Stacey and Sean Hammond invested more than $30,000 last year in shares of a Los Angeles company that promised to incubate dozens of fast-growing Internet companies.
What they didn't know was that the company's founder, Craig N. Kirt, had a few years earlier been suspended from selling securities in another state.
Now, the Hammonds, residents of Hayden Lake, Idaho (population 338), say they can't get answers about what happened to their investment.
When she calls Kirt's company, "All I get is a voicemail," Stacey Hammond said. "Several of us in town invested. We just wanted to invest in the Internet."
Kirt's firm, which has gone by three different names in the last year--DirectNet Inc., Incubanks Inc. and, most recently, 2M Labs Inc.--solicited money from investors in a so-called private placement offering.
In documents for investors, Kirt described his strategy as assisting start-up firms to become "successful cutting-edge Internet businesses." Newsletters to shareholders described a series of planned initial public stock offerings that would enrich them. Often, Kirt gave specific price forecasts for shares. One, he said, "should open up as an IPO at $10-15 and jump to $20-$30."
As recently as November, Kirt told shareholders that 2M Labs owned "equity interest" in five companies, including "Outside Consulting Inc." and "World Financial Television Inc.," and that "all of these companies are planning for a 2001 entry into the public markets, either in the U.S., the U.K. or Germany."
Private-placement securities offerings are high-risk deals in which investors give funds directly to an entrepreneur or company and receive shares that generally can't be publicly traded. As such, the offerings, and promises made therein, aren't reviewed by any securities market or state or federal agency.
The September 1999 disclosure document the Hammonds received for Kirt's offering in DirectNet said the firm would initially open "eight regional offices in the U.S. and follow with an additional 32 major U.S. markets late 2000 or Qtr. 1 2001."
The document also included many references to the high-risk nature of the securities and that the stock wasn't registered with any state or federal body.
But some of the language in the document was unusual, including a warning to investors not to make copies of the paperwork. It also said if the company requested it, investors must return all the information within three working days.
