A dubious company enters the Empowerment Zone — and lawyers come out ahead
When Black Americans of Achievement (BAOA) Inc., a California-based company whose only product in 18 years was a Trivial Pursuit-like board game, came to Atlanta's Empowerment Zone for a loan, it had big plans — a telemarketing center that would employ hundreds.
Never mind that is also had few assets, hardly any revenues, and the chairman of its board soon would plead guilty to federal money laundering charges. In the Atlanta Empowerment Zone (AEZ), big plans count. Of course, it also helps if you enlist a prominent attorney with direct connections to the mayor's office.
But now, the big plans have come to naught. No jobs have been created, no call center opened, and the only people paid are the lawyers. And they stand to make even more money if BAOA takes the city to court — which seems likely — for failing to come through with a loan that the company's leader thinks was promised.
The story of Black Americans of Achievement goes back to 1983, when it was founded in California as Tahoe Lake Concessions Inc. It was another 10 years, though, before the company conducted any business. In 1993, the company changed its name to BAOA and began selling a board game by the same name. The company counted Jesse Jackson as a member of its advisory board.
In 1997, though, BAOA decided its future lay not in games but in telemarketing. The company would open call centers in Atlanta, New York City and Los Angeles. Even better, BAOA would open those centers in each of the three cities' "empowerment zones" — large, decaying urban swaths that stood to receive $250 million shots in the arm from the federal government. A portion of that money — $12.8 million in Atlanta's case — would be disbursed to businesses that would locate in the zones and hire local residents.
BAOA started the Empowerment Zone loan process in 1997, submitting its application to the city and meeting in October of the same year with top Atlanta officials such as Mayor Bill Campbell, who was given his own Black Americans board game by BAOA CEO Peter Van Brunt.
The loan process proved slow, but BAOA felt confident enough that — before receiving any money — it reported Atlanta's cash commitment as a done deal in its 2000 Securities and Exchange Commission annual filing. The company also claimed that the Upper Manhattan Empowerment Zone had committed to financing. (That deal didn't close either.) BAOA anticipated the Atlanta call center would open during the second quarter of 2000.
"Each center will open with at least $10 million in business, provided by one of BAOA's strategic telemarketing alliances," BAOA claimed cryptically in filings.
An April 1999 letter from the company's CEO, Peter Van Brunt, to Empowerment Zone interim director Ron Diamond reflects the company's confidence: Van Brunt wrote that BAOA already had spent $280,000 on the call center project, and that it had even secured $250,000 in financing to purchase a building at 555 Whitehall St. to house Call Atlanta, the name of its project. Investment bankers had committed $10 million to the venture, according to Van Brunt. Clients also had made purchase orders totaling a whopping $100 million, he wrote.
The company's revenue projections proved equally sunny — $5.3 million in the first year and $14.9 million in the second.
But the company's financial records paint a different picture.
As of Dec. 31, 1999, the company had only $4,755 cash on hand, and only about half that amount the next year. Nearly $300,000 had been used to finance company operations — BAOA had no full-time employees — and it spent $21,467 to purchase an option on the future location of the call center. It spent more than $900,000 on "marketing and consulting fees" without bringing in any revenue. BAOA's net losses before taxes totaled more than $1.27 million for 1999, and more than $2.6 million in 2000. Since its inception, the company has lost nearly $10 million.
Indeed, the company itself seemed to be on the brink. In 1999, the company hired an outside accounting firm, which concluded: "... the company has suffered losses in prior years, working capital deficiencies and continues to experience liquidity problems that raise substantial doubt about its ability to continue as a going concern." Van Brunt downplays the seriousness of that statement. He says accountants write similar sentences about most small companies as caveats for potential investors.
The company, the audit continues, stayed afloat based on advances from individuals and the sale of securities.
But BAOA's troubles didn't stop with money. In 1999, federal authorities arrested William "Tank" Black, a former sports agent and chairman of BAOA's board of directors. Black sold BAOA stock, then trading for around 10 cents on the OTC market, which he received for free, to athletes, like New York Giants' wide receiver Ike Hilliard and Jacksonville Jaguars' running back Fred Taylor, for 50 cents to $1 each, according to a May 2000 report in Sports Illustrated.
He promised the athletes big returns on their investments (not unlike claims BAOA made to the city of Atlanta that its stock would jump to 50 cents per share once it received the Empowerment Zone loan), and when the returns didn't materialize, Black was able to funnel money back to the athletes through the proceeds from a $300 million pyramid scheme.
Black now faces a May sentencing in a separate money laundering case in Detroit, and still faces charges in Florida stemming from the BAOA scheme, among others.
After then-Empowerment Zone Director Joseph Reid's commitment letter went out in February 1999, the deal dragged on for most of the rest of the year, with Atlanta Empowerment Zone Corp. officials and the attorneys for both sides writing back and forth, holding meetings. Closing was imminent a handful of times, but each time, there was a delay. Atlanta placed strict loan conditions on BAOA to protect itself.
Then, in early 2000, Van Brunt walked into a meeting between lawyers representing BAOA and Empowerment Zone administrators, where details of the closing were being worked out, and said a second company had purchased the Call Atlanta building. This surprised even his own attorneys, says a former Empowerment Zone official.
Van Brunt says he had informed zone administrators of this change, and that the second company, TrussTech, entered into the agreement as a partner in a joint venture.
An Empowerment Zone official disputes that, though. TrussTech had no intention of buying the property so it could be a joint partner, he says. BAOA made the deal so it could pocket $200,000 from the sale, says the official, who requested anonymity.
No matter the interpretation, the sale created a problem in the zone administrators' eyes. Part of the deal's collateral — the building — was gone.
Still, both sides soldiered on, and around this time, BAOA retained Kevin Ross, a friend of Bill Campbell and the mayor's former campaign chair, to speed things along.
Ross was connected, and Van Brunt probably thought the mayor's friend could deliver the loan, grease wheels. Every one of the companies that applied to the zone's Business Development Fund had a connection somewhere, the AEZ official says.
But in the case of BAOA (now called Call-Solutions), connections didn't help. This February, nearly two years to the day after Reid's initial commitment letter — Atlanta Empowerment Zone interim director Ron Diamond wrote Van Brunt to inform him the loan had been denied. The reason? Call-Solutions lacked sufficient collateral and equity.
Call-Solutions wasted no time firing back.
"After our initial shock and surprise, Mr. Van Brunt explained to me that you are relatively new to your position and, therefore, might not have had an opportunity and/or time to fully comprehend the history and circumstances of this situation," writes R. Cameron Billmyer, Call-Solutions attorney, to Diamond.
"We do not wish to embarrass you, personally, or the AEZ, but please understand our position clearly. We will enforce our rights by any and all means at our disposal fully cognizant of all the publicity, oversight and litigation that may entail.
"Our company has been more than patient for three years and complied with every requirement and condition imposed by the AEZ," Billmyer writes.
Van Brunt says his company has given the zone 15 days to reconsider its decision. Wednesday marks Day 22. If negotiations aren't resumed, Call-Solutions will look for a "legal remedy," he says. "Reasonable minds" will conclude that the Empowerment Zone misrepresented itself during the loan process. "We'd love to get in front of reasonable minds," Van Brunt says.
He won't put an exact number on it, but Van Brunt says Call-Solutions incurred hundreds of thousands of dollars in fees to lawyers and others during the loan process. "We're not unsophisticated," Van Brunt says. "We would not have proceeded, proceeded, proceeded without the facts to justify a loan."
Van Brunt contends that the zone balked at the loan because it didn't have the money to disburse — a claim the former zone official disputes.
Being approved and receiving a letter of commitment isn't the same thing as a closing, and talks can break down at the closing, the zone official says. "The terms of commitment were never met," the official says.
"We could have made millionaires from the community," Van Brunt contends. Bright employees would have risen quickly through the ranks of a fast-growing company, been given stock options and acquired a stake in Call-Solutions, he claims. Hundreds of people would have been employed.
The zone thinks of itself as a traditional lender, Van Brunt says, and with its terms, only established companies are going to qualify. But established companies don't want to come to the Empowerment Zone. The only way to attract businesses is to "create relationships with entrepreneurs," Van Brunt says.
There is more risk to Empowerment Zone loans, says the zone official. If there weren't, the companies that applied would have gone to the Bank of Americas of the world. But the Empowerment Zone attracts scores of people who want nothing more than a chance to enrich themselves at the expense of taxpayers, the AEZ official says. Due diligence and strict loan conditions are a must.
No matter whose version is the truth, this case seems headed to court. Again, the lawyers will get the money; the jobs will be a memory; and a jury will be left to do the math of who is right and who is wrong.