Con Air

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Most of the 65 investors in Mile High Telecom were successful small-business men who were excited by the deregulation of the telephone industry and looking for investments outside of the tanking stock market. From them, Southerland raised $1.4 million for the Denver operations. But Credle says classic "boiler room" sales tactics were used to seduce backers, with a crew of salespeople working out of a small Boca Raton office and reading from a script. Seasoned telemarketers in such operations usually make large commissions pitching "can't miss" investments with big returns. They often target elderly people with money in 401(k)s or retirement accounts and exchange lists of potential prospects with other telemarketers.

"They'd want to know if you had the funds to invest within two weeks," says Credle, who is a successful tennis-court and recreational-facility contractor in Morehead City. "They would say, 'I only have a half a unit left' and then call back and say somebody backed out and they can sell you a whole unit. They were real slick talkers and could make you believe anything."

Telecom Advisory Services' promoters, including Southerland and Shiner, even flew several investors to Denver to see Mile High's busy headquarters building on Parker Road. "Everybody who went to Denver came back with a positive story on Mile High's employees and the phones ringing off the hook," Credle says. "They were doing a lot of telemarketing. They were putting ads in the papers. Mike Rosen was promoting it on his radio show. They had a whole floor in an office building, and 75 employees."

("I liked the idea that there was competition with Qwest for telephone customers," says Rosen, who was paid a standard fee for his services. "My producer signed up [with Mile High] and has been quite satisfied with the service." Rosen has recently done spots for 2U Wireless, another telecom venture promoted by Wetherald.)

The company was structured as a joint partnership, with 70 percent owned by the investors -- five of them, including Credle and Petersen, served as managing partners -- and 30 percent owned by On Systems Technology, the management company running Mile High's day-to-day operations. On Systems is owned by Wetherald, Shiner and several others; what investors weren't told was that it was once called Voice Networks Inc. and engaged in "toll-bridging," the practice of forwarding telephone calls to evade long-distance charges. In 1999, US West accused the company of defrauding it of more than $1 million. The PUC investigated and found that Voice Networks -- whose executive vice president was Tim Wetherald -- had deceived US West. The company declared bankruptcy and was reorganized as On Systems Technology.

Now Qwest (formerly US West) leases space on its telephone network to Mile High Telecom, essentially its former nemesis, under the terms of the federal Telecommunications Act of 1996, which required Baby Bells to open their systems to competitors. Mile High buys the space at wholesale prices and resells the service to residential and business customers, offering bargain rates of just $14.91 for a basic line and long distance for seven cents a minute. By last spring, the company, advertising itself as a spunky rival to Qwest, had more than 10,000 customers.

That growth convinced most investors that they had put their money in a promising venture that would ultimately reap big profits. Twice a month, they got e-mails from the company boasting about the number of new customers signing up for service.

"The original financial projections called for the first partnership [Mile High] to have its first profitable month in June," Southerland e-mailed investors in July 2002. "Actually, the first profitable month was April, two months ahead of projections. About 15,000 customers should be in billing by August, according to Tim... The first dispersal of funds to the Mile High partnership may occur at the end of the third quarter of this year. If you wish to be in the Iowa/Nebraska partnership, give me a call as it is filling up."

Steve Petersen was so impressed that he called Wetherald in June and told him he had a million dollars to invest. Wetherald jumped on a plane to Minneapolis. But Petersen, who hadn't met Mile High's managing partner in person before, became immediately distrustful. Even though he's soft-spoken and friendly in the way Minnesotans are famous for, Petersen prides himself on being able to see through lies. "Being a bill collector, you learn to read people pretty fast," he says. "I called my wife and said, 'These people are bad.'"

He started doing a search on the backgrounds of many of the people involved in Mile High, and what he found was stunning. Genesis Telecommunications, a long-distance service provider that Wetherald had promoted in Washington state, had collapsed amid allegations of fraud, and a 1995 consent decree effectively barred him from doing telecom work in that state. And in 1991, Oregon obtained a three-year injunction against Wetherald, preventing him from doing business there after two telecom firms he promoted declared bankruptcy.

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Stuart Steers
Contact: Stuart Steers