Friday, April 27, 2007

Companies That Have Promoted Fraudulent Compression Scams

Companies That Have Promoted Fraudulent Compression Scams

Web Technologies, (1995) – November 1995
In an announcement that sounded too good to be true, WEB Technologies (Smyrna, GA) claimed it had developed a compression algorithm that could squeeze almost any amount of data to less than 1024 bytes. The company claimed that its DataFiles/16 program could compress files larger than 64 KB to about one-sixteenth their original size. Skeptics said what WEB claimed was impossible, yet BYTE received numerous inquiries from readers, many of whom said they felt obliged to investigate WEB's claims, however implausible.
BYTE contacted WEB for a beta version of the software so that we could evaluate it. WEB at first declined to give us the beta, but we said we couldn't write a story about the product without one. WEB relented and sent us the beta version, which we tested and wrote about in the June 1992 issue.

Not surprisingly, the beta version of DataFiles/16 that reporter Russ Schnapp tested didn't work. DataFiles/16 compressed files, but when decompressed, those files bore no resemblance to their originals. WEB said it would send us a version of the program that worked, but we never received it.

When we attempted to follow up on the story about three months later, the company's phone had been disconnected. Attempts to reach company officers were also unsuccessful. WEB appears to have compressed itself right off the computing radar screen.

Pixelon (2000) – Investor loss exceeds $40M

Pixelon, a beleaguered streaming media start-up, fired most of its remaining employees this week in a desperate attempt to reorganize itself, sources have confirmed.

The San Juan Capistrano, Calif.-based company has come upon tough times after its founder spent more than $12 million on an over-the-top Las Vegas launch party last fall shortly before admitting he was a fugitive of the law.

Michael Fenne, as the founder was known, surrendered to Virginia authorities last month on charges that he bilked about $1 million from elderly investors in the late 1980s. Fenne, it turned out, was a convicted embezzler named David Stanley. He is in jail awaiting trial on a probation violation in Wise County, Va., authorities said.

If Pixelon was beset with problems before, publicity of the arrest combined with the wild spending on the glitzy party undoubtedly propelled its downfall, said Russell Reeder, the company's vice president of product development.

"There were so many things, but the very bad news about the founder caused some investors who were prepared to back up the company to pull out," Reeder said.

Creditors are seeking involuntary bankruptcy of the company to force some kind of payment.

Yesterday, the company's remaining 55 employees, including Reeder's son, Richard, were called into a conference room and told they were being laid off.

Founded in 1998, Pixelon promised to deliver crisp audio and video clips over the Internet. Advanced Equities of Chicago raised about $30 million to fund the company. Other deals with Sprint and UUNet seemed to set Pixelon on the right course.

Eventually, however, it became clear that the streaming software was not up to the task of providing live broadcasts over the Internet.

After Stanley's arrest, PricewaterhouseCoopers was called in to do an audit of the company to determine, among other things, if embezzlement had occurred. The audit came up clean.

The senior Reeder and five other managers will continue to work without pay on a restructuring plan that includes filing for Chapter 11 protection while it reorganizes. Hope for survival remains high, Reeder said.

Zeosync (2002)

"Reuters is reporting that ZeoSync has announced a breakthrough in data compression that allows for 100:1 lossless compression of random data. If this is true, our bandwidth problems just got a lot smaller (or our streaming video just became a lot clearer)..." This story has been submitted many times due to the astounding claims - Zeosync explicitly claims that they've superseded Claude Shannon's work. The "technical description" from their website is less than impressive. I think the odds of this being true are slim to none, but here you go, math majors and EE's - something to liven up your drab dull existence today. Update: 01/08 13:18 GMT.

The ZeoSync Corporation website shutdown (June 3, 2002) after they announced (January 7, 2002) their invention to the world and after they funded (round March 1, 2002 an extra 40 million dollar private stock and the company was already started with 10 million dollar private funding).

Adam’s Platform Technology (2004)

The most recent talk of the town in the Australian IT world…….an incredible claim by a bloke named Adam Clark to send video quality image down a dialup telephone line. Media World Communications (ASX: MWC) who owns the rights to this technology otherwise known as Adam’s Platform Technology had ASX listing in sight when it sought to re-list in the ASX by September 2004 to raise a further $7.2 million, apart from the many millions raised earlier from private investors. It was discovered that the incredible claim could not stand to tests by other members of the company

It was reported in the Financial Review that Adam Clark had used a freely available open source video compression algorithms called On2 VP3 ( by On2 Technologies ( as the basis of his technology and managed to fool the Tolly Group (

MEDIA RELEASE - 27 January 2005
Class Action Against Media World Communications
National law firm Maurice Blackburn Cashman today confirmed that it has filed a class action writ against Media World Communications in the Supreme Court of Victoria.

The class action represents those investors who lost money in reliance on representations regarding Adams Platform Technology made by Media World, its directors and associated entities, and who instruct Maurice Blackburn Cashman.

It is alleged in the Statement of Claim that Adam Clark, his companies and others made misleading and deceptive representations to the investors in Media World, and that the prospectus did not contain all of the information that it was required to contain.

Maurice Blackburn Cashman senior partner Bernard Murphy said Media World predicted that it would achieve 14% penetration of Australian TV households within 5 years of commencing video-on-demand services and would derive annual operating income from those services in Australia of $145 million before launching into the international markets worth more than $127 billion.

Media World encouraged investment in Adams Platform technology, which it heralded as unique data compression technology that was invented by Adam Clark that would enable full-screen DVD-quality video to be transmitted in real time across standard copper-wire telephone lines.

“After collecting approximately $35million from investors between 2000 and 2004 Media World announced that the technology did not work even as well as already existing commercially available technology and went into administration.” Mr Murphy said.

“This is an important case. It is vital to the proper workings of the capital markets that prospectus type documents and presentations made when raising capital are accurate and reliable. Actions of this type play a significant ‘private enforcement’ role to ensure that the law is complied with and that shareholders are properly compensated when wrongs occur.” Mr Murphy said.

The claim relies on provisions in the Corporations Act, the Trade Practices Act, the Australian Securities and Investments Commission Act and the Fair Trading Act of Victoria in order to provide a basis for claims that all investors' funds should be returned with interest.

In a related matter, an application by the administrator of the Media World companies will be heard by Justice Finkelstein in the Federal Court in Melbourne tomorrow morning at 9.30 am. The administrator has asked the Court to determine whether or not the investors should be declared contingent creditors in the administration of the company.

IPEX (2006)

Hyped by LA Trading firms this company briefly reached an 80 million cap value, not without taking investors for $4.2 million. This company now trades from a high of $6 to $0.06. The company was launched by the invesment firms of Ault-Glazer and Strome Securities, both from Los Angeles, California looking to make a quick buck and that they got. Their key man and visionary, Wolfgang Graber, twice convicted and sentenced for business fraud in Germany as profited millions and is reported to be residing comfortably in beautiful La Jolla, California.

Millions of shares traded hands in the early stages of this company with the stock soaring from $2 to $6 rapidly, then once the insiders had profited, the company was left to languish leaving most investors high and dry.

The company's technology was acquired from Massimo Ballerini, who’s company is called RGB SRL in Milan, Italy. The software is referred to as Luminaxys. A quick Google search of the word “Luminaxys” will show that this software is a shareware program available for 99 euros for enhancing pictures, like thousands of other programs on the market, and it didn't even win any awards!

The company makes outrageous claims published in its FORM 8-K dated June 29, 2005, "the company entered into a purchase agreement, dated June 7, 2005, with B Tech Ltd., Massimo Ballerini and Emanuele Boni (the "B Tech Agreement"). Under the B Tech Agreement, the Company purchased certain intellectual property rights including quadratic, circular transform algorithms, codes and formulas for image enhancement, compacting and content protection applications (the "B Tech Assets"). The purchased technology and formulas also include the concept of "floating pixels" versus a frame by frame system and the integration of sound into a digital image to stream live content for wireless systems based on 9,6Kbit/s and to be used on full display screens at less than 64Kbit/s (ISDN)."

The holy grail - full stream video over a standard phone line using a modem!! We've seen this promise for decades, all have failed.

To date the company has been reduced to a pink sheet status and investors caught in the reality are seeking justice. Last reports showed massive losses, as the company pumped its revenue brokering VoIP minutes for a gross margin less than 3%. No revenues are or will be received from its compression technology. Despite an informal review from the SEC no one is going to jail, pity.

For those who are looking for the finger print of a compression scam, we've outlined the steps below:

The standard compression scam is executed with the following steps:

• Visionary (Wolfgang Grabher in the IPEX example above) develops an astonishing breakthrough in compression.

• Company announces this amazing breakthrough without any validation, to promote himself and his company (the company has already issued several statements and releases on this technology).

• Visionary surrounds himself with key names, hires an ex-Qualcomm division president Jerry Beckwith.

• Makes sure that all management in the company are “in” through issuing stock (all upper management, the BOD and audit committee members have received stock or options from IPEX, or associated companies Digicorp (NASDAQ:DCGO) and/or Patient Safety Technologies (AMEX:PST)).

• Files patents with major patent firm (though they will never be issued). IPEX is working with Fish & Richardson which is the same company that represented Zeosync (above).

• Throughout the process, insiders sell off millions of shares pocketing a fortune.

• Investors spend millions on a triumph of “hope over reality”. The company eventually folds leaving investors holding the bag.