Small Record Company Placed in Receivership : Union Bank Suit Charges That Consolidated Allied Misstated Financial Status

After Union Bank alleged that it had been defrauded, a judge in Los Angeles last week appointed a receiver to take control of a company that operates a small Studio City record label.

Superior Court Judge Ricardo A. Torres also issued a temporary restraining order that prevents Consolidated Allied Co., which owns Allied Artists Records, from disposing of its assets and dispatched court officers to secure the Studio City offices of the record label and two other Consolidated companies--Allied Artists Recording Studios and Allied Artists Concert Promotions--in Santa Fe Springs.

The court-appointed receiver, David L. Ray, said in an interview that guards have been stationed at the three locations and locks on the buildings have been changed. “Basically, we’ve taken control of the assets,” he said.

Phony Statements Alleged

In its lawsuit filed Jan. 20, Union Bank alleges that between April and December, 1986, Consolidated Allied obtained loans of more than $7 million on the basis of phony financial statements. The statements, copies of which were obtained by The Times, indicate that Consolidated Allied’s current assets include nearly $11 million in cash.

According to the bank’s complaint, Allied claimed that the cash was on deposit at the “Recording Artists’ International Credit Union.” However, the complaint states, after granting a number of loans from its Century City office, the bank “discovered that Consolidated does not own cash funds of approximately $11 million, or any substantial funds at all.”

The complaint states further that Union Bank has discovered that the credit union does not exist and that the phone number given to the bank by Consolidated to check its account with the credit union “in fact rang through to the premises maintained by Consolidated.”

A spokesman for Union Bank said the company would not comment “while the matter is in litigation; it’s just too sticky a situation.”

Consolidated President Kim Richards, who is also a defendant in the Union lawsuit, said in a telephone interview last Thursday that “the facts that are laid out (in the complaint) are incorrect; they don’t represent the actual situation.” He spoke from New York, where he was attending the Rock ‘n’ Roll Hall of Fame Awards at the Waldorf-Astoria. He said he was flying back to Los Angeles “to deal with this matter, and I can’t comment further until then.”

Ray, the receiver, said his preliminary investigation indicates that a number of “national lending institutions”--including John Hancock Leasing in Hartford, Conn., National Acceptance Corp. and Great Western Leasing in Reno, have lent Consolidated money based on the allegedly fraudulent financial statements. “No one else has filed a lawsuit yet, but they are all aware of this action now.”

A spokesman for Great Western Leasing confirmed that his company has made loans to Consolidated but could not comment further. Officials of John Hancock Leasing and National Acceptance could not be reached late last week.

According to Ray and several other sources, the amount of money lent to Consolidated by various companies in recent months may approach $20 million.

Most of the loans apparently are secured by so-called “leveraged leases” on recording studio equipment. The equipment originally was purchased by a Huntington Beach firm called Riviera Capital and leased to Consolidated. Riviera then sells the “discounted” loans to various lending institutions, with Consolidated still responsible for the payments.

Riviera was not named in the Union Bank lawsuit, and the firm’s president, Robert Bernfeld, told The Times that he was “shocked” at the allegations in the complaint. “We have the same financial statements (from Consolidated) that everyone else has, and it reflects a significant cash item,” he said.

The Union Bank lawsuit is the most recent in a string of legal and financial troubles for Consolidated President Kim Richards, who is the son of former state Sen. Richard Richards (D-Los Angeles). In 1979, Kim Richards was investigated by the Los Angeles Police Commission for operating a private security business--called the Los Angeles Metropolitan Patrol--without a proper license. No charges were filed in that case after Richards agreed to quit the security business.

A few months later, however, Richards was arrested on felony charges of soliciting the murder of a former Metropolitan employee who had given information to the Police Commission. He ultimately pleaded guilty to a misdemeanor charge of conspiring to obstruct justice and was sentenced to a year in county jail, which was suspended, and three years probation. As part of his probation, he was ordered to enter a program of weekly outpatient psychiatric care.

1984 Indictment

In 1984, Richards was indicted on felony fraud and conspiracy charges in Kingman, Ariz. He was charged--along with Jerry Scott Miller, a former Los Angeles Police officer and his one-time partner in Metropolitan--with perpetrating a hoax on the Mohave County Sheriff’s office by claiming that the offices were wiretapped. The two are scheduled to go to trial in Kingman sometime next month, according to a spokesman for the Arizona attorney general’s office.

Despite numerous scrapes with the law over the years, the 30-year-old Richards has managed to present to the local entertainment industry the public image of a bright young, politically connected wheeler-dealer with plenty of money. In a personal financial statement dated December, 1985, a copy of which was obtained by The Times, Richards claimed a personal net worth of more than $24 million.

According to associates and former employees of Allied Artists Records, Richards usually travels in chauffeured limousines equipped with telephones and is always accompanied by bodyguards.

As a record company, Allied Artists has not been successful. The company recently announced that it signed a distribution agreement with a major firm, Capitol Industries-EMI Inc., but a spokesman for Capitol said that Allied Artists had only released two singles and one album, with no significant sales.

The company’s primary recording artist is Luis Cardenas, a 20-year-old drummer formerly with the Latino rock group Renegade. Associates say Richards has spent a fortune promoting Cardenas.

He is believed to have spent more than $100,000 producing a video for Cardenas’ album “Animal Instinct.” Despite the promotion efforts, however, the album has failed so far to crack the best-seller charts.