributed from that. (Openwave’s roughly 10 months’ worth of revenue proved to be a boon for the company, amounting to almost nine percent of 2016’s total sales, despite CEO Stephen Waldis’ warning to analysts in May that its contribution would be minimal.)

Then there is a $9.2 million payment from Sequential Technology International Holdings for a “non-exclusive perpetual license agreement.” It’s fair to say that this entry is a rare bird for financial sleuths — something that looks initially odd and, upon further inspection, turns out to be even more problematic.

Sequential Technology International played a central role in the Southern Investigative Reporting Foundation’s Feb. 24 investigation after it purchased Synchronoss’ mobile phone activation unit on unusually favorable terms. Synchronoss failed to disclose numerous and long-standing connections between its CEO, Stephen Waldis, and Sequential Technology International’s parent company, Omniglobe International, a one-time related party that still does most of its business with Synchronoss.

While accounting standards afford auditors latitude in determining what can be recognized as revenue, permitting a $9.2 million noncash IOU from Sequential (a newly created company that already had an $83 million debt to Synchronoss) to count as revenue on Dec. 22, just days before the fiscal year’s end, is highly unusual. Moreover, the payment is not disclosed anywhere but the 10-K and not even mentioned in a separate Dec. 22 filing discussing the transaction’s terms.

(The license payment simply adds to the circus-like atmosphere surrounding the activation unit’s sale. In addition to having a $146 million bargain purchase price, the deal has involved precious little cash up front. It’s oddly a two-stage sale, as 70 percent of the unit was sold on Dec. 6 and the rest of the transaction is set to take place later this year. Sequential Technology International is also paying Synchronoss $32 million annually for three years in what it calls a transaction support agreement.)

What remains for Synochronoss after these items are subtracted is about $312.3 million in organic revenue for the cloud services unit, a mere $2.3 million increase over the prior year’s tally —  a sharp refutation of management’s assurances of continued growth. To the contrary, despite the company having spent hundreds of millions of dollars on building the cloud services unit over the past six years, it really isn’t growing at all.

 Source: Synchronoss' 2016 10-K
 Source: Synchronoss’ 2016 10-K


For its part, Synchronoss is sticking to its guns and arguing to investors, including at a presentation at a March 6 Raymond James conference, that its cloud services unit is expanding. In response to a question about the unit’s growth, Daniel Harlan Ives, senior vice president of finance and business development, suggested that calculations indicate the unit’s revenue to be $368 million, implying a 15.6 percent sales increase for the year.


The releasing of the 2016 10-K was hardly the first time Synchronoss’ investors have been force-fed some baffling disclosures about the cloud services unit’s economic health: Opaque transactions in the fourth quarter of 2015 as well as in the last moments of the third quarter of 2016 have made virtually no economic sense.

In the third quarter of 2016, Synchronoss announced earnings of 68 cents per share, at the higher end of analysts’ guidance of 65 cents to 69 cents per share. In a brief aside, CFO Karen Rosenberger referenced a $25 million licensing fee from Verizon Wireless that materialized in the last days of the third quarter.

What was the backstory for that $25 million fee? It was not immediately apparent during the third quarter earnings call with analysts, when Waldis cited a nondisclosure agreement as a reason for not providing much detail about the deal. Nor did it become evident in subsequent company filings. Even analysts at investment management firms that own Synchronoss shares have told the Southern Investigative Reporting Foundation they haven’t been given a clear answer.

Given Synchronoss’ managers are not shy about promoting its prospects, their silence on this transaction is telling.

The most obvious benefit of signing that $25 million contract was it allowed Synchronoss’ third quarter 2016 revenue and income levels to compare favorably with those of the second quarter of 2016 and the third quarter of 2015, metrics that are important to many brokerage analysts.

Perhaps the most striking thing about the Verizon Wireless contract from an accounting perspective, however, is the fact Synchronoss’ gross margins didn’t really change. Ordinarily a license payment boosts revenue with a minimal effect on the cost of goods sold. But in the third quarter of 2016 the gross margins declined in comparison with the same period in 2015.

Regardless, analysts and investors appear to have not considered that without Synchronoss’ signing a large contract in the last days of the third quarter, its results would have been abysmal.

Source: Synchronoss' third-quarter 2016 10-Q
Source: Synchronoss’ third-quarter 2016 10-Q


To investors concerned about earnings quality, the joint ventures that Synchronoss struck with Goldman Sachs and Verizon during 2015’s fourth quarter should also raise the alarm. As was true for the Verizon “licensing fee” above, details are scarce in the company’s filings and liberally coated with legal jargon.

One clue buried deep in the 2015 10-K is a footnote about “net income attributable to non-controlling interests” of $20.3 million from Synchronoss’ “new ventures with Verizon and Goldman Sachs.”

On the last day of 2015 Synchronoss signed a joint venture with Verizon, called Zentry LLC, that required Synchronoss to enter into a “non-exclusive perpetual license agreement” for $23 million. Synchronoss owns a 67 percent stake of the venture, which cost $48 million up front. (To be sure, this Verizon transaction is separate from the licensing fee deal in last year’s third quarter.)

Even less detail is provided about the Goldman Sachs venture, SNCR LLC; Synchronoss was required to take out a $20 million line of credit for it.

Whatever benefits the joint ventures had for Synchronoss in 2015 sure didn’t work out in 2016. According to the 2016 10-K, the “net income attributable to non-controlling interests” line is spilling red ink, amounting to a loss of slightly less than $11.6 million.

While there may well be more to Synchronoss’ joint venture story, from the little information that is available, the math is awful for shareholders: A little more than $20 million in profit in 2015 required the outlay of multiples of that amount. And the once touted joint ventures are now posting some sizable losses.

Every company strikes a bad deal now and then but this appears to be Synchronoss’ desperate financial engineering to generate short-term license fees.

There’s a noteworthy footnote to concerns over Synchronoss’ accounting and it has to do with executive stock sales: over the past two years, the company’s three most senior executives, ex-CEO Waldis, ex-CFO Rosenberger and President and Chief Operating Officer Robert Garcia have made a great deal of sales, either in terms of outright dollar value or the size of their holdings. (Both Waldis and Rosenberger left unexpectedly as part of the Intralinks merger; Waldis remains on the board of directors as its executive chairman.)

All three executives have made the sales as part of “10b5-1 plans,” a Securities and Exchange Commission rule designed to allow corporate insiders such as senior management or directors, with access to material non-public information, to sell or purchase a specified number of shares based on plans communicated to a broker several months prior.

Waldis, for example, since the beginning of last year, sold 329,769 shares for a little over $10.61 million; 2015 was also an active year for him, selling 202,713 shares for $8.94 million.

Rosenberger, whose trading activity had long been limited to modestly-sized size sales (often indicative of raising money for the tax liability related to options vesting), began aggressively selling on December 27, selling 24,023 shares for just over $940,000. With 32,846 shares left, as of April 1 she will have not to disclose her sales.

Garcia, like Rosenberger, had not been very active with respect to his Synchronoss stake but he also began selling with fervor at the end of last year, selling 66,055 shares since December 28, worth $2.38 million, through March 22. He has 77,000 shares remaining.


Daniel Harlan Ives, Synchronoss’ media- and investor-relations representative, declined to comment on questions submitted by the Southern Investigative Reporting Foundation.

He cited the company’s self-imposed quiet period in the weeks leading up to the quarter’s end. Spokesmen for Goldman Sachs and Verizon didn’t return calls seeking comment.

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Synchronoss Technologies: The Friends and Family Plan

By any measure Tuesday, Dec. 6, was an extraordinary day for Synchronoss Technologies’ shareholders.

They woke up owning a stake in a company with a market capitalization above $2.2 billion and whose core software enabled consumers to activate, synchronize and store their mobile phone data.

By the day’s end, however, Bridgewater, New Jersey-based Synchronoss had purchased Intralinks Holdings, an unprofitable data-room developer, valuing it as if its stock were worth almost twice its then share price. Also Synchronoss said it had struck a deal to sell its legacy business, the mobile-phone activation unit, in two stages — 70 percent immediately and the 30 percent remainder over the course of the next year. Topping it off, Stephen Waldis, the company’s founder and chief executive, took the unusual move of stepping down to let Ronald Hovsepian, Intralinks’ CEO, run the newly combined venture, though he is remaining on the board of directors with the title of executive chairman.

Synchronoss marketed the effort as “accelerating strategic transformation“; investors just called their broker and sold, sending the stock price to $42.59 from $49 the day before, and erasing more than $290 million in market capitalization.

Waldis, on a Feb. 8 conference call with analysts, heralded the arrival of Synchronoss 3.0, an era that he sees as rich with cross-selling opportunities to businesses (as opposed to retail phone activation), more revenue diversification and a focus on higher-margin, faster-growing businesses like so-called white-label cloud storage.

In the main, investors haven’t warmed up to this vision, with the market cap dropping another $550 million to about $1.36 billion since the big day.

Investor confidence couldn’t have been bolstered when the merger’s proxy agreement disclosed Waldis had spent over half of 2016 seeking to depart his job, with Intralinks’ Hovsepian brushing off executive recruiters working for Synchronoss as far back as May. He became more receptive to Synchronoss when later overtures evolved toward buying Intralinks, which given his 2.21 million share stake, led to an almost $28 million windfall (as laid out on page 5 of the company’s 2015 proxy).

Concern over management’s vision for the business may prove to be the least of shareholder concerns as Synchronoss’ own documents reveal there is a great deal the public hasn’t been told about key aspects of its so-called strategic transformation.

For example, in 2006 the parent company of Sequential Technology International, the activation unit’s purchaser, was disclosed as a related party because Waldis and a group of his then-Synchronoss colleagues owned equity in it. Moreover, management’s comments about the reason for the sale, as well as the justification for the $146 million price tag, have been baffling.

Whatever the motivations behind the activation unit’s sale, Synchronoss’ own filings suggest that Waldis’ friends are in a position where it’s nearly impossible for them to lose money; the company’s public shareholders can say no such thing.


Synchronoss’ public statements about the activation unit’s buyer are incomplete, at best.

The Sequential Technology International portrayed in the company’s conference calls and press releases sounds like a standard corporate buyer, chosen after some consideration among a number of different options.

That is not even remotely the case.

To start, the Southern Investigative Reporting Foundation could not locate Sequential Technology International in any corporate registry or database. It’s a corporate shell, formed in early November  2016 whose website was registered by John Methfessel, a former neighbor of Stephen Waldis and an early-stage Synchronoss investor.

The first indication that there was more to the Sequential Technology International story than brief mentions in opaque press releases came from Stifel, Nicholas’ Tom Roderick: This research analyst published a Dec. 20 research note revealing that Sequential Technology International was a unit of Omniglobe International LLC. In his note, Roderick cited his own research, as well Synchronoss’ Dec. 7 filings, as being helpful to his analysis.

It’s unclear, however, what the Dec. 7 filings illuminated, since they don’t mention Omniglobe and only briefly reference Sequential Technology International as being “a new company.” The Southern Investigative Reporting Foundation tried to ask him but a Stifel spokeswoman said Roderick wouldn’t be made available for comment.

So what is Omniglobe International?

It’s a business process outsourcing company (often abbreviated to “BPO”) that handles nonessential tasks for Synchronoss’ activation unit. Through offices in the Philippines and India, Omniglobe provides phone activation customer service for Synchronoss’ AT&T contract.

In its June 2006 initial public offering prospectus, Synchronoss disclosed that Omniglobe was a related party, a legal term of art that in this case means that four of its officers had an investment in Omniglobe, and would benefit financially from doing business with it. (As detailed on page 74 of the prospectus, then-CEO Waldis had a 12.23 percent “indirect equity interest in Omniglobe,” former chief financial officer Lawrence Irving and former chief technology officer David Berry both had 2.58 percent and current president and chief operating officer Robert Garcia had 1.29 percent.)

These investments were made through Rumson Hitters LLC, a Delaware holding company that in turn owned a piece of Omniglobe. For awhile it was money well-spent: Between March 2004 and June 30, 2006, according to page 74 of the prospectus, Waldis’ investment yielded $153,655 in distributions from Omniglobe.

But the relationship must have raised a red flag somewhere since the prospectus — which doesn’t elaborate on the matter — does note that as of June 30, 2006, other, undisclosed members of Rumson Hitters had bought out the four executives, and that no one then at the company had a stake in the holding company or Omniglobe.

(“Rumson Hitters” is an inside joke among the families of several of Synchronoss’ initial founders like Waldis and his fellow Seton University alum Tom Miller. The phrase is used on Miller’s Facebook page, referencing the affluent New Jersey riverside town of Rumson where Miller lives.)

Daniel Ives, Synchronoss’ vice president of finance and development, told the Southern Investigative Reporting Foundation that Rumson Hitters was formed “to support the BPO business of Synchronoss” as it was getting started, prior to the IPO. He was emphatic that it has no ownership links to company management and should be viewed as “an unrelated third-party.”

He declined to name the owners of Rumson Hitters but speaking more generally about the sale to Sequential Technology International said, “I get it. This is a complex transaction and people have a lot of questions.”

There isn’t much publicly available discussing Omniglobe International but a December 2006 press release identified veteran telecom entrepreneur Jaswinder Matharu as its president and chairman.

Reached at his Potomac, Maryland, home, Matharu confirmed to the Southern Investigative Reporting Foundation that Omniglobe was Sequential Technology International’s owner and that it had purchased a 70 percent stake in Synchronoss’ activation unit. He said he expected to eventually complete the purchase for the balance of the unit “over the next year” with a loan from Goldman Sachs — Synchronoss’ longtime lead investment banker and co-arranger on the $900 million term loan used to purchase Intralinks.

When questioned about Omniglobe’s ownership structure, Matharu said he had a 50 percent stake and that “the Rumson Hitters hold the other 50 percent.” According to their registration filings, both Omniglobe and Rumson Hitters were registered in Delaware on the same day, March 5, 2004.

“I’m reluctant to speak about [the Rumson Hitters] part of the ownership group because they had to restructure things a little after the [Synchronoss] IPO,” said Matharu. Pressed on what “restructure” meant in that context, he said there were “legal moves” but that the Rumson Hitters entity was “still owned by friends and family” of Synchronoss. He declined to elaborate on who the “friends and family” were, nor would he identify the current partners.

Matharu said that a lawyer named John Methfessel controlled the Rumson Hitter investment and that questions about it should be directed to him. (In the December 2006 press release quoted above, Methfessel is identified as the owner of a legal transcription service that outsourced business to Omniglobe.)

A longtime specialist in defending insurance companies, John Methfessel would seem an unlikely candidate to be at the center of such a labyrinth corporate transaction but per above, he has numerous connections to Stephen Waldis, including having been his next-door neighbor for several years in Lebanon, New Jersey.

Methfessel was a pre-IPO investor in Synchronoss (both personally and through Moses Venture Partners L.P., a fund run out of his law firm’s offices) and is on the board of the Waldis Family Foundation, along with the aforementioned Tom Miller, a former Synchronoss executive who is now Sequential Technology International’s chief strategy officer. Both he and Miller are directors of Omniglobe International and a press release from last month referred to him as Sequential Technology International’s chairman.

Contacted at his office, Methfessel declined comment when asked about Sequential Technology International and the Rumson Hitter entity: “We’re a private company and I’m not going to answer any questions beyond what’s been announced.” (Miller did not respond to several phone calls and an email.)


Exactly what Synchronoss shareholders lost in the activation unit sale was made clear in a Dec. 22 filing where the unit’s pro forma financials — what it now calls “the BPO business” — were broken out.

Through Sept. 30, Synchronoss’ activation unit did $121.7 million in revenues and over $22.4 million in operating income, for an 18.4 percent operating margin and a 23.3 percent earnings before interest, taxes, depreciation and amortization (EBITDA) margin. While 2016 sales were flat, over the past decade they have grown at about a 15 percent annual clip and its biggest customer — AT&T is over three-fifths of unit revenues — has been with it since the company’s founding.

Going back in the company’s filings shows the same thing year after year: The activation unit is consistently profitable, bears little legal or regulatory risk, has manageable capital outlays and has a deep-pocketed primary customer with a need for the product.

Waldis didn’t see it that way, though. On conference calls in December and again in February, he dismissed the unit’s prospects out of hand and said it was “a lower growth business” and didn’t elaborate further. Ives, the Synchronoss vice president, said the unit’s growth and margin prospects “were sluggish” but did not expand on this.

To be sure, owning an asset that isn’t going to grow is a problem for any manager. The revenues stay constant yet costs and inflation usually increase over time. In this case, though, there’s a catch: On page 7 in the Dec. 22 filing Synchronoss disclosed that through Sept. 30 it had allocated over $24 million in “general corporate overhead expenses”  to the activation unit — costs that would “remain with [Synchronoss].”

In other words, the activation unit’s true profitability is a good deal higher than what was laid out in the company financials. Adding back those costs gives the activation unit a 36 percent operating profit margin, and it implies that Synchronoss sold it for 2.75 times EBITDA, an astonishingly attractive purchase price for Omniglobe.

Synchronoss’ Ives disagreed with the view that the unit was sold cheaply: “We had major BPO company’s give us lower bids than [what Omniglobe paid],” and he said that “it was a specialized but competitive process” that obtained those bids.

“The level of investment needed [for an effective BPO operation] is significant,” Ives cautioned. “That’s a competitive space and we saw margins coming under pressure.”

The Southern Investigative Reporting Foundation made the observation to Ives that it seemed nearly impossible for the deal to work out poorly for the buyers, to which he replied, “We hired an investment-bank to deliver a fairness opinion and they presented one to the board of directors.” Asked to disclose the name of the bank and produce the opinion, he declined, noting only that it was a “brand-name” bank. An educated guess would be Goldman Sachs, which advised Synchronoss on the Intralinks acquisition and is touted as a “strategic partner” in recent filings.

Not only did Sequential Technology International get a great price, but the Dec. 22 filing show it secured unusually attractive payment terms too.

To purchase 70 percent of the activation unit, Sequential Technology International only put down a little over $17.33 million in cash up front, along with $7.7 million in unspecified “contributed assets” and the $83 million balance in a note receivable. The 30 percent of the unit that Sequential Technology International hasn’t bought, representing $43.8 million in payment, is expected to be paid for sometime this year.

Sequential Technology International will also pay a licensing fee to Synchronoss for three years of $32 million — a figure that could increase if certain targets are met, said Ives.

“[The fee] isn’t [pure profit] for us since we’ve got ongoing expenses in software development and analytics offsetting those payments,” he acknowledged.

Per above, Omniglobe’s Matharu said that he expects to secure debt financing this year through Goldman Sachs to complete the purchase and a glance at the activation unit’s numbers suggests it shouldn’t be very difficult. If the unit’s revenue stays at about $150 million and a 30 percent operating margin (to be conservative) is attainable for a new owner, then the $50 million in operating income would easily cover interest expense.

These explanations do not address why the activation unit deal was structured in such a binary fashion. Instead of delivering the agreed-upon price in full as in a standard corporate asset sale, Omniglobe put down only $17.33 million in cash.

Synchronoss shareholders, who just took on $900 million in senior debt to purchase Intralinks, do not appear to be fairly compensated for fronting Omniglobe most of the activation unit’s significant operating profits and cash flows on what amounts to a layaway plan.

Ives defended the unusual sales arrangement as a function of the role of AT&T plays in the activation unit. “These are their customers we’re talking about and they said they wanted us to ensure a smooth transition, not just walk away,” Ives said.

Added Ives: “After the receivable is taken care of sometime in the next six months, we’ll have a lot more flexibility to get the best price for the 30 percent that remains.”

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The Life Fantastic: Michael Saylor’s All-Expense-Paid World

You may not remember where you were on March 20, 2000, but it’s a very safe bet that a man named Michael Saylor does. More than 14 years later, it’s likely still fresh in his mind; after all it’s not every day that someone incurs what is the greatest single-day hit to personal wealth in capital markets history.

That day, as the CEO and majority shareholder of software company MicroStrategy Inc. (whose clients now include Facebook and Starbucks), Saylor lost $6.1 billion of his reported $15 billion fortune.

Saylor’s historic loss was a result of MicroStrategy’s price per share free-falling $140 in a single day when it declined to $86.75 from the previous day’s close of $226.75.

The stock price’s sharp decline was the result of a major restatement of MicroStrategy’s earnings. The net income numbers that investors had fallen in love with in 1998 and 1999 were actually losses, and the eraser was put to $66 million of the $350 million revenue for the same period. It may have been expected that this triggered an investigation by the Securities and Exchange Commission, ultimately leading to a settlement for both the company and the executives (for the officers, it was the then-largest individual fine in SEC history not involving insider trading).

For almost every other dot-com company, a stock price drop like that would not have stopped; add in the SEC settlement, and there’s a tried-and-true recipe for bankruptcy.

Unlike many of the dot-com era’s highfliers that failed to generate revenue, however, MicroStrategy is not only still in business but is also growing and turning profits. For his part, Saylor survived civil accounting fraud charges brought by the SEC and is still the chief executive.

Notwithstanding the one-in-a-million survival tale, investors would do well to keep their eyes peeled for Saylor.

For instance, consider some of the obscure details buried on page 32 of MicroStrategy’s recent proxy, one of which allows Saylor the right to incur just less than $1 million annually in security expenses, enough seemingly for a head of state but not appropriate for the head of a company peddling business intelligence software.

Last year Saylor incurred $23,831 in security expenses, according to the proxy statement. He was also subsequently reimbursed an additional $52,000 for security services and equipment in the fourth quarter of 2013. Although per page 3 of the SEC’s EX-10.3 for MicroStrategy, the total could be as much as $58,000 after an additional $6,000 of other security expenses.

From what the Southern Investigative Reporting Foundation can surmise, MicroStrategy and Saylor are in a universe of one when it comes to security expenses, especially when the nature of the company’s work and the size of the enterprise are factored in.

According to Peter Rogers, the co-founder of FrontPoint Security Services, this level of expense is virtually unprecedented. Rogers said any 24/7 video surveillance system that costs more than $2,500 a month would be “remarkably expensive” when compared with other home security systems.

“There are homes that we protect for U.S. ambassadors, major league athletes and entertainers, and they’re perfectly happy with what we provide,” Rogers said.

While security expenses among Fortune 500 CEOs have been reported to be rising, MicroStrategy’s policy puts it among some of the anchors of the American economy. For instance, Intel’s 2013 proxy statement to the SEC noted that the giant chipmaker paid $58,600 in home security expenses for former CEO Paul Otellini, while AT&T’s CEO Randall Stephenson’s security expenses totaled $101,923 for the same period.

Among the broad peer group suggested by Google Finance, only Tableau Software and Qlik Technologies — both of which are also in the business intelligence and analytics software field — appear to have proxy disclosures that compare to MicroStrategy’s. Tableau’s proxy does not explicitly reference security expenses, but does mention that CEO Christian Chabot is “also eligible for reimbursement of certain personal household expenses, up to a maximum of $25,000 per year,” according to page 25.

Qlik’s proxy notes that CEO Lars Björk’s employment agreement had provided for certain unspecified living expenses up to $75,000 per year, according to page 47 of the statement, but the benefit was eliminated after a 2011 salary increase.

MicroStrategy’s line of services and software appear to have few of the telltale risks that other businesses incurring high security costs have: sensitive national security products, or offices and a client base heavily concentrated in risky foreign locales. And Saylor, according to real estate records examined by the Southern Investigative Reporting Foundation, is not likely to be in much danger at his tony Georgetown townhouse or during the 12.5-mile daily commute (one way) to the company’s Tysons Corner, Virginia, headquarters. (For this commute he was reimbursed $29,000.)

The Southern Investigative Reporting Foundation asked Paul Hodgson, an executive compensation specialist at the governance consulting firm BHJ Partners, his opinion of the security expense provisions.

“My perspective, and that of many shareholders, is that if it’s a personal benefit, then the CEO – who is already highly paid – should be paying for it himself, rather than the shareholders,” Hodgson said.

There are other benefits to being the CEO of MicroStrategy. In 2013, Saylor’s use of the company’s aircraft totaled $737,469, albeit with “non-business” use of the company jet limited to less than 200 hours a year. When not airborne, Saylor racked up $116,670 worth of expenses in the company’s vehicles and $99,244 in alternative car services, according to pages 33 and 36 of the proxy statement. (“Alternative car services” was defined as “services of one or more drivers for vehicles other than a Company-owned vehicle.”) While these benefits are not illegal, according to the Southern Investigative Reporting Foundation’s research, they are indeed uncommon among midsized and even some Fortune 500 companies.

Shareholders may turn a blind eye to Saylor’s exorbitant lifestyle, but the array of expensive perks MicroStrategy’s board signs off on gives every indication of contributing materially to the bottom line. Consider that in 2004, the company’s operating margin was just less than 30 percent; last year it was 3.3 percent.

The company’s general and administrative costs – the corporate overhead account that addresses standard business expenses, including perks – were more than $104 million in 2013. According to the Southern Investigative Reporting Foundation’s research, the figure was more than twice as much as that of software companies with similar revenue. While a host of factors can influence profitability measures, software and analytics enterprises are often popular with investors because of their generally larger margins.

One likely culprit in the weaker margins is the 2007 purchase of a $46 million Bombardier jet, and nearly $1.4 million in NetJets expenses Saylor accumulated in 2010 and 2011 when a February 2010 blizzard collapsed the roof of the Bombardier’s airplane hangar.

Some of Saylor’s other benefits include $2,410 for a business club membership, $65,000 in tax advisory fees to file foreign entity tax forms, and $5,269 to sublease office space for a pair of companies he owns, Aeromar Management Co. LLC and Alcantara LLC.

Aeromar happens to be the parent company of Fleet Miami LLC. And Fleet Miami LLC is a luxury yacht charter business founded by Saylor, and, according to its website, it offers nine yachts to customers.

Another perk that Saylor enjoys is reimbursement of state and federal income taxes on these benefits. In 2013, these totaled $746,340. For 2013, he earned $1,833,310 in “All Other Compensation.”

To be sure, eye-opening expense is somewhat of a MicroStrategy tradition, according to a 2002 Washington Post article that mentioned the dot-com era Caribbean cruises for all employees.

Caribbean cruises appear to be just a drop in the bucket for Saylor’s Gatsby-esque lifestyle from the looks of his Miami Beach luxury mansion, Villa Vecchia. Saylor’s 18,000-square-foot mansion with 13 bedrooms and 12 bathrooms is a hot spot for many of his party guests and will be featured in the upcoming “Entourage” movie.

Not all investors approve of Saylor’s lavish perks. Activist investor Apex Capital Corp., owner of 467,100 shares as of Feb. 27, hankers for Saylor’s departure. In a letter to MicroStrategy’s board of directors filed on Jan. 28, Apex argued that Saylor’s removal was warranted by the “recent stream of photos of Mr. Saylor’s yachts in exotic locations (as seen on his Twitter feed) does little to assuage our fears that the Company’s senior management is not fully engaged in the day-to-day operations of the business or agonizing over inferior shareholder returns.”

A major concern brought up by Apex in its letter to the board is MicroStrategy’s lack of any conference calls with shareholders for almost 10 years. (Recently, however, the company staged a series of meetings with shareholders in New York City.)

Over the course of one week, the Southern Investigative Reporting Foundation attempted to secure MicroStrategy’s comment for this article by leaving voicemail messages in the company’s press relations mailbox, but no calls were returned by press time

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The Copper Archipelago: Truth, Lies and InterCloud Systems

InterCloud Systems, a company familiar to Southern Investigative Reporting Foundation readers, put out a press release last week sharply disagreeing with the claim that it had hired a controversial public relations firm to promote its shares.

While affirming a commitment to grow its businesses, InterCloud’s statement said that it had retained an unnamed former Securities and Exchange Commission attorney who had not found any evidence that the company used the Dream Team Group, a public relations outfit whose practice includes paying authors to post favorable, company-vetted articles about its clients on popular stock market websites.

The unambiguous stance worked and reversed a week of constant decline in InterCloud’s share price when a series of plaintiff law firms announced their investigations regarding InterCloud’s undisclosed promotional activities.

A public relations firm that hires authors to write flattering articles about a client’s prospects without disclosing that they are being compensated to do so isn’t just gaming public opinion, but is running the risk of violating the Rule 17(b) of the Securities Act of 1933, which mandates disclosure of an economic interest in the promotion or sale of securities.

One company that had its public relations firm commission articles, Galena Pharmaceuticals, is already in the SEC’s crosshairs, having received a demand for documents related to this issue.

(Seeking Alpha, the popular stock market news and discussion site, announced last week that it is cracking down on this behavior, largely because of the efforts of short seller Rick Pearson, whose pair of articles highlighted a network of small-cap stock promoters using the site to manufacture good news in order to bolster the share price of their clients.)

The strength of InterCloud’s denial regarding its use of the Dream Team Group prompted the Southern Investigative Reporting Foundation to closely examine its reporting to ensure accuracy and fairness.

A careful re-reporting of the issue has led the foundation to conclude that it stands by its work.

Make no mistake: Regardless of the findings of InterCloud’s attorney or the forcefulness of its press release, authors were clearly paid to publish favorable articles on InterCloud. Moreover, the shares increased in value during the time of this promotion, and according to the terms of the solicitation, senior management was allowed to see articles prior to publication. The only thing limiting the practice appears to have been the inability to find more authors willing to write on the company.

As it stands, InterCloud’s marketing strategy is already centered on using shareholder capital to whip up short-term trading interest. Recall how the company retained the RedChip Companies, a Florida-based small-cap stock promotion outfit, paying it in cash and shares. RedChip’s signature move is to put out a lengthy, easy-reading press release constructed to look exactly like a brokerage firm’s report, including an astronomical “target price,” based on grave-seeming metrics that are equal parts surrealist fantasy and comedy.

The CSIR Group, a Manhattan-based investor relations firm under contract to InterCloud, is the enterprise that directed the campaign to post the articles on behalf of InterCloud. Notably, InterCloud CEO Mark Munro had publicly assured investors that an internal investigation had been completed and that allegations that the company had paid for positive articles were inaccurate.

(The initial Southern Investigative Reporting Foundation article had linked the Dream Team Group to these articles, based on conversations with CSIR management and one of the authors. As shown below, their stories have changed considerably.)

An email exchange between Rick Pearson (who used a pseudonym to pose as a prospective author of these articles) and Herina Ayot, an employee of CSIR, is evidence that CSIR was involved in recruiting and paying authors to write favorable, InterCloud-approved articles.

In the most direct terms possible, Ayot laid out to Pearson how CSIR sought an author for an article developing “convincing arguments for buying the stock,” one that CEO Mark Munro would review. The author would be paid $500 upon publication of the article.

All of which was strange: When the Southern Investigative Reporting Foundation asked CSIR’s founder Christine Petraglia for comment two weeks ago about her firm’s involvement with paid articles, she denied any role in the practice, insisting her firm only provided basic investor relation help to InterCloud.

“We’re too small to do much more than help spread the word and arrange meetings,” Petraglia said at the time.

The Southern Investigative Reporting Foundation called Ayot for some help in resolving this issue.

Ayot, an aspiring novelist whose Twitter feed is chock-full of references to God and warm spiritual affirmations, confirmed that CSIR recruited and paid writers to write pro-InterCloud articles.

Regarding the question of Petraglia’s denials, Ayot’s explanation was simplicity itself:

“Christine lied,” Ayot said.

“In her defense,” Ayot continued, “This is Wall Street and everyone [lies.] We had no idea who you are or why you were asking those questions; you might have been an investor or someone posing as one. We get thousands of calls each day. So we lied to get rid of you.”

When asked if Ayot understood what exactly she was saying about her firm’s actions — lying and covering up, for example, about a serious disclosure matter that the SEC is investigating — she seemed unfazed about the potential for controversy.

“You need to know that on Wall Street, everyone lies and we lied to you to protect ourselves,” Ayot said, before declining to comment about the specifics of CSIR’s work for InterCloud.

Given the regulatory scrutiny ongoing with respect to disclosure, the Southern Investigative Reporting Foundation made repeated attempts to give Ayot a chance to expand on or clarify her remarks. Numerous phone calls were made to residence and cellphone numbers obtained from a private database, and several emails were sent to her CSIR account, but Ayot never replied.

Shortly before this story was released, however, Petraglia called back to explain her side of the story.

She said that CSIR gets many calls daily from investors and traders seeking inside information on her clients and so when the Southern Investigative Reporting Foundation contacted her, “my first instinct was to deny that we did this.”

When asked why she would lie about it — as opposed to issuing a standard “no comment” — and incur possible reputation risk or regulatory scrutiny, Petraglia said only, “I don’t speak to many reporters and I guess I made a mistake.”

With regards to Ayot, Petraglia said she was not an employee of CSIR, but rather worked as a “part-time contractor” for CSIR, whose job was to line up authors to write articles on behalf of CSIR clients. She added that CSIR has stopped doing “that kind of work” for InterCloud Systems and other clients. She declined to comment about who initiated the program and how much it cost.

“I never focused on this issue, and I had never looked at Seeking Alpha before, so I didn’t comprehend that [the lack of disclosure] was a problem,” Petraglia said.

Petraglia is the unconventional choice to publicly represent InterCloud. She is, for example, a licensed stock broker, registered since 2010 with Oberon Securities, according to the Financial Industry Regulatory Authority’s BrokerCheck database. Oberon and CSIR Group share the same office at 1412 Broadway in New York. (Calls made to Oberon co-founders Elad Epstein and Nicole Schmidt were not returned.)

Active in the financial services industry since 1991, Petraglia’s resume includes stints with major firms like PIMCO, Prudential Securities and Nuveen. There has been one regulatory black eye though — coincidentally over a disclosure issue — and she worked for one of the most troubling penny-stock firms during its sanction-inducing heyday.

In 2004, while working for Bear Stearns’ Bear Wagner Specialists unit at the New York Stock Exchange, Petraglia was fired when a firm official uncovered how she had been employed at one firm, but kept her Series 7 brokerage registration listed (or “parked”) at another firm. As financial crimes go, this is a minor one, but the intentional deception provided the impetus for her dismissal.

At another point, she spent 16 months working at the investor relations subsidiary of Ross Mandell’s infamous boiler room Sky Capital. (To be fair, there is no indication that she did business with the investing public at Sky.)

Moving in a different direction, Petraglia became one of the featured “cougars” in an erstwhile reality TV show, “True Cougar Life” that was designed to follow the active lives of five older women who sought relationships with younger men. It was hosted and produced by Brittany Andrews, an award-winning former adult film star who has appeared in 270 different features, according to adult film archives.

Finally, the Southern Investigative Reporting Foundation called John Mylant, the busy author of over 800 articles on Seeking Alpha, several of which were compensated by the likes of Galena Pharmaceutical and InterCloud Systems, to get his take on CSIR’s role.

A self-described options trading coach who earns his income primarily from the sale of health insurance, the Colorado resident said CSIR approached him to write about InterCloud. Like Petraglia, he told the Southern Investigative Reporting Foundation he was unaware of the disclosure issues surrounding this practice.

“I just thought it was a way for me to earn extra money and write about what was interesting to me,” said Mylant, adding that he had retained a lawyer to help him with an interview with the SEC last week.

Mylant said that he was offered $50 to write a pro-InterCloud article for the Dream Team Group and he suggested that it was for the company’s bid to attract attention from a potential client. He declined comment on whether he took the assignment, citing his lawyer’s advice and the SEC investigation.

The Southern Investigative Reporting Foundation sought to discuss its findings with InterCloud’s executive vice president Larry Sands, but he did not respond to a phone message or an email seeking comment.

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The Copper Archipelago: InterCloud

It’s fair to say that a recent New York Observer article ably framed what every investor needs to know about a curious enterprise named InterCloud Systems: Its prospects are marginal and the management doubly so. Experience, however, often shows that companies surfacing from the bronze deep of small-capitalization stock finance have rich backstories.

With that in mind, the Southern Investigative Reporting Foundation dove in, tracing the backgrounds of its executives, advisors and following the money trails between the two.

An examination of InterCloud’s filings did not disappoint, revealing a company that Oliver Stone might love, a rich corporate vein of collapsed ventures and peopled with the alpha promoters of the penny stock world, whose conflicts of interest and links to the graveyards of investor capital are legion.


InterCloud wants you to see it as a “cloud computing” vendor, selling software platforms and services by way of the internet, in the fashion of a Rackspace or Amazon.

What it does for money, as the Observer reported however, is more broadly understood as “cable installation.” Putting in cable is a legitimate business, but it is not one that day traders and momentum investors — the two sorts of investors most likely to own InterCloud at this point in its history — are likely to bid up the share price to own.

So InterCloud is a good example of an important corporate marketing maxim: Words matter. “Cloud computing” or even “carrier network expansion” sounds better than “a series of servers” or “cable installation.” (In turn, both of those sound better than the truly accurate descriptor: “a company’s fifth attempt at developing a business model in under 15 years.”)

InterCloud’s lineage traces to the industry of Michael D. Farkas, a broker in the boiler rooms of New York and Miami in the early and mid-1990s who managed to move up that food chain into founding and running companies that inevitably became heavily promoted penny stocks. In 1999 in conjunction with his former secretary Jamee Freeman, he spun a pair of reverse mergers, and Sky Way Communications, out of a late dot-com era construct he launched called For three years went nowhere until 2001 when Farkas struck a deal with veteran real estate developers Darren and Jeffrey Glick, renaming the company Genesis Realty and promptly resigning. The rebranding didn’t work, though, and the company lay dormant until 2009.

(Sky Way Communications, those with longer memories may recall, got some attention when an aircraft it leased was seized in Mexico in 2006 with over five tons of cocaine on board. In 2009, the Securities and Exchange Commission sued two of Farkas’ colleagues in Sky Way with misleading investors. Farkas, the company’s biggest investor, was not charged in either episode. He is now the chief executive of an electric car charging station vendor.)

In 2009 Gideon Taylor, the former CEO of Able Telecom (a lower-tier fiber installation company whose pronouncements of looming success did not translate into a sustainable business), took over Genesis Realty and began a series of acquisitions within the cable installation field.

To get some capital Taylor first went to Udi Toledano, who runs a series of portfolios that act as a form of small-cap private equity fund and who wound up managing some of the then frozen assets of controversial hedge fund manager Michael Lauer. (Charged with wire fraud and conspiracy violations by Federal prosecutors in 2008, Lauer was acquitted after a jury trial in 2011.) In 2010, Taylor cut a deal with Orlando Birbragher, who had just emerged from serving a 35-month prison sentence for running Pharmacom, an online drugstore whose business model was to sell anyone willing to pay its high-prices for prescription medications, drawing the wrath of the Department of Justice.

The mention of the Birbragher deal in InterCloud’s filings is sterile enough: In February 2011, in exchange for some unspecified consulting services, Birbragher was paid $240,000 in shares in InterCloud predecessor Genesis Group.

Additional digging reveals a clearer sense of Birbragher’s background, which seems to have been ripped from the pages of both Carl Hiaasen and Robert Ludlum in equal measure.

According to Drug Enforcement Agency Special Agent Gary Coffman (who gave detailed testimony about Birbragher’s undisclosed history as part of a pretrial motion federal prosecutors submitted in December 2007), Orlando Birbragher was a drug smuggler for a group allied with a senior general in the Panamanian Defense Forces in the 1980s and early 1990s. Moreover, Birbragher and his father, according to DEA Special Agent Coffman, also ran a busy weapons-smuggling network whose customer was M-19, the Colombian guerrilla movement.

Birbragher was a particularly talented money launderer, according to the DEA’s Special Agent Coffman, and even after his days of shipping cocaine from Panama to Florida were over, he faithfully moved millions of purportedly ill-gotten dollars for Colombian drug traffickers. His efforts in moving cash for these groups through a series of banks — including the one where his then girlfriend (now his wife) Alexis was employed — breached an immunity agreement Birbragher struck in 1991 with Federal prosecutors, and led to his 1994 arrest in Aspen for money laundering charges. (The DEA special agent said Birbragher managed to cut a second immunity deal in exchange for his cooperation.)

This is not the first Birbragher to garner attention for money laundering in South Florida.

In 1981 a Fernando Birbragher was charged for laundering money for Colombian drug group, but it is unclear if he is related to Orlando and he appears not to have been convicted. A call and email to Orlando Birbragher seeking comment were not returned; Fernando Birbragher, who has been involved in a series of small-cap stock ventures, as well as the South Florida aviation business, could not be reached.

Even within the often woolly realm of small cap equity finance, where civil and regulatory headaches are happily dismissed or buried, a transaction with the likes of an Orlando Birbragher is not an everyday development.

So the Southern Investigative Reporting Foundation reached out to the company for a response. InterCloud’s contact for press inquiries is a man named Lawrence Sands, who per the Observer, is an unusual choice to serve in the role of a senior vice president and board secretary of a publicly traded company.

Why is Sands an odd choice? To start with, he resigned as a lawyer in New York State in June 2000 in front of a full-bore state bar review for misconduct involving a client’s escrow account. Sands also served a stint as the chief executive of Paivis Corp., a penny stock company that tried to sell prepaid phone cards and which sought (unsuccessfully) to merge with TrustCash, an online money transfer service. (In September the U.S. attorney’s office in Newark sued a unit of TrustCash for illegal money transmittal activities.)

Sands told the Southern Investigative Reporting Foundation that there had been no “transaction with Birbragher” who had “only helped the previous management” with some “consulting related to introductions to banks.” To that end, “No one [at InterCloud] has ever had anything to do with [Birbragher] since then, we’ve totally divorced ourselves from that relationship.” (It bears noting that Sands was also part of the previous management team, and the current CEO, Mark Munro, was one of the company’s biggest investors.)

Shortly after the call, the Southern Investigative Reporting Foundation found a January 2012 lawsuit on PACER filed by Birbragher against Richard Barsom, a New York-based stock promoter. The gist of the suit is that Barsom purportedly failed to deliver to Birbragher a $75, 000 payment for 50,000 shares of Blue Sky Holdings, then a client of Barsom’s company. Birbragher’s signatory on the collapsed deal was Lawrence Sands, according to the suit. (The suit was dismissed in June 2012 when the court ruled that Barsom had never been served. Reached at his residence, Barsom declined comment about the case and his dealings with Birbragher and Sands, saying only, “I can’t stand thinking about those two fucking clowns.”)

So the Southern Investigative Reporting Foundation called Sands again.

“Look,” said Sands when confronted with evidence of his professional relationship with Birbragher despite his assurances of several minutes prior, “I was doing some work for [Birbragher] in 2012 because he had a connection in California and it looked like we were going to do some deals and he needed some advice. I promise that I stopped working with him after about three months.”

In response to questions about what prompted the relationship to stop, Sands was emphatic, “[Birbragher] stiffed me; he just never paid me. I thought he had money but he didn’t. I can’t deal with liars, integrity is everything to me.” Despite a series of questions about Birbragher, drug smuggling and money laundering, Sands described that period in InterCloud’s history as, “Being really rough to get [a deal] going. You have to remember, our stock price was really low then and people didn’t like dealing with Gideon Taylor. Mark Munro has made things much easier.”

The Sands-Birbragher axis had one more angle left to explore and in a follow-up call, the Southern Investigative Reporting Foundation asked Sands about a pair of businesses registered on the same day in January 2012, Card Technology Service LLC and Card Technology Inc. Although the companies seemed to be identical, the entity that was titled an LLC listed Birbragher as an officer but expired in October 2012 and is classified as “inactive”; the corporation listed “Larry Sands” at the address of the InterCloud office in Boca Raton. Moreover, both businesses appear to be connected to credit card processing, the same business that Blue Sky Holdings was in.

After initially denying that he had ever heard of these people or businesses, Sands suggested that since “I try to help so many people because I am a lawyer, maybe I signed something and can’t remember when” or for whom. After several minutes Sands also recalled the name of one of the other officers but he took great pains to note that signing a document “Larry” is not something he would ever do because, “It is inappropriate to use a nickname in business dealings.”


The balance of InterCloud’s filings are also revealing.

Consider that its auditor was Sherb & Co. LLP, a firm the Securities and Exchange Commission sued last year for failure to properly supervise and make necessary disclosures about the audits of three China-based client, resulting in a fine and the multiyear suspension of its general partner and two other employees. The Public Company Accounting Oversight Board has posted a series of unflattering examinations of Sherb’s audit work going back almost a decade, regularly questioning whether the firm’s auditors conducted standard procedures like revenue verification. (It has since hired BDO USA Inc.)

When the shares of a typical company start to run up in price, there could be anything behind it, from a surprisingly good earnings report, to a bullish analyst call or even a well-regarded money manager proclaiming the value in a specific market sector.

When a penny stock is moving, it’s a certainty that someone, somewhere is saying or doing something to pump the share price.

While InterCloud’s never-ending flow of press releases proclaiming its new opportunities in a popular sector have certainly attracted buyers, the company’s use of promoters — a classic sign of a penny stock — has kept the company in the spotlight, after a fashion. For example, last week RedChip Companies released a report that put a $47.10 price target on InterCloud’s shares. Looking and reading every bit as crisply as a standard brokerage report, investors might assume that the industry and sales metrics cited for a likely 250% gain in share price were coming from someone who had independently weighted these arguments and made a bold call.

But that would be wrong: The Maitland Fla.-based RedChip is an investor relations firm whose strategy centers on putting out “research reports” written for, and approved by, its clients. In other words, they are press releases seeking to appeal to the marginally aware investor (RedChip’s work on behalf of its Chinese clients proved so damaging to investors that they dropped “coverage” of the sector in January 2013.)

For its work on InterCloud, the fine print at the bottom of the 14-page report discloses RedChip was paid 7,500 shares and is being paid a monthly cash fee for six months of investor relations work.

As the Observer reported, an odd footnote to InterCloud’s promotional gambit was the appearance of a pair of articles on the stock market commentary website Seeking Alpha that touted InterCloud’s prospects, posted in December and in January. Authored by John Mylant and a writer using the pseudonym “Kingmaker,” the pieces strongly advocated for InterCloud’s bright prospects because of the talent of its management and the fast growth of the cloud computing sector.

Not disclosed was the fact that the authors unflinching support for InterCloud was also a function of being paid to promote the shares. Last week, Rick Pearson, a West Coast-based investor, posted an article on Seeking Alpha describing how DreamTeamGroup, an investor relations firm ostensibly based in Indianapolis, solicited and paid writers to write enthusiastic, company reviewed and approved articles for release on Seeking Alpha, with the goal being to attract investors and drive up the share price.

According to Pearson, two of the more prolific DreamTeamGroup veiled touts were John Mylant and a man named Tom Meyer, a DreamTeamGroup employee who admitted to using the “Kingmaker” pseudonym.

(Mylant, who contacted the Southern Investigative Reporting Foundation after this story was posted, said he has regularly posted articles and comments on Seeking Alpha and that the opinions he expresses were his own. He acknowledges being contacted by a “Tom” — Mylant did not recall his last name or company–who offered to pay him for articles written about companies he was already interested in. He said he is no longer working with “Tom.”)

So a call to Lawrence Sands was in order.

Sands initially denied having heard of or used DreamTeamGroup but after being pressed on the matter said that he has “gotten maybe a few emails from them, stuff that got caught in the ‘spam’ filter.” He continued to argue that it was unlikely InterCloud used DreamTeamGroup for anything, however, since RedChip and a small New York firm, CSIR, were handling the company’s investor relations work. (CSIR founder Christine Petraglia said she had nothing to do with this issue, and said she provided InterCloud standard public- and investor relations services.)

Just before releasing this article, the Southern Investigative Reporting Foundation found a clear link between DreamTeamGroup and InterCloud: a January 21 posting on DreamTeamGroup’s own blog that was cross-posted to a unit of DreamTeamGroup’s “Instablog” at Seeking Alpha.

A call to Lawrence Sands was not returned.

Update: This article has been amended to include a comment from John Mylant denying that he is part of an organized stock-promotion effort.

Clarification: A disputed December 2011 transaction between Orlando Birbragher and the stock promoter Richard Barsom was mischaracterized and has been changed to reflect the claims in a lawsuit.