The Federal Bureau of Investigation and the United States Postal Service announced June 12 that they will be seeking the extradition of ex-Stan Lee Media associate Peter Paul, 52, from Brazil on charges of securities fraud. Also named in indictments were former SLM Executive Vice President of Operations Stephen M. Gordon, 51, Wall Street analyst Jeffrey Pittsburg, 57, and stock promoter Dale Kusche, 47. All three have already been placed under arrest. Stan Lee himself was not charged with any wrongdoing.

Following a dizzying two-year expansion, stock prices for Stan Lee Media, an Internet start-up designed to promote and license new characters created by Lee, dropped suddenly at the end of last November and the company ceased operations at the end of December. Paul and Gordon were fired from the company Jan. 2, and Paul departed the country for Brazil, where he has business holdings. SLM stock was dropped from the NASDAQ board Dec. 18, and, on Feb. 16, SLM filed for reorganization under Chapter 11 bankruptcy proceedings.

According to the results of a joint investigation by the United States Attorney's Office, the Postal Inspection Service and the FBI, Paul and Gordon, with the help of Pittsburg and Kusche, artificially inflated and maintained the prices of SLM stock, just long enough for them to profit from a series of stock transactions.

In a joint statement, United States Attorney for the Eastern District of New York Alan Vinegrad, New York Postal Inspector-in-Charge Jay Skidmore and Assistant Director-in-Charge of the New York FBI Barry W. Mawn, said, "Throughout the scheme, Paul, Gordon and Pittsburg manipulated the stock by making transactions through, between and among 'nominee' accounts that were set up to hide their control and ownership of the stock, and to manipulate and to disguise their manipulation of the price of the stock. As part of the scheme, Paul and Gordon hired analyst Pittsburg to tout Stan Lee Media to the investing public. To that end, they made false and misleading statements in 'research reports' published by Pittsburg and in interviews with the news media by Paul and Pittsburg, including predictions of the future performance of Stan Lee Media and the future price of the stock that Paul and Pittsburg knew to be false at the time they were made. Paul and Gordon paid Pittsburgh to issue such statements and Paul, Gordon, Pittsburg and others failed to disclose fully to the investing public that Paul, Gordon and others paid Pittsburg in cash and stock in exchange for his 'research reports' and other touting of Stan Lee Media."

When the price of SLM stock began falling rapidly in November, it was reported that Paul unloaded 150,000 shares of SLM through holding companies prior to leaving the country. In an interview with the Journal, Paul defended the liquidation of the stock, saying he was forced to do so by the terms of a loan for which the stock was collateral.

As the government investigation has pieced things together, however, the liquidation of Paul's stock was actually the final step in an elaborate scheme that allowed Paul to trade stock for cash at a level higher than the stock's true worth, without actually selling the stock. Paul and Gordon allegedly borrowed large sums of money from Merrill Lynch & Co. (where Gordon's brother Jonathan was a broker until he was fired Jan. 31) through nominee accounts, using Stan Lee Media stock as collateral. Though this amounted to an agreement by Merrill Lynch to accept the stock in lieu of the borrowed funds in the event of a loan default, it was not initially recorded as a sale transaction and therefore did not negatively affect the stock's price.

According to the investigators' report, "In order to sell large blocks of Stan Lee Media stock that they secretly owned and controlled in nominee accounts, Paul and Gordon made undisclosed payments to Pittsburg and Kusche, who purchased and arranged for others to purchase the stock. The secret payments, which were made in cash and stock, amounted to approximately 55 percent of the amount that was paid for the blocks of stock. By conducting the transactions in this manner, Paul, Gordon, Pittsburg, Kusche and others were able to disguise the fact that these blocks of stock were actually being sold for less than one-half of the prevailing market price. Beginning on or about Nov. 29, 2000, Paul and Gordon stopped making the previously described payments to Pittsburg and Kusche, which caused its price to plummet, leaving the investing public with worthless stock and leaving Merrill Lynch & Co. with no valuable collateral to use to recover the approximately $5 million that it had lent to Paul, Gordon and others."

By Dec. 13, the price of the stock had fallen to less than $1 per share. Government officials estimate that individual investors and financial institutions lost more than $25 million, by the time the SLM bubble burst.

The charge of securities fraud identified in the indictments carry maximum sentences 10 years in prison, three years supervised release and a $1 million fine, plus restitution. Additional charges of conspiracy to commit securities fraud carry potential penalties of up to five years in prison, three years supervised release and a $250,000 fine, plus restitution.

Government officials had a field day peppering their comments to the press with dramatic comic-book-themed rhetoric. Vinegrad said, with great solemnity, "The story underlying this case has no super-heroes, nor is it in any way comical."

Mawn commented, "Adjectives like 'fictional,' 'larger than life' and 'exaggerated' aptly describe not only the superhero comic-book characters of Stan Lee Media, they also describe the fraudulent business practices such as the 'research reports,' the false statements to the media and the other means by which the defendants sought to inflate and maintain the price of Stan Lee Media stock. They manipulated the market, made illegal profits and thought they had gotten away with their scheme. When the final chapter is written in this investigation and prosecution, just as so often happens in comic-book adventures, truth and justice will prevail."

The story of Stan Lee Media's rise and fall told from divergent points of view can be found in Newswatch, TCJ #232 and #233, as well as in the Newswatch archives of the TCJ website at tcj.com. Speaking to the Journal by phone, apparently from Sao Paolo, Brazil, Paul denied any responsibility for the collapse of Stan Lee Media and said he was the victim of a smear campaign by SLM's remaining executive officers. "I still have contacts working in the government," he told the Journal. "What happened at Stan Lee Media will come out. You will be surprised at what will come out."

The Journal had pointed out the discrepancies between Paul's claims that he had built SLM from the ground up yet had no hand in its financial failure. In an angry response e-mailed May 25, Paul told the Journal, "Can't figure out why it is irreconcilable to say that I built the company through June, 2000 with Stan without a CEO and then delegated control to [Kenneth] Williams when he came on board. From that moment the company went from $15 a share to .25 a share under his management with [SLM General Counsel] Rick Madden. As a special adviser to the chairman I called shots through Stan until Ken showed up, then I let him manage, or mismanage as the case became. I had 2.7 million shares and 500,000 matured stock options when Ken took over, giving me a paper worth of $50 million. How could I possibly make more money shorting at $2 a share than keeping that as an asset base?"

Characterizing its coverage as "simplistic obfuscation," Paul said the Journal was ill-equipped to accurately cover his involvement in international affairs and covert activities, asking rhetorically, "Have you ever practiced international law on a level of representing heads of state and foreign governments? Have you worked with three different intelligence agencies?" He signed off the message with a cry of "Excelsior."

Despite these obvious inadequacies, the Journal will continue to cover all SLM "surprises" as they emerge.