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Interlink Ends Association With 2 Brokerages : Finance: Costa Mesa-based video phone company is being investigated regarding the way in which broker-dealers solicited investor funds to establish a fiber-optic cable network in Los Angeles.


COSTA MESA — An Orange County video phone company that is under investigation by state regulators has ended its association with two securities brokerages it used to help it raise millions from investors.

Costa Mesa-based Interlink Data Network of Los Angeles Inc. and the brokerages solicited investors for money to build a 21-mile fiber-optic cable network in downtown Los Angeles to link its video phones that would let clients see each other during business calls. The company says it has raised $7.5 million and had begun a second fund-raising campaign to solicit an additional $10 million.

Ron Combs, chairman of Portfolio Asset Management/USA Financial Group, a broker-dealer in El Paso, said Friday that Portfolio had fired 61 of its brokers working in Costa Mesa on Interlink's behalf on April 19 and that his company subsequently ended its contract with Interlink. Portfolio helped secure investors last year for Interlink's first limited partnership and was raising another $10 million for the company.

Interlink President Michael Gartner said Friday that Interlink terminated its relationship with Portfolio last month.

"We have severed our relationship with Portfolio and are going with other broker-dealers," Gartner said, declining to identify the new brokerages.

Interlink's techniques for attracting investors, including broadcasting 15-minute infomercials that urge listeners to call a toll-free telephone number to maximize their "investment potential," have prompted a formal investigation by the state Department of Corporations, The Times reported two weeks ago.

Combs said Portfolio and Interlink had had a strained relationship since shortly after his company agreed to solicit investors for Interlink. The limited partnership offering was classified by regulators as a private placement, meaning brokers could only seek wealthy individuals discreetly, without using newspaper, radio or television ads.

In documents issued for its second limited partnership, which were dated March 1, Interlink listed Maxxel Securities Inc. of Dallas along with Portfolio as its broker-dealers, which buy a company's securities and sell them on its behalf to investors.

But Maxxel Securities issued a statement Monday saying that it has not been employed by nor has it contracted with any registered brokers who have sold "registered or non-registered securities of Interlink Data Network or any of its related or associated companies." It declined further comment.

The Times has reported that brokers for Interlink used a marketing manual, known as a "pitch book," to overcome skeptical investors in telephone solicitations. The book urged brokers to be truthful but encouraged them to use various hard-sell marketing techniques.

Gartner, who earlier denied any knowledge of the book, said last week that the marketing guide "was a document that a half-dozen brokers used and didn't have the courage to show to me." He said the company has the needed technology to build its video phones and would proceed with its plans.

The earlier Times article was "80% extreme misrepresentation," Gartner said, adding that Interlink has not had a single investor complaint after raising $7.5 million from limited partners and an additional $2.4 million in a private sale of stock.

But Interlink's sales methods were of concern to regulators in Iowa, where the company and its brokers were ordered to stop soliciting investors last November.

Combs said his company would appeal a ruling by the Iowa Securities Division, which accused Portfolio, Interlink and brokers John Kealy and William Moore of solicited limited partnership investors in Iowa without properly registering the investment as a security.

A potential investor complained to the state after Interlink brokers promoted investing in the company in response to the investor's call to a toll-free telephone number mentioned in a radio commercial. Using commercials to solicit such investors violated securities laws and prompted the regulatory action, the state said.

Combs said that Moore, who actually solicited the investor, was not a licensed broker of Portfolio. Combs and Gartner both said they were not aware of the order until two weeks ago. Gary Marquett, a securities attorney for Iowa, said the state had not yet received appeals from the parties named in the order.

Moore said that the whole affair was a mistake and that he did not know he had to personally register in order to raise money from investors in Iowa. Gartner also said his attorneys would appeal the cease-and-desist order.

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