Here's a story about how a billion dollars of investor money is blown and how the principals still come out rolling in clover on the other side.

You might remember the wireless software company Aether (NASDAQ:AETH). Its founder had some pointy-headed ideas about how wireless data access using devices such as cellular phones was going to be imminently profitable, so the company hired Merrill Lynch (NYSE:MER), put on a dog and pony show, and had a 1999 IPO and then subsequent offerings in 2000 that raised more than $1 billion in investor money for the company to deploy its vision of world wireless domination.

Ah, but the business never came. Aether became yet another one of those companies that was successful nowhere but in the market of dreamers, garnering at one point a market capitalization in excess of $10 billion. One of the big investors in Aether, mainly via the company's acquisition of Riverbed Technologies, was investment banker Friedman, Billings, Ramsey (NYSE:FBR).

Nothing ever really worked out for Aether, so late last year, the company began looking for "strategic alternatives," including potentially liquidating the company. FBR proposed a different idea: Sell off all of its technology components and turn Aether into a fund of mortgage-backed securities (MBS) managed by, yep, FBR. This past week Aether sold the last of its tech divisions, this one to database technology company Bio-Key for $10 million. Thus completes another of those bizarre business transformations, like Kyocera (NYSE:KYO) from a ceramic manufacturer to a cell phone maker. Ditto Nokia (NYSE:NOK) from a rubber company to a high-tech behemoth. Only Aether went the opposite direction. It doesn't even make rubber. It's just a mortgage securities dealer.

What's left at Aether is a few executives with fat employment contracts whose only apparent experience in bonds is their destruction of Aether's creditors' wealth. Aether has destroyed massive amounts of shareholder equity and cash. In 2000 it had $1.4 billion of the latter on its pristine balance sheet, and even after it sold off most of its assets for scrap, it has less than 10% of that amount today. Baltimore Sun journalist Jay Hancock acidly called Aether's transformation the corporate version of a sex-change operation. Very funny, but not quite right, as I suspect most sex-change operations are willful. This is more like Aether's entering the witness protection program. No one will recognize it.

Aether has a few things going for it. It has some cash; it has $700 million in net operating losses that it can use to shield it from taxes until, oh, trees start mooing or something. It also has FBR there to manage the portfolio, something FBR itself is very good at doing. But in the meantime Aether's executives continue to hold on to their company, which is now doing something at which they can be nothing but incompetent. This is great for FBR, and not a bad move -- and it's going to get a commission for brokering the deal, as well as a percentage fee for assets under management and profits.

As it is, Aether's valued at little more than liquidation value. I don't see how it could be different, seeing as the executives failed at the business they did know something about and are now attacking a business about which they know nothing.

Amazing. If you're going to invest in a company involved in mortgages, I'd suggest finding one that actually has competence in mortgages. You know, like FBR.

Bill Mann owns no shares in any company mentioned in this article. FBR, a mortgage REIT with a 7.5% yield, has been discussed in Mathew Emmert's Motley Fool Income Investor, where he identifies the most promising dividend-paying stocks. Afree trialis yours for the askin'.