San Diego It was quintessential San Diego: the son made news stiffing his stock-brokerage customers while the parents made Burl Stiff's Union-Tribune column glorifying the Beautiful People. It went on for years, and the parents were part-owners of the wayward son's dubious enterprises.
Now the son, Harold Bailey Gallison II -- called "B.J." -- is in the Richard J. Donovan state prison in Otay Mesa, and some wonder if he's running an offshore online brokerage from there. "He will be in jail one more year," says his father, Harold Bailey Gallison, Sr., former executive director of the La Jolla Town Council, public relations practitioner, and charity fundraiser. In the early 1990s, he loaned his son $10,000 to launch the now-shuttered Pacific Cortez (née La Jolla Capital) penny-stock brokerage and had 10 percent of the ownership until his son paid him back. (In 1994, B.J. told me his father owned 90 percent of the firm.)
Gallison Sr. is now divorced from the mother, Janet Gallison, who did not return a call for comment. Steve Davis, the deputy district attorney who handled the case against B.J., says he considered pursuing Janet because B.J. had squirreled a quarter of a million dollars out of the brokerage by keeping her on the payroll as a public relations consultant. "It was ridiculous. She wasn't doing anything," says Davis, but he didn't want to prosecute a woman in her mid-70s.
Gallison Sr. confirms that Janet is part-owner of a Costa Rica-based Internet stock exchange named GISBeX. It's considered B.J.'s baby. The other owners are two Las Vegas ladies. B.J. had homes in both San Diego and Vegas before he was sentenced to five years in prison for defrauding investors in August of 2003.
The case against him focused on only one of his capers, purported sports board and clothing maker Natural Born Carvers, in which 400 investors got relieved of $2.5 million, as B.J. and confreres were stashing the loot in tax havens such as Hong Kong and the Cayman Islands.
B.J. effectively bribed investors to peddle the stock when promoters gave him $1.5 million worth of shares in it for free. It was just one of his offshore adventures, as he ran afoul of many state securities commissions, the National Association of Securities Dealers, and the Securities and Exchange Commission.
In 1999, the California Department of Corporations wanted Pacific Cortez shut down because of widespread violations of securities laws. A superior court judge appointed a monitor who confirmed that the books were cooked and brokers were making unconscionable sums on trades. When it was finally shut down, creditors got only 2.5 cents on the dollar. The receiver reported that the books were in such disarray, and so many key files were missing, that it was a potential criminal case.
As Davis prosecuted the Natural Born Carvers case in 2002, I got wind of B.J.'s role in GISBeX and did a column on it. Now David Marchant, the Miami-based reporter who covers smelly Caribbean financial activity in his Offshore Alert newsletter, has thoroughly probed GISBeX -- beginning with confirmation that B.J. controls it through his mother and the Vegas lasses. "A notorious penny stock swindler currently in prison for fraud is secretly behind a Costa Rica-based Internet 'stock exchange,' " Marchant told his readers in his February 28 issue.
Marchant figures that since late 2001, the GISBeX exchange has listed more than 50 stocks. Collectively, the companies have reported losses of more than $640 million over that period. A Canadian who headed two different companies listed on GISBeX pleaded guilty to fraud counts in 1993. An Ohio attorney listed as auditor on five different GISBeX stocks claimed he had heard of only one of them. Later, the lawyer was described as "consigliere and mastermind" of an alleged mafia-related stock swindle, but the complaint was dismissed.
GISBeX has listed several stocks of companies in the Internet gambling business. It's "popular bait among GISBeX issuers looking to catch investors," writes Marchant. In an interview, he says, "Costa Rica is renowned for its investment scams. Both the perpetrators and the victims tend to be North American. Costa Rica is full of expatriates" on the lam from the U.S., Canada, and other countries.
Today, there are 33 stocks quoted on GISBeX.com and on a companion site, equitymedia.net, which does stock promotion. There are three San Diego companies whose quotes appear daily and one that was formerly listed, according to Marchant. I tried to get to those companies for comment -- did they pay to get on GISBeX, and did they know Gallison or one of his colleagues?
The best-known company is Peregrine Systems -- one of the biggest frauds and bankruptcies in San Diego history. As a result of accounting chicanery, revenues were overstated by $500 million between 1999 and 2001. There are ongoing criminal investigations and civil suits. Last month, current management reported that losses are narrowing, but the company is still two quarters behind in calculating how much it's in the red. "We were not aware of it and did not authorize any mention of the company on that website," says a company spokesperson.
Brian Overstreet, chief executive of Sagient Research Systems, which supplies sophisticated financial information to Wall Street institutions, is baffled by his company's listing. "I don't know either of those [GISBeX and equitymedia]," he says. "How do we get off the cockamamie things?" On the day I talked with him, the stock had jumped 40 percent -- to 13 cents per share -- and he had no idea why, noting that very few shares trade most days.
Despite its financial savvy, the company itself is not doing well. It has an accumulated deficit of $31.9 million, is $350,000 in arrears on paying bondholders, and its accounting firm says its survival as a going concern is in doubt. However, "The business has improved over the last year," says Overstreet.
Bio-Matrix Scientific Group, which says it is a biotech in such areas as adult stem-cell cryogenics, was formerly on GISBeX but isn't now. It changed its name from Storage Suites America last December. It keeps pumping out news releases saying it "is preparing to apply for a stem-cell research grant" or is applying for "a cryogenic stem-cell bank certificate" or applying for "International Society of Stem Cell Research" membership and the like. Self-promotion based on applications is not a good sign. "We're a developmental-stage company," explains David Koos, chief executive, who says he doesn't know anything about GISBeX. The stock trades on the so-called pink sheets -- caveat emptor incarnate -- and does not report its results to the Securities and Exchange Commission. The stock has been selling for 34 cents per share.