A Tucson couple ordered to pay millions in restitution for committing securities fraud say they’ll do everything possible to make their former investors whole.

“There are only two people in the world that give a damn about our investors, and that’s my wife and myself,” said Michael Feinberg in an interview with the Star.

For at least 13 years, Feinberg and his wife, Betsy, have been telling potential investors that their product — a new computer programming language — was on the cusp of launching, would compete with Microsoft and would generate $2 billion in revenue in three years, according to a cease-and-desist and restitution order issued in February by the Arizona Corporation Commission.

But the software product was never released and the couple’s company, Catharon Software Corp., hasn’t brought in any revenue since 2004, the order said. Catharon was never registered with the commission to do any business in Arizona — a violation of state statute that constitutes securities fraud, the order said.

The ACC has forwarded the Feinberg case to the state attorney general’s bankruptcy and collections enforcement office, which is responsible for collecting the $4.9 million in restitution the Feinbergs owe to their investors, said ACC spokeswoman Rebecca Wilder. In addition, the Feinbergs must pay a $250,000 administrative penalty.

The ACC can’t comment on whether the case has also been referred for criminal prosecution, Wilder said.

The AG’s collections office can pursue restitution through methods like demand letters and garnishing wages, if it obtains a court judgment allowing it, said Don Lawrence, section chief counsel for the collections office. The collections process can take many years, but “we’re pretty patient,” he said, noting that he can’t comment on specific cases.

But a local attorney said collecting restitution from those who are self-employed is notoriously difficult.

“I can’t imagine the investors will ever see a penny,” said Tucson bankruptcy attorney Matthew Foley, who was not involved in the case. For three years, he prosecuted fraud for the state AG’s office. “These people are entrepreneurs by their nature; they’re not going to go get a regular job. Garnishing wages is not going to be an option.”

The Feinbergs say they don’t plan to file for bankruptcy. But even if they did, that wouldn’t let them off the hook for the money they owe their victims, which is non-dischargeable in the event of bankruptcy, the consent order said.


The consent order said the Feinbergs repeatedly misled investors in written materials with claims and revenue projects that had “no reasonable factual basis.” In 2002, 2003, 2008, 2010 and 2013, the company implied its technology would be released within 12 months and that helped the company raise millions in investments, the order said.

Between 2007 and 2014, the Feinbergs — who say their net worth today is $300 — used more than $891,000 of investors’ money for personal spending, including a bird-watching trip in Mexico, massages, restaurants and an RV, the ACC order said. In January and February 2014 alone, they spent more than $59,000 at Camping World, Bed Bath & Beyond, Whole Foods, Trader Joe’s, Amazon, Bashas’, Target, music and art stores, and restaurants.

The Feinbergs say they transferred the investor money to themselves as compensation for loans they made to the business. In lieu of taking salaries, they used investors’ money to live on, they say.

Today, “we’re struggling to buy groceries,” said Betsy Feinberg in a recent interview. The couple lives in Tucson in the RV they bought last year.

The couple’s 3,100-square-foot home in Sedona — purchased in 2000 for $655,000 — foreclosed in 2013, according to the Coconino County assessor’s office.

Investors, including members of the Feinbergs’ former synagogue in Sedona, are furious.

“My guard was taken down because he was a temple member,” said Milton Small, 77, vice president of fundraising at the Jewish Community of Sedona and the Verde Valley. Small invested thousands in the company but declined to specify how much. “It was a lie from the beginning, in my opinion.”

“I don’t think we’re ever going to see our money,” said Joe Dlugosz of Sedona, who invested $30,000 in the Feinbergs’ company. “They took life savings from people.”

Beatrice Cooley of Flagstaff said she invested $12,500 in the Feinbergs’ company around 2003. But after a few years, she resigned herself to never seeing a return, despite the Feinbergs’ claims that they were just about to launch their product, said Cooley, who met Betsy Feinberg while both were involved in the Northern Arizona Audubon Society.

“I thought we were friends,” Cooley said.


The couple also never told investors in offering documents that in 2013, they assigned rights to their patents to a third party, which would get 55 percent of the profits from the patents and could license the patents to Catharon’s competitors, the consent order said.

The Feinbergs said they did inform new investors personally about that partnership, but not in the 2013 offering documents — an older version was sent out by accident. Earlier investors were told via newsletter, they said.

The partner is helping to fund litigation against companies that are violating their patents, the Feinbergs said. The litigation will generate revenue that will allow them to hire staff and get their product off the ground, they said.

“This is really good software and could make a really good difference for people. Our primary goal is to get it finished and reward our investors,” Betsy Feinberg said.

Although the Feinbergs signed the consent order admitting to defrauding investors, they say they only did so because they couldn’t afford a lengthy hearing process to clear their names.

“We are not giving up,” Michael Feinberg said. “We signed the consent agreement so we could move on.”

The consent agreement prohibits the Feinbergs from backtracking on their admission of guilt, stating, “Respondents agree not to take any action or to make ... any public statement denying, directly or indirectly, any finding of fact of conclusion of law in this order or creating the impression that this order is without factual basis.”

But Foley, the Tucson attorney, says it’s unlikely they’ll be penalized.

“The essence of the agreement is to permanently stop selling securities and to pay restitution,” he said in an email, after reviewing the consent order. “Violating the consent doesn’t change the end result. If the state brought a contempt action, there would be limited incentive.”

Wilder said the ACC cannot comment on whether the Feinbergs’ comments were a violation of the order.


A former programmer for the Feinbergs says their technology has potential. The Feinbergs’ idea is a new programming language, called V∆Delta, that would allow developers to write applications and create content that can be used across multiple platforms, without having to make adjustments for each new platform.

“I think it’s a viable product, if it can be produced and completed,” said Robert O’Donnell, now a retired programmer living in Sedona. He worked for the Feinbergs for less than one year, until he was fired in 2012. He says his programming skills were “underutilized.”

“I’m not sure how well they managed their employees to make sure they were getting a product done in a timely manner,” he said.

The Feinbergs say they suffered from extremely high turnover in programming staff, who suffered from burnout and illness.

“Once of many mistakes we made, we underestimated the psychological and emotional stress on programmers,” Michael Feinberg said.

When O’Donnell was hired in October 2011, the Feinbergs said they were planning to launch V∆Delta in two months, he said.

In reality, “it was nowhere near where they wanted it to be,” he said. “Whether or not they were pulling the wool over somebody’s eyes, or whether they believe they can produce a product and give people money, I don’t know.”

So, if the Feinbergs can hire the staff, how long would it take to finish their product?

Michael Feinberg said, “I think we could put it in the market in a year.”

Contact reporter Emily Bregel at 807-7774 or ebregel@tucson.com. On Twitter: @EmilyBregel