Judge Rules Ex-Nucorp Boss Committed Fraud
Former Nucorp Energy Chairman Richard L. Burns defrauded investors and creditors of his once high-flying oil and gas company by artificially inflating the price of Nucorp stock and the amount of its revenue, a federal judge ruled here Thursday.
U.S. District Judge J. Lawrence Irving said that within a week he would issue a permanent injunction prohibiting Burns from further violations of Securities and Exchange Commission regulations. Although the finding carries with it no criminal or financial penalties, Burns could be found in contempt of court if he violates the injunction.
Nucorp collapsed into bankruptcy in July, 1982, with debts of $615 million. Under a reorganization plan signed Thursday by Irving, Nucorp creditors will receive only a minuscule percentage of money owed them and company shareholders will be left empty-handed.
Overstated Revenue
Burns and another Nucorp executive were accused by the SEC in a February, 1984, lawsuit of filing fraudulent financial statements, inducing Nucorp executives to buy stock with funds borrowed from a subsidiary and reporting as actual revenue orders that had been received but not shipped. That practice is known as “pre-billing.”
The SEC charged that Nucorp, using pre-billing, had overstated its revenue in 1980 by $2.8 million and its earnings by about $539,000. Revenue in the first six months of 1981 was artificially boosted by $16.1 million, the SEC alleged.
Burns was found in violation of virtually all of the SEC’s allegations. (The other executive signed a consent agreement last year with the SEC.)
Burns participated in a “fraud on investors, potential investors, creditors and anyone else who relied” on Nucorp’s financial statements,” Irving said during an often vitriolic 20-minute hearing.
Knew in 1978
Irving, who presided over a one-day hearing in September and read reams of depositions, said that Burns knew as early as 1978 that Nucorp was pre-billing its revenue. In addition, he said, Burns told several former executives of the company’s Nucorp Supply subsidiary to purchase shares of Nucorp with funds borrowed from the subsidiary.
The stock buys created an artificial demand for the stock and the pre-billing artificially inflated revenue, Irving said.
The judge cited one executive’s earlier testimony, in which the pre-billing was described as a “deliberate attempt to ‘cook the books,’ and this court thinks that says it all.”
A shocked Burns, who has steadfastedly maintained that he did no wrong at Nucorp, said he would appeal the ruling.
“I thought he’d throw it out. . . . I don’t think it was a proper or correct ruling,” said Burns, who now operates RLB Energy, a San Diego-based oil and gas drilling company.
“As far as we’re concerned,” SEC attorney Robert LaFramenta said, “we won the case.”
Nucorp was one of the fastest-growing energy firms to emerge from the oil crunch of the 1970s. Between 1980 and 1982, the company acquired more than 25 oil-related firms throughout the Western United States. Revenue, earnings and its stock price skyrocketed, as did its debt. By the time the nation’s oil shortage became an oil glut, Nucorp was awash in debt, and its collapse was as rapid as its ascension.
The reorganization plan calls for Nucorp’s nine lender banks to received $86 million in cash and a 51% interest in four reorganized Nucorp oil and gas subsidiaries. Nucorp’s bondholders will receive a 49% interest in the reorganized company.
Burns last summer resigned as chairman and president of Deposition Technology, a San Diego-based company that in November was purchased by an Illinois company for $25 million in notes. As part of that deal, Burns received $3.2 million, which increased the “likelihood that (Burns) would violate the law in the future,” Irving said, explaining why he would issue an injunction.
