By Stephen Young
By Stephen Young
By Stephen Young
By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
Last summer's spike in Camelot stock price would have benefited those, like Williams, who had received stock in exchange for their businesses; but Williams and several others who parted ways unhappily with Wettreich wanted nothing more to do with him and sold their shares before Camelot's price climbed.
In extracting a settlement from Wettreich, Williams broke fresh ground. Most of the small-business owners who sold their companies to Wettreich and felt cheated never attained any measure of revenge in court.
Linda Blanchard, for example, didn't know Wettreich from a stranger when he first called in July 1992, inquiring about purchasing the real-estate appraisal company Blanchard and her father had built. The Camelot CEO's pitch sounded good. Recalls Blanchard: "He said he wanted to buy my business and put offices all over the U.S."
Given the Dallas real-estate slump, Blanchard knew she needed to expand her commercial and residential appraisal business nationally. Wettreich and his shareholders, she thought, could take on the burden and risk of expanding the company for her.
Wettreich offered to have Camelot buy McKee Blanchard and Associates for $162,500, payable in Camelot stock. By the end of July, Blanchard had agreed, with the understanding, she says, that she would continue to operate the company.
Just days later, Blanchard concluded she had made a terrible mistake. "It was an awful nightmare experience," she says. "As soon as he bought my business, I never talked to him again. I opened and the very next day he got my receivables and my cash."
On October 1, just two months after buying her company, Wettreich walked into Blanchard's office and told her:"Go home." He was shutting down McKee Blanchard.
Litigation is still pending with the landlords of the building Blanchard and her employees had occupied, but Blanchard says she didn't have the energy or resources to sue Wettreich; all her cash was in the business and he had taken it. "I just wanted to wash my hands of him."
Wettreich says he closed the businesses he bought from Williams and Blanchard because they "depended on the individuals who were managing them" and the two women failed to meet his standards as managers. Never mind that both women had run their companies profitably before the companies were acquired by Camelot.
Wettreich contends he shouldn't be faulted for buying companies with bad managers, and he insists his shareholders don't think so either. As evidence, he repeats his management mantra: "The ultimate proof of the pudding is in the stock price."
In July 1993, Camelot Corporation made the leap from real-estate services to wholesale videotape distribution, purchasing 40 percent of New Jersey-based Goldstar Video Corp. Goldstar distributed children's videos, including such titles as Ernie's Big Mess and Dr. Seuss' Hop on Pop, to grocery and drug-store chains.
In exchange for the minority stake, Wettreich gave Goldstar owner Ronald Goldsmith 500,000 shares in Camelot, then valued at $218,750. But in October 1993, three months after Wettreich bought into the company, Goldstar filed for Chapter 11 bankruptcy protection.
Goldstar's death appears to have resulted from a self-inflicted wound. Goldstar acquired its videos almost entirely from Random House, paying the company a $1 royalty on each tape, with a guaranteed minimum annual fee of $1 million. The Random House agreement required Goldstar to restrict its distribution to supermarkets and drug-store chains.
In bankruptcy-court pleadings, Random House said it had terminated its contract with Goldstar because it caught the company violating the distribution restrictions beginning in May 1993, before Camelot had invested in the company.
The cancellation of the contract doomed the company. In its 1995 annual report, Camelot reported that it had written off its remaining equity investment with Goldstar.
Wettreich says he was unaware how severely the relationship between Random House and Goldstar had deteriorated. "It was not a good investment," he said.
Despite its rocky past, despite its lack of profitability, Camelot would rise to national attention--and make Wettreich's stock worth millions--on the back of a single product: Digiphone.
The Digiphone story starts with the entrepreneur behind it: Kevin Corson, a 38-year-old resident of Portland, Oregon. Corson, who had previously developed and marketed a voice-recognition program called Voice Blaster, met Wettreich in early 1994 when Stephen Froelicher, a Florida businessman, had introduced them.
Wettreich had gone into business with Froelicher in 1993, buying Froelicher's catalogue CD business for $25,000 cash and 202,000 shares of Camelot stock valued at $143,000. Together, Wettreich and Froelicher developed the concept for the Mr. CD-ROM retail-store chain. The two opened a test store in Florida, which they later closed.
Froelicher had known Corson through the CD and software business. When Corson told him about his plans to take public a company based on the new software he had programmers developing--allowing virtually free long-distance telephone calls via the Internet--Froelicher urged him to contact Wettreich.
Corson called, then flew to Dallas. "I hung around for about a month," he recalls. Corson says he recognized, by perusing old SEC documents, that Camelot and Wettreich had experienced their share of financial woes. "He would have a good idea, and he wouldn't get the right marketing," says Corson about Wettreich's past business ventures, "or he'd have the marketing but he wouldn't have a good idea."