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State Probes Videophone Solicitations : Securities: Interlink Data Network, which has raised millions for L.A. project, is targeted by the Department of Corporations.


COSTA MESA — State securities regulators are investigating the operations of Interlink Data Network of Los Angeles Inc., an Orange County company that is raising millions of dollars to build a video telephone network in downtown Los Angeles.

William McDonald, chief of enforcement for the state Department of Corporations, which regulates securities law, said Thursday that his agency is "concerned about the matter and is looking into it. I think it is a very serious matter. At this point, it is an investigation." He declined further comment.

Michael Gartner, president of the 4-year-old Costa Mesa-based company, denied any wrongdoing by the firm or its employees.

"We received questionnaires from the state (last week), but we were not under the impression that we were under investigation," Gartner said.

Gartner says the private company has raised $2.4 million in equity through the sale of stock and $7.5 million from limited partners to build a 21-mile fiber-optic network in downtown Los Angeles and along Wilshire Boulevard. The company hopes to market its $3,995 videophones to businesses in about 140 office buildings along the proposed route. Construction of the network hasn't yet begun.

Videophones--allowing callers to see the person to whom they're talking on a small video screen--were invented years ago but have not caught on in the marketplace. One of the biggest drawbacks of current videophones are the jerky images they produce--a problem resulting from the inability of standard phone lines to carry data fast enough.

But Gartner claims that Interlink's device has an advantage over videophones of other manufacturers, such as American Telephone & Telegraph, because it employs optical-switching technology that uses light signals rather than electric ones, allowing large volumes of data to flow through fiber-optic phone lines like a river. The company, however, has not yet found any customers for its videophones.

Interlink has run into trouble with state regulators before. In November, Iowa regulators ordered Interlink, an El Paso brokerage that sells its securities and two individual brokers to stop selling unregistered securities in that state.

One broker, William Moore, had solicited a potential investor who heard about Interlink in a radio commercial, said Gary L. Marquett, enforcement director for the Iowa Securities Bureau.

Moore and Interlink said they were seeking investors for a private placement of stock. Marquett said they did not register the offering in Iowa, a required procedure in which the company is supposed to disclose investment risks and provide financial information.

Exemptions from registration are allowed in private placements, but public ads such as the one heard by the investor--which listed an 800 telephone number--cannot be used in seeking investors under such exemptions, Marquett said.

Gartner said Thursday that he had only recently learned of the Iowa action and that the company did not have an opportunity to respond to the order. Marquett said that the order was sent to those named in it, but that no response was received. Gartner said company lawyers are investigating the matter.

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