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This article by Barbara Fox was prepared for the May 7, 2003 edition of U.S. 1 Newspaper. All rights reserved.

Unraveling the Torkelsen Case

Investment banker John B. Torkelsen has always been

something of a puzzle in this conservative town, perhaps because he

shunned publicity but spent money extravagantly. An alumnus of Princeton

University, Class of 1967, he has been a generous giver, using his

Library Place home for the site of philanthropic benefits and lavish

political bashes. People talked about his fantastic Christmas parties,

for which he hired big-name stars. Torkelsen’s employees and cohorts

have nothing but kind personal comments, and they say he paid them

very well indeed.

Torkelsen’s valuation firm, Princeton Venture Research, provided valuations

and appraisals of both public and private companies, primarily for

the financing of small technology companies. He was the favorite expert

witness for Milberg Weiss attorney William Lerach, the recognized

king of shareholder class-action suits. Torkelsen also had a venture

capital fund, Acorn Technology, for start-up and early stage companies

particularly in Internet-based technologies, and he has funded at

least three Princeton firms — Mikros Systems Corp., Princeton

Video Image, and VeriVoice. At one point Torkelsen had 47 people in

an office at 5 Vaughn Drive plus an office in San Diego.

Torkelsen’s office has turned down many requests for interviews over

the past decade, but several years ago its response changed. When

reporters called his business on a simple matter, such as to confirm

an address, those who answered the phone not only would refuse to

answer any questions — but would also be vehemently angry in their

replies.

As it turns out, the office had been undergoing investigations, first

by the press, then by the government. The September 4, 2000, Fortune

magazine published a scathing expose of Lerach that also accused Torkelsen

of several kinds of wrong doing (www.Business2.com). Then last January

the U.S. Attorney’s Office in Philadelphia filed a civil fraud lawsuit

against Acorn Technology Partners, now based in New Hope, and four

principals — Torkelsen, his son Leif, his wife Pamela, and a business

associate, Wood Tate. The Federal Bureau of Investigation is conducting

a criminal investigation, according to the U.S. Attorney’s office.

The past three years have not been good ones for the Torkelsens.

The Torkelsens’ current trouble involves Acorn Technology Fund’s status

as a Small Business Investment Corporation or SBIC. Several Princeton

area venture capital funds — including Sycamore, Edison, and Early

Stage Ventures — are also designated as SBICs. Under this arrangement

the federal government matches venture capital investments on a two-for-one

basis. In return the SBICs are supposed to follow strict conflict

of interest rules restricting their officers and employees from serving

as officers of businesses that receive the federal monies.

Acorn Partners LLC applied to be an SBIC in 1998 and was licensed

in 1999. The civil complaint alleges that John and Leif Torkelsen

and Tate "engaged in a scheme fraudulently to obtain and misapply

$32 million in government funds through the use of several corporations

which they controlled, and to funnel at least some of these ill-gotten

funds to themselves and to defendant Pamela Torkelsen." The complaint

alleges that the partners did not follow the SBIC conflict of interest

rules with regard to two companies — SemiSystems and TyreLynx,

and that another Torkelsen firm, Princeton Technology, fraudulently

inflated its bills to SemiSystems.

"At all times since the formation of Acorn, Torkelsen directly

or indirectly controlled the affairs and operations of SemiSystems

as well as Acorn. He used his dual control to carry out precisely

the kind of self-dealing that the conflict-of-interest regulations

were designed to prevent. Specifically, Torkelsen and other defendants

used SemiSystems as a conduit to channel funds from Acorn back to

the Torkelsen family," the complaint says.

Tate — who had once written a technology article

for this newspaper (U.S. 1, June 10, 1998) did not reply to calls

but the Times of Trenton reported him as saying that "They have

taken some information and drawn some erroneous conclusions."

Attorneys for the four defendants either decline comment or promise

to "vigorously contest" the case. The court has frozen the

assets of the defendants and designated the Small Business Administration

as the receiver for Acorn Technology. Assistant U.S. Attorney Paul

G. Shapiro says he expects to take this case to trial in the fall.

Torkelsen is also not taking calls, but some information on him is

available, because though he liked to keep a low personal profile,

sometimes he just couldn’t help making the news.

In 1990 he married his current wife, Pamela, who had owned an

antique shop in South Carolina. The pair hired Jerry Ford to renovate

their 6,000 square foot Victorian on Library Place. Today the house

is listed for sale at $4.5 million. It has an acre of land (a large

lot for that street) and an annual tax obligation of $65,000. It has

seven bedrooms, 7.5 baths, a 35-foot living room, two solariums, a

pool, and a two-story luxury cabana with a Lalique glass-paneled staircase.

In 1994 Torkelsen’s $50,000 contribution to the Clinton campaign

— a result of a call from Bill Clinton in the White House —

made the news because it prompted a Justice Department inquiry.

Torkelsen helped give several Princeton companies the financial boost

they needed.

At Mikros Systems Corp. Torkelsen was a director and minority

shareholder (U.S. 1, May 27 and June 3, 1998). In 1993 when Mikros

made high tech communication and control systems for the defense department,

it was a poster child for the New Jersey Commission on Science and

Technology. That year it landed the NJCST’s first-ever Small Business

and Innovation Research grant. It sold the government business and

the remaining part of the business — high speed data transmission

technology for the commercial marketplace — moved into Torkelsen’s

office on Vaughn Drive and now is a tenant at the Daily Plan-It on

Alexander Road.

Princeton Video Image opened as Princeton Electronic Billboard

in 1990, and in 1993 Sarnoff alumnus Brown Williams received patents

for his hardware and software. The company is known for the virtual

10-yard line that it "draws" on screens during televised football

games, as well as for virtual ads televised at sporting events.

It began marketing the technology in 1995, the year that Torkelsen

joined the PVI board (U.S. 1, October 22, 1997). It is struggling

and did not return calls (www.pvi-inc.com).

VeriVoice. A group of former Applied Data Research employees

saw market potential in the ability to control electronic access via

voiceprints. They located military-grade voiceprint verification technology

in the United Kingdom and interested venture capitalist John Torkelsen

in their idea. The result was VeriVoice, which at one point had eight

employees on 501 Forrestal Drive.

But VeriVoice did not get the additional funding it needed, and it

ceased operation, says Joe Mannino, who was president of the company

for the last three of its five years. "When I worked for Verivoice,

and John Torkelsen was chairman of the board, he was very supportive

of our work," says Mannino. Mannino believes that if second round

funding had been obtained before the stock market declined, VeriVoice

would be operating with a viable technology. Mannino is now busy working

on commercializing new technologies at NEC Laboratories America.

In late 1997, Fortune Magazine reported in its 2000 expose, the IRS

filed tax liens against Torkelsen for $6 million, and it also said

that Torkelsen had $5 million in bank loans. He refinanced his debt,

with the help of Milberg Weiss, and opened a new firm, Equity Valuation

Advisors.

The Fortune magazine article by Peter Elkind cited Torkelsen as the

damage expert for Lerach, "the king of the shareholder class-action

suit — the kind of suit that is routinely filed when a company

announces bad news and its stock plunges" and "the lawyer

who single-handedly turned shareholder litigation into a lucrative

volume business.

"Torkelsen’s calculations of shareholder losses routinely

supported the hundreds of millions of dollars Lerach sought —

and he was fabulous in front of a jury should a company decide to

fight," wrote Elkind. "Over more than 20 years, Torkelsen’s

firm, Princeton Venture Research, not only had made tens of millions

working for Lerach’s firm Milberg — by far its biggest client

— but also had become the damages expert of choice for the entire

plaintiffs side of the securities bar."

Elkind notes that Torkelsen courted plaintiff’s lawyers. "He sent

thousand-dollar gift baskets as baby presents, and he invited his

many friends in the plaintiffs’ bar to an annual black-tie Christmas

party that was mind-boggling in its extravagance. At one, guests arriving

in Torkelsen-provided stretch limos were heralded by buglers and greeted

by costumed Disney characters. Entertainment was invariably provided

by a big-name act: Little Richard one year, Aretha Franklin another."

The magazine also charged that payments to Torkelsen — in size

and in mode — were improper, a charge he vehemently denied.

Among those who are willing to go on the record to say good things

about John and Pamela Torkelsen is their architect, Jerry Ford, of

Ford Farewell Mills and Gatsch. "I did a lot of interior work

for them and did a site plan to take a pretty ordinary house and upgrade

it and give it some amenities," says Ford. "I had a very nice

relationship with the Torkelsens, and I can’t believe that anything

is amiss. They struck me as very straightforward and upbeat people."

Acorn Technology Fund LP, CN 5373, Princeton 08543.

John Torkelsen, president. 609-924-3000; fax, 609-452-2700.


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