Arrest Compels Look at Perils of Dot-Com World
Michael Adam Fenne, whom a Virginia judge once dubbed a “golden-tongued salesman,” surfaced in California last fall and set the dot-com world afire.
After launching a splashy Internet company and raising $23 million from investors, he spent $10 million on a lavish party in Las Vegas that had the rock band the Who plugging his San Juan Capistrano company, Pixelon.com.
It was the Web party of the decade. It also led to the unraveling of Fenne’s troubled past.
This week, Fenne, whose real name is David Kim Stanley, surrendered to Virginia state police and was being held Friday in a jail in Wise, Va. He is a convicted embezzler who bilked people out of hundreds of thousands of dollars and then failed to appear in court. He had been on Virginia’s most-wanted list for three years.
Stanley, 39, and his attorney, Anthony Collins, did not respond to numerous messages seeking comment Friday.
The board at Pixelon dismissed Stanley days after the Las Vegas bash last fall without elaborating. Executives at the private company declined to be interviewed Friday but said in a statement that it learned of Fenne’s real identity this week and that Pixelon will investigate whether Stanley stole any money from the firm.
The case is perhaps the most extreme example to date of the frenzied hunger among venture capitalists in the so-called new economy, where phenomenal returns have made backers so eager to jump aboard the next hot dot-com that they sometimes have failed to exercise diligence.
“That’s amazing,” said Stewart Schuster, a partner at Brentwood Venture Capital in Los Angeles. “It’s the kind of lesson that jars people back strongly.”
Lately investors have retreated from Internet companies, and ethical questions have surfaced about slipshod accounting and business practices at some Web firms.
Pixelon, an online broadcast network, creates software allowing people to watch audio and video programs over the World Wide Web. The company was founded in 1996, after former President Stephen Curtis met Stanley on a project to license images from the film “Star Trek: Insurrection.”
Court records indicate that Stanley was the company’s founder and, at some point, president. Initially, the firm kept a low profile. It compiled video clips and television performances and honed its technology. It did Webcasting for the Anaheim Angels and Mighty Ducks, streaming video of the games over the Web.
Such ventures and his marketing skills helped Stanley raise millions of dollars.
While established Silicon Valley investment firms have made billions of dollars by backing technology ventures, hundreds of imitators have sprung up to compete for the hottest new deals. As a result, venture investing has exploded from $3 billion in the first quarter of 1999 to an estimated $25.5 billion in the same period this year, according to Technologic Partners in New York.
With so much money floating about, reasonable business plans get funding quickly, but so do dot-com long-shots. With opportunities traveling at Internet time--which is often measured in hours instead of months--the chance to thoroughly investigate a company and its principals is fleeting, financial experts say.
“There has been less due diligence in some respects,” said Mark Heesen, president of National Venture Capital Assn., representing 380 firms. “It’s more compressed. If investors don’t jump on a deal, someone else is going to.”
Huge Party Was Warning Sign
Advanced Equities Inc., a venture capital firm in Chicago, was the lead investor in Pixelon.
“I can’t speak for Mr. Fenne’s past, or whatever his name is,” said Keith Daubenspeck, head of Advanced Equities. He declined to say whether his firm had looked into Stanley’s background.
He added: “But the technology that was developed was absolutely fabulous. I would challenge anybody to show me something that’s better.”
Other potential investors were concernedwhen Stanley threw the Las Vegas party last October, and to some it was a warning sign.
It was dubbed the “iBash.” Stanley told reporters at the time that it was his attempt to “own” Las Vegas--and the massive high-tech trade show Comdex--for a weekend. Held at the MGM Grand Hotel and Casino, the event was hosted by comedian David Spade and featured 10 performers, including Natalie Cole and Tony Bennett.
The artists were to be paid in both cash and Pixelon stock, according to court documents filed in California by Pixelon employees.
“When a company has that kind of an event, where so much money is spent, you wonder about who is controlling the company,” said Paul Laberge, vice president of corporate development at Alliance Atlantis, a Canadian film and television production company.
Pixelon has approached Alliance and others in search of investments, said Laberge and other industry sources.
Son of a Baptist preacher, Stanley grew up in the town of Wise, population 5,000--a place where most folks work in the coal mines and where more than one of nine people is out of a job.
Stanley attended Oral Roberts University but did not graduate, according to law enforcement officials. On the Virginia state police’s most-wanted Web site, Stanley is described as a musician who has “used the name ‘Dazzling Dave’ at his piano performances.”
He worked as a securities broker in the 1980s, when he handled many investments from members of his father’s church, among others, according to officials.
“He played the organ and is a real talker,” said attorney Jerald Gray, the special prosecutor for Wise County, which filed fraud charges against Stanley in 1988. “He convinced those people he could work miracles.”
Stanley pleaded guilty in 1989 to 55 counts of fraud, and admitted to illicitly taking about $750,000 from Virginia residents and $500,000 from Tennessee victims who thought it was being invested in the stock market.
A judge in the Wise County Circuit Court described Stanley as “the man who fleeced his father’s flock,” according to law enforcement officials and local sources.
Stanley received a deferred sentence and the court delayed sending him to prison to give him time to pay back the money he had taken. After repaying a portion of the money, law enforcement officials say, Stanley disappeared from his Kingsport, Tenn., home in 1996.
Just when he arrived in Southern California is unclear.
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Times staff writer Robin Fields contributed to this story.
