DuPonts’ Deal Falls Apart; Prison Term Urged for Pair
Michael and Peggy duPont, high-living La Jollans with one of the most recognizable names in American business, appeared a year ago to have closed an advantageous deal with prosecutors investigating their promotion of a parade of supposed “miracle” building and energy products.
As they prepare to be sentenced Wednesday in U.S. District Court in San Diego on charges of tax evasion and selling unregistered securities, however, the DuPonts’ deal is looking dubious--as dubious as some of the wonder products their DuPont Energy Control Corp. was supposed to manufacture and market.
Prosecutors are incensed at what they consider the DuPonts’ failure to make restitution to investors, their lack of cooperation with an ongoing investigation and their apparent lack of remorse. So the prosecutors will ask U.S. District Judge Rudi M. Brewster to throw the book at the couple, according to a sentencing memorandum filed with the court last week.
Judith Hayes, a special assistant U.S. attorney, says in the memo that she will ask Brewster to impose the maximum penalty on the DuPonts--10 years in prison and fines of $110,000 for each. The DuPonts’ lawyer, former U.S. Atty. James Lorenz, will ask for a lesser penalty, contending that the DuPonts have deep remorse and that prosecutors have not given them time to make a meaningful down payment on their investors’ losses.
More than 300 “relatively unsophisticated” investors bought more than 1 million shares in DuPont Energy Control Corp. between 1978 and 1984, the government memo says. Some of them were elderly and disabled people who gave their life savings to the couple on the promise, according to some, that stock in the firm was “a sure thing” certain to multiply in value 100 times.
Their money was to be invested in the manufacture and sale, among other things, of building products developed by two San Diego brothers, Walter and Alex Gutierrez. The Gutierrezes’ list of remarkable discoveries included “impervicon,” a synthetic concrete, and “impervium,” a wood substitute the brothers said was fused from the fibers of a wild, fast-growing South American weed.
Impervium turned out to be a particularly unpromising form of fiberglass that, according to prosecutors, never was used to manufacture anything marketable. Impervicon also was a fraud, prosecutors allege. The Gutierrezes were indicted in May on a 48-count felony indictment.
The DuPonts--he is a member of the DuPont chemical manufacturing family of Wilmington, Del., and a beneficiary of a family trust--insisted they were as much victims of the Gutierrezes as were their investors. Even before the DuPonts were charged, they arranged for people who invested directly with the Gutierrezes to meet with prosecutors last year.
The government investigators were willing to listen. The DuPonts promised assistance in the probe, and prosecutors in August allowed them each to plead guilty to one count of tax evasion and one count of selling unregistered securities.
The deal: If they made restitution and cooperated with an investigation of the Gutierrezes, their assistance would be noted in court--an arrangement that usually leads to light sentences for first-time offenders in white-collar cases.
But the agreement also allowed prosecutors to inform Brewster if the DuPonts failed to carry through with their end of the bargain, Hayes noted Monday.
She says they haven’t.
The DuPonts “never acknowledged” their responsibility for investor losses, Hayes said in the sentencing memo. Moreover, “The information provided by the (DuPonts) was of little value to the government in the Gutierrez investigation,” the memo says. Lorenz denied both allegations.
Most importantly, Hayes said, investors in DuPont Energy Control Corp. are owed at least $400,000, and the DuPonts have made only $4,200 in restitution since pleading guilty last year. (Lorenz said Monday that $7,200 had been paid.) In the same period, the DuPonts have received $72,000 from family trust accounts--accounts the government wants tapped to pay restitution as part of the couple’s sentences.
Lorenz has not yet disclosed what sentence he will argue for at the hearing Wednesday morning. But he insisted Monday that Hayes was “premature” in deciding the DuPonts had failed to make a good-faith effort in the bargain.
And, Lorenz emphasized, a long jail term would make it virtually impossible for the DuPonts to meet their goal of making substantial restitution to investors.
The couple will present a restitution plan to the court Wednesday, Lorenz said.
The prosecution memo lays out for the first time the breadth of the government’s case against the DuPonts.
Despite telling investors they had poured much of their own money into DuPont Energy Control Corp. and took no compensation from the company, the DuPonts used the firm as virtually a personal bank account, the memo alleges.
“In reality, the only business of (the company) was the sale of stock,” the memo says. “The defendants manipulated the stock . . . so as to enable them to obtain funds from the corporate checking account to support their own expensive life style.”
Lorenz said an accountant examining the company’s books has indicated that the DuPonts’ accounting practices were reasonable.
Hayes’ memo, however, contends the DuPonts would deposit investors’ funds into Michael duPont’s private checking account, then give the money to the company as a “loan.” From company coffers, they took money for their personal needs--to pay rent for their house on exclusive Dolphin Place in La Jolla and an apartment in Rio de Janeiro, or for repairs on Peggy duPont’s Jaguar automobile, for instance.
In 1982--one of 13 years in the last 14 when the DuPonts filed no federal income tax return--the couple drew nearly $140,000 from the company and paid themselves 153,000 shares of DuPont Energy Control Corp. stock, the memo says.
Lorenz countered that Michael duPont “invested substantial amounts of his own money into the company.”
One victim of the scam, according to the memo, was Jewel Charles, 75, a 25-year friend of Peggy duPont who invested $42,000 in the company and lost her home as a result.
Charles’ daughter, Linda Lewis, and her husband, Larry, invested $23,500 in DuPont Energy Control Corp., according to an affidavit Linda Lewis filed with the district court--all their savings plus $8,000 they borrowed. “Ultimately, we were forced to liquidate our home and investment property at a loss in order to stay afloat and put our lives back together,” Lewis said in her sworn statement.
Impervium was not the only product the DuPonts were promoting, Lewis said. They also claimed rights to “PSP,” a petroleum product to be used in military vehicles, and the “Harvaun fan,” an energy-related product. The DuPonts claimed that contracts for PSP, impervium and impervicon products had been signed with governments in Europe, the Mideast and South America, she said.
The DuPonts, moreover, represented that E.I. du Pont De Nemours, the Delaware chemical company, was “heavily involved” in the San Diego company, according to Lewis. She said Michael duPont promised to buy back any stock she purchased in DuPont Energy Control Corp. And he promised that the stock, which the DuPonts sold for $1 a share, soon would be worth $100 per share on the New York Stock Exchange, Lewis said.
Lorenz denied that the DuPonts made such claims.
Larry Lewis went to work for the DuPonts, drawing other investors to the company.
Prosecutors allege that the DuPonts have used their unfulfilled promise to make restitution as a shield against the filing of civil lawsuits by investors. They cite a copy of a letter sent by Michael duPont to several investors threatening legal action.
DuPont said in the letter that Larry Lewis, not he, introduced most of the investors to DuPont Energy Control Corp. He and his wife, DuPont wrote, lost $200,000 they invested in the company to protect investors’ funds. They are suing the Gutierrezes to reclaim $900,000, the letter noted.
“It would seem reasonable to work together to resolve the problems and await the recommendations accepted by the court,” he continued. “It is my desire to work out a plan that will satisfy all of my stockholders.”
