February 24, 2006 4:00 AM PST

Police blotter: Dot-com magnate loses fraud appeal

"Police blotter" is a weekly report on the intersection of technology and the law.

What: IRS agent turned dot-com exec appeals jury verdict finding conspiracy to defraud and violations of federal securities laws.

When: Decided Feb. 17 by the United States Court of Appeals, 8th Circuit in Missouri.

Outcome: Jury verdict in civil lawsuit for $987,000 in damages upheld.

George Tannous
George Tannous

What happened, according to court documents: After George Tannous quit his job as an IRS agent in 1993, he set up shop as a tax adviser. Business eventually slumped, and Tannous decided to cash in on the dot-com boom by buying rights to the Bidbay.com domain name in 1999 for $1,000. He planned to create a rival to eBay with a patent he had purchased that covered auctions through multi-level marketing.

To drum up investors for this dot-com business, Tannous turned to Wes Cooley, an ex-congressman from Oregon who was convicted on charges of lying in a voters guide about serving in Korea, and Don Dayer, a felon previously convicted of tax fraud. Dayer in turn enlisted "John Montgomery," a felon whose real name was DeElroy Beeler and who had been convicted of bank fraud and was awaiting sentencing at the time.

Editor's note: This account was detailed in several court documents, including an opinion from the U.S. 8th Circuit Court of Appeals. Dayer disputes this account. He says he left the company before the incident occurred and was not a defendant in the case.

Montgomery began telling people, including an oral surgeon from St. Louis, that investing in Bidbay.com was a great deal because eBay was going to buy the company. Also, Montgomery said, an initial public offering was being planned and Bidbay.com stock could be flipped for a tidy profit.

Those statements were not true. Bidbay.com's IPO registration statement had already been withdrawn and was no longer being processed by the Securities and Exchange Commission. And eBay did not buy Bidbay.com.

After losing their money, unhappy investors sued Tannous, Cooley and Montgomery, accusing them of conspiracy to defraud and violations of the Securities Act.

Cooley, the former Republican politician, responded by claiming he had experienced three strokes and could no longer remember anything, according to an Associated Press article from the trial. An attorney for Tannous argued that the investors were actually trying to trade on insider information about the purported deals and should be held responsible for their own losses.

The Bidbay.com trio lost. A federal jury in Missouri ordered Cooley and Tannous to pay back investors, finding Tannous personally liable for approximately $987,000 in compensatory damages and $11 in punitive damages.

Tannous appealed. He lost again last week. The 8th Circuit did acknowledge that the $11 in punitive damages may have been wrongly awarded because of improper jury instructions, but declined to do anything about it.

A postscript: Instead of buying Bidbay.com, eBay actually sued the site and forced it to change its name to Auctiondiner.com. It is now called Auctioncities.com. It eventually did have an IPO and trades at 5 cents a share on the over-the-counter market as of Thursday, down from $1.50 last July.

Excerpt from the unsuccessful appeal written by John J. Allan, a lawyer for Tannous (Click for PDF): "When it is considered that the first investment of the plaintiffs, $700,000, was invested with a complete stranger, over the telephone within 5 days after the first call, based on marginal information by an experienced, if not knowledgeable, accredited investor, on the referral of his own friends and acquaintances who had made a 'million' investing with these same people, what was the proximate cause of the investment?

"It has to be considered that if the jury was required to be convinced on clear evidence that Tannous knew what Beeler was doing and saying, the jury might not have found him responsible for this man's statements. When you consider that the stock is now trading, you have to consider where there is any fraud at all.

"When the evidence showed (oral surgeon and investor) Kenneth Rotskoff invested $200,000 more dollars, after having cause for concern about the wisdom of his investment and against the advice of his family and financially knowledgeable brother in law, it has to be considered that the jury may not have found George Tannous liable at all with the required standard of proof.

"In this case it seems clear that the Rotskoffs were getting information about a security from one who was not licensed to sell them and without checking the investment more thoroughly. This may be negligent, it may be equally at fault but it should have been considered by the court in light of the shallow evidence of George Tannous about his actual knowledge of Beeler's representations."

Excerpt from the 8th Circuit's opinion rejecting Tannous' appeal: "As an initial matter, Tannous waived his argument regarding sufficiency of the evidence because the issue was not developed in his briefs as required by Federal Rule of Appellate Procedure. It is thus considered abandoned...Sufficient evidence exists supporting the verdict."

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18 comments

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Declan McCullagh... wake up!!
its much easier to get a false conviction on someone than it is to catch real crimes and convict the "evil-doers" in those crimes.... please keep that in mind when using your opinions.. idiocracy should be a crime
Posted by freq (121 comments )
Reply Link Flag
Punitive is the word!
Sounds dirty. Cheaper than accessing a porn Website! Really Punitive! Makes me want to join their bandwagon!
Posted by Shoppingkart (8 comments )
Reply Link Flag
magnate fraud
this most likely explains why the share price started at 1.50 offering and is now under.03 (three cents) who's been doing the volume and why isn't the CEO doing anything? anybody know?
Posted by burgersan (1 comment )
Reply Link Flag
BIDBAY
DO YOU KNOW IF THE STOCK HAS RISEN ANY SINCE YOU REPORTED THIS LAST YEAR?
Posted by DIVAQUACH (5 comments )
Link Flag
BIDBAY
I JUST FOUND THIS STORY AND HAVE STOCK IN BIDBAY SO THEY AREN'T WORTH ANYTHING NOW??
HELP
Posted by DIVAQUACH (5 comments )
Reply Link Flag
BIDBAY
I JUST FOUND THIS STORY AND HAVE STOCK IN BIDBAY SO THEY AREN'T WORTH ANYTHING NOW??
HELP
Posted by DIVAQUACH (5 comments )
Reply Link Flag
I should've prevailed .....
Obviously, my attorneys did a very poor job and at this time we are seeking damages for malpractice. I should've prevailed should they have done their job right.

Here is an excerpt from the court of appeals:

"Excerpt from the 8th Circuit's opinion rejecting Tannous' appeal: "As an initial matter, Tannous waived his argument regarding sufficiency of the evidence because the issue was not developed in his briefs as required by Federal Rule of Appellate Procedure. It is thus considered abandoned...Sufficient evidence exists supporting the verdict."

Here is another statement:

"Tannous appealed. He lost again last week. The 8th Circuit did acknowledge that the $11 in punitive damages may have been wrongly awarded because of improper jury instructions, but declined to do anything about it."

I don't know why as of yet but will fight this to the end.

I am innocent!!!

Respectfully,

George
Posted by GeorgeTannous (1 comment )
Reply Link Flag
Please.....
You have been misleading and lying to innocent people for a very long time. It is about time that they coaught up with you. You didn't get as much as you deserve! You will always come up with an excuse. All anyone has to do is research your name or any of your many "companies".
Posted by googlebutts (2 comments )
Link Flag
Crook!
You are a "crooked" individual and I hope that at some point in your sordid lifestyle you end up behind bars as the felon that you are. You and your lawyer deserve each other(Sabahat,I believe).
Posted by drdonrs (2 comments )
Link Flag
I bought stock in good faith with George Tannous and would like to know if it is worth anything or should I wall paper the wall my den with the stock certificates? I have been out of touch with thing recovering from a horrific auto accident. I could use some of my investment back to help cover medical bills from my crash.
Posted by swengreen (2 comments )
Link Flag
What are my 5 shares of BidBay worth?
Can you answer my question?

What are my 5 shares of BidBay stock, issued May 17, 2000, worth?

They are signed by George Tannous and include a welcome letter.
Posted by chrissmax (1 comment )
Reply Link Flag
I also have 5 shares
i have 5 shares in bidbay also and would like to know how much it is worth if anything would someone at bidbay please let me know
Posted by isaacava (3 comments )
Link Flag
Belongs behind bars!
A trio of crooks with Tannous feigning innocence. Everything he has done smells of fraud.
Posted by drdonrs (2 comments )
Reply Link Flag
LOL i used to be the Sales Manager for Bidbay.com / Auctiondiner.com and dont forget AskGT.com.....this is too funny. The FBI contacted me and made me go to court to testify and but i really didnt know anything...i was just the front for the sales department.

too funny
Posted by glenlasvegas (1 comment )
Reply Link Flag
This is the first I've heard about a judgement or anything. We have shares but have had no information in years.
Posted by jenningst (1 comment )
Reply Link Flag
I have been in the the dark too. Have you heard anything lately.
Posted by swengreen (2 comments )
Link Flag
I have a BidBay Stock Certificate, a welcome letter signed by George Tannous and his secretary, and 5 business cards that say Bidbay.com online auction - Child-Dog-Cat, Free Tags. I didn't buy anything, I just received this stuff in the mail. The certificate is dated May 5, 2000 and Stock # 1336. I don't know why I kept it all these years, but maybe it will be worth something some day.
Posted by waynevej (1 comment )
Reply Link Flag
 

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