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ATP Files Bankruptcy
Blames State and County Redevelopment for Collapse  -  Says the Only Fraud was the State and County on Busineses

 


Editor’s note: When The Reporter embarked on an investigation examining the bankruptcy of American Traveler Press, Inc.— the company that closed operations shortly after it began business in 1993, costing the taxpayers nearly $1.8 million — our reporter Roberta Barth unearthed fraud, cover ups, money laundering, and campaign finance violations.

 

 

Roberta L. Barth, Chief Reporter
The Reporter
August 16, 1998

Fired El Dorado County Administrator Paul McIntosh says that one day, history will portray him as a visionary that took the rural county into the 20th Century.

“My severance package prohibits me from commenting why I was let go,” said the departing CAO as he packs his personal belongings in to storage boxes in his office. “It’s real easy to have 20/20 hindsight saying it should have been this, or, it should have been that and you're all to blame, but in the end, we do the best we could based on what we knew at the time.”

With his arms wrapped around a large box held firmly against his chest, he stops at the doorway and turns around to scan his office. As he lets out a loud exhale of air, he says, "We believed it was a perfect plan that would provide jobs to area."

McIntosh is the latest political fallout in El Dorado County, (EDC). His farewell severance includes $90,000, which El Dorado County Taxpayer Association spokesperson Clarence Dilts is calling for a refund.

“That guy doesn’t deserve one dime,” Dilts said. “He must have some real dirt on the county and state officials is the only thing we can think of for paying him to go away after monumental fraud against the taxpayers.”

 

The Perfect Plan

In a little room on the top floor of the county's chamber of commerce office in Placerville in 1992, Joyce Williams, of Amador County, and her Canadian boyfriend, Don Stone, set in motion their business plan for American Traveler Press, Inc (ATP).

The next step was taking their plan to the El Dorado County Economic Development Corporation (EDCED).

Williams and Stone sat across the desk from the then EDCED director, Steven Long, discussing the funds needed for their $1.3-million-business proposal to publish a bi-monthly full-color-tabloid travel guide titled Hi Sierra!

Long says it all looked legitimate and it had the potential to bring a major employer to the area to provide jobs.

The business plan stated ATP would create 44 jobs in 18 months and be profitable within a year by producing the bi-monthly magazine and operating a four-press print shop to off-set the cost of printing, while securing other publications' printing to generate revenue.

EDCED's application to California Department of Housing and Community Development, states “it needs $450,000 from the Community Development Block Grant (CDBG) funding to give ATP for job creation.” The grant is a taxpayer-funded program for new businesses.

"We were aiming at a small book publishing, such as the ones Don writes for the travel industry," Williams told The Reporter. "This was a legitimate business plan and we had no control of the back-room politics that created the nightmare."

 

Public Funds for Economic Growth

CDBG funding is a federal program administered by each state, which allocates funding to its counties and cities for community development projects. The California Department of Housing and Community Development administers the program.

To receive CDBG funds, a person must apply through the county/city where the business would be located, according to the terms of the CDBG.

In the case of El Dorado County, officials deferred that responsibility to the EDCED, which is not a government agency, but had been receiving public funding from the county to entice new businesses into the county.

The other criteria are that the funds may only be used for equipment directly related to the operation of the business; and the new company must hire people that are at least one of the following: low income, disabled, or minority, which includes women.

As part of the incentive, the on-the-job-training program reimburses the business 50 percent of each employee’s wages.

Because the state is especially receptive to minorities applying for the grant loan, Long had Williams apply by herself to meet the minority qualification.

"If Williams goes in as a woman minority, she'll be granted the loan," Long wrote in a letter dated Nov. 1, 1992, to McIntosh:"Their financial plan assumptions appear to be realistic and perhaps conservative. Stone will remain associated with the project."

In follow up correspondence between Long and McIntosh, the deal was sealed and the county submitted its application to the state, concealing Long's involvement.

The Well-known Secret

The Reporter conducted its investigation through documents received through The Public Records Act from the state, county, and EDCED.

Those documents revealed that EDCED had been operating for the benefit of its members since its creation in 1988, rather than its purpose of enticing new businesses to the county.

In addition to the paper trail showing members benefited from the annual funding received by El Dorado County, through approval by the Board of Supervisors, The Reporter uncovered letters from staff and businesses to county officials questioning the EDCED's tactics.

The trail ends there.

To date, the Board of Supervisors have allocated, $3.7 million tax dollars to the organization, which has not secured any major employers.

Williams and Stone assert that McIntosh and County Counsel Sam Neasham forced them to lease office space in El Dorado Hills from Cemo Inc., a Sacramento-based developer, who is an EDCED $5,000 member, and a regular campaign contributor to county supervisors’ elections.

Williams says that Neasham and McIntosh told her the ATP bank account had to be with Sierra Western Bank, which is a regular campaign contributor and a $1,000 member of the EDCED.

“There were all kinds of completed spaces in older business areas for less money, but we were forced into high-priced business park and pay to finish their project,” Williams said. “We had to install the walls, plumbing, electrical, carpeting, and so on. When we squawked, we were scolded and told that to get the funding, we had to do what the EDCED required of us.”

According to Maureen Valdez, ATP's bookkeeper, Williams and Stone spent some $80,000 on Cemo Inc.'s structure.

Both McIntosh and Neasham declined to comment. No one from EDC or Cemo, Inc. would comment either.

 

Red Flags Ignored

In a letter dated Nov. 17, 1992, from Long to McIntosh, he recommended that the Board of Supervisors place McIntosh in charge of all aspects of the ATP loan.

In closed session tapes and documents, the Board voted to have McIntosh handle everything regarding the ATP loan.

Yet, in public, EDCED had the appearance of being the lead agency.

Former county property manager, Rich Buchanan feels he lost his job for raising red flags about ATP. He wrote several memos to McIntosh questioning EDCED motives and methods, and asked why the county was not involved.

"Where were the state auditors in all this?" Buchanan said. "What caught my eye is that any lender would advance money to Williams, who had three existing deeds of trusts totaling $176,000 against her home in Amador City, which is assessed at $215,000."

Buchanan's memo's pointed this out to McIntosh and then Neasham that the county would not be be able to put a lien for $450,000 on Williams' home."

"The question everyone should be asking is how does a woman with an average annual income of $22,000, and has only $39,000 equity in her home, qualify for all these loans?" Buchanan said. "I am incredulous that the El Dorado County and the Bank of Amador kept advancing her money."

Williams told The Reporter she does not recall how she acquired so many loans without collateral. She added that she did not know why the county did not record a lien on her home, as was required in the contract.

When asked if her uncle, Senator Ralph C. Dills, D-Gardena, had any involvement or influence in how she acquired the grant and loans, she said no.

Senator Dills declined to be interviewed for this story, but sent a written message stating, “I have no knowledge or involvement in Joyce Williams’ business, and never did.”

Williams asserts that the blame is solely on the county’s mismanagement of the program.

"The county's delay in providing the funding is what caused the collapse of my company,” Williams said. "Western Sierra Bank would not invest the $200,000 it had committed until we had the grant funding secured."

The Reporter gave its forensic audit of ATP to Teri Chisolm, a financial analyst with California Department of Housing and Community Development, asking for a comment of how the state let this happen.

“The standard CDBG procedure is that the investor deposits their money in an escrow account before the grant funds are released,” Chisolm said. "We have nothing on file from the county confirming that it performed its function to ensure this procedure was followed."

Chilsolm adds that the time frame was a matter of months, so, there would not have been a reason for the state to suspect anything wrong.

Williams asserts that no one told her about an escrow account. In the paperwork between the state and county, it states that procedure was required.

No one in the county would comment. The files show the money trail coming from the state, going to the county, and then to ATP. No escrow account.

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     ATP continued below:

 

 

 

The Money Trail

The Reporter’s forensic accounting determined that the $450,000 taxpayer loan; added to the $40,742.15 from the taxpayers for employee training; plus the $105,475.84 income from ad sales; the $36,000 start-up loan; the $120,000 taken from Foothills Newspaper's bank account; and unpaid bills; ATP spent or used $1.5 million to publish three issues of Hi Sierra!

The ATP books reveal some $220,000 in checks went to Williams or Brendon Fraser, which is the pen name of Stone.  All of Fraser's checks were then signed over to Williams.

Checks totaling some $100,000 was made to Stone and Williams and deposited into Canadian bank accounts in their name, just days before the company closed its doors.

Williams says it was to reimburse for the up front costs of the business.

According to the property profile obtained 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. "They know the procedures. 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."

Nelson and John Turner, program manager for the state housing department's economic development allocation, sat with The Reporter to explain the ATP issue was unusual and the program has had a 90 percent success rate.

The CDBG program, which began in 1985, averages seven loans per year with an annual budget of $3.5 million, the men said showing The Reporter their graphs and charts of what they proclaim as successes.

"This deal went sour fast,” Turner said. "We’re alarmed to now be learning what really happened and we will do our own investigation. El Dorado County is missing out on potentially $800,000 for other projects because it messed up."

Buchanan said the normal procedure is to have the county contract manager and the county property manager in charge.

He says the smoking gun is that the county supervisors and CAO conspired to keep the transaction with ATP under the radar.

"Why would the county keep someone that knew what they were doing, out of the process?” Buchanan said. "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."

 

A New Venture

Williams and Stone formed Travel Communications Inc. which became a 51 percent shareholder of Foothills Newspaper Inc. Frank Stephens, of Shingle Springs, was the other 49 percent shareholder.

"We were doing everything we could to keep the business going despite the county messing everything up," Williams said.

Stephens contributed $120,000 and Williams' new company provided the office, the printing, and distribution.

 

The County Confrontation

According Valdez, one day in early 1993, McIntosh and Neasham arrived unexpectedly at the ATP office, where they stunned Stone and Williams' by walking into their office to confront them with allegations of fraud.

“It was tense and every one was yelling,” Valdez said. “Mostly blaming each other and accusing each other of foul play and fraud.  It lasted for four hours.”

She says McIntosh and Neasham left angry and then Stone and Williams approached Valdez directing her to prepare the paperwork for them to relinquish their shares in Foothills Newspaper Inc.

Afterwards, Stone and Williams summoned Frank Stephens to the office.

“All I was told was that they didn't want to be part of the deal and were signing off their shares to me and we should call it square,” Stephens said. “It wasn’t square as far as I was concerned. I wanted my investment back.”

According to court records, Neasham obtained an emergency injunction that same day and sheriff's deputies served Williams. The injunction specifically stated she was prohibited from transferring ATP assets.

The deputies took the furniture and equipment. County counsel seized Williams' and Stones' Foothills Newspaper equipment claiming they used grant money to purchase a newspaper. Stephens contends, they fraud him and the county seizing his newspaper equipment was an unlawful seizure.

The sheriff and DA prevented Stephens from publishing The Reporter or conducting any business for weeks.  Stephens says he felt double victimized because he had tried to file a complaint for fraud and was denied.

District Attorney Gary Lacy explained to The Reporter that his office and the sheriff's office worked jointly to investigate the allegations and once they determined that ATP did not purchase its share of The Reporter newspaper with tax-payer money, they released the company assets to Stephens.

"We're sorry for Mr. Stephens, but we're not the bad guys in this story," Lacy said. 

Stephens disagrees.

“Even now, five years later, the DA’s office still has not pressed charges against Williams and Stone,” Stephens said. “When I learned that my money was funneled into Canadian accounts, I took the evidence to DA Gary Lacy, who told me 'it's not a crime and I should buck up and take it like a man – sometimes businesses fail.' ”

Lacy refused to respond to Stephens' statement.

 

Plethora of Lawsuits

The county filed a civil lawsuit against ATP, Williams, and EDCED, for breach of contract and fraud, even though both companies are defunct. Williams counter sued for breach of contract seeking $1.3 million.

"The county wanted a pound of flesh and I was the one." Williams said. "That was a boiler-plate claim by the county that was politically motivated."

According to county attorney Tom Cumpston, who was the lead attorney on the case, they had to pursue the legal action because of its contractual agreement with the state regarding the CDBG funds.

The county taxpayer association members, upon learning of the civil action submitted a request to the county's Grand Jury for a full investigation of why McIntosh and Neasham were given nearly $100,000 when fired.

“The county wasted tax dollars on a fruitless lawsuit just so it can look like it’s doing something about the taxpayer fraud it created,” Dilts said. “Where does it end? Suing liquidated companies, giving hush money to county officials to keep them quiet – its corruption as usual.”

The county and Williams filed a settlement agreement in superior court, that states Williams accepted personal responsibility and that she agreed to repay the grant loan, plus the interest of $493,801.89, but the county would wait one year before pursuing her assets.

EDCED was closed and nonexistent when the lawsuit was served. It did not respond, so, a judgment against it was automatic.

“I feel we were the fall guys,” Long said. “The county dumped it all on us.”

 

Justice Delayed, is Justice Denied

Before the dust could settle on the lawsuit agreement, Williams and ATP filed a Chapter 7 Bankruptcy to erase $1.8 million in debts.

Valdez says she was among the employees filing complaints with the district attorney to no avail.

“I made copies of the everything including the checks and deposit slips of the Canadian deposits,” said Valdez. "I took it the DA's office and never heard from them."

All the victims have been meeting and talking recently to discover all of them had filed complaints and all were rebuked by the DA's office.

“Williams and Stone funneled money into their Canadian bank accounts," Stephens said. "That is a felony offense. Their employees had bounced payroll checks. Payroll taxes deducted from employees’ checks not paid into the system. Medical expenses deducted from employees’ checks, but not paid to the carrier. There was so much fraud, but the DA refused prosecute. One employee was living out of her car because she lost her home.”

DA Lacy declined to be interviewed or comment about Stephens and  ATP employees' allegations about being denied justice.

A day later Lacy issued a statement to The Reporter that stated "..After careful review of the evidence in possession, there is insufficient evidence to prosecute Joyce Williams and Donald Stone...".

 

Washing Crime Away in Bankruptcy

According to the U.S. Bankruptcy Code, it is illegal for any one to use the bankruptcy system to wash their hands of a fraud.

Stephens and the ATP employees and other creditors took their evidence to Antonia Darling, the U.S. Trustee, for Eastern District Bankruptcy Court located in Sacramento.  Darling is mandated to be the watchdog over bankruptcy fraud.

"We’re still waiting to hear from her about the evidence. We’re told Antonia Darling is the final decision maker and she will get back to us," Stephens said.

Darling's office told The Reporter they are prohibited from discussing any ongoing investigation.  It has been two years since Stephens and the others filed the complaint.

Tom Parker, El Dorado County's collection attorney, told The Reporter that he did not challenge Williams’ bankruptcy because he thought she had no assets.

When advised of the county's reaction to the bankruptcy filing, Turner said the state is not satisfied that lack of action.

“No more economic grants until it (county) clears this mess,” Turner 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 pointed out that California 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 a legal settlement with the now defunct economic development corporation.   

While the economic development corporation does not appear to be active, according the California State Secretary's Office, corporate division records, the EDC's legal status is active, with the legal mandated forums being regularly filed.                  

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