One of the first investors to contact James Martin after his 2011 appearance on the TV show “Shark Tank” with his product, Copa di Vino, was a man named John Babikian.
By late last summer, one of Babikian’s companies had paid $2 million for 480 acres of Wasco County wheat land and spent another $5 million to turn it into a state-of-the-art vineyard, developed by Martin.
But by last fall, Babikian quit paying the bills and stopped answering his phone.
The story unraveled from there; news articles last October said he’d fled a $4.2 million tax bill in Canada, and his Internet-based stock promotion company had shut down amid speculation about Canadian and American government probes into how he made his millions.
News outlets reported Babikian, just 26, led a flashy life, with a $2 million mansion, a $1 million sports car, and a net worth of $100 million.
His wife’s September divorce filing also ended up online; it alleged financial wrongdoing by Babikian, claimed he hid properties from her, and said he owned a $1 million wine collection.
Then, last Thursday, March 14, the U.S. Securities and Exchange Commission filed a civil complaint against Babikian.
It alleges Babikian secretly bought 1.4 million shares of a penny stock, promoted it heavily through emails to 700,000 people, then dumped his shares at a huge profit when the price skyrocketed, causing the stock price to collapse.
The suit alleges he netted more than $1.9 million.
Court documents alleged Babikian was trying to hide his assets, “which he holds in the names of alter ego front companies,” and the government moved to immediately freeze them, including “agricultural property in Oregon.”
Meanwhile, Martin has heard nothing from the government about the vineyard, which has 110 acres planted.
“All I can do is keep it from dying and if I’m doing that for Uncle Sam, it’s costing me a lot of money,“ he said.
He’s paying $20,000 a week of his own money to have 20 to 30 employees tend to the vineyard, saying it’s a valuable asset that needs to be maintained.
Martin’s brush with Babikian made the front page of the Oregonian March 16. He said he hasn’t lost any backers or business over it, and has only received an outpouring of support locally. Mostly people were upset that the Oregonian described The Dalles as “gritty” and “ramshackle,” he said.
“Does an article in the Oregonian help?” Martin asked rhetorically of his difficult situation. “Not that one.”
Martin said he vetted Babikian carefully, calling owners of the other 12 U.S. companies he’d backed.
“The [vineyard] project was funded by a guy who had bad activities that he hid from everyone,” he said.
He doesn’t like that his own company and efforts could consequently be painted in a bad light. “When Martha Stewart was convicted nobody went to the other companies she owned stock in and tried to accuse them of being aware of her activity.”
Martin said he fears people may assume that steps he took late last year might create the appearance he helped hide Babikian’s assets.
“I don’t benefit from trying to hide his assets. It’s his ownership in the land,” he said. “You can’t hide land.”
Last November, Martin filed quit claim deeds on the three parcels that comprise the vineyard, transferring two from Babikian’s company, Middlebay Trade, Ltd., to Martin’s own company, Sunshine Mountain Vineyards LLC, and the third from Middlebay to himself. All three were deeded over for one cent apiece.
He said he did it because bills were going unpaid, and “we owed a lot of money. I had no contact with him. We needed to get a loan on the property to pay people off.”
He said he filed the quit claim deeds with Babikian’s “authorization. He told us to do it.”
Martin said every move he’s made has also been vetted by his own attorneys.
After the deeds were filed, Babikian said he would find a buyer, and he did, Martin said. So in mid-December, Martin quit-claimed the two parcels back from Sunshine Mountain to Middlebay, again for a penny apiece, and again with Babikian’s say-so.
In January, deeds were filed showing Middlebay sold the two parcels to First Power Enterprise LLC for $2 million. The LLC, created Dec. 10, 2013, is managed by Up Grand Ltd., of Hong Kong, which was created Dec. 2.
While the land was initially bought for $2 million and had $5 million in improvements, it still sold for $2 million. Martin said, “The only thing I can guess is it’s typical to sell land and improvements separately, and it may be for tax reasons.”
Last November, the Chronicle interviewed Martin about the first round of quit claim deeds. He said then that “we changed the ownership of the vineyard property because there was confusion over the ownership by a foreign entity. [Middlebay is registered in the Seychelles Islands.] Now it’s owned by an entity in this state, principally, [Martin’s wife] Mollie and myself.”
Later in the interview, he said he filed the quit claim deeds because “our choice was, we have one investor of many who has a challenging position, so we’ve chosen to buy him out. Who wouldn’t?”
The Chronicle has been researching the issue since last fall.
“We didn’t publish a story at the time, because we’re a local newspaper and the legal issues we uncovered appeared to be Babikian’s, not the Martins’,” said Kathy Ursprung, managing editor. “We didn’t want to unfairly cause harm to a local business and employer. We found no evidence and no legal filings to indicate wrongdoing on the Martins’ part — and still haven’t — but these new developments justified publication of the story.”
Martin said his initial statements in November about buying Babikian out and eliminating foreign ownership aligned with his latest statements about planning to get a loan.
“In all cases, the only way to be able to get a loan on the property was to get the ownership into a position where it could be lendable,” he said.
“Think about it, if you’re going to try to get a loan — which I’ve said from Day One, right? — can you get a loan if your ownership is in the Seychelles Islands?”
While the news of Babikian’s troubles has only recently surfaced publicly, a Portland couple who started a vineyard in 2006 next to what became the Babikian property — and, crucially, shared a well with it — were immediately suspicious when the sale occurred in April 2012.
They noted the new owner paid $2 million cash, was located in the Seychelles, a tax haven, and used HSBC Bank, a bank known to have lax oversight.
All were red flags to them, said neighboring vineyard owner Stephanie LaMonica. She and her husband, Scott Elder, feared a neighbor with deep pockets could trample their water rights.
She said there‘s not enough water to meet the needs of both her vineyard — which has first rights to get its water needs met — and the former Middlebay vineyard.
If she watered all her acreage, that would leave only enough water to develop 30 acres of the neighboring vineyard, she said. “But they’re steamrolling forward.”
She said if the neighboring vineyard was watering, her own vineyard’s water “would just stop. The system would lack pressure.”
As they tried to find out more about Middlebay, she said, “The level of secrecy and anonymity is insane.”
They intensively investigated Middlebay, and alerted every agency they could think of with their concerns, and also called area newspapers. They also provided research to the Chronicle on the new company that now owns the land.
They worried Middlebay could be an investor in Martin’s Sunshine Mill property, which is also being funded with city dollars through its urban renewal program.
Elder lodged a complaint about that with the city last October. City Attorney Gene Parker first provided him with the public records he requested related to urban renewal money used at Martin’s Sunshine Mill.
“He kept registering concerns about involvement of Middlebay,” Parker said. Parker called the pertinent federal agency and determined one concern — about foreign entities purchasing agricultural land — was outside city jurisdiction.
“He basically felt that James was breaching his contract with us and was violating federal law by engaging in these activities with Mr. Babikian. We have no contract with Middlebay, we have no agreement with them. They’ve never been part of the investment with James. There was nothing I saw that said urban renewal money was in trouble,” Parker said.
“He kept raising these concerns, but without any concrete evidence that our money was at risk,” Parker said.
Parker wrote two letters to Elder explaining his findings. Parker said he’s “still frosted” about the Oregonian story that said the city “shrugged its shoulders” when Elder lodged a complaint.
“They said we blew them off and it was not the case. It was totally inaccurate. We didn’t get Mr. Elder what he was looking for, but we didn’t brush him off or blow him off,” Parker said.
Elder began bird-dogging filings on water rights related to the Middlebay vineyard. In one case, some signatures were inaccurate and it was sent back to the applicants for correction. Middlebay also applied last September for a new water right to irrigate 160 acres year-round, including winter, at a time when LaMonica said the aquifer needs to recharge. The application is still pending.
Elder has 35 acres planted at their Rock Flour Hill vineyard, where they grow varietals for their label The Grande Dalles.
Martin still fears his business will topple, and traces its possible demise to the water rights issue with Elder and LaMonica. “Imagine a business failure that gets publicized on the front page of the paper because they have a well dispute with me … It’s like watching yourself in some bizarre novel.”