Complaint Review: Biolustre Inc

The following is one of many cases supporting the allegations of fraud, decet and out right stealing:

Biolustré is touted as a revolutionary hair-care product that repairs tresses damaged by chemicals and styling tools.

Too bad it can't straighten out the mess that's unfolded at the San Antonio company that owns it.

Biolustré Inc. officials enticed about 400 investors with prospects of millions in sales from the product and plans for a public offering and a lucrative payoff from an eventual sale to L'Oreal, Proctor & Gamble or some other giant in the personal products industry.

None of that happened.

Now Biolustré Inc. is fighting for its survival, entangled in legal disputes and corporate infighting. Chief Operating Officer Leonard Buchanan has accused his boss, CEO Michael “The Matador” Mata, of using investor money to pay for trysts with women he met in strip clubs, to prop up his girlfriend's business and to save his home from foreclosure.

In February, Buchanan, acting on behalf of Biolustré Inc., staged a mutiny of sorts by suing on behalf of the company to have Mata booted.

“Due to his actions and financial stress, as well as what I can only deem to be a sex addiction, it is my opinion that Michael Mata is unfit” to be CEO, Buchanan said in a sworn statement in the case.

Mata, in interviews, countered that Buchanan embezzled at least $200,000 from Biolustré Inc., using company money to pay for cruises and a Cadillac Escalade for his wife.

Tangle of accusations

In court papers, Buchanan accused Mata, who's also married, of using corporate money to pay for hotel rooms so he could “rendezvous with women he would meet working at strip clubs.”

Any money that he received was for compensation owed to him, Mata responded.

“If the worst thing that he says about me is that I've had affairs with women, and I've used my own money for them, that's not a crime,” Mata said.

Buchanan also alleged Mata gave $10,000 in investor money to “one of his girlfriends” to help her business.

“Yeah, I did, absolutely,” Mata said. But he added, “It's my money, not company money.”

The lawsuit to oust Mata was tossed on June 12.

Mata, meanwhile, accused Buchanan of opening a bank account in the name of another company, National Consolidated, to embezzle at least $200,000 of Biolustré Inc. funds.

Buchanan denied he misused corporate funds.

Buchanan said he set up the account so Mata wouldn't be able to drain it as he had done with Biolustré Inc. accounts.

Shareholder George Presti, a San Antonio mechanic, leveled blame for Biolustré Inc.'s troubles on both Mata and Buchanan.

“In the final analysis, you have two knuckleheads who stumbled upon a pot of gold,” Presti said. “They allowed themselves to be overtaken by this notoriety and, obviously, the money, and money is the root of all evil.”

A shiny start

Mata acquired rights to Biolustré from the inventor for $50,000 in the early 2000s. He eventually obtained a patent for the product, later assigning a majority interest in it to the company.

Biolustré — a hair-care system comprised of a shampoo, instant hair-repair treatment, maintenance treatment and conditioning sealant — launched commercially in 2004.

Early results were promising. The product received accolades from such fashion and lifestyle magazines as Glamour, Cosmopolitan and Vogue, according to a private placement memorandum (PPM) given to prospective investors last year. Biolustré Inc. expanded internationally and aired its first infomercial in 2006.

Infomercial company Guthy-Renker projected Biolustré could achieve $300 million in annual sales by selling through infomercials, according to the PPM.

The PPM reported Biolustré Inc.'s sales were about $1.9 million in 2009. But Buchanan said sales were closer to $876,000 that year. He couldn't explain the discrepancy. Sales in 2010 were $905,000, he added.

“These guys could have made millions if they did it right,” shareholder Daniel Davila said.

Business loses luster

Instead, sales plunged to just more than $100,000 last year. Buchanan explained that the focus of the company turned to raising money from investors rather than on continuing to build sales, he said.

A decision to pull distribution from beauty-supply distributor Armstrong McCall and start its own sales proved “disastrous.”

But there were other issues.

Mata, in a June interview, conceded that even though he was CEO, he was not overseeing the day-to-day operations. Through another company, he was selling a line of polo shirts online featuring a matador and bull logo.

“Leonard is the hands-on guy,” Mata said. “For the last year, year-and-a-half, I've been working on my other company.”

And as Biolustré's business crumbled last year, Buchanan took off for Hawaii to work as “interim CEO” of hair-care company Paul Brown Hawaii. He said the arrangement ultimately benefited Biolustré because it led to a new distribution deal and entry into some beauty trade shows.

Misuse of funds?

Bank records for the National Consolidated account, provided by Mata, show his second cousin, Patricia Garcia, wired a $140,000 investment on Oct. 28.

That very same day, $20,000 was wired from the account to Vericrest Financial Inc. — a mortgage servicer that collects Mata's home-loan payments. Mata confirmed that at the time, his house was facing foreclosure.

When asked about the wire transfer, Mata responded: “I never said I didn't get money out of (the National Consolidated account). My position is, I could not and I did not go and take the money directly. It was all by Leonard's consent.”

Buchanan said since Mata was not a signatory on the account, Buchanan made the transfer, but it was under Mata's orders.

“If I fought him and didn't give him the money, I would have been fired,” Buchanan said.

Both Mata and Buchanan say they have filed complaints with the FBI about the other. The FBI doesn't comment on its investigations. A Texas State Securities Board spokesman said he couldn't comment on whether it's investigating.

Investors sue

Mata's cousin Garcia and four other investors filed a federal lawsuit June 5 seeking the return of money they invested with Biolustré Inc.

The investors, who alleged fraud and violations of securities laws, claim they were told Biolustré Inc. would go public within weeks of them wiring money to the company. The investors expected to be repaid from the proceeds of a public offering.

“It pisses me off,” Garcia said in a phone interview. Mata “even prayed with me about it when I gave the hugest chunk,” Garcia said in a phone interview. “He had the nerve to literally pray about it on the phone with me.”

The showdown

The corporate dysfunction culminated at a shareholders' meeting on Sunday at the DoubleTree by Hilton Hotel San Antonio Airport. Buchanan called the special meeting to have shareholders elect a slate of five new board members to replace him and Mata, the sole directors.

But that plan went awry when shareholder Scott Hepford, a Houston investment firm manager and proxy for about 3 million shares, commandeered the meeting and demanded that Mata and Buchanan turn over the company and return 90 percent of their Biolustré Inc. shares to the company treasury.

“You're going to turn over all assets and you're going to turn over the (Biolustré) patent, mixing formula and any nickel in the cushion of the couch that's ultimately needed for this company to truly be successful,” Hepford told the two executives, citing “apparent” mismanagement, neglect and fraud as reasons for his demands.

Mata agreed to relinquish his posts and all but 10 percent of his stock.

The 50 or so shareholders present at the meeting, though, balked at forcing Buchanan out for fear there would be no one left to run the company. He refused to give up any of his shares. He remains COO and is running the business.

The future

The prospects of shareholders recovering their investments appear dim. At Sunday's meeting, shareholders discussed restructuring Biolustré Inc., possibly even in a bankruptcy.

Biolustré Inc. currently doesn't have much in the way of cash despite raising, according to Buchanan, about $2.5 million from investors, though at least one shareholder believes it's more. It also has two separate court judgments of about $900,000 and $100,000 that it has to pay off.

In the latter, a St. Louis money manager holding the judgment last month got a court-appointed receiver to ensure the judgment gets paid off.

Buchanan, for his part, said he's working on rebuilding sales and rolling out a new product called Revamp, a formaldehyde-free treatment for smoothing hair.

“This could go a lot of different ways,” said receiver Penny Habbeshaw. “Unless I start to see more sales, I don't know how they're going to make it.”