The Securities and Exchange Commission is turning up the heat on Miami-based 5th Avenue Channel Corp., and it may sue the company for making misrepresentations in public statements.
The company disclosed the latest developments in a June 30 SEC filing. It first disclosed the SEC investigation last summer, noting in an SEC filing that the "investigation focuses on whether we and other persons misrepresented certain of our affairs in press releases and public filings during 1998 and the early part of 1999."
Many of the press releases 5th Avenue issued during that period touted plans to launch a luxury-goods infomercial channel with Ivana Trump. That launch never happened.
In March, 5th Avenue did launch a cable-programming service called Net Video Networks. The service produces a two-hour financial-news show, Net Financial News, which is targeted toward amateur investors. The programming is distributed on bankrupt cable channel America's Voice.
The company also had a deal to launch the programming on Comcast's CN8: The Comcast Network regional channel. But after a dispute in March, the two companies reached a deal to instead distribute the show on overflow channels that normally carry community bulletin boards.
In the June 30 filing, 5th Avenue disclosed that it was recently notified by SEC staff that as a result of the investigation, it is considering recommending the launch of a public administrative proceeding or bringing an injunctive action against the company and its CEO, Melvin Rosen.
"Although we continue to believe that our conduct in 1998 and early 1999 does not warrant the imposition of such legal proceedings, we cannot predict whether we will be successful in convincing the staff or the SEC of this position or of otherwise reaching a satisfactory settlement," 5th Avenue wrote in the filing.
SEC officials declined to comment, citing agency policy to neither confirm nor deny that it is conducting ongoing investigations.
The SEC moves come at a crucial point for the company. In recent months, two of its executive vice presidents, Adam Taylor and Ron Wishna, obtained temporary restraining orders against Eric Lefkowitz, 5th Avenue's senior vice president and second-largest shareholder, alleging repeat abuse. The restraining orders have since expired.
Taylor alleged in his petition for a restraining order that Lefkowitz hit him in the head with a telephone receiver in February, and that in April, Lefkowitz punched him the face and chased him around the parking lot outside 5th Avenue's Miami headquarters.
Two sources familiar with Taylor's case said he reached a settlement with 5th Avenue. Taylor didn't return calls, and his attorney, Martin Goldberg, declined to comment.
Wishna, who lost an attempt in court last week to obtain a permanent restraining order against Lefkowitz, is now cooperating with the SEC investigators. "The SEC has been calling me daily, notwithstanding weekends and holidays. Their game is definitely on," he said last week.
Wishna claimed in his petition for a restraining order that "two men portrayed as mobsters" visited him at his job, and that one of the men, who said he represented Lefkowitz, threatened to harm him and his family if he released information about Lefkowitz. Lefkowitz is an ex-convict with a rap sheet that dates back to 1978.
Wishna added that 5th Avenue executives "volunteered my name and quoted me for things I never said" in press releases.
The company did not disclose which specific press releases and SEC filings were involved in the investigation.
Through press releases, 5th Avenue has announced a wide range of projects it would launch, but they apparently have yet to be executed. Among those: a Sept. 11, 1998, announcement boasting that 5th Avenue Channel "would be airing in 5 million homes across the United States.as well as in over 100 million homes in Europe, Asia and South America as part of the Fashion TV Paris programming lineup."
By mid-1999, the channel would be in "over 15 million full-time and part-time U.S. homes," according to the press release.
That distribution has yet to materialize. "Subsequently, the terms started to change, and I wasn't sure that was the right direction to go," Rosen said in April, adding that he is back in talks with Fashion TV.
There was also a Dec. 2, 1998, joint announcement with Reliant Interactive Media that said the companies would launch 5th Avenue Channel and an accompanying Web site in Japan. The site and Japanese channel have apparently never launched.
On May 7, 1999, 5th Avenue said it struck a deal with Cryo-Cell, a Clearwater, Fla.-based company that markets a service to expectant parents in which the company freezes umbilical-cord blood-stem cells so that they can be used down the road by the baby or other family members.
"Under the terms of the agreement, Cryo-Cell and 5th Avenue Channel will have an equal 50-50 partnership in a new corporation being established-Newbirth Network Inc. This new entity will offer important health information and products to expectant parents through 5th Avenue's television, Internet and mass-marketing distribution systems," the announcement read.
The deal also gave 5th Avenue "first-refusal rights for any joint venture for cellular storage in South America."
But all 5th Avenue ever did was produce an infomercial about Cryo-Cell's service, Cryo-Cell CEO Daniel Richard said. "They had a thing called Newbirth, but I don't think there's been anything done on that," he added.
"I think we're going to accomplish all of it," Rosen said during an interview in April regarding the press releases, insisting that the company has never issued false statements. "No press releases went out of this company that weren't true. There may have been subsequent changes-a change in business plans," he added.
Last Wednesday, 5th Avenue stock hit a new 52-week low of 63 cents per share.
Shares in 5th Avenue have peaked during periods when certain press releases were sent out.
The stock closed at a high of $16.75 Dec. 27 and 28, 1998, a few days before the Reliant Interactive deal was announced. It crashed later that month after a report in Barron's magazine, disputed by 5th Avenue, claimed that the company had ties to alleged stock manipulators.
Shares of 5th Avenue, which traded for between $2 and $3 in December, closed at a high this year of $8.13 March 3, the last trading day before the March 6 announcement of the launch of Net Video Networks. Shares in the company have fallen steadily since then.
The company's original business, through Tel-Com Wireless Cable TV Corp., consisted of wireless cable systems in Costa Rica and La Crosse, Wis.
After launching the La Crosse operation, Wisconsin Wireless Cable TV, in 1994, 5th Avenue has managed to sign up just 800 subscribers to the 17-channel package in six years. The Costa Rica system counts 1,700 subscribers.
A total of 800 subscribers "is a terrible number," Rosen conceded, adding, "The value of holding onto that piece of the business is in the value of the frequencies."
Rosen, a founder of TVN Entertainment Corp., became CEO of Tel-Com through a deal he reached with the company to restructure a $2 million debt it owed to him.
First-quarter losses of $2.7 million were reported by 5th Avenue, compared with $1.2 million during the same period in 1999.