NatGeo’s engaging miniseries captures the chaos of creation during the late 1990s dotcom boom in Silicon Valley and highlights the danger investors still face when desire trumps diligence
It’s hard to say whether Michael Fenne, the most infamous CEO of the early Internet era, was actually as darkly charming in real life as he is portrayed by actor Steve Zahn in Valley of the Boom, the miniseries aired on the National Geographic Channel.
But the investors who sunk more than $20 million into Fenne’s tech startup Pixelon in the late 1990s should have been a little more interested in understanding just who they were getting into business with. For starters, Michael Fenne didn’t actually exist.
Fenne was an alias for convicted felon David Kim Stanley, a smooth-talking son of preacher man and a fugitive from justice who had been living out of his car while on the lam from Virginia and Tennessee law enforcement officials. According to media reports published in the ugly aftermath, Stanley had been convicted in 1989 on 55 fraud-related counts stemming from a scheme that authorities said had bilked more than $1.2 million from seniors across the South. Stanley was initially sentenced to 36-years in prison, but as news accounts at the time reported, the judge had suspended 28-years of his sentence on the condition Stanley repay his victims. Stanley was released and shockingly vanished before completing his court-ordered restitution, a disappearing act that put his mug shot on ‘Most Wanted’ fugitive advisories across the country.
Stanley re-emerged in San Francisco as a tech visionary pitching investors on Pixelon, the startup he claimed had developed a revolutionary streaming technology that would allow Internet users to view broadcast quality videos on their computers. Had it actually been developed in the late 1990s, that tech would have been more than revolutionary it would have been miraculous. The trouble was, of course, it was a futurist fantasy that would not be functional for another ten years. Still, Stanley was able to convince experienced investors like investment bank Advanced Equities President Lee Wiskowski and Hollywood studios like Paramount Pictures and its star Will Smith that Pixelon had accomplished the digital equivalent of landing a man on the moon—in 1959 instead of 1969. In reality, Stanley was using jerry-rigged Microsoft software already on the market for his fabulist demonstrations. As The Guardian reported, downloading a 30-minute television broadcast at that time would take more than eight hours.
Advanced Equities soon signed on as Pixelon’s investment bank and coordinated a $20 million private placement that was quickly expanded to $28 million. The Guardian later concluded that the investment bank’s motivation to get into bed with Pixelon quickly without much due diligence was that “Advanced Equities was looking for its first hot deal.” The investment bank had been founded earlier that year by Wiskowski with Keith Daubenspeck and Dwight Badger, and the trio were by most accounts eager to join the dotcom party. But as many a rolled john has later told cops after getting hauled into the police station: when you’re on the street looking for a hot deal you tend to overlook warning signs, even obvious ones.
One of the first big red flags of Stanley’s sales pitch should have been his own professional history, a résumé that he claimed included working for the CIA and Saudi royal family. While confirming his employment with Langley or Riyadh may have posed some challenges, Stanley’s pose as ‘Fenne’ also claimed to have been in the employ of Walt Disney and Sony, a ruse which would likely have unraveled with even cursory due diligence. Then there was his eccentric behavior as CEO. He insisted on being paid in cash out of the company’s expense accounts, held mandatory prayer meetings in his office and claimed to have booby trapped the company’s computers so that if anyone attempted to examine the technology inside the system would self-destruct.
Still, the money continued to pour into Pixelon.
As Mark Cuban speculates in Valley of the Boom, there may have been more at work than sheer negligence. Advance Equities may not have been keen on asking too many questions because they might have been planning to take the company public and make a killing ion its IPO, a classic “pump n’ dump.” If that was the case, it was Advanced Equities that got pumped and then dumped.
Just months after the investment bank went all-in with Pixelon, Stanley threw a launch party that infamously became the benchmark for the extravagant hubris of the dotcom era: iBash ’99. An epic blowout staged in Las Vegas that featured performances by The Who, Dixie Chicks, Faith Hill and KISS among others. The orgy of self-celebration was naturally to be broadcast online around the globe and screens were rented in Times Square. However, in the midst of the company’s raging bacchanalia no one apparently noticed that the show was a tech still-birth, and was not available everywhere else it was supposed to be seen. Pixelon’s coming out party turned out to be a $16 million wake, as the company burned through 75-percent of its working capital on the shindig.
Not long after what The Who later described as ‘The Vegas Job,’ Stanley was summoned to a company Board meeting at which the directors were forced to summon police to remove armed ‘bodyguards’ that Stanley had brought into the company’s offices and then fired him—with Stanley making bizarre Biblical allusions all the way out the door, calling one board member a ‘Judas.’ Several months later Stanley, who had disappeared to a mountain hideaway house in Big Bear, California, would be forced to flee again after police were tipped off to his actual identity when a former employee recognized his old boss’s resemblance to a fugitive featured on a ‘Most Wanted’ show. While Stanley was able to get the jump just ahead of the San Bernardino County Sheriff’s Department, he apparently didn’t have much appetite left in him for life on the lam. He turned himself in and was extradited back to Virginia.
Pixelon tried to carry on with a brave face but bankruptcy beckoned and the company was shuttered for good by 2001.
Twenty years after the Wild West days of the first tech boom, it’s worth pondering just how much of a lesson was learned from the likes of Stanley and his magical wares?
The miniseries has prompted publications such as WIRED to revisit their original reporting on Pixelon and the unmasking of Stanley, but the magazine wrote just two weeks ago “It’s probably not possible for a grifter like Stanley to woo that level of investor dollars anymore. There’s too many ways to perform due diligence…”
If only that were true, the numerous investors who bet some $9 billion on Elizabeth Holmes and her blood testing startup Theranos over the past few years – like the Walton Family, the DeVos family and Rupert Murdoch – would probably feel a lot better right now. Like Stanley, Holmes convinced numerous deep pockets around the country, that her little startup could do something that had been previously impossible – conduct a full blood test from one drop of blood. Holmes was indicted in June 2018 on multiple counts of fraud and conspiracy charges, she has pled not guilty.
So, clearly, it is actually still all too possible for smooth-talking grifters to take vast sums of money from investors and investment managers who are all too eager to ink that next ‘hot deal’ without first conducting the due diligence necessary to make sure they aren’t walking into a cold steal.