Gizmondo
I've been wanting to write about Gizmondo for a long time, but the story was so mind-blowing, the fraud so much larger than life, that I didn't think I could do it justice. I saw a fantastic article in the Times Online yesterday, though, and it's time to discuss this bizarre, strange story.If you're a U.S. reader, it's possible you've never even heard of Gizmondo. It was a handheld gaming machine that was launched to great fanfare in the UK about a year ago. The company that created the Gizmondo was Tiger Telematics, and they did an amazing job of generating breathless publicity.
That publicity, though, didn't convince anyone to actually buy the Gizmondo. The number of systems actually sold has never been firmly established, but I'm willing to bet it was less than 5,000--and it well could have been much less than that.
A complete disaster, in other words.
About six months ago, news stories started circulating about executives spending fantastic sums of money on watches, cars, and women (girlfriends, not "professionals"). Then, in February, one of the executives crashed a Ferrari in Malibu--a leased Ferrari owned by the Bank of Scotland that was legally not supposed to be taken outside Europe.
I'm really skimming over tons of disturbing details here, because the story is so incredibly convoluted, but the company is now in liquidation, and the details of what happened are absolutely stunning. Here are a few excerpts from the Times Online article, just to whet your appetite:
...little more than 12 months after the Gizmondo console was launched at a party at the Park Lane hotel in London — where stars such as Sting, Dannii Minogue and Busta Rhymes were paraded in front of guests — Freer’s company is in liquidation, having burnt its way through £160m in 18 months.
Details of the firm’s extraordinary extravagance — with huge sums spent on exotic sports cars and Rolex and Cartier watches during its short, unprofitable life — are coming to light.
You'd think we would have all learned something from startup Internet firms in the late 1990's--namely, that if they're spending huge amount of money on celebrity appearances, they'll be bankrupt in a year--but apparently we didn't. At least, the people who invested in the company certainly didn't.
Here was another sure sign of trouble:
Freer, who had a British father but was raised in Sweden, had run a Swedish electronics business in the 1990s. In 2002 his firm made a bizarre leap: it merged with a carpet retailer based in Florida, Floor Décor. The improbable tie-up gave Freer what he wanted: Floor Décor shares were traded in America under the so-called pink-sheets system, so he could now issue new shares and raise money. The company that had once sold rugs in Tampa became Tiger Telematics.
Sheer poison: a company buying another company in an unrelated industry so that it can become publicly traded, thereby avoiding all the financial scrutiny associated with an IPO.
In 2004, Tiger announces the Gizmondo. Meanwhile, here's what's happening inside the company:
In March 2004 Freer’s basic pay was set at £500,000. That was doubled six months later. He recruited a fellow Swede, Stefan Eriksson, to the Gizmondo board. Eriksson started on £400,000 but this was also doubled after six months. Bonuses topped up each man’s 2004 pay to about £1.1m. Freer’s wife, Anneli, received £90,000 for “marketing services”. And Eriksson received a car allowance of £5,000 — every month. He had a couple of limited-edition Ferrari Enzos — one red, one black and each worth about £500,000 — plus a Mercedes SLR McLaren.
Ouch. So who's paying for all this, anyway? Well, the investors, naturally.
In the 2004 financial year Gizmondo racked up losses of £49m. Part of this was covered by borrowings. But most came from issuing new shares in the company’s parent, Tiger Telematics, to investors who thought Gizmondo really might be on to something.
Here are the launch details. I didn't even lose any money and it's painful to read.
In March last year Gizmondo’s console — shaped like a big, flat pebble with a black rubber casing — was launched. And as guests sipped champagne at the Park Lane hotel, word went out that 500,000 people had registered an interest in buying a Gizmondo. In reality, the number was nearer 50.
Last summer Freer and Eriksson moved to Los Angeles, to oversee Gizmondo’s launch in America. But by this time creditors were closing in. Official American documents show that in the first half of last year, Gizmondo’s losses topped £100m — equivalent to more than £500,000 a day. As before, cash was raised by issuing Tiger shares. In the first seven months of 2005, the number of shares in issue rose by nearly 70%.
Stunning. Half a million pounds in losses A DAY? That is just freaking incredible.
Here's where it begins to seriously unravel.
Then, last September, a Swedish newspaper spotted that Eriksson was the same “Fat Steffe” Eriksson who had been convicted of fraud and receiving stolen goods more than a decade ago. He had been in the “Uppsala Mafia”, named after the Swedish town north of Stockholm.
A second Gizmondo director, Peter Uf, had been part of the same mob.
Yes, it gets much, much worse. Here's one more detail.
Intriguing aspects of the saga have since emerged. Last year the company spent £2m on leasing cars. It also bought a share in a racehorse. Papers show about £400,000 was spent on watches, many for potential investors and people with whom Freer wanted to do deals.
But both he and Eriksson also had a taste for flash timepieces: Eriksson and his girlfriend, Nicole Persson, had their watches and jewellery valued at nearly £700,000 last September. Freer’s watches were valued at £93,000.
Believe me, there's lots more. It will go down as the most staggering fraud in gaming history. Any other still-unreleased console (cough) under a cloud of suspicion looks like a dimestore operation in comparison.
Here's a link to the full article, and it is a fantastic read:
The firm that blew it all in two years.
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