Fear and failure haunted Sovereign Deed, say ex-employees

Michigan Messenger (2008-03-12) Eartha Jane Melzer

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by: Eartha Jane Melzer Wednesday (03/12) at 08:28 AM

Company insiders say job-starved Michigan was poised to make a bad investment

When Sovereign Deed LLC came to Emmet County last year advertising a plan to invest millions and create jobs with a privatized disaster-response service, state legislators and the Northern Lakes Economic Alliance put together a tax-financed incentive package worth $19 million.

Then troubling details about the company began to emerge.

Sovereign Deed CEO Barrett Moore had lied about serving as an Army intelligence officer, according to Army record keepers interviewed by Michigan Messenger. He had served time in an Australian prison for dubious used car deals, though his conviction was later overturned. He had been sued for fraud three times, including a lawsuit by former colleagues at Triple Canopy, a private military contracting firm that he co-founded.

State Rep. Gary Mc Dowell, D-Rudyard, said he would take no steps to support the project until questions about Moore's integrity were addressed. The Petoskey News-Review demanded that Moore explain himself. The retired brigadier general who served as the company's point man for the Emmet County project resigned. Gov. Jennifer Granholm, who had signed into law a bill specifically designed to provide tax breaks for the company, struck a defensive note. "The governor," spokeswoman Liz Boyd said, "will not apologize for trying to bring jobs to Michigan."

But seven former Sovereign Deed employees have told Michigan Messenger that the firm was dysfunctional when they worked there in 2006 and 2007. They said Moore's company was already in desperate economic shape when it began pitching Michigan officials on its disaster response service last year. Moore's only business strategy, they said, was to capitalize on the state's permissive economic development system and its desperation for jobs -- and that it almost succeeded.

Eartha Jane Melzer :: Fear and failure haunted Sovereign Deed, say ex-employees "The state was making decisions based on public relations," said Larry Marks, the former marketing director of Sovereign Deed who left a year ago because he says he wasn't being paid and now runs a venture capital firm. "That's nonsense."

Michigan officials failed to ask basic investor questions and never asked for an audited financial report, Marks said.

"The state is investing in its own future and jobs, and nobody said, 'Let's see the job descriptions,' " he said. "They say, 'Gee whiz, if we don't give the money, we are going to lose them.' Well, sometimes you don't want the business!"

Moore exaggerated the firm's financial standing from the start, said another former senior executive who requested anonymity because he feared retribution from Moore. Told that the company had $100 million in investment capital when he joined two years ago, this man said he soon learned that Moore had only $5 million, no clients and only one investor. Billionaire survivalist Richard Rainwater gave the $5 million in exchange for 72-hour and 10-day survival kits for 40 to 50 of his employees, this source said; the normal retail price for these supplies is about $5,000 per person.

Moore called his strategy of inflating the firm's capabilities "playing puffer fish," said former associates.

Some Sovereign Deed associates wanted to help people by popularizing disaster preparedness skills; others wanted to get in on the ground level of a business that could profit from growing fears about natural disasters and infrastructure collapse. All of the former employees said that Sovereign Deed floundered as Moore constantly changed directions.

They described attending conferences under falsified business names and enduring interminable brainstorming sessions about how to respond to various disasters. ("Everything from a run on Axe body spray to avian flu," joked one employee.) Other employees were assigned to research obscure subjects such as storing wheat or burning human waste as a fuel.

Rather than develop the services discussed at company meetings, Moore racked up large legal fees applying for trademarks on everything from Sovereign Deed fanny packs to cubicle dividers to snack mix, former employees say. Sovereign Deed applied for 300 trademarks in 2006, more than all but five U.S. corporations, according to the U.S. Patent and Trademark Office.

The former employees cited Moore's decision to buy a million paper surgical face masks in 2006 as a major mistake. Moore anticipated that fears of avian flu would grow and customers would credit his prescience in disaster preparedness. But the avian flu scare faded. When Moore allegedly failed to pay for the masks, the supplier sued Sovereign Deed, claiming the firm used false financial statements to secure the deal. The case was settled out of court in December 2007.

The episode with the masks was a wake-up call about Moore's skills as a businessman, one associate said: "He never looked into how easy it would be to manufacture more of these masks."

As the unmet promises spiraled out of control, Moore's secretary would shut the door to his office so other staff members wouldn't have to hear his increasingly bizarre phone conversations, one employee recalled. Several former associates expressed fear of their former boss.

Working for the company was like being "a naked baby, wrapped in chains, dragged through the mud," one man said. He said he felt as though he had developed Stockholm Syndrome -- a psychological response in which people begin to sympathize with their abusers.

"We were afraid of this guy," said Brent Hamachek, who was once Moore's banker and personal friend. "Now we can see he's just a big, strapping guy in an empty suit."

Hamachek had signed on early with Sovereign Deed as "utility infielder," handling many different tasks. He found office space for the company, researched locations for the national response center, recruited employees and helped in the paper mask purchase. He was named in the lawsuit by the mask manufacturer.

In 2006 Moore decided to locate the company's national response center -- a place to take subscribers in event of catastrophe -- at the Pellston airport near his family vacation home. From a business standpoint the move made no sense, one associate said, since the firm had no customer base.

Hamachek said he was disturbed when he learned that Michigan taxpayers were going to be brought in to fund the project. Moore claimed it was crucial that the company get economic incentives or it would locate in Wisconsin or Illinois.

But officials in Michigan didn't seem to notice the lack of customer base and didn't check out whether there really was any competition in other states. Relying on the firm's public-relations materials, local economic development corporations began designing grant packages to finance the airport expansion. State legislators pushed through a law to allow the company to avoid taxes. The governor signed the bill. The county government paid for engineering studies.

The Associated Press and the Detroit Free Press recently published articles suggesting that Sovereign Deed is a viable company, something all of the former employees vigorously disputed.

Though the company was clearing bureaucratic hoops in record time last year , township, county and state officials now describe the firm's progress as stalled. Sovereign Deed, which had originally planned to begin construction this spring, has not begun the process of applying for the tax abatements and publicly financed infrastructure it said it required.

People familiar with the company said its operations have been suspended. The company did not respond to questions from Michigan Messenger.

In his first public defense since the revelations about his misrepresentations of his military record and his legal problems, Moore insisted he hoped to help the economy of northern Michigan.

"...Capitalism requires entrepreneurs to take risks in order to create jobs...," he wrote in a recent commentary in the Petoskey News-Review. "...Let the free market be the judge...."

But Dun & Bradstreet's March 7, 2008 report on Sovereign Deed LLC rates the company as having a "high risk of late payment" based on its credit history. D&B wrote it could not make a recommendation as to how much credit to extend to the company because it lacks sufficient information. Sovereign Deed LLC`s "nature of legal ownership has not been clearly established," the report states; "identification of business principals is lacking," and the company's operations and employees are "undetermined."

Marks, the company's former marketing director, says the Sovereign Deed story illustrates a fundamental flaw in the state's economic strategy.

"Does the lack of transparency in Michigan's economic development system rise to the level of malfeasance?' Marks asked. "I think so."

"Desperate states go to desperate measures," Hamachek said. "More and more snake oil people are going to show up. This was just one of the first."