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Billionaire's son defiant in lawsuit
Turner denies fault in Level One `scam'
Sacramento Business Journal
March 12, 1999

R.E. "Teddy" Turner IV, the son of Atlanta media tycoon Ted Turner, this week denied any wrongdoing in response to a federal securities fraud suit filed last month by Level One Communications Inc.

Turner is named as a defendant in the suit, which claims Level One was conned into buying $3.5 million in stock in a company that Turner controlled.

The technology Level One sought with its investment, according to the suit, turned out to be bogus.

"I strongly deny any and all of the allegations and will fight this legal battle very, very hard," Turner told the Jacksonville (Fla.) Business Journal on Tuesday.

The Level One lawsuit alleges that Zekko Corp., a Florida company headed by Turner, told Level One it had the rights to a new technology invented by a Florida couple named Madison and Linda Priest. The technology was supposed to be able to send real-time video and other high-volume data over conventional copper phone lines.

Level One was persuaded to buy into the technology during two demonstrations in a Ponte Vedra Beach, Fla., hotel in October 1997, the suit claims.

But the two demonstrations -- in which Turner allegedly participated -- turned out to be phony, according to the lawsuit.

Madison and Linda Priest were served with the suit late last week in Florida by a private investigator, said Level One attorney David Tyra. He couldn't confirm whether Turner had yet been served.

Turner called the lawsuit "a very interesting case, especially since they (Level One) own the company (Zekko)."

Level One attorney Tyra countered that Level One owns a stake in Zekko only because of the allegedly phony technology Level One was sold.

"Level One has been a part-owner (of Zekko) ever since it made its investments," Tyra said. "I don't know what the precise percentage is."

Level One has been one of Sacramento's hottest high-tech companies. Last week, only hours after the Sacramento Business Journal went to press with the story about Level One's dispute with Turner, the company announced that it will be merged with Intel Corp. in a stock swap valued at $2.1 billion.

One key way that Level One has been an industry leader in making components for computer networks has been by acquiring small companies that have developed leading-edge technology. Buying into Zekko was one of Level One's largest purchases in recent years.

Level One, the suit says, bought a total of $3.5 million of Zekko stock in two transactions, the first in late 1997 and the second in early 1998.

Turner told the Jacksonville Business Journal that he was with Zekko as president and chairman of the board only from December 1997 through September of last year.

Level One's suit claims that when the allegedly rigged demonstrations of the new technology were given by Madison Priest in two different sessions at a Florida hotel in October 1997, Turner and other directors of Zekko were there, participating in the presentations.

Representing Level One at the first demonstration was Malibu venture-capitalist Jim Julian, one of Level One's original directors. The second demonstration was given to Level One's Dan Ray, the man whom Level One chief executive officer Robert Pepper credits as having the technical vision that started Level One.

Pepper refused to comment because the case is in litigation.

"This case is a real eye-opener for a lot of us in technology," said one area high-tech executive, asking not to be named. "It looks like Level One's due diligence slipped a bit on this investment."

Meanwhile, complaints have surfaced about another company in which Turner was involved, a multilevel marketing operation called LocalNet Communications. Some LocalNet distributors have begun to sever ties with the organization, complaining that the company did not deliver products it promised. About 20 LocalNet distributors are believed to be in the Sacramento area.

Turner said this week that the operating assets of LocalNet Communications were purchased in January by e.TV Commerce Inc.

E.TV Commerce is a subsidiary of Cedarhurst, N.Y.-based Compu-Dawn Inc., Turner said, and he is the board chairman of Compu-Dawn.

A sales meeting last summer: A technology demonstration similar to that described in Level One's lawsuit was given at a large gathering of LocalNet distributors in Jacksonville last June.

Robert Cummings, owner of Sac-Com LLC, a four-person Sacramento shop that designs Web sites and small computer networks, said he attended the meeting, along with approximately 20 multilevel marketers from the Sacramento area who are associated with LocalNet.

According to a Web page set up by LocalNet distributors, Turner was the founder of the network marketing company. The other principals were Rudy Theale, who, with Turner, co-founded the company in 1997 and who previously headed Smart Phone America; and James Palmer of the family that owns SkyTel Paging.

Cummings said Turner was at the June meeting in Jacksonville.

Cummings was recruited for the trip to become a distributor for LocalNet products. But his real motivation for going, he said, was to see if his business could sell what LocalNet touted as a new, high-speed data service on conventional phone lines, to compete with the more expensive ISDN and T-1 lines on the market now.

During the weekend-long show, held in a vintage theater in downtown Jacksonville with a large crowd in attendance, LocalNet touted approximately 10 telecommunications products, Cummings said.

The company told the audience that the products were to be developed by Zekko. Attendees were urged to sell the products as multilevel marketers, Cummings said.

Efforts to reach other LocalNet distributors were unavailing.

Cummings said the high-speed phone line that he saw being demonstrated was touted as being able to connect 32 devices and boost a phone line's data carrying capacity by 400 times its current capability.

"It was supposed to provide real-time audio, real-time video, and have two-way (transmission) capability," Cummings said.

But with a background in electronics, Cummings wanted more technical information on what made the thing work.

Cummings said that he approached Turner and asked him for details on what made the "twisted pair" technology work.

"I wanted more specs, and when I asked (Turner) about them, he kept giving me the runaround," Cummings said.

Cummings said that when he returned to Sacramento, he expected to receive more information in documents Turner said he would send.

"I never got them," he said. "My interest went down from there."

He made follow-up calls to LocalNet but "nobody got back to me." When that happened, Cummings added, "I just kind of had bad vibes."

Web site warning: This week a Web site that had been used to promote sales for LocalNet distributors had a warning note posted in red letters.

The warning was an effort by an unidentified sales representative to disassociate from LocalNet because of losing "several thousand dollars," and "numerous problems, including non-delivery of products, charging our customers credit cards and then not delivering product for months, not refunding customers and reps money after they asked for the return of their investment, late and untimely paychecks, incorrect paychecks, numerous broken promises and lies regarding the business opportunity.

"The Twisted Pair technology that was being promised by Teddy Turner Jr.," the message continues, "turned out to be nothing more than vaporware (it was a farce all along)."

The note says LocalNet is currently trying to "rebuild itself under the new name of E TV. ... We have always been against joining a start-up company as 95 percent of them fail in the first three to five years. We figured that with Teddy Turner Jr. there may be a greater chance of this fact not happening ... we were wrong."

A new name: Turner confirmed on Tuesday that the operating assets of LocalNet had been bought out by e.TV Commerce Inc., a subsidiary of Compu-Dawn Inc., a software company Turner now chairs.

According to a report published Feb. 26 by the Jacksonville Times-Union, Compu-Dawn, which develops software for public safety agencies, made a $1.8 million loan to LocalNet last autumn. In January, Compu-Dawn acquired LocalNet's operating assets to satisfy the loan.

LocalNet's name now is e.TV Commerce, Turner told the Times-Union. And while Compu-Dawn will continue to sell software, e.TV will be the company's primary business, he said.

"We'll eclipse their business," Turner said.

Compu-Dawn, which went public in 1997 with little fanfare, apparently was looking for a new business direction.

Theale, LocalNet's co-founder, is now president of e.TV.

"We needed capital," Theale told the newspaper. "They needed a better business for their public vehicle."

E.TV reportedly produced $10 million in sales last year, with Compu-Dawn reporting $916,129 for the first nine months of the year.

E.TV told the Times-Union it has 3,000 subscribers, "who connect to the Internet via a telephone box hooked up to their television set." They can buy the box for $249 for Internet access, online shopping, and for using the TV to download software. "This is without having to buy any software," Theale told the newspaper. "Everything is upgradeable through the Internet."

E.TV service is not being sold through retail outlets or advertising. Only independent sales

representatives are doing the selling, Theale told the newspaper. "They've got to be knowledgeable about what they sell," he said.

Jacksonville Business Journal reporter Jeff Haynes contributed to this report.