Restitution Ordered by Judge : 2 DuPont Family Members Sentenced in Scam

A federal judge Wednesday sentenced Michael and Peggy duPont to prison for their role in an investment scam he said was rooted in the oft-demonstrated eagerness of San Diegans “to make a quick buck.”

More than 300 investors sank $1.2 million into the DuPonts’ business, DuPont Energy Control Corp., on promises that their stakes in supposed “miracle” building products and energy-conserving devices would multiply into substantial wealth.

Instead, as part of the sentence ordered by U.S. District Judge Rudi M. Brewster, investors who choose to cash in their stock will share $420,000 in restitution--the after-tax proceeds of Michael duPont’s family trusts, to be paid out over a period that could stretch more than a decade.

“This isn’t the first time this community has faced this situation, and it won’t be the last, because all of us are eager to make a quick buck,” Brewster said, lecturing a courtroom jammed with DuPont investors, critics and friends.

“In that respect,” he said, “all the creditors must look at their own souls and own hearts and have to ask themselves if they don’t bear some measure of responsibility for their own judgment.”

Brewster rejected both a prosecution request for stiff seven- to eight-year sentences for the couple on charges of tax evasion and selling unregistered securities, and a probation officer’s recommendation of brief terms of 30 to 45 days.

He sentenced Michael duPont, a member of the celebrated DuPont chemical manufacturing family of Delaware, to 358 days in prison and 10 years’ probation, which will be revoked if he fails to turn over his trust income to a restitution account.

Peggy duPont was ordered to serve 179 days in prison and 10 years’ probation, also subject to revocation for non-payment.

The probationary period will be cut to five years if legal research indicates that is the maximum time allowed, Brewster said.

“Whatever their dreams and however high their desires, they were treating themselves as living above the law,” the judge said. “I’m beginning to wonder if, in their own minds, they didn’t believe some of the things they were saying.”

The DuPonts have insisted that they, like their investors, were victims of a scam perpetrated by Walter and Alex Gutierrez. The brothers were indicted in May on felony charges alleging that their supposed “miracle” building products--including a wood substitute called impervium and a synthetic concrete called impervicon--were frauds.

In a plea bargain in August, the DuPonts agreed to cooperate with an investigation of the Gutierrezes, and prosecutors gave the couple a year to begin repaying investors. But the DuPonts had turned over only $7,200 by Wednesday, and prosecutors, convinced that the couple had shown no remorse, decided to build a case for the most severe penalties possible.

“These defendants have their priorities in a very wrong, unjust order,” Special Assistant U.S. Atty. Judith Hayes argued during the 3 1/2-hour hearing. “I ask the court to consider if Michael duPont had to come up with $400,000, could he do it? I would suggest Mr. DuPont lacks motivation. The only way to motivate Mr. DuPont is with the strongest of sanctions.”

Defense attorney James Lorenz insisted that the DuPonts were “humiliated, remorseful and desiring to repay all of their stockholders.” They had not paid more into a restitution fund, he said, because Michael duPont was using his trust income to get a new telecommunications business started that would help generate the funds needed to repay investors in DuPont Energy Control Corp.

“I believe all the people here, if they believed they could get their money back, would just as soon not see Peggy and Michael duPont go to jail,” Lorenz said.

Brewster closely questioned Lorenz about the terms governing Michael duPont’s trust accounts. Lorenz said it appeared impossible to liquidate the $1.2-million principal of the trusts to make restitution.

While as recently as Tuesday the DuPonts were proposing that they contribute half their trust income to a restitution fund, Lorenz said in court that the couple was prepared to turn over the full $60,000 to $70,000 in annual income they receive from the trusts.

Michael duPont renewed the pledge as he made a brief statement before Brewster pronounced sentence.

“We have tried everything to get the restitution issue resolved,” DuPont said. “I’m willing to invest my total income.”

Peggy duPont was in tears as she addressed the judge. “I know what remorse is,” she said. “I’m truly sorry all of this happened to everybody.”

As she had in papers submitted to Brewster last week, Hayes argued that the DuPonts had used investors’ money to underwrite a high life style--renting homes in La Jolla and Rio de Janeiro and depositing investors’ funds in their personal bank accounts. The victims of their misleading sales tactics included elderly and infirm people, some of them particularly vulnerable because of long friendships with the DuPonts.

“It’s very akin to stealing directly from disabled persons,” Hayes said.

Contradicting an FBI agent’s reconstruction of the DuPonts’ finances, Lorenz insisted the couple had invested large sums in the company themselves--duped, like other investors, into believing the Gutierrez brothers’ promises.

“It was a speculative company,” Lorenz said. “The problem comes with selling stock to family and friends. It’s a very poor thing to do, but it was done.”

The audience in the packed courtroom appeared evenly divided between angry critics of the DuPonts and their equally ardent defenders--the latter of whom were shushed and told to sit down by Brewster when they stood to demonstrate their support.

Brewster turned down Hayes’ request that Jewel Charles, 74, receive immediate restitution for the money she invested with Peggy duPont, her friend for 30 years.

“Although some of the creditors are perhaps younger in age and stronger in health, I don’t feel it’s equitable for this court to order preferences,” the judge said.

Charles, seated in a wheelchair in the back of the courtroom, called out her agreement. “You’re right,” she said. “You’re a very good judge.”

After the hearing, Charles--who lost her home in Sun City, Ariz., when she borrowed money to invest in DuPont Energy Control Corp.--said the loss was especially painful because of the closeness she felt to the DuPonts.

“I wasn’t dealing with just a broker. I was dealing with a friend I’d known for years,” she said. “Of course, once they get your money you’re not friends anymore.”

Other investors are angry with Charles, her daughter Linda Lewis and son-in-law Larry Lewis, who the DuPonts contend drew many of the stockholders into the business. A federal agent broke up a courtroom shouting match between the two sides a few minutes after the hearing ended.

Investors and friends who still support the DuPonts said after the hearing that they would not seek to share in the restitution plan. Unhappy investors simply made a bad bet, they said.

“You invest in the hopes things will work out,” said Chuck McVeigh, an investor and business associate of the DuPonts. “If they have invested more than they could afford, they’re just fools.”