Zealous’ Ault Defends Claims Made by 12 Hedge Funds

Aug 12, 2009 2:30 PM PST
LOS ANGELES — A dozen hedge funds say they’ve been stiffed after they poured $4.2 million into Milton Ault’s Zealous Inc., but the president and CEO says that economic conditions and a stock-market collapse are to blame.

Ault went on the defensive Wednesday and told XBIZ that his publicly traded company, once known as Adult Entertainment Capital, isn’t a scam and that the latest suit is the case where the investors simply don’t believe their share price is high enough to cash out.

Currently the stock hovers at more than a tenth of a cent per share on the OTC Bulletin Board.

The dozen hedge funds — Briston Investment Fund, Cranshire Capital, Enable Growth Partners, Enable Opportunity Partners, Iroquois Master Fund, Truk Opportunity Fund, Alpha Capital Anstalt, Whalehaven Capital Fund, Truk International Fund, Harborview Master Fund and Pierce Diversified Strategy — claim in a suit filed at New York State Supreme Court that not only were they swindled, but that Ault used their money to fund his lifestyle, which included a swingers ranch that was slated for the Catskills at New Lebanon, N.Y.

The plaintiffs further said in the suit that their investment was strictly to go into a fund that would help develop a stock-trading venture steered to an "integrated global community of trading partners” and not activities involving adult entertainment.

But Ault contended to XBIZ that the money always was earmarked for the creation of a platform for the trading of securities, called ZATS (Zealous Alternative Trading System). That financial services unit, however, shut down operations in January due to an uncertain investment climate and economic conditions, the company said in a filing with the Securities and Exchange Commission.

“There has been a changing market,” he said. “And unfortunately the price of their stock isn’t high enough. Of the $4.2 million, they’ve already recouped about $1 million.”

Ault said that the notion of developing a swingers ranch is “totally untrue” and that Zealous purchased the 140-acre property years before the plaintiffs invested in the company.

“We were discussing how to develop the property and it was joked about, ‘why not open a development for swingers?’” he said. “We were talking about timeshares, not a swingers club.”

While Zealous defends this shareholder suit, among numerous separate shareholder claims as well as an alleged breach of a promissory note to a former CEO and a Chapter 11 filing for one of its divisions that still is being worked out with creditors, Ault admits the company has high aspirations for the adult sector.

“I see huge opportunities for the adult industry to find mainstream revenue,” he said.

Ault said the Tustin, Calif.-based company recently helped fund the video “Palin Erection 2008” with Brooklyn Bros. distributing it and has high hopes for two new roll outs next month.

Ault said Zealous has spent about $1.5 million in the past six months for an adult portal called TheAdultSpot.com, which will include adult search-engine indexing, 130 channels of adult content and a social-networking section. He compared the site as “very similar to Google’s AdSense” for adult and said that it will rely quite a bit on mainstream advertising.

Zealous also plans to debut Surge, a new drink marketed to be sexually enhancing. The company continues to exclusively distribute in California a similar drink called Rock Hard Weekend.

The company also operates adult nightclub magazine Stiletto, as well as Stiletto TV, which airs in the Los Angeles area on KJLA-TV.

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