Howard Rich’s Dot-Com Deal

How he bought an Internet business teetering on the edge of bankruptcy only to find that things could get worse

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Howard Rich, the libertarian political activist in New York City who’s been a driving force behind this year’s eminent-domain and regulatory-takings ballot initiatives in the West, describes himself as “an entrepreneur in real estate and business since 1965.”

News accounts and government records provide some insight into the real-estate side of Rich’s career, which has been mostly as an owner in apartment buildings. In a five-month period in 1986, for example, Rich sold two contiguous apartment buildings in Manhattan and five other properties, all owned by an irrevocable trust that he had established in 1978 for the benefit of his two sons, according to New York tax records. (Rich had designated his wife as trustee, and the Riches managed the properties on behalf of the trust.) Other public records show that Rich has owned other apartment buildings in New York City as well as in North Carolina and Texas.
 
The side of Rich’s career that isn’t related to real estate is much less well-known, with perhaps a single exception: his ownership of Votenet Solutions, Inc., a Web-based voting software and systems firm that he acquired in early 2001.
 
The venture, which Rich scooped up in the wake of the big dot-com boom, began with much promise. But within two years, Votenet Solutions was embroiled in a federal embezzlement investigation that ultimately sent the company’s chief financial officer to prison and marked what Rich called in a letter to the judge “the most painful period of my business life.”
 
Events stemming from the company’s financial crisis, which Rich has said ultimately cost him $2.5 million, offer a rare glimpse into Rich’s business dealings.
 
On February 6, 2001, Rich formed Rich Acquisitions, a limited liability company, with his two sons holding a majority interest. Two days later, Rich Acquisitions paid Medinex Systems, Inc., of Post Falls, Idaho – which was bleeding money – more than $800,000 for a 70 percent interest in Votenet. The remainder of the $1.15 million purchase price came from three investors: Eric O’Keefe, a colleague of Rich’s in assorted political and business ventures; Glen Hughlette, the chief executive officer of Votenet under Medinex’s ownership; and Mitchell Reisberg, a Votenet sales manager.
 
Following the sale, Hughlette stayed on as Votenet’s CEO and president; Reisberg became the firm’s chief financial officer. Through that year and much of 2002, according to court documents, Rich and O’Keefe played a relatively small role in the company’s day-to-day operations.
 
In the meantime, Rich continued to pour money into Votenet, investing an additional $525,000 in the company by the end of 2002.
 
Among other products and services, Votenet published a congressional directory, provided voter software products to political and nonprofit organizations, and managed an online program that allowed donors to make contributions to Votenet’s clients, including the Cancer Treatment Research Foundation and America’s Second Harvest, a hunger relief group.
 
But Votenet’s financial condition worsened in early 2003. Michael Glessner, an accountant who was hired to review Votenet’s books, discovered serious accounting problems. Glessner later told Rich, according to court documents, that he believed Hughlette and Reisberg were stealing from Votenet.
 
O’Keefe was dispatched to the company’s Washington, D.C. offices, where, as Rich later told it, “he determined that Votenet’s financial reports had been complete fabrications.” Hughlette and Reisberg were fired.
 
Reisberg was charged with, and later pleaded guilty to, multiple counts of interstate transportation of stolen property, as well as wire, bank, and mail fraud.
 
Federal investigators charged that Reisberg and Hughlette – who, with a warrant out for his arrest, remains a fugitive – stole more than $370,000 from Votenet to pay for personal expenses such as jewelry, artwork, and plane tickets.
 
In a letter to U.S. District Judge James Robertson before Reisberg’s sentencing, Rich wrote that Votenet owed roughly $1.5 million to customers, vendors, employees, the Internal Revenue Service, and other government agencies.
 
“An accountant and an attorney recommended to Mr. O’Keefe that we file for bankruptcy and shut down the company as soon as possible,” Rich wrote. “However, we decided otherwise largely based on the nature of the liabilities.”
 
Rich provided the $1.5 million needed to erase the debts and invested another $1 million to cover the company’s operating losses. During the course of the bailout, Rich wrote, Rich Acquisitions came to own 100 percent of Votenet because “other shareholders declined to invest to save the company.”
 
Rich also wrote of the personal impact of Reisberg’s transgressions:
 
“The Votenet transition was the most painful period of my business life. It was painful enough to be betrayed by an employee, and to lose $2,500,000 because of the betrayal. But our investigation uncovered repeated reports of abuse by Mr. Reisberg of Votenet’s employees, customers, and vendors. He broke agreements with them, took their money and lied to them, and then refused to return phone calls after they discovered his frauds. It was disgusting and disgraceful.”
 
Reisberg was sentenced in August 2005 to four years in prison and forfeited more than $370,000 in proceeds.
 
Votenet is still in business. According to its Web site, the company provides “voting software and election consulting to private organizations, including trade associations, award shows, realtor organizations, universities, K-12 schools, law firms, homeowner associations, and other types of organizations.”
 
Michael Tuteur, Votenet’s chief executive officer, did not return a call seeking information about Rich’s current involvement with the firm.