Finger man in Wolf scam sets course for IPO
Triangle Business Journal - by Matthew Burns
RALEIGH -- A jewelry and high-end merchandise company built around a cadre of independent sales agents and run by a Raleigh financier with a checkered history is angling for a public stock offering that could raise up to $25 million.
International Heritage Inc. has filed with the U.S. Securities and Exchange Commission for an initial public offering of between 1.5 million and 2.5 million shares at $10 each.
The IPO is being underwritten by Long Island-based WIN Capital Corp., which anticipates strong demand for the stock based on the recent trading history of similar network marketing firms and the more than 3,000 letters of interest already received.
The money would help finance the operations of the rapidly growing but cash-starved International Heritage, said President and CEO Stan Van Etten, who helped bring down New York-based brokerage F.N. Wolf & Co. three years ago by blowing the whistle on a penny stock scam and whose subsequent dealings include the failed Bacciagalupe's restaurant in Raleigh's Cameron Village.
Started in April 1995 after Van Etten drafted a business plan for a client, International Heritage began by selling gold jewelry and now also hawks an array of precious gems and "fine collectibles" like Waterford crystal, Lenox china and Mont Blanc pens through some 27,000 independent representatives across the nation and Canada.
The legions of salespeople are encouraged to sell items to their family members, friends and acquaintances and to recruit their own team of new salespeople. By building a network of salespeople, the representatives increase their incomes, getting a commission from the sales of the new people in addition to the markups from their own sales.
Led by firms such as Amway, Tupperware and Excel Telecommunications, such network marketing organizations have become the rage nationwide, and Van Etten said International Heritage's organization is spreading like wildfire, adding about 1,500 people each week.
The company, which has lost about $2.5 million since its inception, had $5.6 million in sales in August, including $2 million in the final week of the month. Van Etten said he expects to be completely in the black by year's end.
International Heritage also is talking with a long-distance carrier and travel and credit card companies to offer a more diverse base of products to its reps and their customers.
"I've never seen any organization grow this quickly," he said. "We're eating cash so fast that we don't have enough capital to build our inventories and manage further growth."
The IPO not only would provide the company with that capital but would help tie sales reps more closely to the company, giving them a slice of the ownership as an inducement to remain with the organization, Van Etten said, noting that about half of the reps for a typical network marketing firm quit within their first 90 days.
The shareholder reps also will be more likely to report problems in the field, he said, such as the deceptive practices and high-pressure sales that have gotten other network marketing firms into legal trouble.
"It's foolish to think that any network marketing organization will have 100 percent compliance with (state and federal) rules and regulations," Van Etten said, noting that his company has established a compliance department to keep an eye on the reps and resolve complaints.
International Heritage already has paid off two former reps who had filed complaints with the state Attorney General's Office, refunding $1,142 to one and $879 to the other. It also offered refunds to any stockholders who had bought into the company before the shares had been registered, heading off an inquiry by the Secretary of State's Office.
Although Van Etten said he initially had a negative reaction to the concept of network marketing, he maintains that his company is legitimate and that selling through independent reps is the wave of the future for large corporations that are trying to cut costs.
"Pyramid schemes don't have products to sell like we do," he said, adding that the company only pays reps for sales, not for bringing other people into the organization. "I don't think we could ever saturate the market because we have products that we could sell to anybody."
Van Etten has a lot riding on the success of International Heritage.
He is being paid a $425,000 annual salary and another $418,000 in stock options, and his investment firm, Mayflower Holdings, has loaned the company $178,500. He and his father also receive royalties from a sales book they wrote that is included in the $75 business kit that new reps are required to buy before they can start selling for the company.
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