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Claims Made by Interlink of Costa Mesa Cause Static : Probe: Questions on business methods of video phone firm and its hold on crucial patents produce fuzzy picture.

April 18, 1993|DEAN TAKAHASHI | TIMES STAFF WRITER and COSTA MESA

Here, the commercial signaled, was a taste of the future. There was a clip from a science fiction film, mention of "Star Trek," and, most important, Michael Gartner using a video phone that delivered his image to distant colleagues with the clarity of a motion picture.

The 15-minute infomercial, a mock news interview, was reportedly designed to promote advance sales of $3,995 video phones marketed by Interlink Data Network of Los Angeles Inc., of which Gartner is president. But during a break in the interview came the Costa Mesa-based company's other important message: "Interlink Data Network has great investment potential. Exercise your investment foresight. Call now."

With that pitch and others, Interlink Data is seeking to raise $10 million in a second limited partnership. That's on top of the $7.5 million it raised through brokers in the past 10 months for its first limited partnership and $2.4 million it says it raised from equity investors. The money, the company says, would go toward building a 21-mile fiber-optic network to connect up to 140 buildings in downtown Los Angeles and along Wilshire Boulevard.

Interlink's methods of raising investor money, particularly the infomercials, have prompted a formal investigation by the California Department of Corporations, said William McDonald, chief of enforcement with the agency.

"I think it is a very serious matter," said McDonald. The agency "is concerned about it and is looking into it."

*

For all its success at fund raising, however, the picture at Interlink Data Network is notably fuzzy, and a check into its claims produces plenty of static:

* The company's chief engineer says that the broadcast-quality video phone demonstrated in the company's corporate videotape is only a simulation. The engineer says working phones have been built in the laboratory, but none have been installed yet.

* Interlink and affiliated companies do not own the patented technology critical to building the proposed network. Gartner said he has the technology under exclusive license. ITT Corp., which holds the patent, says that's not so.

* The inventor of the technology is identified in investment materials as Interlink's director of scientific research and technology. The inventor said he has never been an employee of the company, only a consultant, and he still works for ITT.

* In one infomercial, an Interlink representative said the fiber-optic cable was being laid "as we speak," and Gartner said in a February interview that the installation was "more than halfway there." To date, in fact, no cable has been installed.

Even though Interlink has not yet generated any revenue from operations, it is making promises to investors of high returns--18% per year over two years. Brokers selling investments in the firm have been trained to deal with any skeptics.

While a book offering guidance to brokers advises them to be "totally honest at all times," it also recommends that brokers urge potential investors to ignore the advice of their attorneys, financial advisers and accountants. The book says, "I've never met an attorney who took a course in how to make money in law school!"

The book suggests that brokers steer clear of prospects who ask for general information about the video telephone industry and concentrate on those who show a willingness to invest. "If the prospect says 'the information package,' tell them you'll have your personal secretary get something right out to you today and hang up. Obviously this individual is not the type of person you want to waste a lot of your very valuable time with. (Needless to say you don't send this person anything!)"

The guide book says that Interlink will within the next year definitely offer shares of stock to the public that will be listed on a major exchange. Nothing in the book raises the possibility that such a sale of shares may not occur.

Although the guide book for brokers states that it was issued by company management, Gartner said he has not authorized any solicitation guide for brokers.

*

Interlink has had problems with securities regulators before. Iowa regulators have ordered the company, the brokerage that sells its securities and two individual brokers to cease efforts to sell unregistered securities in the state. The brokers had promised large investment returns to a prospective investor with no mention of potential risks.

Robert Rosen, an attorney for Interlink, said that the process of issuing such cease-and-desist orders does not necessarily give a company sufficient opportunity to respond. He said Interlink officials were never notified that the order had been issued. Gartner describes himself as a high-tech entrepreneur whose team of engineering experts can bring to 1990s corporate America the kind of visual communications so celebrated in science fiction.

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