Officials in 6 States Act to Halt Tax Shelter Program

Times Staff Writer

Securities officials in California and five other states have called a halt to a tax shelter investment program in which more than 2,000 people have lost $10 million. Investors in 33 states were said to be involved.

Desist-and-refrain orders were served Monday and Tuesday on American Energy Systems Leasing of Phoenix. The company, according to the North American Securities Administrators Assn., an organization of state and provincial securities regulators, used “false and misleading statements” in promoting an investment plan known as the “Solarcon Series 1984 Equipment Leasing Program.”

More than 400 California investors in the program lost a total of $2 million between August, 1984, and March, 1985, said Mark Breckler, a lawyer for the California Department of Corporations. The orders served Monday and Tuesday were administrative actions, officials here said, but civil and criminal charges could follow.


Named in the California order were the North American Group of Benicia, Calif.; its founder, David Craig Motti; the Western Investment Network and the Family Financial Planning Group, both of Vallejo, Calif., and their founder, Lillian Gonzales Hagar. Also named was the president and majority owner of American Energy Systems Leasing, Jerome Anthony Cadden. Motti did not return a reporter’s call, and Hagar could not be reached.

At a news conference here Tuesday, Royce Griffin, securities commissioner of Colorado and president of the securities administrators’ association, said AESL grossly overstated the value of two energy-saving devices that it leased to investors. The investors, in turn, were told they could earn tax credits by renting the devices to businesses. The devices used timers to regulate energy usage.

Authorities alleged that while the company said each device was worth $50,000 or $80,000, depending on the model, similar equipment could be purchased for $1,500.

Cadden, reached by telephone Tuesday, acknowledged that component parts of the device could be bought for between $1,500 and $3,000 but said necessary adaptations to the equipment heightened its value.

“We didn’t misrepresent anything,” he said.

The initial outlay by each investor ranged from $8,500 to $12,000. That sum included the cost of leasing the units and a fee to have them installed.

In December, 1984, the Internal Revenue Service disallowed the tax credits, claiming that the equipment was overvalued. As a result, investors not only lost the chance to profit but may also face fines and interest charges levied by the IRS.

Aside from California, states that took action this week are Alaska, Arizona, Iowa, Maryland and New Mexico.