On Monday February 10, U.S. District Court Judge William Zloch of Florida issued a temporary restraining order, at the request of the Securities and Exchange Commission, against Marc David Shiner, Leon Swichcow and Tim Wetherald, prohibiting them from selling any more shares in Mile High Telecom and charging them with defrauding hundreds of investors of more than $7 million ("Con Air," February 6).
The SEC complaint also names Telecom Advisory Services, the Florida-based company in which Shiner was a partner, saying that Shiner and Swichcow, the company's president, searched out small-business owners and used boiler-room sales tactics to convince them to invest in upstart phone companies in Colorado, Arizona, Washington, Minnesota, Iowa and Oregon. Wetherald is the Denver-based managing partner for Mile High Telecom.
"The defendants raised in excess of $7.6 million in an elaborate scheme involving a series of interlocking companies that they secretly controlled, siphoning off the vast majority of funds raised for their own use," the complaint reads.
The SEC alleges that the defendants violated federal securities law by claiming that Mile High Telecom was a successful phone company despite being in financial trouble and never having been properly licensed to operate in Colorado. It also says that promoters paid exorbitant commissions and "management fees" to companies controlled by the defendants and that they failed to disclose the "negative regulatory histories" of Shiner, Swichcow and Wetherald.
Investors Travis Credle and Steve Petersen have attempted to wrest control of the local telephone service provider from Shiner and Wetherald since discovering that Mile High Telecom was not licensed to do business in Colorado. They also found that Shiner had spent time in federal prison for tax evasion and that a 1995 consent decree in the state of Washington effectively prohibits Wetherald from doing business there. Wetherald and Shiner sued the two investors through On Systems Technology, the management company they own that controls Mile High's day-to-day operations, saying they conspired to seize control of the business. Credle and Petersen countersued, claiming the two promoters tried to defraud investors.
The case raises questions about the ability of regulators in Colorado to adequately protect consumers and investors in an age of utility deregulation. Under current law, the Colorado Public Utilities Commission often has to go to court before it can issue fines, a process that can take as long as two years. For much of the past year, the PUC has struggled to get Mile High to follow state regulations but ultimately had little power to issue sanctions against the company. Colorado's utility laws are weaker than those in some other states; Iowa regulators were able to shut down Mile High's sister company there in a matter of weeks.
Regardless of who earns the right to Mile High Telecom, the company may owe rival Qwest $4 million for leasing space on its network, and the PUC has granted Qwest permission to discontinue service to Mile High. As a result, the company's 10,000 customers will soon have to find another phone carrier.