The Wizard of Spokane

Erick Hansen convinced everyone. Politicians. Rich investors. Even Michael Jackson's dad. Then the FBI yanked back the curtain

The Wizard of Spokane
Young Kwak
When a company led by Erick Hansen bought the Commercial Building in 2007, it kicked out 47 low-income tenants.

Spokane believed in Erick Hansen.

It's Nov. 2, 2007, and the 5 o'clock news is on. A KXLY anchor starts his spiel with a smile. "Chances are the next movie you buy on DVD or a Blu-ray disc will have been made right here in Spokane," he says, before switching to a live shot of a bright-eyed reporter standing downtown. In the background, banners promoting Blue Ray Technologies hang from a building on First Avenue.

"Inside the historic Commercial Building," the reporter begins, "the future of movie technology." At the bottom of the screen are the words, in all caps, "JOBS COME TO DOWNTOWN."

"We're doing it right there as we speak," Blue Ray president Erick Hansen tells the TV reporter. He's got a round face, a John Edwards haircut, and holds a glass plaque with his name on it. The camera pans across shots of business leaders and politicians, of swinging robot arms and pumping pistons, of TVs broadcasting high-definition video and big machines pressing Blu-ray discs.

"Right now, Blue Ray Technology produces about 18,000 discs a day — it hopes to expand, though, and produce 100,000 discs a day," the reporter continues. "First-year revenue has been reported to reach $25 million."

Hansen doesn't just want to launch a Blu-ray disc factory. He says he wants to transform the three-story building into an entertainment complex with videogame, music and movie companies.

Then Hansen gives Spokane the exact beats of flattery it yearns to hear. "I travel all over the world, I get to go to the most wonderful places, and you know what, I'm very proud. I think this is one of the most beautiful cities in the world," Hansen says. "And we want to help change this beautiful city into a place that creates jobs for their children."

The raid comes six years later, almost to the day. That morning — as commuters skid and crash in a mess of ice and snow — a team of at least seven FBI agents, a forensic accountant, a U.S. Attorney's Office investigator, a Secret Service agent and an evidence control technician march into Hansen's building.

They walk across dark hardwood floors, through doorways outlined in blue trim, past the high-tech equipment below. A massive framed print of two big cats — leopards or cheetahs — dominates the wall of an office. A metal Blue Ray Technologies logo still sprawls across the lobby, even though Sony forced Hansen to change the company's name to BlueStar Technologies in September 2008.

The agents copy computer hard drives and clear out filing cabinets, office drawers and banker boxes. They take investor filings, tax returns, invoices, meeting agendas and receipts, filling 26 boxes in total.

The FBI and Washington State Department of Financial Institutions have been investigating Hansen since April 2012. FBI Agent Lisa Jangaard — the white collar crime expert who took down Ridpath Hotel con artist Greg Jeffreys — has been interviewing witnesses and searching financial documents, looking for evidence that Hansen and his cohorts are guilty of wire and mail fraud. Jangaard sees probable cause that they've lied about assets, expenditures and even, at times, the company's ability to manufacture Blu-ray discs at all, records show.

After the raid last fall, BlueStar promised investors that all the accusations would be answered and that they'd hold a press conference. They never did. Hansen's lawyer, Chris Bugbee, says there are allegations against Hansen that are untrue, but he won't give any specifics. Through Bugbee, Hansen declined to be interviewed. "Mr. Hansen wants to talk about his company and what he intends to do," Bugbee says. "[But] he's waiting until the investigation completes."

To date, Hansen hasn't been charged in the FBI's investigation. But for at least 15 years, he's faced repeated accusations of lying, omitting crucial facts and breaking investment law. He's been saddled with bankruptcy, debt and a perpetual string of lawsuits. He's left a long trail of disillusioned partners, disgruntled employees and furious investors.

Talk to those who've taken a risk on BlueStar, and some see bad luck. Some see bad management. Others see lie after lie. After all, the line between dreams, hopes, wishful thinking, delusion and outright fraud can be a fine one.

"Economic Development Deal of the Year"

Optimism filled the air: Hansen's company hit Spokane in 2007, the same year as the Davenport Hotel Tower opened, the same year the Fox Theater, Saranac and Magic Lantern were renovated.

Spokane's leadership held the high-tech company aloft like a trophy. Mayor Dennis Hession gave a speech citing the company as an example of what Spokane was becoming. Greater Spokane Inc. was so proud that it submitted Blue Ray for the 2007 "Economic Development Deal of the Year" award in Business Facilities magazine.

Blue Ray ended up winning a Judge's Choice award, and for good reason. Hansen's venture was supposed to create 400 new jobs and $183 million in direct economic impact. And GSI, the magazine praised, helped the company find a location that fit its needs. It landed in the creaky old Commercial Building on First Avenue, in a run-down block of downtown.

One problem, though: People were living there. Forty-seven low-income residents, many suffering from mental illness and substance abuse issues, occupied the second- and third-floor apartments. People like Stephen Harris, who suffered from seizures so bad he couldn't safely cook with a stove or drive a car. And Garry Campbell, who struggled with serious depression and repeatedly had been homeless. The location put residents close to bus lanes, a nonprofit medical clinic and food kitchens like City Gate. The Commercial Building also had a food bank, a clothing bank and a licensed mental health expert within its walls.

The property had been upgraded in the mid-'90s, with the city and federal government chipping in hundreds of thousands of dollars with the understanding that owners would provide low-income housing at least through 2010. However, owners lost the building to foreclosure in 2007, and a company led by Hansen bought it at auction, giving tenants 30 days to vacate.

At the time, Barry Pfundt was a 33-year-old law student intern at the nonprofit Center for Justice. "It just had injustice written all over it," Pfundt says.

Many residents never got their deposits back, though they were given $100 and allowed to take their room's furniture with them. In the midst of the foreclosure and looming eviction, one of Campbell's friends in the building, a 42-year-old named Roger Buckles — a guy who loved fishing and cooking — was found dead in his room. Campbell thought he'd committed suicide. "I think it was related to, you know, the feeling that the Commercial Building was his last resort," he said in a deposition. (The medical examiner later ruled the death accidental, citing a brain hemorrhage.")

Though it's possible the tenants would have been evicted even if the tech company hadn't arrived, Pfundt believes Spokane's leadership could have fought harder to keep the low-income housing. "It happened down there, in a neighborhood that has a somewhat jaded history," he says. "But what if it were 100 houses in the South Hill, and someone came in and said, 'You all need to move out, because we're putting in a bigger, better project here?'"

In October 2007, with the Center for Justice's help, Campbell and Harris sued Blue Ray, arguing that federal law prohibited the company from kicking out those subsidized tenants without a year's notice. The court ruled that the Center was right on the law, but it was too late for anything to be done in response.

To Pfundt, it was clear Spokane had made a value judgment. "These jobs, this high-tech success story, is more attractive than this other story, which is low-income people struggling to find adequate housing in Spokane," he says.

Ultimately, Spokane got neither the jobs nor the high-tech success story.

"Promises, promises, promises"

Joe Vogt is not a big-time investor or venture capitalist or tech guru.

He's just a father of two young boys, the owner of a small concrete-polishing business in Kansas City, the last sort of person you'd ask to bankroll a tech startup. "I still work on my hands and knees for my money," Vogt says.

But then, completely out of the blue, Blue Ray calls. He's never received a phone call like it before or since. The call comes on his business phone — the voice on the other end says he has an investment opportunity for Vogt, a way to get in on the ground floor of something big, a just-about-to-open Blu-ray disc plant.

He has to choose fast, the man says. Blue Ray needs to launch in time for the Christmas rush. "That meant they had all their ducks in the row," Vogt assumed.

He bites. In three installments across three months in 2007, Vogt says he bought stock in the fledgling company. It was his first and last dance with private equity, his one big financial risk. It cost him $75,000, but he was promised he'd make all that money back, plus a percentage of two years of profit.

Vogt was joined by investors from places like Missouri, Hawaii, Illinois, California and Spokane County. There were at least 175 in all, shelling out more than $10 million to Blue Ray. Others told the FBI they were promised they'd see their money multiply by 300, 500, 1,100 percent.

Vogt didn't go in blind: He asked an engineering friend to check over the company's equipment and even called up a Spokane TV reporter to ask if everything seemed right — and everything seemed solid. But he didn't know to search the archives of the California Department of Corporations and find the two desist-and-refrain letters from 1999, ordering Hansen and his team to stop lying and omitting facts. Hansen had been illegally selling unqualified securities — shares that hadn't been approved by the state — through an unqualified broker, and had been misrepresenting what would happen to investors' funds. It wouldn't be the last time Hansen would face that accusation.

Blue Ray kept calling Vogt. Even after he'd invested three separate times, they asked for more.

"Out of the goodness of Erick's heart, Erick is willing to give us some of his personal shares at a fire sale, but you have to buy within the next 24 hours," Vogt remembers being told.

In April 2008, Blue Ray sent him a letter with a message signed by Mary Verner, then mayor of Spokane, explicitly endorsing the company: "I urge you to consider helping Blue Ray Technologies grow into a cornerstone for Spokane and Eastern Washington," Verner wrote. The mayor had penned it at Hansen's request.

That was before Blue Ray had an occupancy permit, a Blu-ray license or even certified equipment, but Verner said it would "be the foundation of new opportunities in the area driven by their developmental technology." It fit her vision for Spokane, she wrote.

"As companies come here to work with Blue Ray, they will see why Forbes ranked Spokane the ninth best city to work and live out of the largest 200 cities in the United States," wrote Verner.

The letter just added to the hype. "It was an additional vote of confidence," Vogt says. He talked with his wife, wondering if they were screwing up by not investing more, but his wife said no.

The next year Forbes named BlueStar directly — in an article calling Spokane the "Scam Capital of America." Today, Verner explains that she never vouched for the company's fiscal stability and believes that the city should now dig deeper into a business before spending community resources or offering even "tepid support."

A month after the Verner letter, the state of California hit Hansen again, accusing him and his associates of continuing to violate the 1999 order. They were still cold-calling unqualified investors, the department said, illegally selling unqualified shares. Hansen had raked in more than $4 million from investors, omitting that the state had previously chastised him for his investment practices.

On top of that, add an outright lie: "Defendants represented they were affiliated with the Disney and Sony corporation, which in fact was not true," the California department said. Hansen didn't admit or deny the claims. He settled. The state fined him and his cohorts $50,000 and ordered him to offer any California investors their money back, plus 10.5 percent. The result was a $657,475 judgment. He eventually paid the fine — but the FBI believes he did it with money from subsequent investors. In other words, investors not only were not told about the California judgment, they weren't told they were paying for it.

"It's obvious, when you have over 200 shareholders, you're going to have one or two that are going to be dissatisfied no matter what you do," says Robert DeRosa, an advisor to Hansen, in a message to shareholders last fall.

There were more than one or two. As the court orders surfaced, investors like Vogt found each other, forming an ad hoc community. They'd send emails, share frustrations and forward news clippings, videos and documents.

"I have a list of over 40 investors that are upset," says Larry Lambeth, a Spokane investor who owns a company specializing in background checks. "I know of one investor that has well over a million dollars in this."

When Lambeth saw Hansen advertise plans to open additional facilities in Montana and Rome, he began to question Hansen's strategy.

"Nothing from the very beginning made sense," Lambeth says. "No legitimate businessman would be out opening other plants when he couldn't get this one open." Records show one Washington state business owner told Jangaard, the FBI investigator, that they had to file for bankruptcy protection, in part because of their investment in BlueStar.

"I'm a salesman, and he sold a salesman," says Kathy Moore, a local real estate agent. It's one thing that even Hansen's most rabid critics praise him for — the man can talk. "He's good at it," says Moore.

After Blue Ray became BlueStar, Hansen's investment practices were hit for a third time in 2011. The Washington State Department of Financial Institutions' cease-and-desist order had the longest list of accusations yet: more unregistered securities, more cold calling, more major omissions, more grand claims, more fraud.

But even as investors grew angry, and as lawsuits popped up and state financial agencies fired off cease-and-desist orders, company newsletters kept bursting with exclamation points.

The May 2012 newsletter said BlueStar had "acquired a public company, and [would] be trading freely in approximately six to eight months under the name Blue Star Entertainment Technologies." Going public can mean a big payout — it's a carrot that BlueStar has repeatedly dangled in front of investors.

The claim seemed solid: In late 2011, the Solarte Hotel Corp., a small company formerly involved in luxury Panamanian real estate, had appointed Hansen its president and changed its name to Blue Star Entertainment Technologies. The plan was to take over BlueStar in Spokane, then go public.

But later SEC filings showed Hansen didn't actually own any stock. He'd wanted to merge the company with the Spokane plant, but first an audit of BlueStar had to be completed. The audit never happened. The same month the newsletter went out, the sole Solarte shareholder kicked Hansen out of the company. Nearly three years later, BlueStar still hasn't gone public.

To this day, Vogt says, BlueStar has never sent him detailed financial information. "Not one spreadsheet, not any balance sheet," he says. "As of late, we can't even get the K-1s for tax information."

If he had viewed such records, he would have seen a company hemorrhaging money: From 2008 to 2011, documents show the company lost more than $3 million. In 2012, BlueStar made $62,000 in "gross profit" from disc sales but lost nearly $1 million. They had more than twice as many current liabilities as current assets.

Vogt's disillusionment came slowly. He started out as a true believer, but the steady stream of empty hype wore him down. "They're telling you stuff that's flat-out lies," Vogt says. "They kept saying promises, promises, promises, and our fortunes were right around the corner, right around the corner, right around the corner. And nothing materialized."

"Manage the perception"

Like the others, local real estate agent Barb Pielli was sold Blue Ray shares on a big promise. For her, it was a deal about to be finalized with Blockbuster — and she had to invest quickly to benefit. But unlike most investors, she got an inside view.

"We saw firsthand what wasn't going on there," Pielli says.

In January 2008, after a tour of the plant, she walked into Hansen's office, sat down at his desk and signed a check for $25,000. "Our return was going to be millions," Pielli says. "His explanation was, 'We're going to be rich. We're going to change the world.'"

But five months later, she learned that manufacturing still hadn't started — Blue Ray didn't even have an occupancy permit. Her husband, a contractor, agreed to help Hansen with the permit, and she agreed to help him with the bookkeeping. "We were assured many, many times that all we need is a certificate of occupancy to make discs," Pielli says. "All we need."

As soon as she started volunteering, she saw the chaos up close. Sticky notes littered the floor of Hansen's office. A shin-high pile of mail sat unopened in the corner.

When they'd prepare for a tour group to come in, Pielli says Hansen had a catchphrase: "Manage the perception." Do what it takes to impress potential investors. "He was bringing people in off the street to be warm bodies," Pielli says, to show "that there are all these people who believe in Blue Ray, that we're legit."

In his tours, Hansen had touches of showmanship. He'd throw open the closet door — an alien prop would pop out screeching. Meanwhile, Blu-ray discs would play on high-def TVs, but they weren't created at Blue Ray.

In fact, during the company's first four years in Spokane, none of the discs being created — seen on tours, newscasts or videos — were sold. They were all test discs, bound for the wastebasket.

Blue Ray didn't have the license, and the machines didn't have the proper electrical setup, to legally manufacture discs in the United States. The equipment came from Europe, with different electrical standards — and even the plug-ins didn't initially fit into American outlets. "We had to put [in] all kinds of fuse banks and switches," says Allen Pabst, an engineer at Blue Ray. By the time Pabst left for a better-paying job in August 2008, the required electrical upgrades still hadn't been finished.

At times, the company had no engineers to run the machines. Other times, the machines were broken: In 2011, a consultant told BlueStar they needed to bring in a technician from Germany to refine the specifications, replace oxidized parts, train operators and upgrade the chilled water supply. Even when the machines did work, they'd only produce single-layer Blu-ray discs — when many major studios wanted at least dual-layer.

Creditors would call Pielli, demanding they get paid, threatening lawsuits. "When I'd come to him and say, 'Erick, you've got to pay this bill,' he'd say 'f--- 'em,'" Pielli says. "'Let them take me to collections. I can get 10 cents on the dollar.'"

In 2008, Wells Construction sued for $276,700 for unpaid work. In 2009, Arc Electric sued for $76,000 for the same. Both won their cases against BlueStar.

Investors also would call Pielli, she says, demanding to know what was going on. She'd pass along information about contracts with Costco and Michael Jackson, tell them the company was about to go public, that they were opening up new plants on Indian reservations in Montana and California. But when Pielli asked to see the contracts, she says Hansen wouldn't show them.

"I realized I was lying to the investors," she says. She says she later called two of the investors, apologizing for allowing to be deceived.

Finally, on Sept. 9, 2008, Pielli and her husband presented Hansen with his occupancy permit and asked when they could start making discs. She remembers him telling her Oct. 1, giving a salute, and quoting the Russell Crowe movie Gladiator: "Strength and honor."

And then, nothing.

"He turned around and walked away. Never made a phone call," she says. "Didn't order supplies, didn't do anything to move forward." They didn't even have the money to order supplies, she says. They wouldn't have the license to sell discs for more than two years and wouldn't actually begin selling discs until December 2011, witnesses told the FBI.

Pielli repeatedly asked for her money back. She tried to lead a revolt of employees and a revolt of shareholders, to seize financial control from Hansen. Neither worked. Instead, she went to the authorities and filed three lawsuits. One was to get access to financial documents shareholders were entitled to. Another accused Hansen of fraud. The third was to recoup the $24,000 she and her husband spent on getting the occupancy permit.

It wasn't the first time Hansen's company had been sued: Yelena Simonyan, former Chief Financial Officer of Blue Ray, also sued to get access to the financial documents. But Hansen's attorney accused Simonyan of just trying to impact the buyout of her stock, after a potential investor group found out Simonyan had an earlier fraud conviction and Blue Ray fired her.

Hansen pushed to seal the court files, worrying if the local media accessed the financial information, it would hurt the company's investment opportunities and "make it difficult for Blue Ray, Inc. to stay competitive," records show. Simonyan lost her case and was charged attorney fees.

Pielli's fate was different, however. She won all three cases. To its other investors, BlueStar portrays Pielli as an unhinged outlier, the source of a vast majority of BlueStar's problems.

"She's a very small investor. ... She tried to undermine Erick so many times," Sean Michael, executive vice president of global business development, says. "She's just vicious."

But to Spokane Superior Court, there was "clear, cogent and convincing evidence" establishing BlueStar had committed all nine elements of fraud. Hansen had told Pielli the shareholders owned the Blue Ray building and that a Blockbuster deal was imminent, the court found — but neither was true. Hansen hadn't mentioned the California cease-and-desist orders when she invested. The court awarded her $62,400 in damages and fees and fined Hansen an additional $10,000 for violating the Consumer Protection Act.

BlueStar still disputes the verdicts to shareholders, telling them it intends to make transcripts of the case available.

As for Pielli's stock, it was a lost cause: Hansen had created so many entities, it was impossible to tell where her shares even were. "The bookkeeping is horrendous," the court wrote, "and there is no proof that Barbara Pielli's shares have any value."

Bikinis, Bahamas, BlueStar

It was October 2009, and at the "world's most expensive resort," Nygård Cay in the Bahamas — with its white sand beaches and replica Mayan pyramids — BlueStar was staging a photo shoot for the BlueStar International Fitness and Beauty Pageant. The pageant's flyer outlined it all: DVD pioneer Erick Hansen was "looking for the BlueStar Girls to represent his impressive list of clients." They'd party with Playboy Playmates and NFL pros, be pampered with free clothes and lingerie, face off in jet skiing, volleyball and kayaking competitions and star in music videos.

The Wizard of Spokane
Contestants for the BlueStar International Fitness and Beauty Pageant, held in the Bahamas.

"You've got this dream, and you'll do anything in your power to keep it alive," says Roy Hahn, former CEO of PlayerXT and former director of communications for BlueStar. Hahn put on events like these for high rollers all the time, but Hansen got so excited and drunk that first night, Hahn says, that he vomited all over himself, and Hahn had to get him a replacement shirt from the gift shop.

On another night, Hansen — in a white sweater and rectangular, blue-tinted glasses — ended up sharing the stage with the King of Pop's father: Joe Jackson.

Jackson was in the Bahamas to audition performers for the "We Are the World All Nations Talent Search," intended to be an American Idol-style reality show, with Joe Jackson, Chi-Lites singer Marshall Thompson, and Erick Hansen as the judges. They planned to travel across the United States, Europe, Nigeria and Egypt, recruiting and judging top talent. Hansen would produce Blu-ray discs of the experience.

Jackson wasn't just a celebrity sponsor. He attended Hansen's parties and spoke during BlueStar tours. At the 2009 BET awards, Jackson and Thompson angered Michael Jackson fans by talking about "Blu-ray technology" on the red carpet only three days after Michael's death. That turned into yet more publicity for BlueStar.

The surrounding fervor sparked Jackson's management to look into exactly who Hansen was, says Lowell Henry, Jackson's business manager. "Suffice it to say, after a background check done by the Jackson family attorneys, Mr. Hansen's results never passed the litmus test," Henry says.

By November 2009, their joint venture had been shut down, Henry says. But for years, Joe Jackson's name continued appearing among the "Board of Advisors" in BlueStar newsletters.

The Wizard of Spokane
Joe Jackson (far left) and Erick Hansen (far right).

"Mr. Hansen continued to use Mr. Jackson's name, yet Mr. Jackson had absolutely no involvement with Mr. Hansen or his company," Henry says by email. "We've been even informed that he continues to use a picture of Mr. Jackson in his offices!"

Jackson wasn't the only celebrity with a Hansen connection. Hansen previously partnered with Terminator director John Daly. Record executive Russ Regan is a BlueStar shareholder, and former LucasFilm president Charlie Weber has been on its advisory board. Investors and collaborators say Hansen claims to have worked with Steven Spielberg, was personally praised by James Cameron, met Pope John Paul II and once sat on Mariah Carey's lap. "As you know, I talked Mr. Disney into the DVD business," Hansen says in a shareholder video.

Several people tell the Inlander that Hansen has a phrase that he'd repeat, like a sad mantra: "I just want my life back."

"He referred to the life he had before, when he was a successful DVD mogul," Hahn says. "He wanted to relive the days of when he was a bigwig in Hollywood producing DVDs."

Most of Hansen's adult life has been spent surrounded by the film industry. In 1998, when Jerry Seinfeld held the final Seinfeld wrap party, he gave each cast member a gift of his favorite episodes on DVD — manufactured by Erick Hansen's Optical Disc Media company. There was a time when he and his wife owned his-and-hers 1999 and 2000 Porsche Carreras and two properties in California, a condo in Encino and a family home in Valencia.

But all that collapsed, and hard. In 2002, Optical Disc Media filed for bankruptcy, owing creditors — including banks, the L.A. County Assessor and plastic, chemical and packaging firms — $4.5 million. The court proceedings lasted more than a decade and were ugly enough that the bankruptcy trustee eventually sued Hansen himself for $60,000.

In 2003, things got even worse. He and his wife divorced. He owed $70,000 on his car, and she owed $55,000 on hers. To this day, debt collectors hound Hansen. He owes Comerica bank more than $1.1 million, thanks to an Optical Disc Media loan he and his wife had personally guaranteed, plus a decade of interest. A lawyer representing Comerica recently contacted a former collaborator asking if he knew where Hansen was.

Yet all that debt hasn't stopped Hansen from living large. A BlueStar to-do list, obtained by the Inlander, includes "Pay for Rolex" as one of its first items. An invoice shows BlueStar spent more than $2,000 in a single day on limousines for people in the entertainment industry. Investor Kathy Moore says that when she was showing Hansen houses, he made a bid on a $2.5 million house in Liberty Lake's Legacy Ridge community.

When the FBI began to dig into BlueStar's banking records, it found Hansen spent $500,000 of investor money on travel, food and entertainment for himself and his employees. Pielli says Hansen once called her up and demanded she immediately forward him $4,500 at a casino.

Things got worse when Hansen got a young girlfriend, Hahn says, and began to spend significant sums of money on her. "She wanted something, he'd get it for her: trips to Miami, trips to Park City, trips to Hawaii," Hahn says. "Lingerie, expensive dresses, stays in expensive hotels. ... She was a very, very, very pretty girl."

Linda Bray, briefly a BlueStar bookkeeper, testified during Pielli's lawsuit that investor money was put into Hansen's personal account. "All I can tell you was that money was transferred from accounts to accounts," Bray says. "When I tried to reconcile them, he would never bring in the copies of his personal accounts."

Hansen can get defensive about BlueStar's finances. "I still have enough to buy your freakin' paper," he said when a Spokane Journal of Business reporter questioned the company's financial viability in 2009.

According to financial documents obtained by the Inlander, in 2011, BlueStar had only one employee on payroll — yet racked up 10 times more in "travel expenses" than the employee's salary. That year, more than $180,000 in expenses were categorized under "other expenses" with no explanation. As late as 2012, Hahn says, Hansen would meet in luxurious suites at places like the W Hotel in Los Angeles.

"He got caught up in the Hollywood crowd and was pulled in 100 different directions," Hahn says. "He was doing it with the money of his investors."

Left in the cold

A long way, in every sense, from the Hollywood limousines and the Bahamian beauty pageants, in an apartment above BlueStar, a tiny insect that looks almost like an appleseed skitters across the cream-colored blanket of 67-year-old Ardyth McGough's bed.

Bed bugs.

"They bit me bad," McGough says. "Mine swelled up as big as a 50-cent piece and it got all hot. I never had anything itch like that."

It was unexpected: Even after all the effort and money BlueStar expended to evict the Commercial Building's low-income residents, the second floor again became home to struggling tenants, who filled the space left by another of Hansen's failed dreams: the University of Digital Technology.

"Blu-ray, 3D and international Internet publishing are all in the curriculum at a new school, the University of Digital Technology," read a December 2010 email to investors. Hansen said students would get experience with Blu-ray disc development and study marketing, publishing and journalism. The curriculum, or even the school, didn't yet exist.

"You believe every word that is coming out of his mouth," says Nicola Mann. She had been a business lecturer in British universities for more than three years when Hansen brought her in to start UDT. She arrived in Spokane on June 15, 2011. At that point, the building only had one other employee, and Hansen said he was leaving for Utah.

Hansen downgraded his original promise to provide $500,000 for the university to $50,000, and Mann stripped down the university's ambition. It would be a blended online and in-class school, offering three bachelor's and master's programs focusing on technology in business.

By September 2011, she managed to get 26 dorm rooms up and running, intending to serve as student housing for local colleges until UDT launched. Hansen chose the name Park Avenue Suites for the dorm rooms, Mann says — though they weren't remotely close to Park Avenue and weren't remotely close to suites.

Mann saw two sides to Hansen. The charismatic, friendly side, the excitable salesman who'd offer monologues about his aspirations. Then the darker side. Red-faced, screaming, pumping his fists.

"He swore a lot," Mann says. "When he would get angry, he would just walk around screaming the F-word." He'd take a 20-second breather, she says, and start screaming all over again.

Mann rapidly grew more suspicious of Hansen and doubtful about the prospects of actually opening the school, and by November she realized, "I have to just admit to myself it's never going to happen."

The University of Digital Technology was dead before it even started. All her savings were gone, poured into Park Avenue. She'd had her hotel and meals paid for, but wasn't receiving an actual salary. She went back to England.

The students who were living there moved out and were replaced by low-income residents, drawn by cheap deposits and short-term leases. McGough, who'd previously lived in a car for two years, moved in. So did a man named Mike Almada, who stayed there with his brother and his mother Jane, who has a heart condition.

Soon, the elevator stopped working, Mann says, and she had to pay BlueStar's elevator bill to get it running again. Hansen — or one of his staff members — also would unplug vending machines and washing machines to save power, she says.

"They wouldn't turn the boilers on," Jane Almada says. Winter hit, and inside the building it was freezing. "You could see your breath."

Mann responded by buying several space heaters and handing them out to tenants who requested them. "Despite four requests to turn the heat back on, our tenants are living in temperatures as low as 31 degrees at night ... this is unlawful and unethical," Mann wrote in an email to BlueStar officials.

Mann and BlueStar kept firing off letters at each other, accusing each other of not paying bills. When the Park Avenue property manager left suddenly, Mann had to make a decision.

"I knew very well that those tenants would not be treated fairly," she says. "I didn't have a choice. I'm too afraid to go back. I have this little boy, I'm afraid of what Hansen will do." Tenants received a letter from Hansen in May 2013, informing them BlueStar was taking over.

The Wizard of Spokane
Thomas Forbes was among the residents given 30 days to vacate the Commercial Building last October.

Bit by bit, everything began to be shut off. The apartments originally had cable and Wi-Fi, but they were both turned off. Lights burned out in the ceiling and weren't replaced. The bed bugs came back, Jane Almada says. The heat went off again, and Almada says she had to call Meals on Wheels to bring her a heater.

These were problems BlueStar didn't want to deal with. "It was supposed to be for students, not habitual drug offenders," says Sean Michael, the executive vice president. "Nobody paid rent there."

On Oct. 11, 2013, Michael, wearing a cowboy hat, went door to door, armed with a Glock pistol in his holster — it was a place with "known felons," he says — and handed out eviction notices.

"It scared the crap out of me," Mike Almada says. They were given 30 days to leave and weren't given back their deposits. BlueStar had kicked out all of its tenants again. But this time there wasn't the storm of media attention or Spokane Housing Authority vouchers or relocation assistance. It was just 10 people, quietly losing their homes.

The tenants have struggled to find new places.

Mike and Jane Almada share their stories while sitting in the lobby of the Ramada Inn, where they've been staying since. They can't get an apartment. One tenant, computer programmer Tom Forbes, wrote a lengthy email to Mayor David Condon a few days after being evicted, imploring him to find rehousing help for the tenants.

"As projects like the Ridpath progress, the city of Spokane can't be like that other River City and march to the music of any flashy bandmaster," Forbes wrote. "You must protect the most vulnerable before you protect the bottom line. A strong dose of due diligence seems a good first step."

It wasn't until Dec. 30 that Forbes received a reply: It merely said to dial 211 for rehousing help, outlined Condon's overall housing strategy and described how effectively the city had helped previous tenants evicted from the Commercial Building.

"$25, $50, $100 million company"

It's mid-February 2014. The white BlueStar company van parked in Railroad Alley outside the building looks like it hasn't moved in years. The California tabs are from March 2007. It sags on a slashed tire, and a spiderweb of impacted glass ripples across the windshield.

But BlueStar still lives. Inside the building, the light is on. A knock on the glass, and Allen Pabst, the red-headed engineer, answers.

When he was rehired back in October, he says, he discovered the machines had been dormant for about a year. During that time, he says, the company contracted out their actual Blu-ray manufacturing to a separate company in California. Pabst estimates it took about $20,000 to bring the machines — the same ones they had back in 2007 — back into working order. "I had to do cleaning, lubrication, changing parts, checking the quality of the discs coming out," Pabst says.

In the past four months, they've sent out one order produced at the plant, Pabst says. He still runs test discs, just to make sure the machines remain up to code. (There are numerous accusations online claiming Pabst ran a scam selling fake airline tickets on Craigslist using stolen identities. Pabst says he's innocent — another victim of the scammer's identity theft.)

A week after the FBI came knocking this past November, BlueStar released a video newsletter to shareholders, full of familiar promises. "I work for each and every one of the shareholders in this company," Hansen says. "It's like being a captain of a ship, and seeing a storm. Yes, it's been tough."

Hansen could have given up, the video says, but he didn't. Today their sales are increasing, it said. They have plans to take the company public, to expand into Germany, possibly Korea. They want to buy brand-new, state-of-the art equipment to churn out ultra-high-def 4k Blu-rays.

"It's time for us to become a $25, $50, $100 million company, hopefully. That's what this is all about," Hansen said. "We're looking for four to five facilities around the world to handle the various jobs."

But Hansen's past continues to haunt him. In May 2013, a press release went out announcing that Imprint Entertainment, the studio that created the first few Twilight movies, was sinking $10 million into BlueStar.

Cain McKnight, Imprint's managing director, says the plan was to dump BlueStar's management and then purchase and roll out 20 to 30 machines in Spokane and other locations throughout the world. "We were already [preparing] to expand the company in Europe," McKnight says. "We were literally going to take over the company."

To double-check the company's viability, they sent bankers to tour the facility. That's when an employee "was asked by Hansen and [Sean Michael] to 'fire up the machines' and essentially put on a show that the factory was in full operation," according to the FBI investigator. (Says Michael: "No, that's not what I said. I said be energetic, don't lie.")

The employee dressed up a janitor and a property manager in lab coats to appear to be working on the equipment, records state. But the deal never went through. In a shareholder video, Hansen says that after careful consideration for the shareholders, "we decided that their offer, and their ability to perform, just wasn't there."

McKnight strongly disputes that, saying that Imprint ended the deal. McKnight says Hansen had sent out the press release too early. As soon as it went out, McKnight was called by several people who'd been burned by BlueStar, warning that Hansen still owed them money. He saw questionable spending. And when the bank came back with their verdict on BlueStar's financials, the decision to cut ties was obvious.

"We washed our hands of it," he says.

But BlueStar still has believers. Michael has made more than $330,000 at BlueStar — he says he gets paid about $100,000 a year, and says he's worth it. There was a time he was temporarily fired by Hansen, and there was a time that Michael threatened to resign. But few are more insistent that Hansen hasn't done anything wrong, or more effusive in their praise.

"Erick's got this Blu-ray thing in his blood," Michael says. "I believe in him, I believe in him, I believe in him."

On Jan. 21 of this year, Michael sent out a frantic email, rife with spelling errors, titled "Good News to All of our Partners," asking all investors to send a thank-you letter to Hansen for all his hard work, for sticking with it despite the challenges.

"If we loose Ericks heart we loose and you loose BlueStar Forever and all this time was for nothing," he writes. "Thank you Erick for Dreaming that we could have a American Blu-ray company!" ♦

Was Hansen a "DVD Innovator?"

Even the headline of the Spokesman-Review article, reporting on the FBI raid of BlueStar, referred to Hansen as a “DVD innovator.” It’s clearly true that, when Hansen’s Optical Disc Media was launched in 1995, it was among the first American DVD companies.

But his claims go further than that: He claims to have helped created the first multi-angle DVD and says he’s an expert in anti-piracy and digital delivery.

In 2006, a press release from Hansen claimed Blue Ray Technologies was finalizing patents that would “revolutionize the manufacturing process,” vastly decreasing the errors in Blu-ray production. But Reed Jessen, patent analyst at Spokane patent firm Lee & Hayes, says there’s no evidence of Hansen creating or BlueStar owning any such patents. Neither BlueStar, nor any of the former companies he has run, have patents assigned to them.

In fact, Hansen only has two patents to his name. Both involve not a substantial change to the DVD or Blu-ray format, but the idea of embedding an electronic tag directly into a DVD or CD in order to prevent shoplifting. He was one of three inventors of the device.

There’s another claim Hansen has often repeated: “We created the first DVD-ROM video game, which was Wing Commander, for Electronic Arts and Creative Labs,” Hansen says in a video newsletter to shareholders. Wing Commander IV was among the first DVD-ROM video games, but the extent of Hansen’s involvement is questionable.

“I have racked my brain regarding Erick Hansen and really have never heard of the guy,” says Mark Day, the internal producer for Wing Commander IV for Electronic Arts. He says it’s possible that Hansen’s company was involved in manufacturing or encoding the discs, but says those were very minor aspects of the process, akin to copying a VHS tape.

Movie Mogul?

In October 2011, with BlueStar nearly empty, Hansen made an announcement at yet another beauty pageant: He was launching the BlueStar Entertainment Division.

"You're going out into the movie business to produce movies? That's freaking insane," Roy Hahn, former BlueStar director of communications, recalls saying. "Erick, you've got to be kidding me — your core business is producing Blu-ray discs. All your money you raised should go into the factory to produce Blu-ray discs."

Hansen wasn't swayed. For more than a year, he's been working on an alien invasion movie called Dominion, due to be completed by April 2014. Hansen wrote the story and BlueStar provided the financing. Most experts warn that, in general, film makes for a very risky investment. But director Rico Lowry says Dominion is micro-budget, the entire investment is tax-deductible, and BlueStar easily will earn back its money. Still, Lowry doesn't say whether BlueStar will be producing Blu-ray discs of Dominion.

That's important, because Hansen hasn't always been upfront about BlueStar's movie deals. According to the FBI, Hansen told an investor he had the rights to distribute an animated movie called The Illusionauts, when in reality all he had was a courtesy copy.

And an April 2012 press release claimed BlueStar was finalizing a three-picture deal to "manufacture, market and distribute" Rapture, Continuum, and Janus Experiment, three low-budget movies also involving Lowry. But Lowry says that while Hansen had expressed interest in those movies, "BlueStar has nothing to do with Rapture, Continuum or Janus Experiment."


Feb. 2 The California Department of Corporations issues two desist-and-refrain orders against Erick Hansen and several others selling investments for Optical Disc Media.


April 10 Hansen's Optical Disc Media files for bankruptcy, owing creditors $4.5 million.


Feb. 7 Comerica bank wins a $621,800 judgment against Hansen and his wife. Today, the amount owed has increased to $1.1 million.


April 19 Hansen's Pacific First West LLC purchases the foreclosed Commercial Building at a trustee's sale.


May 27 The California Department of Corporations issues a complaint for injunctive relief against Hansen and several others for continuing to break California investment law, omit facts and make untrue statements. The judgment against Hansen is $657,475, which the FBI alleges he paid with investor money.

September Blue Ray changes its name to BlueStar Technologies after being sued by Sony for copyright infringement.


Aug. 20 Hansen appoints Brian Main Executive Vice President of European Markets. Main had been one of con artist Greg Jeffreys' partners in his controversial Ridpath Hotel dealings.


April 29 Real estate agent Barb Pielli files another lawsuit against Hansen and BlueStar. Spokane Superior Court eventually finds him guilty of fraud and assesses more than $62,000 in damages and attorney fees, and an additional $10,000 for violating the Consumer Protection Act.

Sept. 15 Lease agreement hands over the second floor of the BlueStar building to Nicola Mann, with the intention of it being used as student housing for the University of Digital Technology.

Oct. 26 The Washington state Department of Financial Institutions sanctions Hansen for his investment practices.


February Hansen settles with the Department of Financial Institutions and agrees to comply with investment rules. Despite this, FBI reports that multiple investors say they have been contacted to attract more investments.


Oct. 11 Park Avenue Suites' low income tenants are given 30 days notice to leave by BlueStar.

Nov. 5 The FBI conducts a search warrant on the BlueStar plant in Spokane.


Jan. 21 Sean Michael, the executive VP, asks investors to send Erick Hansen thank-you notes.

Project Yarnbomb @ Spark Central

Sat., Oct. 8, 1-3 p.m.
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About The Author

Daniel Walters

A lifelong Spokane native, Daniel Walters is the Inlander's senior investigative reporter. But he also reports on a wide swath of other topics, including business, education, real estate development, land use, and other stories throughout North Idaho and Spokane County.He's reported on deep flaws in the Washington...