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SEC Joins Probe of Stan Lee Media

Sources say investigators in Los Angeles are conducting interviews and reviewing records.

October 02, 2003|Michael Cieply and James Bates | Times Staff Writers

The Securities and Exchange Commission has joined a growing federal investigation of events connected with the 2001 collapse of Web firm Stan Lee Media, according to people familiar with the probe.

In the last several weeks, SEC investigators in Los Angeles have begun conducting witness interviews and reviewing documents surrounding the company, the sources said. A spokeswoman for the SEC said the agency could neither confirm nor deny any investigation.

The SEC's involvement comes as Justice Department investigators continue to examine a high-profile political event sponsored by Stan Lee Media principals for former President Clinton and the U.S. Senate campaign of Hillary Rodham Clinton in August 2000. That investigation was being led by officials from the Justice Department's Washington-based Public Integrity Section, a person familiar with the situation said.

Stan Lee Media, which dissolved after filing for bankruptcy protection two years ago, was an Encino-based firm headed by comic book legend Stan Lee. Lee, 80, wasn't charged with wrongdoing in the company's collapse, but several associates have been charged with fraud, and a pair of them were sentenced to federal prison terms earlier this year.

Those convictions involved check-kiting charges that stemmed from about $5 million in losses sustained by Merrill Lynch & Co. when the value of Stan Lee stock held in margin accounts at the brokerage firm collapsed. Many of the checks written on the Merrill Lynch accounts were used to underwrite the Clinton fund-raiser.

The SEC probe appears to reflect a wider government effort to track wrongdoing at the firm.

Stephen M. Gordon, a former Stan Lee Media executive vice president who was convicted of fraud in the case, told the court at his sentencing in August that government investigators overlooked a far-reaching stock fraud facilitated by many executives and associates of the firm.

"The SEC is investigating areas that were neglected or deliberately avoided by the U.S. attorney," Gordon's attorney, Harland Braun, said Wednesday. Braun declined to discuss details of the inquiry.

U.S. attorney's office spokesman Thom Mrozek disputed Braun's allegation of neglect, saying that Gordon is under indictment in New York on charges related to the manipulation of Stan Lee Media's stock price. Gordon was sentenced to 6 1/2 years in prison and is scheduled to begin serving time next month. Braun said the conviction and sentence were being appealed.

In a previous interview with The Times, Gordon said about 40% of the money lost by Merrill Lynch went to the Clinton fund-raiser.

Whether investigators had settled on specific targets in the inquiry isn't known. An attorney for Lee declined to comment on the investigation.

Stan Lee Media was organized by entrepreneur Peter Paul at the height of the Internet craze in 1999. The company was supposed to capitalize on new characters created by Lee, the creative force behind Marvel Comics and its stable of such superheroes as the Incredible Hulk, Spider-Man and the X-Men.

Paul, who fled to Brazil after being charged with fraud in connection with the company, was extradited to the U.S. last month and is being held in Brooklyn's Metropolitan Detention Center.

The entrepreneur is seeking bail, but his request was initially denied, said Tom Fitton, chief of Judicial Watch, an activist organization that represents Paul. "Mr. Paul is very concerned that others involved in Stan Lee Media have not been looked at with the same scrutiny he's been subjected to," Fitton said.

Paul in the past has said that he spent more than $2 million to underwrite the August 2000 political fund-raiser, which was designed to honor outgoing President Clinton while contributing to a variety of Democratic committees, including his wife's Senate campaign. He later sued the Clintons, claiming they had failed to report his contribution, but the suit was dismissed when he fled the country.

What aspects of the fund-raiser have been under review by Justice Department officials wasn't clear. A government spokesman declined to confirm or deny the investigation, citing department policy.

Aaron Tonken, a celebrity broker who worked closely with Paul, produced the Clinton fund-raiser. Tonken was subsequently sued by California officials for charity fraud and then accused of mail fraud by the U.S.

Federal proceedings against him have been on hold pending a government review of his connection to various political and entertainment figures, people familiar with his status have said.

Representatives of Hillary Rodham Clinton's Senate office have said that they were unaware of any wrongdoing connected with the 2000 event.

People familiar with the SEC inquiry said investigators in Los Angeles appear to be close to preparing a report for their superiors in Washington. The commission can present civil claims against individuals accused of wrongdoing, or can refer a case to the Justice Department for criminal prosecution.


Times staff writer David Rosenzweig contributed to this report.

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