Martin Sumichrast’s prior stock deals and his association with less than savory traders and promoters has been well documented elsewhere, but for the purposes of unraveling the Level Brands filings, perhaps the most specific and relevant allegations come from testimony given in a 2008 lawsuit.
Critical testimony alleged that Sumichrast was party to a scheme where he and a partner Ralph Olson, as part of a consulting firm known as Crown Reef Holdings, received large blocks of stock warrants for which they allegedly provided no services. Olson traded this stock heavily through various entities:
Unknown to investors until anecdotes of Sparks’ deposition were made public as part of the July 2008 investigation, neither Sumichrast nor Olson provided any services to Recom/Signalife in exchange for the warrant they were awarded to buy 900,000 shares at $.50 (split-adjusted). According to Sparks, Olson traded heavily in Recom/Signalife stock through various entities, including another joint-Sumichrast and Olson entity, Lomond International, Inc., which Sparks testified was also involved in eMedsoft/Med Diversified..
The methods alleged in the testimony sounds conspicuously similar to details in the Level Brands IPO. Also outlined is the original connection to Kathy Ireland, Jason Winters and Erik Sterling. Figures who will come into play in a major way in future blog posts:
Sumichrast and Olson also have extensive financial dealings … including in House of Taylor Jewelry, Inc., a Nasdaq-traded company formed in May 2005 whose stock collapsed from a high of $7.50 just six months after formation to less than a penny by July 2008.
This testimony provides insight into how far back the business relationships between Sumichrast, Ireland and Winter’s goes:
- Martin Sumichrast helped launch House of Taylor through a company called Lomond International he ran with Olson. Elizabeth Taylor is the “Taylor” in the failed House of Taylor Jewelry.
- Kathy Ireland licensed a line of jewelry to House of Taylor and was a close friend of Taylor’s in her latter years.
- Jason Winters was reportedly Taylor’s closest friend during her last years and may have inherited her fortune. ( See this article for more info: Elizabeth Taylor’s Closing Act )
The transactions described above–exchanging stock, options or warrants for “services” or other assets of questionable value–seem to specifically parallel multiple transactions referenced in Level Brands annual report. They resulted in large blocks of stock transferred prior to the IPO to entities closely associated with or employed by Kathy Ireland Worldwide, in exchange for controlling interest by Level Brands in business entities that had little or no apparent business history, offices, employees, phone numbers or even an online presence.
Those transferred blocks of stock came under the control of Jason Winters and his close associate Erik Sterling, now executives with Kathy Ireland World Wide, and transferred to a wholly owned subsidiary known as Sterling Winters.
Something for Nothing, Get Your Kicks for Free
The stock transferred to Sterling Winters–for what appeared at the time to be ghost companies–was valued in the annual report at less than $600,000. A huge sum in exchange for two entities whose primary reported business income was from transactions with Kathy Ireland World Wide and another business known as Sandbox LLC. At the time of the initial filing, it was not made clear that Sandbox LLC was a related party, owned at least in part by Erik Sterling. It was clarified in the latest filing within the multi-page related parties disclosure. (Related parties, it seems, are the primary source of income and expenses for Level Brands.)
The $600,000 value claimed for those shares pencils out to be less than one-sixth of their valuation based on the already planned IPO. The shares were in fact worth close to four million dollars.
The circular reasoning for exchanging pre-IPO stock for these companies (“EE1” and “IM’1”) seems to be in their purported business relationship with Kathy Ireland World Wide. A relationship Level Brands had already directly established with KIWW, and was paying a premium for.
The annual report also lists another enormous block of stock transferred for “services rendered” to related parties with no explanation as to what those services where and what value was conveyed to Level Brands, its investors, or the company’s bottom line.
For Jason Winters and Erik Sterling, the benefit was clear. Through stock transferred to their entity Sterling Winters, they became major shareholders in Level Brands prior to the IPO and would be able to trade that stock without restrictions.
Free trading shares are the integral key to a pump and dump strategy.
For Martin Sumichrast, Practice Makes Perfect
Martin Sumichrast wasn’t idle between the failure of House of Taylor and the Level Brands IPO. Testimony in the referenced lawsuit alleges more about Martin Sumichrast’s association with questionable companies and convicted criminals:
As further revealed in July 2008, Sumichrast and Olson have numerous ties to
companies at which principal investors and officers have either been convicted of or
charged with fraud as well as individuals who have themselves been charged with fraud.
For example, Sumichrast was a member of the board of directors of A1 Internet.com, Inc.
The second-largest shareholder of A1 Internet.com, Inc. was convicted of fraud and three other individuals, including the CEO, were convicted or pleaded guilty in a separate fraud case involving sale of A1 Internet.com, Inc. stock.
Sumichrast and Olson were also investors and major shareholders of American Corp. with Thomas T. Prousalis, Jr. (“Prousalis”). Prousalis was subsequently indicted for fraud in a scheme that also included the President of Barron Chase Securities, Inc., who went to prison for his role.
These associates also continued to be involved in other deals, including a market manipulation scheme that bilked investors of more than $30 million dollars and reads like a road map for Level Brands stock transfers, spokesmodels, social media puffery and smoke and mirror press releases, and a slew of related party transactions.
More to come on that in future posts as well.
The Level Brands Investigative Series
Part 1: Level Brands 2017 Annual Report