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Shareholders, former employees offer opposing views of embattled Kalispell firm Venue Tech Systems

When Joe Locsin first looked at a small, Kalispell-based firm named Venue Tech Systems three years ago, he liked what he saw.

By William L. Spence
The Daily Inter Lake

The company had an existing, high-tech product and few, if any, competitors. It seemed to have tremendous potential. He thought it looked like a good investment.

But the value of that investment is now in doubt, as is the future of the company and that of founder David Tacke.

Following a lengthy investigation, State Auditor John Morrison’s office recently issued a cease-and-desist order against Tacke and the company over some business practices.

The order deals with a number of alleged securities violations, improper financial disclosures, misuse of investor funds and fraudulent practices.

Former Venue Tech employees support many of the complaints listed in the document; however, Locsin and other members of the company’s shareholder advisory committee say the allegations are, at best, minor infractions that should have been quickly settled.

The committee further contends that the auditor’s office engaged in a "destructive" investigation — one designed to break the company by intentionally dragging out the case — rather than work with Tacke and his attorneys to resolve these issues.

"Before the state barged in, we were on the verge of doing some great things," said Locsin, a business owner from Morgan Hill, Calif.

"We were right at the point of rolling out," he said. "Then the state came in and burst our bubble. We’re all outraged."

Shirley Coffman, another Morgan Hill investor, said the state has nothing more against Tacke or the company now than it did when the investigation began in October 2001.

"They found nothing new, except for the financial difficulties that they caused," she said. "I think they’re hoping the company gets in such financial straits that they won’t have to prove their case. But we’re not going away. The shareholders know everything about this case, and we still support the company and management."

Venue Tech, together with its Binocs Manufacturing and Tekware Solutions subsidiaries, was developing a wireless point-of-sale system.

The initial product was a binocular rental unit intended for major sports and entertainment stadiums.

The unit includes a pair of binoculars attached to a retractable anti-theft cable, all enclosed in a Lexan box. The boxes are bolted to seat bottoms at the different venues. When someone wants to rent a pair, they hail a vendor, who takes the payment and enters the person’s seat number into a hand-held computer.

There are wireless radio components in both the rental unit and the computer. Once an order is entered into the computer, it’s transmitted via radio wave to a receiver located at the stadium, which sends it on to a central computer in the Flathead Valley via telephone lines.

The order is logged, approval is sent back to the stadium receiver, which then transmits a wireless signal that pops open the door on the rental unit. The entire process takes about a second.

Some of the rental units were installed at Coors Field in Denver and First Union Center in Philadelphia.

"This product is working," noted Coffman. "You can see it, touch it, use it. It’s not a dream."

Ultimately, that may be what frustrates the committee members most: If the state would just get out of the way, they believe Venue Tech could thrive, providing jobs and opportunities in Montana and giving investors a chance to earn a return.

"If the state really had anything solid, they should have done something by now," said Mark Jonke, a business owner and investor from Kalispell. "If David did something illegal, then throw him in jail — but don’t destroy the company in the meantime. Get this matter settled and let us move forward."

Betsy Griffing, chief legal counsel for the auditor’s office, said it isn’t unusual for investigations regarding securities violations to last 12 months or more.

Furthermore, part of the reason the Venue Tech investigation took as long as it did, she said, was because of efforts made to keep the company afloat.

"It’s funny they would be upset about us stalling," Griffing said. "We spent about eight months trying to negotiate a consent agreement with the company — specifically out of concern for the shareholders. I thought the state made a significant effort to resolve this."

The consent agreement would have required Venue Tech to provide a 100-percent refund to any investors who wanted it, she said.

It also required full disclosure of the financial and legal issues that were eventually included in the cease-and-desist order, and would have barred Tacke from any further involvement with the firm.

Tacke and his attorneys "were unwilling to meet those conditions," Griffing said. "They sent back copies of the draft agreement where they’d crossed out all of the most important things."

Tacke’s attorneys in Helena and Las Vegas did not return multiple telephone calls seeking comment.

Tacke declined to answer questions on the record, but in a prepared statement he said he "vehemently denies the outrageous allegations by John Morrison and the state auditor’s office."

The shareholder committee said the state tried to impose conditions that would have prevented Venue Tech from raising the money it need to keep operating.

Negotiations regarding the consent agreement went on for about eight months, Griffing said, from March through October of 2002.

At that point, the state became aware of a 1985 cease-and-desist order.

As with the current order, the older document alleged that Tacke offered unregistered securities for sale in Sports Eye Systems Corp., a company he previously had founded. The order also said Tacke wasn’t registered as a securities broker, and that he failed to disclose information to investors.

Tacke did not contest the state’s allegations, and the order became permanent. It remains in effect today, barring him from offering or selling securities to anyone in the state in violation of the Securities Act of Montana.

After the 1985 order was discovered, the state broke off negotiations with Venue Tech and, in January 2003, issued the new order.

"It became apparent that this had been going on for almost 20 years," Griffing said.

Throughout the investigation, it might have been possible for Venue Tech to move forward, she said, if the shareholders had been willing to replace the management team.

However, "we were told over and over that ‘David is the company,’" Griffing said. "The shareholders convinced us that there was no way to separate the two."

Members of the advisory committee continue to support Tacke.

"I think we all believe it’s essential for David to remain where he is," said Kalispell dentist Gabriel Perjessy.

"David has volunteered a number of times to step down, if that’s what the shareholders wanted," Perjessy said. "But we don’t want to see a situation where the company is separated from him. His knowledge and contacts are key to keeping the company going. The potential is unlimited with him there."

Former Venue Tech employees agree that the product, if not the company, had potential.

"It was the slickest technology I’ve ever worked on, and I’ve been doing this for 20 years," said Wally Lengstorf, a programmer who spent 18 months at Venue Tech, helping to develop several critical hardware and software components.

"If you’re a geek, it was sexy technology," Lengstorf said. "I would have stayed if they’d gone into production. The only reason I left was because I was afraid my paycheck would bounce — my boss was paying me off his credit card. When I found out about the health insurance (being canceled), it was just too risky."

Jeff Howlett, who was Venue Tech’s purchasing agent for more than two years, said there was a great deal of market interest in the product.

"There were some glitches with the electrical stuff, but the idea was fantastic," Howlett said. "I went to the installs in Colorado and Philadelphia. The clients were always happy and excited that we were there."

However, Venue Tech’s parts suppliers weren’t quite as enamored with the company.

"They weren’t getting paid," Howlett said. "When they couldn’t get a call back from the finance director, they’d call me. These were people I’d asked to bend over backward for us — a lot of them helped us engineer the product and make it better — and they were being hung out to dry."

"It was too weird," Lengstorf said. "Every time I’d build a new board or subassembly, I’d have to spec new parts because the vendors hadn’t been paid. They (Venue Tech managers) were buying thousands of dollars worth of office furniture, but I couldn’t get a 10-cent part."

When paychecks started bouncing and the health insurance was canceled, employee morale suffered as well.

"We were always told everything was great," Howlett said. "Even when our checks bounced, we were told the financing was in line. It was the bank’s fault for not transferring funds in time."

"There was always this aura of ‘The check is in the mail,’" Lengstorf said.

Jay Meyer, who helped develop Venue Tech’s business plan, marketing information and investor packets, said there never seemed to be a point where the financing was set.

"It was a constant stream of desperation," Meyer said. "They were printing stock certificates off their personal computers like confetti. There was never a comfort zone."

Meyer, Lengstorf and Howlett all said they had at least one paycheck bounce, and all left Venue Tech before the state began its securities investigation.

Lengstorf eventually won a civil case against the company related to about $1,000 in health insurance premiums that were withheld from his paycheck and kept, rather than being forwarded to the insurance carrier. He said he has yet to receive any of that money.

"This is the only company I’ve seen that’s been managed that way," he said. "Common sense tells you there are certain things you need to do to succeed — like pay your bills and your employees. If you’re having trouble doing that, then be up front about it. Seeing what went on at Venue Tech, it was obvious something was fundamentally wrong."

How wrong things were — whether they were the kind of stumbles typical to any start-up firm, or the fraudulent actions alleged by the state — will be determined during an upcoming hearing on the cease-and-desist order.

A date for the hearing hasn’t been set.

"We want the hearing. We want all this on the record," said Perjessy, the Kalispell dentist.

"David has made mistakes, but I don’t believe they were intentional," he said. "The problem isn’t David, it’s the state. We’re baffled why they decided to come on this strong."

Griffing said it isn’t unusual in situations like this for the shareholders to come to the defense of the company and managers.

"I’d say it’s very common," she said. "Investors put a lot of faith and trust in these people. They don’t want to think they were wrong."

Reporter Bill Spence may be reached at 758-4459 or by e-mail at [email protected]

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