Money, Politics and the Undoing of Stan Lee Media

In the long, hot summer of 2000, Stephen M. Gordon and his associates wrote big checks by the dozen.

One, for $63,788.48, went to Wolfgang Puck’s restaurant Spago, for catering. Another, for $12,800, paid Rogers & Cowan for publicity. Yet another, for $30,048.31, covered a private jet trip for Cher.

The money came from brokerage accounts in the Century City office of Merrill Lynch & Co. and was to fund what became a cornerstone event during the week of the August 2000 Democratic National Convention in Los Angeles -- an A-list Hollywood gala honoring outgoing President Clinton that raised $1 million for First Lady Hillary Rodham Clinton’s fledging New York Senate campaign.

Gordon was right-hand man to entrepreneur Peter Paul, who provided the money by borrowing against Merrill Lynch margin accounts secured by more than 1 million shares in Stan Lee Media Inc. Gordon was then Stan Lee Media’s executive vice president in charge of operations, and Paul, officially a consultant to the company, was its co-founder.

This was New Economy money: Stan Lee Media had never turned a profit. It had value thanks to the dot-com bubble and the reputation of its namesake chairman, comic book genius Stan Lee.

With startling speed, the money disappeared into the hungry maw of a political venture that was growing more expensive by the minute. Ultimately, the checks written that summer would contribute to Stan Lee Media’s collapse and help trigger a sequence of events that may lead to a prison sentence for Gordon.

They also sparked the interest of prosecutors investigating how a young, little-known Los Angeles fund-raiser, Aaron Tonken, now facing criminal charges in a growing scandal, so easily gained access to the highest levels of political power and celebrity.

Paul had hoped to draw attention to Stan Lee Media by funding the Clinton gala. He planned to spend $525,000, but the tab kept soaring. Two weeks before the Aug. 12 fund-raiser -- set to coincide with the Los Angeles convention -- Gordon told Paul that he already had committed $1.3 million.

By Gordon’s recollection, Paul, his face “beet red,” cornered Hillary Clinton’s national finance director, David Rosen, who was organizing the gala from an office in Stan Lee Media’s Encino headquarters. In a rage over the mounting costs, “he was swearing at Rosen,” Gordon remembered.

Gordon said that Rosen answered: “Guess what, Peter. If you don’t come up with the money, we’ll just call it off.”

Unwilling to pull the plug, Paul and his people kept writing checks, until they totaled more than $2 million -- helping to make for a glittering tribute in Mandeville Canyon that overshadowed other events during the convention.

Three years later, the fallout continues from what turned out to be a perfect storm of ambition, Web-mania and political need.

In recent weeks, federal investigators have expressed interest in reviewing with Tonken the details of his political fund-raising and related matters, said sources familiar with the situation. A protege of Paul, Tonken has said he connected Paul with the Hillary Clinton campaign by calling with an unsolicited offer of support and joined Rosen in helping to launch the August 2000 fund-raiser.

In May of this year, Tonken was charged with mail fraud in connection with his charitable promotions that weren’t connected to the political activity. The California attorney general accused him in a civil suit of diverting or failing to account for more than $1.5 million from charitable events such as the “Family Celebration 2001,” which was co-sponsored by the Clintons and the cast and crew of the “Ally McBeal” TV show.

Gordon is set to appear in federal court for sentencing Aug. 4. The former Stan Lee Media executive and two associates were convicted in what prosecutors described as a “check-kiting” scheme connected with the company’s collapse, which came just months after the Clinton tribute.

Gordon, who plans to appeal his conviction, maintains that he is innocent and is merely a convenient target -- a small part in a much larger scandal. “I know I didn’t do anything wrong,” Gordon said in an interview.

Paul, who has been in prison in Brazil awaiting extradition, faces trial both in Los Angeles and in New York, where he, Gordon and others have been charged with additional fraud counts connected with the failed media company. Legal representatives for Paul said they expected him to mount a strong defense.

Stan Lee hasn’t been charged, and prosecutors haven’t leveled claims against anyone connected with the Clinton campaign.

Lee declined to discuss the fund-raiser or Stan Lee Media’s collapse. Rosen, who operates a Chicago consulting business called Competence Group, declined several requests to be interviewed. A spokesman in Hillary Clinton’s New York Senate office declined to comment.

Court papers, check registers, company documents and interviews with Gordon and others make it clear that Paul’s political spending -- much of it prompted by Rosen’s threat to pull out of the gala -- helped trigger a meltdown that sent Stan Lee Media into a Chapter 11 bankruptcy proceeding in February 2001 and now is threatening at least half a dozen people with prison terms.

Seeking Attention

As the Internet craze peaked in 1999, Paul joined Lee in launching Stan Lee Media as the platform for a new wave of animated creations that first would be seen on the Web. The comic book icon, now 80 years old, had become the publisher of Marvel Comics in 1972 and was a major force behind Spider-Man, the Incredible Hulk, X-Men and other superhero franchises.

In the heated political season of 2000, Paul saw big-time political giving as a quick way to put the aging Lee back in the spotlight. But neither he nor Lee was playing the game with ready cash. Instead, Paul used borrowed money.

According to Gordon -- who either signed or reviewed most of the checks in his position as Stan Lee’s executive vice president in charge of operations -- the $2 million that Paul eventually poured into the Clinton campaign came almost entirely from margin accounts at Merrill Lynch. Investors using margin accounts can borrow as much as 50% of the market value of securities in those accounts.

With the assistance of a local Merrill Lynch manager, Paul maintained margin privileges on a number of accounts at the brokerage firm’s Century City office under company names such as Cyberia Inc., World Network Inc. and Hollywood Holdings. Paul’s Stan Lee Media shares were scattered among the accounts, allowing the entrepreneur to borrow much more than the $500,000-per-account limit that Merrill’s East Coast officials had placed on lending against the Web firm’s thinly traded stock.

Tonken has told federal investigators that Paul also transferred Stan Lee Media shares valued at $1.3 million to yet another Merrill Lynch account in Tonken’s name, according to notes of an FBI interview with the fund-raiser. Tonken told investigators he spent a substantial amount of his $500,000 in borrowings against those shares on the Clinton gala.

A New York federal grand jury indictment of Paul and Gordon, among others, said Merrill Lynch lost $5 million it had lent to Paul, much of it via checks against the margin accounts. By Gordon’s count, about 40% of that amount went to support the Clinton event.

Merrill Lynch froze activity in the accounts in November 2000, according to a sentencing memorandum recently submitted on behalf of Gordon, and checks started bouncing. As described in the memorandum, word quickly spread through the investment community that Stan Lee Media was out of cash, leading to a plunge in its stock price. That triggered margin calls in investor accounts, causing rapid stock sales and still lower prices.

Soon, the stock had dropped low enough to invalidate an agreement under which the company was to have received $40 million in badly needed capital and credit, undermining its viability. The returned checks figured in the kiting charges later leveled against Gordon and others. Stan Lee Media ultimately was shuttered.

Although Paul complained about having been pressed for contributions -- and filed a now-dismissed lawsuit against the Clintons -- it was Merrill Lynch that was stuck paying for most of the gala when loans on the Stan Lee Media stock went bad.

A Merrill Lynch spokesman said the company received $4 million in default judgments against various Paul companies but has collected no money. “Merrill Lynch was victimized in this matter and has cooperated fully with all the law enforcement agencies that have pursued this case,” the spokesman said.

$100,000 Request

One of the more intriguing exchanges between Stan Lee Media and the Clinton camp took place in August 2000: When the company’s stock still was riding fairly high, Rosen faxed Gordon detailed instructions for the transfer of $100,000 worth of company shares to the Working Families Party. The party had agreed to support Hillary Clinton under New York’s system of “fusion” voting, which permits a candidate to appear on the ballot for more than one party.

The request, first made Aug. 3, was repeated Aug. 24, apparently because the funds hadn’t been sent. The second fax came nine days after the Clinton campaign made a public show of returning a $2,000 personal contribution from Paul in the wake of a Washington Post report that the entrepreneur had previous convictions for cocaine possession and other felonies.

Gordon said in an interview that he instructed Merrill Lynch to transfer 5,000 shares, or half the requested amount, given the stock’s roughly $10-a-share price at the time, from one of Paul’s accounts. A handwritten notation on the Aug. 24 fax reads “DONE 5,000.”

Robin Epstein, a spokeswoman for the Working Families Party, said a review of the party’s accounts showed that no such shares were ever received. Epstein said she didn’t know whether Rosen had discussed channeling a contribution from Paul to the party, why an unusual transfer of stock from a highflying Internet company was contemplated or how Clinton’s finance director acquired detailed information about the Working Family brokerage account at Morgan Stanley.

If the requested $100,000 gift had been made, it would have matched a $100,000 donation that, Gordon said, initially got Paul “in the door” with the Clintons.

By Gordon’s account, Paul was the donor behind the company’s July 31, 2000, contribution of $100,000 to the New York Senate 2000 Committee -- a “soft money” fund operated by Clinton, the New York state Democratic Party and the Democratic Senatorial Campaign Committee.

As reported to the Federal Elections Commission, the Senate 2000 gift came from Stan Lee Media; but Paul repaid the full amount to the Web firm from one of his Merrill Lynch accounts, Gordon said. A government exhibit submitted in Gordon’s trial showed a Nov. 6, 2000, Merrill Lynch check for $100,000 from one of Paul’s companies to Stan Lee, who in turn paid that amount to the Stan Lee Media company on that day.

Some Glitter Fades

Despite its apparent glitter, the Clinton gala wasn’t a complete success. The event did raise more than $1 million for Hillary Clinton’s campaign, in which she defeated Republican Rick Lazio to become New York’s junior senator. But it cost about twice that amount to throw the party. Many prime seats at the event’s exclusive dinner finale, priced at $25,000 each, were given away, Gordon said, many to Hollywood stars such as Brad Pitt, Jennifer Aniston and John Travolta.

By Gordon’s count, only about 40 of 100 dinner seats were paid for, leaving Paul angry about the high number of “freebies,” who drove up the cost of the event without boosting the contribution total.

Still, Paul had put Stan Lee Media on the map -- for a few days, at any rate.

By the next week, Paul’s criminal past had been made public, the politicians had moved on and the deepening legal hang-over for Gordon, Paul and others had set in.