Largest Shareholder Demands Release of Blank Rome LLP Investigation Report
New York, NY, December 11, 2015. On December 9, 2015, the undersigned issued a press release calling for an investigation of Grandparents.com CEO Steve Leber and COO Lee Lazarus by the US Securities and Exchange Commission and the US Attorney for the Southern District of NY.
On December 10, 2015, the company issued a press release asserting that Blank Rome LLP, which had been engaged as special counsel to a non-executive committee of the board, determined that allegations “against Grandparents.com” were “unfounded and without merit.”
The record should be clear that no allegations have been made against Grandparents.com, Inc., which as many shareholders know, is the victim of the alleged misconduct. Allegations were made against Mr. Leber for misappropriation, fraud, self-dealing, conflicts of interest and breach of fiduciary duty. Allegations were also made against Mr. Lazarus for fraud, misconduct and breach of fiduciary duty. As representative of the largest shareholder group in the company, and in the interest of transparency, the undersigned calls on the board of directors to release the complete Blank Rome report so shareholders may review each allegation against Mr. Leber and Mr. Lazarus and determine the objectivity of Blank Rome in investigating each of the charges. Grandparents.com, Inc. is a public company and material information should not be withheld if there is indeed nothing to hide. If the allegations are truly “unfounded and without merit,” why not publish the full report?
From day one of the investigation, the three former officers of the company who filed the complaints and were called to testify by Blank Rome, departed their respective interviews with a similar awareness that the outcome of the investigation was predetermined before the investigation began. It was clear from the questions posed that the interviewers were acting more like defense counsel for the accused rather than objective finders of fact. The three officers formed a collective opinion that the non-executive committee did not want the company to be adversely affected by the allegations, and the company paid handsomely for the desired result. It also was clear to the witnesses that highly relevant documents and emails submitted to Blank Rome were simply ignored or not reviewed. The three officers continue to stand by the allegations and call for a full and objective regulatory review by the SEC and US Attorney, as well as the Attorney General of New York.
From the perspective of the suspended CFO, the former Chief Compliance Officer, and the undersigned, as a former director, Co-CEO and CFO, the evidence presented does not in any way support the findings of Blank Rome that there was no wrongdoing. Indeed, the 10-Q issued by the company on November 23, 2015 clearly stated that Blank Rome found that there was misconduct, but that Blank Rome determined it was not intentional, i.e., there was “no intentional misconduct.” How did Blank Rome initially determine that the misconduct was, in fact, unintentional, other than by simply accepting the testimony of each of the accused persons that, “I did not intend to do it!” And, how could the original Blank Rome findings of misconduct evolve in only two weeks into a determination that the allegations were “unfounded and meritless?”
Intention is not the issue, only whether or not there was misconduct. It is unimaginable that over a dozen acts of misconduct that have been alleged by three different former officers of the company were all found to be unfounded and without merit. The three former officers continue to maintain that the alleged misconduct was intentional and unlawful. For example, the company’s release fails to state how warrants in the company’s files that were issued to two directors in 2013, Mr. Leber and Mr. Cohen, are now completely different documents on the company’s servers than the warrants that were originally executed by the company in 2013. The new altered warrants provide the CEO and a director additional rights and benefits not found in the original warrants. How could that be unintentional? Alteration of a corporate warrant is a class C felony in New York and a federal crime as well when uploaded to the servers. The release fails to state how Mr. Leber’s insider-trading transactions were made unintentionally and how Mr. Leber’s charges to a company-funded credit card were unintended? Why then did the board recently initiate a full audit of all personal expenses charged for a number of years by Mr. Leber to the Grandparents.com credit card? Because the board decided to allow Mr. Leber to reimburse his personal charges to the company in an attempt to absolve him of a charge of misappropriation. A crime was committed; putting back the stolen goods does not absolve a thief of his crime. The release also fails to state how Mr. Leber’s son Jordan unintentionally operated his own private business from the company’s offices with no rent or other charges for five years. Did Mr. Leber include the rental value of the office used by his son as taxable income? It also appears that Mr. Leber who resides in New York did not intentionally claim to be a Florida resident. And I suppose that Mr. Leber and Mr. Lazarus did not intend to withhold from the board or the public in the 8-K that was filed with respect to the $8 million Credit Agreement, that after they obtained board approval of the agreement, they added a change of control provision which would create an event of default if Mr. Leber and Mr. Lazarus were no longer on the board.
Blank Rome Did Not Investigate the Misleading 10-Q or the Suspension of the CFO
The company’s release of December 10, 2015 makes it appear that the accused have now been cleared of wrongdoing by Blank Rome’s report with respect to all matters described in the release issued by the undersigned on December 9, 2015. It fails to clarify, however, that Blank Rome’s investigation did not include the issue of the misleading 10-Q or the suspension of the CFO. Blank Rome was engaged to review only allegations made by the three officers in September and October 2015, none of which included the misleading 10-Q discussed in the release of December 9, 2015, the suspension of the CFO, or the bylaw amendments reported in the 8-K filed on December 8, 2015 that usurp the right of shareholders to call a special meeting or make it virtually impossible to oust directors. In fact, Blank Rome expressly represented to the three officers as late as December 3, 2015 that the issues relating to the misleading 10-Q and the suspension of the CFO, which the three officers specifically asked Blank Rome to investigate and include in their report, were not within the scope of the investigation assigned by the non-executive committee of the board to Blank Rome.
Publication of Defamatory Statements
With respect to the company’s attempt to defame the undersigned and publicly smear my name with unfounded, spurious allegations of purported misconduct gathered no doubt by Mr. Lazarus, please note the following responses, in order of importance:
- In December 1986, the House Committee on Foreign Affairs subpoenaed me to testify about my legal representation and real property dealings with President Marcos and his wife, Imelda Marcos. My law firm, Bernstein Carter & Deyo, represented them from 1981-1985. I was set to testify in full at the time we landed in Washington DC. My counsel, Stuart Eisenstadt, formerly National Security Advisor to President Carter, offered secret service protection for my family, in case President Marcos chose to retaliate against me for testifying against him before Congress. Shortly before my testimony, Michael Armacost, US Ambassador to the Philippines (1982-84), telephoned Mr. Eisenstadt. The Ambassador said that President Reagan was continuing to support President Marcos and would prefer that I refrain from testifying against the President and his wife. I felt patriotic in complying with such a high level request from the White House. My other attorney, Alan Dershowitz, told me to assert the attorney client privilege on every question asked by the Committee, and to reveal nothing of my relationship with the Marcoses, not even if I knew them or had ever met them. I did so. The House of Representatives subsequently voted to hold me in contempt of Congress on February 28, 1986, partly because House Counsel rued that the attorney client privilege is a judicial privilege that was not recognized by Congress. After President Reagan flew President Marcos and his wife to Hawaii, Ambassador Armacost telephoned Mr. Eisenstadt a second time, and said that President Reagan saw no reason for me to be indicted for contempt of Congress. President Reagan had by then switched his allegiance from President Marcos to Corazon Aquino. I was now free of my commitment to President Reagan, and returned to testify fully before Congress. I testified for three days in executive sessions and thereafter for two hours on national television — on April 9, 1986. On May 22, 1986, Daniel Fascell, Chairman of the House Committee on Foreign Affairs, and Stephen Solarz, Chairman of the Subcommittee on Asian and Pacific Affairs, sent a joint letter with two other ranking congressmen to US Attorney Joseph DiGenova in Washington, D.C. The letter stated that: “On April 9, 1986, the Bernsteins appeared before the Subcommittee, provided documents, and answered all of the Subcommittee’s questions, without exception.” In turn, US Attorney DiGenova sent me a letter on June 9, 1986, stating that I would not be indicted for contempt of Congress. I continue to feel patriotic about complying with President Reagan’s request for inaction, even though I may have landed in jail. I have never been arrested or indicted for anything, much less with respect to my relationship with President Marcos and his wife. I represented him when he was our country’s most strategic ally in the Far East and was addressing joint sessions of Congress. I was proud of my relationship with the president and his wife as a young lawyer. In December 1989, I settled complex international litigation with the Philippine Government relating to the disputed ownership of the Marcos properties in New York – the 70-story building at 40 Wall Street, Herald Center at one Herald Square, and The Crown Building at 730 Fifth Avenue. The government received 55% of the proceeds of sale of the properties, my company (in which the Marcoses had no interest) received 40%, and 5% was shared with Adnan Khashoggi.
- I am not in breach of my Retirement Agreement. That agreement has an explicit exception for fraud, which is exactly what I have alleged against Mr. Leber and Mr. Lazarus. Moreover, I was induced to retire as CO-CEO based on fraudulent representations that Mr. Leber would find a new CEO in short order to replace him. While the Retirement Agreement was being negotiated, Mr. Leber secretly negotiated a 5-year Employment Agreement with the board. Although I was a board member, I was intentionally excluded from these deliberations and Mr. Leber’s recently discovered emails make clear that no one was to inform me of his proposed employment agreement (“No, Joe!”) that was circulated to the other board members and company counsel. I retired during the last week of June 2014 and Mr. Leber’s new employment agreement went into effect on July 1, 2014, upon “ratification” of the prior approval of the agreement by the board. The company never filed an 8-K or Form 4 to report the new Leber Employment Agreement and millions of options, although two other agreements – the CFO’s employment agreement and a new board member’s consulting agreement, that were approved at the same board meeting were properly reported in separate 8K’s, Form 3’s and Form 4’s. The Leber filings were intentionally omitted in order to keep his new Employment Agreement a secret from me for as long as possible. In his new agreement, Mr. Leber obtained a higher salary and an award of options for just under 10% percent of the issued and outstanding shares of the company at the time. Mr. Leber’s compensation in 2014 is reported as being $1,927,000, about $400,000 more than all of the company’s annual revenue for the past four years. Since February 2012, the company’s aggregate annual revenues have only been $1,555,139 (2012-15): Total revenues for 2012 were $329,527, for 2013, $510,054, for 2014, $332,933, and this year through September 30, 2015, $382,625. There was no basis and clearly no justification for the board of directors to grant Mr. Leber such an exorbitant compensation package with a value greater than four years of company revenue, in view of the CEO’s clear lack of performance, and without any review by an independent compensation consultant. The company has incurred tens of millions of dollars of losses during this period.
- I previously had a contract dispute with a public company of which I had been CEO that was settled for that company by the Olshan law firm, which coincidentally is currently SEC counsel for Grandparents.com. The Olshan firm brought an action against me for breach of my employment agreement, but ended up concluding a settlement agreement in my favor for $7 million in cash and warrants, as publicly reported by the company in its SEC filings.
- I do not know what $200 million lawsuit the company is referring to in which I purportedly was the plaintiff. I have never filed any such action, nor have my affiliates.
Joseph Bernstein
joebernstein@me.com
917.365.3651