Corporate
Fraud
Wash the Crime Away in Bankruptcy
The
collapse of American Traveler Press, Inc. (ATP) still resonates 14
years later for many of its victims, who lost their business, their
homes, forced to live out of their cars, others are still struggling.
The taxpayers took the biggest hit of $1.2 million.
Frank
Stephens, the whistle blower, lost $120,000 and his business. Instead
of justice, El Dorado County officials accused
him of being part of the crimes and seized his business and assets.
Once it was proven he was the victim, not the accomplice, the county
stopped. But no one apologized or made restitution.
Stephens
then gave the incriminating evidence to Assistant U.S. Trustee
Antonia Darling in Sacramento -- Department of Justice -- and then
waited to hear from investigators, as he was told.
Meanwhile,
the bankruptcy court allowed ATP to wash its hands of the crime,
thereby, screwing the taxpayers and Stephens out any legal remedies.
Stephens still has not heard from anyone at Darling's office about
the criminal complaint.
Was
it a Government
Cover-up?
Published:
7-17-96
The Reporter
Posted:2-12-04
(An El Dorado County alternative newspaper)
Editor's
Note:
It
was the summer of 1992, when the grand jury released its scathing
report about the El Dorado County Economic Development, Inc.’s
misappropriation of taxpayers’ money.
California
was in the second year of the worst recession since the Great Depression.
El Dorado County was in a political upheaval, and Joyce Williams
and Don Stone started a publishing company that collapsed after six
months.
What
followed was political careers derailed, county officials fired,
the economic development corporation dissolved, and Williams’ staff
unemployed with bounced payroll checks. One lost their home.
Last
Thursday Williams' filed bankruptcy.
The
Perfect Plan
It
was February 1992, and in a little room on the top floor of the county's
chamber of commerce office Joyce Williams and her Canadian boyfriend
Don Stone, set in motion their business plan that would create new
jobs in El Dorado County.
Meanwhile,
the economic development corporation was putting on a new face while
former grand jurors fought a bitter legal battle with then district
attorney Walt Miller about his inaction on the 1991 scathing grand
jury report of the EDC's use of public funds.
Williams
and Stone sat across the desk from the then economic development’s
director, Steven Long, discussing how they could acquire $450,000
public funds for their $1.3 million business proposal to publish
a bi-monthly full-color-tabloid travel guide titled Hi Sierra!
The
publication would cater to tourism in the Sierra Nevada — circulating
250,000 free copies throughout the eastern ranges. They created American
Traveler Press Inc. (ATP) as the parent company.
Along
with the Hi Sierra! they proposed operating a web press to cover
the cost of printing Hi Sierra! in addition to generating income
from other publications. Stone and Williams were aiming at small
book publishing, such as the ones Stone writes for the travel industry.
The business plan detailed creating 44 jobs in 18 months and being
profitable within a year.
Public Funds for Economic Growth
Long
had Williams apply as a minority — woman — at the state's
Department of Housing and Community Development for a Community Development
Block Grant (CDBG).
The
grant is a taxpayer-funded program for beginner businesses. The program
requires the participants to hire low income, disabled, or minority
people. As part of the incentive, the on-the-job-training program
reimburses half the employees’ wages. The state is especially
receptive to minorities applying for the grant loan.
" If
Williams goes in as a woman minority, she'll be granted the loan," Long
wrote in a letter dated Nov. 1, 1992, to then county administrator
Paul McIntosh. "Their financial plan assumptions appear to be
realistic and perhaps conservative. Stone will remain associated
with the project."
Who’s
Piloting this Ship?
By
June, the grand jury released its findings about the economic development
corporation: “Indictment recommended.”
The
findings stated that since the entity’s inception, the county
Board of Supervisors had allocated near $1 million public funds for
recruiting new business to the county. Yet, the entity was using
those funds to benefit the contributing members.
Such
was the case with ATP, which leased its space from Cemo Inc., a $5,000
contributor. ATP’s bank account was with Sierra Western, a
$1,000 contributor. Williams said Long and county CAO Paul McIntosh
told her to locate into the Cemo complex and that she had to pay
for improvements.
According
to Maureen Valdez, ATP’s former bookkeeper, they spent more
than $50,000 to remodel Cemo Inc.'s structure into a posh office.
ATP
had received several loans from the Bank of Amador. Williams told
The Reporter she could not recall how she secured so many loans without
collateral, or why the county did not follow through on putting a
lien on her home.
" The
county's delay is what caused the cash flow problems," Williams
said. "Western Sierra Bank would not invest the $200,000 until
we had the cash secured. We had to borrow from the Bank of Amador
until the county's money came in. It just kept getting worse and
rolling out of control."
Too Many Red Flags
Teri
Chisolm, a financial analyst, said her review of ATP’s loan
raises too many red flags. Her background was preparing CDBG applications
for Steinbeck Development, Inc, to build low-income-housing.
" The
standard procedure is that the investor deposits their money into
an escrow account before the CDBG funds are released," Chisolm
said, who is also a former VP of commercial lending with Sunrise
Bank. "The question everyone should be asking is how does a
woman with an average annual income of $22,000, and has only $40,000
equity in her home, qualify for all these loans? I am incredulous
that the county and the Bank of Amador kept advancing her money,
let alone El Dorado County officials."
Former
ED County property manager, Rich Buchanan, points out that Williams’ home
lacked equity for a $450,000 loan. Additionally, there were three
existing deeds of trusts totaling $176,000 against the Church Street
home in Amador City, which is assessed at $215,000.
According
to the property profile from Amador Title, on February 15, 1992,
Williams and Stone signed two separate deeds of trust totaling $150,000
on the home. Then on July 24, 1992, Williams and Stone filed a $36,000
deed of trust against their home.
When
The Reporter asked state officials why they approved a project without
collateral, they expressed alarm at learning that the loan stated
the money was for cash flow rather than equipment, according to Richard
Nelson, deputy director for the California Department of Housing
and Community Development. The state expects counties to use the
equipment for collateral.
"We
do not interfere with the counties' lending procedures," Nelson
said. "We could ask the county for repayment on the loan. We've
made it clear in our agreement with them that they must perform due
diligence to recover the money."
In
a telephone conference with Nelson and John Turner, program manager
for the housing department's economic development allocation, they
said the ATP issue was unusual and the 10-year program has had a
90 percent success rate. The program, which began in 1985, averages
seven loans per year with an annual budget of $3.5 million.
"This
deal went sour fast," Turner said. "El Dorado County is
missing out on potentially $800,000 for other projects because it
messed up."
Buchanan
points to a letter dated Nov. 17, 1992, from Long to McIntosh stating
the county supervisors should place McIntosh in charge of all aspects
of the ATP loan. Buchanan said the normal procedure is to have the
county contract manager and the county property manager in charge.
"We
were kept out of the loop?" Buchanan said. "Why would the
county keep someone that knew what they were doing, out of the process?
If we had been allowed to do our jobs, I would have denied the application
because Williams had no experience, no equity in her home, and no
secured investors."
The Collapse
"If
ATP thought it was only receiving $450,000, then why did it end up
with a $819,150.94 debt?" Chisolm said. “It spent more
than it expected to receive.”
Add
the $450,000 taxpayer loan; the $105,475.84 income from ad sales;
$20,742.15 from the taxpayers for employee training; $36,000 home
equity loan Williams said was used for start-up cost; the $120,000
she took from Foothills Newspaper's account; and the $819,150.94
unpaid bills; and ATP went through $1.5 million to publish three
issues of Hi Sierra!
Factoring
in the taxpayers' portion of that money to the county's and Williams
lawsuit, the county and state's cost of administering the loan, the
federal courts' cost to handle the bankruptcy, and the taxpayers'
paid $1.2 million for ATP. The county actually borrowed $483,750
from the state. It kept $33,750 for program administration. Since
then, it received an additional $28,817.73 to handle the case. As
a condition of its contract with the economic corporation, the county
was supposed to pay them $28,500, but paid $3,500.
The
Department of Housing conducted an audit on the county's method of
handling the grant loan and found six problems and incorrect procedures.
In its letter dated Nov. 28, 1995, Conner stated that the county
and the economic development corporation commingled grant funds with
program income with no separate accounting for general administration.
In addition, the county had not timely filed its quarterly reports.
"The
Economic Development Council prepared the financial reports, but
unfortunately the county did not reconcile the reported amounts to
their accounting records."
A
New Venture
In
December 1993, ATP formed Travel Communications Inc. and it became
a 51 percent shareholder of Foothills Newspaper Inc., owner of The
Reporter newspaper. Frank Stephens was the other shareholder.
“Their
interest was an agreement to do the production and printing in exchange
for the shares,” Stephens said. “They never paid anything.”
In
January 1994, first payment of $10,946 for the CDBG funds bounced.
On Feb. 4, 1994, McIntosh and county counsel Sam Neasham went to
the Hi Sierra office to talk to Williams and Stone.
The
company's accountant, Maureen Valdez, told The Reporter that the
four were in Stone’s office for several hours and that their
voices were often intense and loud.
After
McIntosh and Neasham departed, Stone and Williams had Valdez prepare
the paperwork for them to relinquish their shares in Foothills Newspaper
Inc.
Later
that afternoon, the sheriff's deputies served Williams with an injunction
that prevented her from transferring assets. The deputies took the
furniture and equipment. County counsel seized Williams' and Stones'
Foothills Newspaper stock claiming they used grant money to purchase
The Reporter. That was later proven false.
According
to The Reporter’s books, Williams and Stone withdrew $120,000
from The Reporter’s account. Stephens said the El Dorado County
District Attorney’s Office refused to allow him to file charges.
“DA
Gary Lacy said he does not do white-collar crimes because there’s
no victims,” Stephens said. “They funneled money into
Canadian bank accounts. Employees had bounced payroll checks. Taxes
deducted from employees’ checks not paid into the system. Medical
deducted from employees’ checks, but not paid to the carrier.
There was so much fraud, but, the DA refused to investigate or prosecute.
One employee was living out of her car because she lost her home.”
Stephens
said his outrage is that instead of prosecuting Williams and Stones,
the county filed a civil lawsuit against the corporations, for breach
of contract and fraud. Additionally it sued the economic development
corporation for breach of contract. Williams and Stone counter sued
for breach of contract asking for $1.3 million.
"I
had no idea it was going to get ugly," Williams said. "That
was a boiler plate charge that was politically motivated."
Stephens
and Valdez say they cannot believe that the county DA has not filed
criminal charges for the transfer of the taxpayer money in to foreign
bank accounts. The bank records show ATP checks as large as $30,000
deposited to the Canadian accounts in Stone's name. Williams told
The Reporter that those checks were reimbursement for her and Stone’s
loan to start the business.
The
Fall Guy
On
March 6, 1995, the county and ATP filed a settlement agreement in
superior court, that states Williams accepted personal responsibility
and that she agreed to pay the CDBG loan, plus the interest of $493,801.89,
but the county would wait one year before pursuing her assets.
"It
was all political," Williams said. "The county wanted a
pound of flesh and I was the one."
The
EDC Economic Development Inc. dissolved and Long now sells real estate.
“I
feel we were the fall guys,” Long said. “The county dumped
it all on us.”
The
Board of Supervisors fired McIntosh and gave him a $90,000 severance
pay. He now teaches karate. The board also fired Neasham. He is with
a law firm in South Lake Tahoe. Neither would talk on the record.
Getting Stone
County
attorney Tom Cumpston said Stone was not included in the lawsuit
because, “We didn't have a legitimate claim against him, so,
we released him from liability.”
According
to Valdez and ATP records, however, Stone was an integral part of
the company, negotiating with vendors, writing checks, and hiring,
training, and supervising employees. Some employees said he was there
daily and functioned under the name of Fraser Bridges.
The
county's audit showed that ATP had written many checks to Stone,
who days later wrote an equal amount from his personal account to
Williams. At the time the county did the audit, it was not aware
that Stone was Bridges.
"When
I asked for his paperwork to process him, Williams told me to never
mind because he is a Canadian citizen," Valdez said.
Buchanan
points out the county is either incompetent to not have picked up
on the undocumented Fraser Bridges, or, it was a political cover
up.
Washing The Crime Off Your Hands in Bankruptcy
Court
Despite
evidence of the massive crime, the bankruptcy court allowed Williams
and ATP to wash their hands of the crimes. In doing so, it prevents
the taxpayers and the victims from suing Williams or recovering the
money in any way.
Tom
Parker, El Dorado County's collection attorney, told The Reporter
he did not challenge Williams’ bankruptcy because thought she
had no assets.
The
state, however, is not satisfied and refused to give the county economic
development loans until it recouped the money and proves it can administer
a loan.
" No
more economic grants until it clears up this mess," Conner said."The
county is still responsible for collecting the money. These people
should not be allowed to wash their hands of the whole affair in
bankruptcy court."
He
added that the state had two other failed companies that borrowed
grant loans. They repaid between 50 cents to 70 cents for every dollar
borrowed.
To
date the county has collected $9,005, according to Sheryl Jodar,
principal administrative analyst in the county administration office.
That payment came from the settlement with the economic development
corporation.
Stephens
filed a second Whistle Blower complaint but this time with the U.S.
Justice Department's watchdog division over the bankruptcy system,
in the Eastern District of California.
He
gave them the bookkeeping and tax records, a copy of the above news
article, and the court order finding ATP and Williams guilty of fraud.
The evidence showed all the money funneled into Canadian bank accounts.
Stephens says
he still waiting to hear from the Department of Justice about the
evidence.
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