Sunday, February 9, 2003

SEC says trader took investors' money, lived large


Millions blown on personal fun, Feds discovered

By James McNair
The Cincinnati Enquirer

The story of Patrick Kisor is not the usual rags-to-riches tale.

Until 1998, Kisor, 40, earned a living by installing home theater systems and, on occasion, selling his services as a disc jockey. To people who worked with him, he was known as a technology nut and a whiz with numbers. They remember the father of five as a clean-living, church-going family man destined for something beyond wiring electronics components together.

[photo]
Las Vegas trip: Patrick Kisor meets a member of the Blue Man Group. Kisor gambled millions in Vegas.
Photo submitted

"He's a smart guy - geeky smart," said Mark Lane, an employee of the Blue Ash-based home theater company M. Alan Associates and a longtime acquaintance of Kisor. "I always waited for him to be on late-night TV infomercials selling his book."

Instead, come 1998, Kisor had something else to sell: a new strategy for making money in the high-stakes arena of trading stock options. He formed a company called PDK International and raised nearly $4 million from well-to-do investors, including former baseball player Paul O'Neill, several Tristate doctors and Ingrid Wang, the ex-wife of Computer Associates founder Charles Wang. Linking up later with a money manager in Detroit, he pushed the intake up to $35 million.

Kisor claimed to have Midas-like abilities. "We can make the statement that the strategy has at least doubled the performance of the S&P 500 (stock index) annually for the last five years," crowed one brochure that he gave to potential investors. "We have done all this with a risk ratio far less than that of the S&P 500 itself."

Investors know better now. Last fall, the Securities and Exchange Commission said PDK and a successor company, Agave Ltd., were one big con. Kisor, without admitting or denying wrongdoing, agreed to close shop. Now the government is trying to figure out how much, if any, of the $35 million is left. Agents for the FBI and IRS are conducting an ongoing investigation.

Reached at his home in Sycamore Township, Kisor declined to offer his side of the story. "I'd really like to, but, obviously, I'm represented by counsel and he told me not to talk to anybody."

The SEC, in its thick lawsuit filed in Detroit last fall, said during PDK-Agave's four-year run, the money went out as fast as it came in.

The commission says that of the $35 million raised by Kisor and a money manager in Detroit, Keith Mohn, more than $12 million went out as "alternative investments, unclassified disbursements and unknown disbursements." Another $12 million-plus went toward the creation of an options trading company that bought a seat on the Chicago Board Options Exchange, the principal market for buying and selling options contracts.

But the SEC also said Kisor paid out more than $2 million to himself and family members and blew $2 million more on "gambling at the Bellagio" Hotel and Casino in Las Vegas. About $750,000 went toward a fleet of exotic vehicles. Denny Drabek, who said he did marketing for Kisor until quitting in late 2001, said the fleet included a Rolls-Royce, a Jaguar, a Lamborghini, a Hummer, a 1950s Chevrolet Bel-Air, four Dodge Vipers, a Plymouth Prowler, a Chrysler PT Cruiser and two rare Vector sports cars.

All the while, Kisor told investors that their accounts were growing in value.

Yet according to the SEC, only $300,000 of the $3.7 million raised by PDK was invested in options contracts - and it was lost in trading. The rest was spent on cars, travel, house payments, furniture, credit cards and payments to Kisor and family members. Kisor admitted to using PDK as a personal piggy bank, according to an SEC affidavit filed with the federal courts.

It was PDK that snookered O'Neill, Wang and local doctors. O'Neill is out $10,000, Mrs. Wang $300,000. Errol Stern, an orthopedic surgeon from Amberley Village, sank $500,000 into PDK. Steve Brinn, a Sharonville pediatrician, is claiming $305,000. The doctors filed civil suits in Hamilton County, accusing Kisor of fraud. Those cases are awaiting trial. None of the four would comment for this article.

The recruiting begins

Kisor kept a low profile in the Tristate while he was involved with PDK. He didn't operate a boiler room or run ads in the mass media. Instead he recruited customers of his home theater systems, members of his church and people he met through others, mainly people of wealth who were familiar with options trading.

By the time Kisor met Drabek in early 1999, his claims tended toward hyperbole. Drabek, a career sales executive, said Kisor hired him after two hours of shooting pool in Kisor's basement. He said Kisor spoke of amassing a fortune to establish and run homeless centers someday.

"He'd say, `How much money do you want to make in a year?' " Drabek said at his home in the River's Bend golf community in Maineville. "I said $20 million. He said, `You're going to make that, but not in your first year.' He said, `Denny, last year I made 400 percent trading options.' He said he was worth $35 million to $40 million."

Angry because he claims to be owed several million dollars in compensation, Drabek said Kisor behaved more like a lottery winner than a successful investment counselor. He said Kisor wore $2,000 suits and hand-painted ties, but carried a big Harley-Davidson wallet dangling by a chain from his belt.

He threw money away, Drabek said. "I remember we went to Steak n Shake and he left the waitress a $100 tip. She said, `What's this?' At the Don Pablo's out on Montgomery Road, they'd see him pull into the parking lot and they used to fight to wait his table. He gave out $100 bills like candy."

Drabek said Kisor's extravagance was in full bloom during his trips to the Bellagio in Las Vegas. There he stayed in a $15,000-a-night villa with a private swimming pool, a full kitchen with Viking appliances and a butler who was just a beep away. The hotel comps the room to high rollers, as it did for Kisor.

The SEC says Kisor admits to having squandered $2.1 million of Agave investors' money on the Bellagio gaming tables. Yet those close to Kisor say he had cultivated an image as a clean-living man.

"I'm not saying (the SEC allegations) aren't true, but after 15 years, I know as a fact he's a square," said Lane, Kisor's longtime acquaintance. "He's milk and cookies. He doesn't drink, doesn't smoke and is offended when people cuss."

Dave Sawyer, who said he "did everything from paying bills to washing cars to mowing grass" for Kisor, agreed that his former boss gave the impression of being up-and-up.

"The man was a really nice man," Sawyer said. "He seemed like he would do anything in the world for anybody. He was a friend of mine until I found out a bunch of things about him. He promised the world, but things didn't happen. I lost a job out of it."

Sawyer accompanied Kisor on his Las Vegas trips, but didn't want to talk about them. He said he hasn't talked to Kisor in six months.

Strategy goes astray

More than 100 people invested in PDK or Agave, mostly through Mohn's money management firm in Detroit, about half from out of the country. As new investors came on board, the SEC says, Kisor strayed farther and farther from the investment strategy he touted.

For example, in late 2000, Mohn learned that Kisor had sunk $2 million of the Agave proceeds into the stock of a privately held company called Znetix. In spite of Mohn's warning to stick to the options strategy, he said Kisor continued to invest in risky companies and real estate. Mohn told the SEC that, while Kisor valued Agave's stock investments at $10.25 million and its real estate at $5.7 million, Mohn decided they were overvalued or worthless.

The SEC named Mohn in its civil lawsuit last November because it said he left investors in the dark and kept the scheme going through a new company called Genesis Trading Associates. Mohn declined to be interviewed, but according to the transcript of an interview by the SEC, he said, "I don't think I have done anything wrong right now," and "I guarantee you that there is possibly some steps I took that were not textbook."

Drabek, who is not named in the SEC case, said he - like others - believed in the operation's legitimacy. He said he questioned Kisor's handling of investors' money, only to be brushed off. He said Kisor's trading strategy could have worked had Kisor invested the money as he said he would.

"It appears, after the fact, that he'd been robbing Peter to pay Paul," Drabek said.

Drabek said he believes that most, if not all of the $31 million placed with Agave is recoverable. About $10 million is tied up in an options brokerage called PCM, which was funded by Agave. He also is convinced that some of Agave's investments will be home runs.

Amy Cotter, an SEC lawyer in Chicago, said the agency is awaiting an audit of PDK and Agave. At some point, she said, the SEC will ask the judge in Detroit to order Kisor and Mohn to repay their investors. She said the SEC, which does not have the authority to press criminal charges, would ask that they be fined as well.

Glenn Whitaker, a Cincinnati lawyer who represents Kisor, would not discuss his client's case in detail.

"There's a continuing investigation going on, and all I can say is he's cooperating with the investigation," Whitaker said.

E-mail jmcnair@enquirer.com




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