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Business and politics have been known to make uneasy bedfellows, but an obscure Boulder company is showing just how strange the marriage can be. Last month United States Voting Machine Inc. declared bankruptcy. The announcement was hardly earthshaking: USVM listed a mere $20,000 in assets. Yet the company's union of politics and money--USVM hoped to manufacture and sell new electronic voting machines--has proved just as irresistible as it does during an election season.
By the time it crashed, United States Voting Machine, despite its tiny size, had ensnared some of the biggest names in Colorado politics and finance, including the scion of Time magazine co-founder Henry Luce; a descendant of the Marshall Field retail fortune; a former Colorado governor; a former lieutenant governor; a former state senator; a close friend and political ally of Denver mayor Wellington Webb; a millionaire co-founder of one of the state's biggest high-tech companies; one of Colorado's best-known tax protesters; and, just to top things off, a top-ranking executive of Microsoft Corporation.
"This project has been a multiple magnet," agrees former governor Dick Lamm, who consulted with the company in its infancy. "Anybody interested in the electoral process is intrigued by this. And I guess entrepreneurs are, too: I think there's a hell of a market out there."
The fate of United States Voting Machine is still in a tangle. That's because the only thing USVM has been producing recently is a growing stack of legal documents: No fewer than six lawsuits involving the company are pending, all of which hope to sort out who owns what. Others may be filed soon.
In some respects, the USVM's saga is not unusual. Every year thousands of inventors hitch their wagons to money men and other investors to tote ideas to market. Many times they fail; after plowing through millions of dollars, glitches arise and the company sinks with no one the wealthier. What sets USVM apart is its sterling pedigree--the amount of blue-blooded money and political power that poured into a tiny, unknown company whose chance for success was, it turned out, a very long way off.
United States Voting Machine was born to a Loveland inventor named Larry Sarner, who, during a commute to work one day in 1982, discovered a way to merge his college degrees in political science and applied mathematics. "I was listening to the radio and I heard about this new election system that Denver was trying out," he recalls. "So I took the next day off from work to check it out."
What he saw didn't impress him, but it gave him an idea: a totally electronic method of tabulating votes that would be accurate, fast and secure. He set to work on his Mark I voting system.
One of the first partners Sarner hooked up with was a young Boulder political junkie named Ken Malpass. The two had met earlier at various political functions; now both were intrigued by the idea of a new way of voting. Despite their mutual interest, however, things moved slowly. Sarner says United States Voting Machine did not begin to get off the ground until 1986.
Malpass, who did not return repeated calls from Westword, apparently did not bring much in the way of technical expertise to the partnership. Those who worked with him say that, although a member of the bar, he has not practiced law. Still, he did not come to the company without worth. Acquaintances say that Malpass, who eventually was named president and chief executive officer of USVM, is an eloquent and persuasive speaker. "He was the fundraiser; I was the techno-nerd," Sarner recalls.
One early investor in the pair's new voting system was Vern Bickel, best known as the founder and director of the Colorado Union of Taxpayers, a Boulder anti-tax group. Bickel, who now describes his affiliation with United States Voting Machine as "accidental," says he met Sarner and Malpass through the taxpayers' union. "[Sarner] was desperately short of money, so I agreed to lend him some," Bickel recalls. The loan amount was "minor," but even so, says Bickel, "I've given up getting my money back. I've got a drawerful of stuff on the lawsuits, but I don't look at it. I wish them well, but I'm not expecting anything."
Another person interested in the project was Dick Lamm, who says he became involved in the company after meeting Malpass through the Democratic Party. "He's a very bright, imaginative person," says Lamm, who adds that he was immediately struck by the idea of a new voting machine. "What we're using now is early 1900s technology," he points out. "Using old, heavy, slow machines offends my sense of efficiency." Sarner says Lamm never invested any money in United States Voting Machine.
One early investor was Charles Schweppe, a Boulder real estate agent. Although he declined extensive comment, Schweppe says he is related to the Chicago Schweppes, former owners of an $8 million mansion that still bears their name and heirs to the Marshall Field & Co. fortune.
Malpass began to rely more and more on lucrative family connections. For example, one USVM investor was the classmate of Malpass's brother at Colorado College, a man named Peter Neupert. Neupert works for Microsoft, the giant computer software company. But he is hardly a faceless programming drone. As Microsoft's vice-president for strategic partnerships, Neupert most recently made news last December as the man primarily responsible for structuring Microsoft's $210 million partnership with NBC. Thanks to Malpass's connection, Neupert invested in USVM (the amount is unclear) and also was named a director of the company.
But Malpass's most lucrative connection by far was Denver's Peter Paul Luce, the son of Henry Luce. Malpass reportedly knew the magazine magnate's son through his--Malpass's--father, who knew Peter Luce through their shared passion of flying airplanes. At one point Luce and the elder Malpass had even teamed up to help finance a small airplane manufacturing company.
Ken Malpass was not shy about approaching his father's friend for money to support USVM--nor was Luce stingy about giving it. According to court documents, Luce ponied up investments--mostly for stock purchases--on 25 separate occasions between October 1988 and June 1995. In all, he plowed $1.1 million into USVM, as well as, according to court documents, "substantial additional sums" in loans. (As late as July 1995, Luce wrote the company a $50,000 check.)
"Once Peter began investing, he just continued," recalls Mark Hogan, a former Colorado lieutenant governor who was vice-president for sales and marketing for USVM until fired by Malpass. "He was in for a dime, and then another, and then another."
Sarner recalls that Malpass and Luce formed a strange bond during the company's first several years. "Ken would go out and try to raise money, fail, and so go back to Peter," Sarner recalls. "Luce didn't want to put in any more money, but he kept doing it anyway. By August 1993, Peter was starting to regularly put in $50,000 at a pop. At that point, Ken wasn't even going after anyone else's money."
Adds Bob Clark, Luce's attorney, "Mr. Luce was virtually the bank." (Luce himself declines to comment for this story.)
Even with Luce's checkbook, however, USVM had problems, Hogan says. He points out, for instance, that Malpass spent tens of thousands of dollars trying to market Sarner's new voting machine before the company had even produced its first prototype.
In a deposition, Hogan charged that Malpass wasted "substantial assets" trying to win a contract with the New York City Election Commission by hiring a high-profile Manhattan law firm to approach city officials and by retaining an expensive public-relations firm in an effort to win a similar contract in Hawaii--all before USVM had even completed testing its technology.
Adding to USVM's problems, Hogan says, was Malpass himself. In the same deposition, Hogan charged that at least two election officials, including Arie Taylor, clerk and recorder of Denver County, suggested that USVM would have better success if Malpass were not involved. Even the Hawaii PR firm allegedly told Hogan that "it would be impossible to assist USVM in marketing its voting system in Hawaii if Malpass were involved, because of his offensive personality."
"To know Mr. Malpass," Hogan concludes in an interview, "is not to love him."
On at least one occasion, Hogan himself seems to have steered the company into controversy. According to Sarner, USVM's directors had to nix a questionable deal the former lieutenant governor struck with the then-head of Mayor Webb's election transition team, King Trimble.
"Hogan, as our director of sales and marketing, came to Ken [Malpass] and started to brag about this deal he had struck with King Trimble," Sarner recalls. "As he explained it, Trimble would use his offices to help USVM to gain this contract [to supply Denver with new voting equipment]. In return, USVM would give Trimble a percentage of other contracts the company got in other states."
Sarner adds that once they heard of the proposed deal, USVM's boardmembers killed it, fearing a conflict of interest with the Webb ally that could come back to haunt the company.
Trimble did not return phone calls from Westword. Hogan acknowledges that Trimble is "an old pal of mine from the Colorado legislature; we still go skiing and so forth." But he denies the two men ever struck any sort of deal.
Despite such troubles, the company didn't begin falling apart until last summer. At the center of its disintegration is Peter Luce, who, depending on who is describing the situation, is either a well-meaning white knight working aggressively to pull the tattered company from a financial abyss or a power-hungry investor who, once he discovered a good thing, became bent on having it for his own.
Although Sarner says that Luce began effectively co-running the company with Malpass as early as late 1993, Luce contends in numerous court filings that he didn't become actively involved in the company's internal affairs until July 1995, when Luce received a memo from nine of USVM's employees complaining about Malpass's management. "Under no circumstances will the authors continue their employment with USVM if Ken retains the title and authority of CEO," the workers wrote.
That's where stories diverge. Luce says he hired a company to investigate USVM and, based on what was discovered, filed a lawsuit against Malpass on August 20, accusing him of "gross negligence and fraudulent conduct."
Sarner's version is different. He claims that a high-profile financial acquaintance of Peter Luce's has pressured him to ditch Malpass. That man, says Sarner, is Juan Rodriguez. Rodriguez, who for years could be found on lists of the country's wealthiest Hispanics, was a co-founder of Boulder's StorageTek computer company. Since then, he has founded several other high-tech companies.
Sarner says that although Rodriguez had long expressed interest in investing in USVM, he recently told Luce that he wouldn't as long as Malpass was involved. Hence, says Sarner, Luce's play to get rid of Malpass.
Over the past six months the tug of war has spawned a half-dozen lawsuits. The legal spats, in turn, have taken their toll: Three weeks ago USVM was forced by its creditors to file for protection under Chapter 7 of federal bankruptcy laws.
Luce, says his attorney Clark, is simply trying to protect his investment and prevent being set up as a deep-pocketed mark for USVM's many creditors. "Put yourself in his situation," the lawyer says. "You've put in a substantial financial commitment in a company, there are a lot of creditors, and you've got the ability to pay."
Others see more sinister motives in Luce's gambits. Jim Roberts, the conservative ex-state senator from Loveland, was another USVM investor and director. He says Luce saw early on that Sarner's invention had the potential to make big money and so always had designs on gobbling the company--although Roberts agrees Malpass ran USVM poorly.
"His stock ownership kept getting larger and larger," says Roberts. "He kind of ran away with the company, and now he's stolen it. All this legal maneuvering is [Luce's] effort to simply take over United States Voting Machine and take the patents into his possession." Roberts says he is rapidly giving up hope of ever recovering his share of USVM.
Sarner has claimed in various legal filings that Luce is ruthlessly angling for Sarner's invention. Sarner says he holds one patent for the technology behind the Mark I voting system, with three others pending. Adds Sarner's wife, Linda Rosa, "My husband has been the injured party in all this. He's lost thirteen years of his life and his intellectual property."
Attorney Clark insists that's not true. Sarner's invention never worked, he says, and had to be substantially altered. In addition, Clark claims that the patents were assigned to USVM, thus making them fair game for Luce. Indeed, last year Luce, apparently still optimistic about Sarner's invention, formed a new company called United States Voting Systems. Like USVM, it is dedicated to bringing a new electronic election system to market.
Mark Hogan, who directs marketing for the new company, says it will be a while before people begin casting votes on any of the machines. "There's a lot more money that will be required before we're through," he says. "But right now, no investor in his right mind would touch us, because things are just so messy.