SCOTT BROWN’S adventures with Global Digital Solutions may be the final straw that will keep him an erstwhile senator. The involvement by Brown with GDS, a sketchy organization whose executives have been sued for fraud, raises significant questions about his judgment. His reaction to the criticism, which amounted to “why’s everybody picking on me,” only serves to exacerbate his problems.
GDS was formed approximately 19 years ago to sell beauty products, then restyled itself, first as a wireless data company, then as a weapons manufacturer. The progression from shampoo and hair spray to guns makes little sense, but that may be why GDS asked Brown to become a member of its board of “expert advisors” instead of me.When Brown accepted the invitation to join the GDS board last September, he received stock valued at $1.3 million. Call me cynical, but when someone offers me $1.3 million in a get-rich-quick scheme, I usually forward the invitation to my junk email folder. At the very least, I will Google the sender’s name to see if he really is a Nigerian prince. But not Brown, who instead sold his name to GDS with little due diligence. If he had asked a few questions, he would have learned that the company, as reported by The Boston Globe, had no revenue, no products, no trademarks, no patents, no permanent physical office, and only four employees. Even if he was too shy to ask direct questions of GDS’s management, a quick Internet search would have revealed that two of the company’s executives were involved with another company, Argo Digital Solutions. The executives and Argo were sued for fraud for allegedly siphoning investor money away to another company.
Any lawyer worth his or salt knows you can easily run a federal courts litigation search online as part of a minimal background check. At the time Brown received the GDS invitation, he was a partner with Nixon, Peabody, a top-notch law firm with offices around the nation. Had Brown asked, his legal assistant could have uncovered the litigation involving the company’s executives in minutes. It would have been very simple for Brown to learn that the people who wanted to use his name were accused of participating in a “pump and dump” scheme. Pump and dump occurs when a company uses misleading or false news, such as a merger or a big contract, to entice investors to buy the company’s stock. This pumps up the stock’s value. The company’s executives then “dump” their stock at the inflated price. When the merger or contract never happens, the stock price drops, leaving the investors with worthless shares.
Was GDS a pump and dump scheme in the making? A few months after Brown joined the GDS expert advisory board, the company announced a bid to buy Remington Arms Co. for $1 billion. Remington mocked the offer, calling the bid a publicity stunt by a company with no credible financing options. At this point, a light bulb should have gone off in Brown’s head that something was not quite right. But Brown did not have the good judgment to ask questions.
Two weeks ago, it was the media that began asking questions. This was another opportunity for Brown to extricate himself. Instead, he defended GDS, saying its lack of assets and employees were due to the company being a startup. How a company that was formed in the last century can be called a startup is a mystery. But then, Brown’s actions have been nothing but a mystery. Finally, as the questions continued to mount, Brown resigned his post and returned his stock, calling the matter “an unnecessary and unwanted distraction.” Yes, it was unnecessary, but not because of the media attention. It was Brown’s own incredibly bad judgment that got him into this mess when he sold his name to a company without an office run by executives accused of securities fraud.
Brown is compounding his problems by failing to submit a financial disclosure statement required of Senate candidates. He has obtained an extension until August, although the forms aren’t particularly difficult. In light of the GDS issue, Brown’s refusal to file his disclosure raises questions as to whether there are any other problematic corporate or other ties that he does not want to talk about.
None of this suggests that Brown himself knew of the issues with GDS, but that is the point. It looks like he was so eager to cash in on his fleeting fame that he failed to find out who his new friends were. New Hampshire does not need a senator with Scott Brown’s lack of judgment.
Kathy Sullivan is a Manchester attorney and member of the Democratic National Committee. She was chairman of the New Hamsphire Democratic Party from 1999-2007.