April 27, 2014: The story of PPJ Enterprises (PPJE) has all the elements of a Bollywood flick: lust (for money), alleged treachery, endless conflict, bizarre behavior, and of course nonstop drama. The star is Chandana Basu, CEO and control person of the company. Basu is a would-be millionaire who, according to one California Superior Court judge, has a great deal of trouble telling the truth.
PPJE, a medical billing company, came to our notice when, on 17 April 2014, it issued an "update" to its shareholders. The press release was entirely dedicated to attacking one of those shareholders. The investor singled out was Matthew Perenchio, whose Investor's Hub alias and personal email address Basu not-so-kindly furnished to her public. She further noted that he "claims to be a media person," and had purchased $600 worth of PPJE stock through Sharebuilder in November 2013, adding slightingly that he was "at best a very minor shareholder."
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| Matt Perenchio |
Perenchio told us he hadn't asked for any "insider information," nor had he demanded compensation of any kind. He'd merely requested whatever information Basu was free to disclose about an ongoing lawsuit, and asked for clarification about which shareholders would qualify for a stock dividend promised as an "incentive" to "loyal" longs. In a PR from late December 2013, Basu had asked its "long term shareholders to provide Name, Address and Tax Id/SSN to receive incentive shares within the next 30 days." Evidently she planned to distribute that stock only to some shareholders, not the entire class, by setting a record date in the past. FINRA, which must process corporate actions like dividend distributions, is unlikely to find that acceptable.
Basu grandiosely accused her perceived enemy of "threatening to destroy the Company and its CEO." Perenchio is a journalist by profession--he's editor of the award-winning Jackson County Chronicle, a Wisconsin weekly--and his reporter's curiosity prompted him to ask questions about the company, its operations, and a lawsuit Basu says will bring in millions when it finally goes to trial. This process is called "due diligence," and it's highly recommended by investment professional and watchdog agencies, including the SEC.
Perenchio's communications to Basu seemed to us to be appropriate, polite, and respectful. This was his last:
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| Perenchio to Basu |
PPJ Enterprises
PPJE was formed by Basu in the state of Delaware in 1994 as Healthcare Business Services Group, Inc. The public company was incorporated in Nevada in 2000 as Winfield Capital Group, Inc. It later changed its name to Winfield Financial Group, and as such entered into a reverse merger transaction with Healthcare in the spring of 2004. Two other companies owned by Basu were included in the deal. They were AutoMed Software Corp and Silver Shadow Properties, LLC, both Nevada companies. Healthcare's business was "traditional" medical billing. AutoMed was described as "a newly developed and successfully tested technological medical billing software that is ready for implementation, " and as "the only full service product on the market." Silver Shadow owned real estate in Upland, California, with an existing building that Basu was renovating for use as a surgery center. At that time, the companies had offices in Upland; Laredo, Texas; and Providence, Rhode Island.
No financial statements for Basu's companies were included in the SEC filing, so their condition cannot be determined. Interestingly, in light of future developments, there was already an outstanding lawsuit against Healthcare. In September 1999, Mohammed Tariq, M.D., had been granted a default judgment against the company in Collin County, Texas, in the amount of $280,835.10, plus pre- and post-judgment interest. Healthcare received notice of the judgment, but didn't bother to pay it, saying that as far as it knew, Tariq had taken no steps to enforce it.
Only relatively early filings for the company offer a useful biography of Chandana Besu. She's said to be a graduate of Bethune College--presumably the one in Kolkata, India--where she majored in math, physics, and chemistry. She also claims more than 14 years' experience in computer design and programming, presumably the result of her time spent "attending" the "Computer Learning Center" (location unknown) in 1978.
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| Chandana Basu? |
The new public Healthcare failed to thrive, at least by Basu's standards. In fiscal 2004, it brought in gross revenues of $1.6 million; in 2005, $1.56 million; in 2006, $1 million; in 2007, zero, because the operations of Healthcare and AutoMed had been discontinued. Silver Shadow had been sold back to Basu for stock in 2005. Despite the company's lackluster performance, Basu had from the outset awarded herself executive compensation that might be considered outrageous: $5000 a month salary, and a minimum monthly "bonus" of $45,000, adding up to at least $600,000 per annum. She really did gift herself that much: the company's 10-K for 2005 shows $670,500 paid in officer compensation. She was the only officer.
Lawsuits… and more lawsuits
When Basu's three companies took over the Winfield shell, the default in the Tariq lawsuit was mentioned in the 8-K announcing the change, but discussion of several other legal actions was omitted. That information was, however, included in the company's 10-K for 2004. In 2002, an unnamed client sued; Healthcare counterclaimed for $210,056, alleging that the client had cheated it by illicitly using its "proprietary" billing methods. The disposition of that action was not revealed in subsequent filings.
In the same year, another client, Dr Kamran Ghadimi, sued Basu, Healthcare, Peacock Healthcare Systems (a d.b.a. name for Healthcare), and Alta Vista Billing Service for Complex Medical Care, Inc., alleging that Basu improperly withheld monies from him. The case is of interest because it marks the first appearance of Alta Vista, which would play a role in later litigation. Alta Vista was and is wholly-owned by Basu. It maintains a bank account--not a trust account, an ordinary one--directed by Basu alone. Basu counterclaimed Ghadimi. The suit dragged on until 2006, when it finally settled. In April of that year, just before his own suit was dismissed following the settlement, Ghadimi bought Tariq's Texas judgment and filed to enforce it in California. In 2007, Healthcare decided to settle with Ghadimi, and coughed up $185,000.
These legal actions are important because they set the stage for what is taking place today. Basu blames her clients, and one client in particular, for losses "in excess of estimated $100,000,000 million of dollars of loss during the years of 2001 to 2013". She's currently suing that client, Narinder Grewal, for tens of millions; the exact figure is difficult to calculate. In December 2013 and January 2014, PPJE's stock enjoyed two profitable runs on the strength of press releases announcing supposed progress with the litigation.
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| PPJE Chart |
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| Bench warrant issued for Basu |
Anyone interested in a closer examination of Healthcare's sorry legal history can search for the many San Bernardino cases here.
Leonard Soloniuk
The Leonard Soloniuk action, which began in 2004 as an arbitration and finished as a lawsuit, is noteworthy because it went to trial and ended in a personally humiliating defeat for Basu. The arbitration went against Heathcare; the arbitrator awarded Soloniuk $275,000. Healthcare felt that was unfair, and went to court, arguing that Soloniuk had been paid $210,000 of the money owed in 2002. The suit was filed in March 2007, and ended with a bang in June 2008. It was heard in Superior Court in San Bernardino.
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| Leonard Soloniuk |
Woolpert had pierced the corporate veil, something judges are usually extremely reluctant to do. But that was just the warmup. He continued:
…[Basu's] testimony is untrustworthy and only occasionally is truthful, and that would appear to the Court to be mostly by inadvertence or mistake. She has testified that her earnings from Healthcare were around $60,000 per year. There are at least two signed exhibits indicating that her income from Healthcare was somewhere in the excess of $500,000 to $600,000 per annum… In one of her rare exhibitions of candor, Basu indicated she negotiated her pay from Healthcare.Woolpert expanded on what he saw as Basu's troubling control of the Alta Vista bank account, saying that:
…Basu was the sole shareholder and manager [of Alta Vista] and agrees it was just a bank account personally directed by her.
The Court concludes Basu, in violation of her agreement with Cross-Plaintiff [Soloniuk], deposited monies received by Cross-Plaintiff and others in the AltaVista bank account or bank accounts and personally supervised and directed its disbursement. That money was owed to Healthcare, and large, though unknown, portions never arrived there. The clear inference to the Court is that it went into at least the figurative personal pockets of Basu.
The Court concludes that Basu looted Healthcare for the purpose of avoiding payment of just obligations to its creditors and clients.He closed by reiterating that "it would be inequitable and allow unjust enrichment of Basu to allow her to escape a personal liability" in the case. He then ordered that she pay Soloniuk a total of $333,189.
Basu needed to think fast. On 26 June 2008, barely two weeks after judgment had been handed down, she filed for Chapter 7 bankruptcy protection for Healthcare, and also for herself. Soloniuk remained her creditor, and pursued her to bankruptcy court, where she lost to him a second time when she was denied relief from judgment. She appealed, failed to prosecute her claim, and appealed once more, this time to the Ninth Circuit Court of Appeals. The Ninth Circuit upheld the lower court's decision on 3 January 2013.
Out with the old...
Basu accepted no responsibility for her company's need to file for bankruptcy. As she explained it, "HBSGI has been over burden [sic] with law suits by its former clients and due to loss of major clients and revenue HBSGI closed its Upland office on June 30, 2007. All efforts were made by its officer to re start [sic] the operation but failed."
More than that was going on, however. The public company still existed, and continued to trade. Basu noted that shareholders were "confused" about that, and about a name change to PPJ Enterprise, though the incoherent explanatory 8-K she filed on 27 February 2009 cannot have done much to help. The name change had been ratified by FINRA nearly a year earlier, on 24 April 2008. In the 8-K, Basu offered some information about AutoMed, which was still operational, though it was encountering difficulties with sales because, she said, the company lacked money for necessary improvements and upgrades.
PPJE, as it now was, filed its last 10-K on 3 December 2009, for the fiscal year ended 31 December 2007. As of that date, the company had no assets. A strange statement, given that AutoMed, described in glowing terms by Basu, is still said to be a subsidiary.
Amusingly, Basu claimed that the company had "never" been able to pay the minimum of $600,000 annually that she'd negotiated with herself. That is untrue. In 2005, she collected the full amount. It's unclear how much she made in 2006, because no current financial statements were filed with the PPJE's 10-K for that year. The filing merely contains restated financials for the fiscal years 2004 and 2005, which were completed by the auditor on 19 October 2006. See the auditor's letter here. Needless to say, Forms 10-K must contain current audited financial statements, but since this document wasn't reviewed--none of PPJE's filings was ever reviewed--the SEC didn't catch the omission.
She did, at least, decide to change the terms of her executive compensation. She generously agreed that "Ms. Basu will accept $5,000 as salary and $20,000 worth of Company’s Common Shares per month for the first six months. After six months her salary must increase $1,000 per month to a maximum $10,000 per month and $20,000 worth of Company’s S-8 shares per month until Company’s financial condition changes."
On 27 August 2009, the company filed a Form 15 to terminate its registration with the SEC.
And in with the new
PPJE had effected a 1:400 reverse split in April 2008. According to the 10-K for fiscal 2007, the company had 177,302,000 shares outstanding as of 31 December of that year. An obvious mistake: the number reflects the post-split situation. The split is discussed in the body of the filing, and not as a subsequent event.
Basu resolved to start afresh by "filing" with OTCMarkets. She began in late 2009 with an extremely sketchy annual report for 2008. Miraculously, the company now had assets worth $4.7 million. Stranger still, it proposed that as of year-end 2007--when, according to its last 10-K, the company was assetless--it in fact possessed assets worth $12.5 million. Her first effort at a disclosure statement was handwritten, and did not disclose much. Filed on 7 September 2010 for the period ended 30 June, it did at least reveal that somehow the shares outstanding had ballooned to a hefty 5.58 billion. She declined to offer any explanation of the enormous increase, but it must have had something to do with a Regulation D, Rule 504 offering from late 2009, and perhaps with other undisclosed financing efforts.
It would be pointless to discuss in detail PPJE's subsequent unaudited financial reports and rambling disclosure statements featuring bad English and dizzying font changes. The most recent disclosure statement, reflecting the company's situation at the end of 2013, features a bizarre shift from English to Greek a few pages into the unpaged document. A clever message board poster figured out how it happened, but there is really no excuse for a failure to proofread.
By the time that filing was thrown together, the share structure had once again changed. Another reverse split--this time 1:100--had become necessary; it became effective on 26 October 2011. As of 15 April 2014, shares outstanding were 894 million. As of 31 December 2013, 950 million shares were authorized, but that number was raised to 2 billion on 20 March, suggesting impending dilution. Gross revenue for the year was said to be $654,35- (a digit was dropped), and net profit $57,822.
Narinder Grewal
Why would anyone invest in PPJ Enterprises, or even trade its stock? Because for some time now, Basu has been tempting buyers with the prospect of sizable winnings from yet another legal action. This one was brought by her against Narinder Grewal, a former company director and client, and is in some ways similar to the Soloniuk case and others that did not work out well for Basu.
On 7 August 2009, a little more than a year after Healthcare had declared bankruptcy, Basu issued a press release proclaiming that PPJE "today announced its comeback after long drawn unforeseen situations; the Company took a step back for a year being out of public sight. The Company is in the process of regaining its strengths through resolution of the issues that kept the Company out of the public eye." To increase PPJE's visibility, Basu had taken a number of supposedly positive steps. They included bringing in "multiple investors awareness Consultants." One of those consultants was disreputable promoter and ex-con Jeff Stone of the Wakabayashi Fund. Back in the 1990s, Stone went to prison for his role an a penny stock scam; when released, he did not reform his behavior, and was sued by the SEC. Unwilling to pay--"They'll have to beat it out of me," said Stone--he and his wife moved to Tokyo, where they set up a new operation. The Wakabayashi Fund and its Hong Kong based successor have performed services for many a dubious penny stock company in recent years.
Most of the "comeback" press release consisted of a diatribe against the "vindictive" clients who, in Basu's opinion, were the cause of all the company's problems. Those clients and, as we've seen, Judge Woolpert, took a distinctly different view.
Grewal, like Basu, is a transplant from India. He received his medical degree from Patiala University in Punjab, and now practices anesthesiology and pain management in California. He became a director of Healthcare, as it was then, in 2004. Things presumably went well at first, but by 2007 relations had soured. In the press release of August 2009, Basu blames Grewal for Healthcare's loss of clients, and asserts that he "wanted $1 million unjustly from the Company," a demand that was "not entertained." Rather than do so, she decided to sue him. The action was filed in San Bernardino Superior Court on 1 November 2007, in the name of Healthcare Business Services Group. Grewal filed a cross complaint against Healthcare and Basu a month later.
When the suit was initiated, Healthcare was still an operational company, but its subsequent bankruptcy filing had an impact on the Grewal case. Once the bankruptcy proceeding was pending, Judge Barry Plotkin wanted clarification on the company's fate. Two years passed without definitive news. Finally, on 19 July 2010, Plotkin dismissed the action, stating as his reason: "No update regarding bankruptcy status provided."
Three years later, Basu volunteered her own interpretation of what had happened:
During a court trial between Ms. Chandana Basu and Dr. Grewal in 2009 [sic] where Dr. Grewal claimed that the company did not pay all money due him and sued Ms. Basu for $3,000,000. At that time Ms. Basu provided the court with 7 years of accounting review that revealed Dr. Grewal was paid in excess of $3,204,919.14 over and above due Grewal. Ms Basu won the trial in that case but Judge ruled that the Company must sue Grewal to recover the money.That is not what happened, of course. The case was simply dismissed. The suit had been filed by Healthcare, and there was no trial.
Basu must have seen the writing on the wall. Before the case in San Bernardino Superior Court had ended, she'd begun a new action against Grewal. The complaint was filed Los Angeles Superior Court on 3 December 2009, in the name of PPJ Enterprise. The plaintiff seeks monetary damages in the amount of about $30 million from Grewal, his business, and John Does yet to be identified. The litigation didn't get off to a quick start; it wasn't until 7 June 2011 that Grewal counterclaimed PPJE, naming Basu and several of her associates as well.
Plaintiff asserts that between 2004 and 2007, Grewal cheated the company by, among other things, informing Basu that checks sent to him by her had bounced, and requesting replacements. He then cashed both.
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| From the PPJE complaint |
Bounced checks are evidently nothing new for Basu; when she sued Soloniuk in 2007, her bank returned the check she wrote to the court clerk for her filing fee.
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| Bounced checks |
Basu had, in connection with the earlier case, "personally audited all accounting records from 1999 to 2007." (Is she aware than a genuine audit is typically performed by a party independent of the company in question?) Nonetheless, she hired an expert to go over the relevant materials in preparation for the Grewal trial, which by now has been continued many times. That expert, Scott Mowrey, was deposed in November 2013. When Basu testified at her own deposition in January 2014, she claimed that some of Mowrey's information was "incomplete" and "inaccurate," because she'd recently obtained previously missing documents.
It is obviously impossible for us to judge the merits of either party's case. Discovery is still open, but trial has been set for 7 July.
Basu rolls the dice
Basu has naturally led shareholders to believe that a favorable outcome in the Grewal litigation--one resulting in judgment in the millions--would benefit them by adding millions to the company's coffers.
A very significant statement in the "comeback" press release seems to have been overlooked by PPJE investors. Basu said:
To eliminate the Company's legal problems and potential liabilities, I have taken over the billing service with all lawsuits and liabilities leaving the Company (PPJ Enterprise) debt free except for the convertible notes," said CEO Ms. Basu. So Ms. Basu became a party to all law suits. She was sued as stated above especially by the ex client/ex Board of Director.Is that the noble gesture of a woman determined to save her company? Or is it a way to ensure that she, personally, will be paid all or part of any judgment collected in the Grewal case? Basu offered a fuller explanation in an annual report for fiscal 2012:
On or about January 28th, 2008, the new Board of Directors decided that Ms. Basu was to take over Healthcare (Delaware Company) since Ms. Basu was named personally as a party to most cases) along with all accounts receivables [sic] from billing and collection accounts of Healthcare (Delaware) as of 12/31/2007 by returning 600,000,000 shares of Common stocks [sic] of Registrant. After this date Healthcare was no longer a subsidiary of the Registrant.Although PPJE hasn't been an SEC registrant since 2009, and is not entitled to file annual or periodic reports on Edgar, in September 2013 Basu decided to amend the company's Form 10-K for 2007. Yes, that sadly lacking 10-K. Her amendments, helpfully emphasized in boldface, are very interesting. In the original filing, we find "ITEM 3. LEGAL PROCEEDINGS (Healthcare)." What is meant is that the legal proceedings involve Healthcare Medical Billing Services. That has been changed to:
"ITEM 3. LEGAL PROCEEDINGS ALL LEGAL PROCEEDING WERE TRANSFERRED TO MS BASU AS OF 1/1/2008 in exchange of 600,000,000 shares"Let's bear in mind that the original 10-K for fiscal 2007 was filed on 3 December 2008. So why wasn't that "transfer" of legal proceedings noted as a subsequent event? The rest of the amendments to the 10-K repeat Basu's allegations concerning Grewal, beefed up with accusations of "negligence" on the part of the company's then-accountant Ankit Jain, and comments on the "errors" Basu says she found in his work.
What does the transfer of "all legal proceedings" mean in legal terms? We have no ready answer. The current Grewal case was filed subsequent to that transfer, and it was filed in the name of PPJE. Yet the events and actions described in the complaint have to do with Healthcare, not PPJE. As we have seen, Healthcare, which still exists as a Delaware company, is now owned by Basu.
It does seem reasonable to conclude that if a monetary judgment favoring PPJE is handed down in the Grewal case, Basu will benefit personally, as a named cross-defendant. If Grewal wins, damages could be assessed against her as well as PPJE.
In the meanwhile, Basu has kept busy signing on new clients and arranging financing, according to press releases issued by the company. In December 2013, PPJE entered into negotiations for debt financing in the amount of $1 million. That would presumably be a Rule 504 offering, but if it's been finalized, no Form D has been filed. In February, a new and far more comprehensive financing commitment was announced. According to the relative press release, "immediate funding is for up to $50,000 of convertible debt which will be used to finance company development and of this $30,000 has already been received. The funding commitment calls for $35,000 in funding every 10 business days, the lender also agrees to pay all legal, accounting, audit and OTCQB listing fees. Up to an additional $440,000 of funding will be provided for marketing and company development once certain milestones are attained." Additional monies would be supplied should PPJE succeed in its apparent ambition to reregister with the SEC. Though it sounds like a generous offer, it could turn out to be extremely expensive.
As many penny players have learned to their dismay, convertible debt is dangerous, as it almost invariably leads to dilution. The recent doubling of shares outstanding suggests that dilution will soon begin, if it hasn't already. Perhaps the status of PPJE's convertible debt, never really made clear, will be explained should the company actually file the contemplated S-1 registration statement.
For now, eyes are on the Grewal case, and, apparently, on shareholders like Matt Perenchio who dare to ask questions about it.