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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.