Brad Parscale was the San Antonio businessman who now runs President's Trump's reelection campaign. Two years ago, he sold his web marketing firm to an obscure penny stock company called CloudCommerce for $10 million and joined its board of directors.
But this month, he resigned from the board, just as 2019 ends, and the company's stock has lost 90% of its value.
Still, the company was just featured on the 2019 Deloitte Fast 500, a list highlighting some of the fastest growing tech companies in North America.
CloudCommerce describes itself as a full-service marketing and data analysis company that owns San Antonio firms like Datapropria, WebTegrity, Giles Design Bureau and Parscale Digital. According to the publication, CloudCommerce grew 465% this year.
Financial columnist Michael Taylor has been following this company and its connection to Parscale. He spoke with TPR's Paul Flahive.
Flahive: Were you surprised to see CloudCommerce on this list highlighting its success in 2019?
Taylor: Very surprised. I don't consider anything that I've seen financially about the company to be any normal definition of success. They've never made money under the current ownership group, which took over in around 2012, a few years before Parscale joined them.
- Nov. 14 CloudCommerce filing: “The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern.”
- April 15 CloudCommerce filing: “We have experienced net losses and negative cash flows from operating activities, and we expect such losses and negative cash flows to continue in the foreseeable future.”
Flahive: And you wrote about how they kept themselves afloat through that period by taking out loans from one of their employees.
Taylor: Their CFO, Greg Bowden, owns a company which has been -- from what we can tell from public filings -- keeping the company alive, essentially by lending money to the company almost on a monthly basis. The numbers that they're borrowing are small" 50,000 at a time, 40,000 time, 50,000 a time. It's a weird pattern that indicates they really don't have enough money.
Flahive: The gist of your November columns was essentially that as with a lot of things around Brad Parscale and CloudCommerce, things are often not what they appear. Can you elaborate on how Brad Parscale, Trump 2020 campaign manager and former San Antonio resident and company owner, got involved with CloudCommerce and what that deal looked like?
Taylor: Parscale sold his design and web company that he co-owned in San Antonio to CloudCommerce. Prior to August 2017, nobody ever heard of CloudCommerce. It was an extremely obscure penny stock company. It turned out to have had a messy history involving somebody who was barred from being involved in public companies for fraud. And then the current CEO (Andrew Van Noy) himself declared bankruptcy and had been accused of fraud by previous investors.
When Parscale got involved, the first strange thing was he said, “I just sold my company for $10 million.“ But the way in which he was bought out for $10 million was essentially a piece of paper giving him certain rights to own something which had questionable value. And another promise for a million dollars in cash, which is essentially never paid, but essentially no cash went into Parscale’s pockets, as far as we can tell from public filings.
Flahive: So, why would he make this deal to begin with?
Taylor: That, to me, is a great mystery.
The core of the mystery is claiming that by owning this company, he got something worth $9 million. The only way you actually make money owning a company is if the company makes money, but they've never made money.
The next big what I would call a red flag is being involved with a very obscure penny stock company. The usual financial use for this type of company is what we would call on Wall Street a "pump and dump" scheme, where you buy it for pennies or fractions of pennies on the dollar, you try to generate PR and news and excitement that gets unsophisticated investors to buy it, and then the insiders sell to unsophisticated investors.
The weird thing about Parscale aligning himself with a company that has that profile is that the day after the sale or the week of the sale, he himself began to pump up the value of his stock on Twitter saying, “Wow, my company is up 500% this week following my sale,” and that meant that the price of his stock went from one penny to four pennies in the course of a week. It has the look and feel of a scam.
Since then, the value is down to 10% of its value just four months ago. So, it's not worth one penny now. It's worth between one tenth and one twentieth of a penny.
Flahive: Clearly, the company has struggled but they still have big goals.
Taylor: The company has gone out and said, "we want to go out and raise $20 million (in an SEC regulated funding round)," but they’re ending 2019 at a 90 percent loss.
Flahive: What do we know now? What's going on with the company with regards to its relationship with Brad Parscale?
Taylor: So, December 10, there was a public filing that said he and another board member had resigned as of Dec. 10, and a new board member joined the board.
I'm just going to have to speculate because I don't know. They have not returned my request for conversation is that the association with Parscale went from being a great opportunity to shine light on their company to being a liability. We don't know which direction the interest in leaving the board came from, but they were clearly not serving each other's best needs.
Michael Taylor's the author of The Financial rules for New College Grads and is a columnist for the San Antonio Express-News.
This interview was edited down for time and clarity.