This one involves a guy named John Rogers, who managed to persuade some of California's richest investors, including Bev Hills billionaire Ron Burkle and mega-billionaire Gordon Getty, to give him $340 million for a tech startup called Pay By Touch. The idea was that shoppers would pay for their purchases with a thumbprint rather than a credit card or cash. Today, Pay By Touch is bankrupt, and the millions that Rogers raised are gone in a spending spree that burned up venture capital at a rate of $8 million per month. The SF Chronicle has laid out the particulars.
In a lawsuit filed in October in San Francisco Superior Court, an investors' group says the company's crash was hastened by Rogers' frequent partying and "constant abuse of drugs" - behavior that allegedly impaired his business judgment and contributed to destructive behavior. The CEO's suspected drug use became of such concern that a member of Pay By Touch's board said he arranged a hotel-room "intervention" for Rogers, an investor says.
In a phone conversation, Rogers said he was living in Southern California and was involved in a new startup. He declined to be interviewed about Pay By Touch. His lawyer, Steven Joffee, said Rogers would file legal papers contesting "all the allegations" in the investors' lawsuits. "The collapse of Pay By Touch was in no way related to the grossly inaccurate statements about Mr. Rogers' private life" contained in the suits, he said. "Mr. Rogers fought to the death to save this company."
Rogers has described himself as a "visionary, entrepreneur and manager" (if he does say so himself). He did have a knack for raising money ("He comes across as really sincere and talkative - like he's your best friend," one broker said), and for attracting women – then treating them quite badly, according to lawsuits.
In 1997, a girlfriend accused him of slamming her head against the car window during an argument in Rogers' BMW sedan, according to an arrest report cited in the lawsuits. He pleaded guilty to disorderly conduct. No sentence was imposed, records show. In 1998, after another girlfriend obtained a restraining order against him, Rogers left a voice mail threatening to "make (her) life hell," records show. The following week, the woman said Rogers trashed her house, tearing out Sheetrock and a toilet, and leaving debris and garbage throughout. He was ordered to pay restitution of $35,000, records show.
So I know what you're thinking. How could a guy like this sucker so many sophisticated investors? Seems like the warning signals were all over the place. But the Wealth Report's Robert Frank says it's a lot easier to be duped than you might think.
For one, investing today is complicated. The rich don’t have time to scrub the histories and personal backgrounds of all their investment managers. What is more, the lure of steady, strong returns is enough to blind anyone to the potential warning signs. Yet perhaps the biggest factor in why wealthy investors get duped is relying on recommendations from their friends.