San Diego Gerald R. "Jerry" Sanders and William Robert "Bob" Bradley are friends and business associates. Each faces problems. Sanders's potential woes are voluntary: he wants to be mayor of a financially ailing city, San Diego. Bradley's are involuntary: he is fighting charges that he skimmed money from a troubled company he co-founded, Metabolife International, and stashed the loot in offshore tax havens.
Both Sanders, San Diego's ex-chief of police, and Bradley, a onetime tow-truck operator, own 10 percent of a small venture capital firm, Virtual Capital of California. Until he went on leave to run for mayor last month, Sanders was president of Virtual.
Sanders's campaign website advertises that he has honed his executive skills in the private sector by nurturing high-tech startups and developing homeland security technology. He has boasted of his positions as president and chief operating officer of Virtual, such as when he is listed with Chargers Champions, a so-called leadership team for the footballers, including the San Diego Regional Chamber of Commerce's Jessie J. Knight Jr., former schools superintendent Alan Bersin, Economic Development Corp. president Julie Meier-Wright, and the team's Dean Spanos.
Headquartered in downtown's Symphony Towers, the firm was set up in 2000 to search for promising technologies to license and commercialize. But reality has fallen far short of the promise: more than five years after it was founded, Virtual has yet to close one single licensing deal and has never made money.
If that's not bad enough news for Sanders, being remotely connected with a player in one of San Diego's juiciest drug, tax, and business scandals can't be helpful to a politician who would be mayor. Although he blasts city hall's "culture of secrecy" and calls for "increased accountability" and "transparent government," Sanders refused to be interviewed for this story.
For his part, Bradley has maintained a low profile. "I've heard through the grapevine that Bob isn't happy with the investment," says local banker and entrepreneur Tom Stickel, Virtual's founder and Sanders's best friend. Stickel says he doesn't even have a current phone number or address for Bradley who by all accounts made a massive fortune from his role in Metabolife.
After initially prospering, Metabolife later got in legal hot water for selling a diet pill containing ephedra and then allegedly lying about the number of complaints the company had received about the drug's dangerous side effects.
The troubles go back decades, rooted in the criminal drug-making histories of Metabolife's other two founders. In late 1988, Mike Ellis, an ex-National City cop, and Mike Blevins had been busted for making methamphetamine at a Rancho Santa Fe residence.
Blevins, who had a criminal record including drug offenses and battery against a police officer in 1973, was sentenced to five and a half years in prison. Because he cooperated with authorities, Ellis got five years of probation.
The company and its product went through several permutations, and in 1995, Metabolife began selling a diet pill containing ephedra and caffeine. Ellis was president, Blevins vice president, and Bradley chief executive officer.
Stickel, who says he raised the money to finance Virtual, says he met Bradley through Sheriff Bill Kolender, former police chief and now a backer of Sanders's mayoral bid. According to Stickel, Sanders became friendly with Bradley from his days as a cop. One reason for the chumminess is that Bradley formerly owned Bradley's Towing, says Stickel. Police get to know towing companies.
Contacted by telephone late last week, Kolender declined to be interviewed but sent word through Glenn Revell, a captain in the sheriff's department, that he can't remember introducing Stickel to Bradley, although he does recall meeting Bradley at a social function several years ago, and he knew his father when he ran Bradley's Towing.
Kolender doesn't know anything about Virtual Capital and can't specifically remember meeting Blevins and Ellis, though he is aware of Metabolife's problems, according to Revell.
Stickel launched Virtual in 2000. Torrey Pines-based Titan Corp., then calling itself an incubator of high-tech firms, "wanted access to technology information being developed by the University of California," says Stickel. Titan chipped in some of its stock for 10 percent of Virtual's original capitalization.
Stickel used that as collateral for loans and set out to have a venture capital fund that would exploit U-Cal-developed technologies. He brought in investors such as Dr. John Littlejohn of Colorado Springs (10 percent), Richard Torykian of Wall Street's Lazard Freres (20 percent), Irvine's Les P. Barkley (5 percent), and V. Wayne Kennedy, retired senior vice president of business and finance of the U-Cal system (10 percent). Stickel has 25 percent, and Jonathon Vance, former chief financial officer, has 1 percent.
But shortly after Virtual got off the ground, the dot-com and NASDAQ bubbles burst. With a war looming and tech no longer titillating Wall Street, Titan went back to being almost entirely in the defense business. "Titan lost interest but is still an investor," says Stickel.
In August of 2002, Sanders resigned as chief executive officer of United Way of San Diego and joined Virtual as president with ten percent ownership. Two months later, Bradley put his money in the pot through a Las Vegas real estate transaction.
As his investment, Bradley put up a piece of property in Las Vegas. "I looked at the property; it was a great piece of property," says Stickel, who believes Bradley had paid $2.2 million for it. Stickel tried to borrow against the land unsuccessfully and later sold it for $1.8 million in cash.
Bradley's investment came three years after word of Metabolife's founders' criminal pasts hit the headlines but preceded the November 23, 2003, Reader revelation that an Internal Revenue Service investigator filed an affidavit charging that Bradley had skimmed money from both Metabolife and the towing company, had stashed money in offshore tax havens, had kept two "off-the-books" accounts at a bank, cheated on his taxes, kept a million bucks in cash in his home, and took kickbacks from Metabolife's ad agency, among other things. According to the affidavit, Ellis and Blevins participated in similar activity.
When that news hit, Stickel says he went to his attorney "to make sure everything was right" with Bradley's investment in Virtual. He was satisfied that it was. Had he known about the affidavit when he took Bradley's investment, he still would have gone ahead. "I am not anti-Bob Bradley," says Stickel. "He hasn't been charged and convicted. If he gets that, I will have a different opinion." Both he and Littlejohn say Bradley is a passive investor who doesn't participate in meetings or telephone strategy sessions.
Overall for Virtual, "There are a certain set of investment goals we have not been able to reach at this point," says Littlejohn, a scientist and venture capitalist, pointing to "a dribble of success."
"It's a very good idea, but ideas take time to develop," says Vance, who has left Virtual to join the San Diego office of Avondale Partners, an investment-banking firm.
Virtual is now pushing one idea: a device that can run over a bridge "and, like an X-ray, tell if there are structural problems," says Stickel. It was developed at U-Cal's Lawrence Livermore National Laboratory.
Virtual's scorecard since 2000: "Investors haven't made or lost anything," says Stickel.
According to the statement of economic interest that Sanders filed upon becoming a candidate, his Virtual stake is worth between $10,000 and $100,000, and he received less than $500 from the venture during the last year.
It's been more of a roller coaster ride for Bradley, Ellis, and Blevins.
Last year Ellis and Metabolife were indicted for making false statements to the Food and Drug Administration in attempting to cover up 14,000 complaints (including heart attacks, strokes, seizures, and deaths) between 1997 and 2002. The next court hearing is in September. The food and drug agency banned ephedra last year, but a federal judge in Utah overturned the ban this April. That matter is up in the air.
Metabolife, selling its products through multilevel marketing -- a variation on a pyramid scheme -- chalked up $1 billion in sales in 1999 but is now down to a shadow of its former self as it fights civil lawsuits that could break it. According to papers on file in Bradley's pending divorce, his second, Metabolife could be sold.
The Metabolife saga began in the fall of 1988. "On or about June 30, 1988, an anonymous caller advised that Mike Blevins, who is believed to have been involved with Colombian cocaine traffickers, has recently moved to San Diego from the San Francisco area and is currently living with Mike Ellis" in a San Diego-area condo, Federal Bureau of Investigation agent Peter Shepp wrote in an affidavit dated October 27, 1988.
Soon, the FBI swooped down and busted Blevins and Ellis on charges of conspiracy to manufacture methamphetamine. The agents said they found lab equipment and chemicals capable of manufacturing 50 pounds of meth.
Internal Revenue Service agent Thomas Fox reported that during a search of a home that Ellis and Blevins had rented, there was an address book with phone numbers of drug figures including that of Chicago mobster Sam Sarcinelli.
Once behind bars, Blevins began to help the feds, using his extensive knowledge of the West Coast's drug underground. "Mr. Blevins has been very cooperative with law enforcement since his first arrest," wrote U.S. Marshall James J. Molinari in a November 1995 pitch for clemency on Blevins's behalf.
"I came in contact with Blevins in 1989 while commanding the Narcotics Division of the San Francisco Police Department," wrote Molinari. "Mr. Blevins provided information and assistance that led to the dismantling of a major drug-trafficking network operating in the San Francisco Bay Area."
After Blevins got out of prison and Ellis completed his probation, a federal judge in San Diego allowed them to resume working together and agreed to seal their records. The result was the new Metabolife miracle pill.
Millions of dollars poured into the company as desperate dieters lined up at mall kiosks across the country to plunk down $50 or more for the ephedra-laden elixir. According to the divorce papers, Bradley was making $30 million a year.
In San Diego, Padres announcer Ted Leitner extolled Metabolife's virtues over the airwaves. The company courted the Beautiful People: on July 25, 2000 -- 14 months after news of the founders' criminal pasts had surfaced -- Metabolife, Qualcomm, Wells Fargo, John and Becky Moores, the Padres, and Alliance Pharmaceuticals sponsored a charity dinner at the Hyatt Regency that a Union-Tribune society writer called "a love-fest." Bradley was a celebrity guest.
The company also gave to politicians. But complaints of ill effects piled up. The Food and Drug Administration began looking into ephedra's safety. Metabolife was hit with lawsuits. On July 2, 2002, agents of the Internal Revenue Service raided the office of a former Metabolife outside accountant, Michael Compton. They raided Blevins's Rancho Santa Fe home.
An affidavit filed three days later by IRS agent Thomas Martinez charged that Bradley, Ellis, and Blevins were siphoning money out of Metabolife and evading taxes through offshore trusts. Bradley appeared to be the main helmsman steering the money headed offshore, according to the affidavit, which charged that Metabolife failed to account for $93.7 million in deposits between 1996 and 1999 in its corporate tax returns.
According to the affidavit, former employees, including a chief financial officer, charged that during 1997 and 1998, "Ellis, Bradley, and Blevins were skimming large amounts of cash from the operations [before the cash receipts were deposited into the corporation's bank accounts]. [The former CFO] explained that the three principals were able to siphon off the cash because the company's accounting was closely controlled by Bradley."
Jeff Anderman, the former CFO, "added that Bradley had bragged about setting up a bank account in Switzerland to hide the cash skimmed from the corporation." Anderman "stated that Ellis, Bradley, and Blevins believed they could make money untraceable by using a web of limited liability corporations set up by the owners."
A footnote added, "Amazingly, Metabolife's banking statements were sent not to corporate headquarters but directly to Bradley's personal residence. This practice continued up to and including January 1999. Subsequently, the statements were sent to Metabolife corporate headquarters."
A former in-house counsel named Ken Dix said that the three founders skimmed cash from the will-call counter, according to the affidavit. Dix said Ellis and Bradley paid for their houses and other items with cash. "According to Dix, Bradley hated to pay taxes, and Metabolife maintained multiple sets of books to disguise its true financial activities. Dix also stated that all three owners had offshore bank accounts -- Bradley in Switzerland and Ellis and Blevins in the Cayman Islands."
Compton, who committed suicide in late 2003, told one person "that he had prepared Bradley's personal and business tax returns. These returns included Bradley's Towing, Inc. -- a towing company located at 6980 Mission Gorge Road #C, San Diego, CA. According to Compton, Bradley was also skimming large amounts of cash that he received through the sale of cars by Bradley's Towing."
According to the affidavit, Compton told Anderman that Bradley was skimming cash from the towing business and that it was not declared for tax purposes.
Compton asked a lawyer if he would have criminal liability "based on his knowingly preparing corporate tax returns which did not reveal all of the cash received by either Metabolife or Bradley's Towing," according to the affidavit. The lawyer said he might.
"A review of information from the Treasury Enforcement Computer System reveals that both Bradley and Ellis did, in fact, travel to the Cayman Islands in December 1997," says the affidavit. "These records show that Bradley traveled to Europe in November 1998."
The Internal Revenue Service hasn't made an official charge on the alleged financial finaglings of Bradley, Ellis, and Blevins. The affidavit is the only document it has released publicly.
In current divorce proceedings, Bradley's wife, Beatriz L. Bradley, is zeroing in on his real estate holdings and other investments, including Virtual Capital.
An aide to Beatriz Bradley's lawyer says that she is being denied access to Metabolife's books and records, as well as Bradley's personal accounts. Income-producing assets, such as rentals, are being sold. Real estate has been transferred to C corporations, or corporations whose profits are taxed separate from their owners. This means that the corporation would get the income and not Bradley, says the aide.
She says it is impossible to understand Bradley's income without analyzing books and records of Metabolife and the Bradley Foundation. "We also understand the IRS seized a great deal of records from both Metabolife and Mr. Bradley personally," says the aide. "Mr. Bradley also has many trusts and has an ownership and/or financial interest in at least five foreign corporations. I personally feel that I may never get complete access or cooperation relating to Mr. Bradley's financial affairs."
Accountant Jean Goddard, doing work for his wife's attorney, noted that expenses had been blacked out in certain personal banking records. She was told that certain foreign trusts were no longer active. She expressed skepticism.
Goddard, on behalf of Mrs. Bradley's attorney, was doing the due diligence that Virtual Capital should have done.