Is SunnComm a sham or the next, big DRM success?
From hell to hell and maybe heaven
From faux Elvis to DRM in 80 days
SunnComm began life under a different name - Desert Winds Entertainment Corp. This company, headed up by Michael Paloma, provided Elvis and other impersonators for Las Vegas lounge acts and ended up running into serious trouble with the SEC in 1999. Government documents show that Desert Winds was charged with announcing a $25m deal with Warner Bros. when "no such contract existed." It's suspected that numerous insiders sold shares of Desert Winds when the stock rose based on the news of the Warner Bros. deal, and the SEC cracked down on Paloma and another Desert Winds associate Matthew Bardasian.
"Those were panicked moments," Jacobs said. "I was basically brought in to resurrect a company that was doing a poor amount of business and doing it poorly. I was asked by the stockholders to come in and make it better."
Jacobs took the helm of Desert Winds in March of 2000. Upon his arrival, Paloma agreed to step down, pay a $1m fine and never run a company again. He then left Desert Winds a couple of months later.
As CEO, Jacobs' first order of business was to get rid of 20 employees and to focus the company on a more profitable business than entertaining Vegas lounge lizards.
For a brief time, Jacobs and a consultant looked into buying a record company based in Colorado. (SunnComm's SEC filings are littered with payments to consultants for a host of legal and technical services.) Then a stroke of good luck nailed Jacobs in the face.
One of Desert Winds' employees had decided to leave the company and join a friend in a DRM venture. The friend had discovered a way to alter CDs and confuse them from making illegal copies. This was in April of 2000 - a time before peer-to-peer services such as Napster had really gained much public attention and before record companies were taking average consumer CD piracy terribly seriously.
Jacobs convinced the employee and his friend to stay on, and a new division of Desert Winds was born.
In July of 2000, Desert Winds officially changed its name to SunnComm in a transaction that sent 5m preferred shares and 2m shares of common Desert Winds stock to SunnComm with the deal being characterized as an acquisition. SunnComm then created a unit called Project 1000 - the DRM division - that would concentrate on selling what was called MediaCloQ.
"We shifted from content production to content protection," Jacobs said. "This was to show shareholders that we could be in a business that could be real. The purpose was to transition the company by getting the old people out and attracting enough funds not to have the company go under."
It's at this point that SunnComm began a series of fast and furious business dealings that have some shareholders terribly concerned.
For Jacobs, SunnComm's major mission was to transform into a clean, smooth-running business. He wanted to clear the company's name with the SEC and move from the so-called "pink sheets" to getting listed on a national trading market such as the Nasdaq.
SunnComm, however, ran into a complex set of problems as it applied for status on the OTC (Over the Counter) market. The SEC basically stepped in at the last minute of SunnComm's OTC filing window and made life difficult on the company, presumably because of past incidents. So, it changed up its strategy.
"One idea that our legal staff had was to buy a fully reporting public company," Jacobs said. "Once you merge into (the fully reporting company), no one can unmerge you."