Defunct Record Company Besieged by Investigations

An alleged multimillion-dollar fraud by a now-defunct Santa Fe Springs-based recording company has kicked off a flurry of investigations by federal, state and local authorities, as well as internal investigations at several large financial institutions that lent the company money, The Times has learned.

Consolidated Allied Cos.--which operated Allied Artists Records in Studio City and Allied Artists Recording Studio in Santa Fe Springs--has filed a petition seeking protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code and has ceased doing business.

Consolidated Allied’s creditors--a list of blue chip commercial finance companies that includes divisions of John Hancock Mutual Life Insurance, Great Western Financial, General Electric and First Interstate Bancorp--have charged in a series of lawsuits that the company obtained more than $20 million in lease financing for recording equipment on the basis of fraudulent financial statements.

Both the Los Angeles office of the FBI and the Los Angeles district attorney’s major frauds unit have launched independent investigations into how Consolidated Allied obtained the money and where the money went.

Last month, district attorney’s investigators--backed by a Sheriff’s Department special weapons team--searched the home of Consolidated Allied’s 30-year-old president, Kimball D. Richards, and seized financial records of the company, along with a number of weapons. Investigators also searched the offices of Riviera Capital, a Huntington Beach financing company that wrote nearly all of Consolidated’s recording equipment leases; the home of Riviera President Robert Bernfeld, and the offices of T-C Audio Services, a La Canada-based supplier of equipment to Consolidated Allied.

On hand for the search of Richards’ home were members of the Los Alamitos Police Department, which is investigating the 1985 murder of rock band manager David Sterling, a former partner of Richards.

There are other investigations:

The California Department of Consumer Affairs and the Department of Motor Vehicles are looking into the use of badges, identification cards, concealed weapons and official state license plates by a private security business that operated out of Consolidated Allied’s Studio City offices.

Several major creditors of Consolidated Allied have retained a Los Angeles private investigation firm, Stein Investigation Agency, to locate certain Consolidated Allied assets--recording equipment and tractor-trailer trucks--that have disappeared, officials of the creditor firms say. At least two lenders--Los Angeles-based Union Bank and Great Western Leasing of Reno--are conducting internal investigations.

“We’ve been busting heads and shedding tears over this,” said a spokesman for Union Bank, which provided Consolidated Allied with lease financing and loans totaling more than $7 million in 1986. “We trying to find out what the red flags were and why we didn’t see them.”

Union Bank was the first to file a civil fraud lawsuit against Consolidated Allied and to ask law enforcement agencies to investigate.

“We’re taking a hard look at how we handled the deal,” said John Dean, president of Great Western Leasing, which provided lease financing totaling about $4 million. “We’ve never had anything this big or this complicated,” he said, adding, “We have no reason to believe that any of our employees did anything illegal.”

So far, the various investigations have turned up little of the money Consolidated Allied received and less than $2 million worth of recording equipment that is secured by leases worth about $28 million.

Instead, investigators have uncovered a bewildering trail of interconnected businesses and individuals that have been involved in recording equipment leases and real estate transactions going back at least five years.

For example:

According to public documents obtained by The Times, Thomas Curnow, owner of T-C Audio, has formed a number of businesses over the years with Joseph Phillip Tanous, who acted as a broker for Riviera Capital during the time that most of Consolidated Allied’s equipment leases were written.

Lawyers for Curnow and Tanous say both men received commissions on the business that Consolidated Allied did with Riviera.

In a search of Consolidated Allied’s offices, investigators found blank invoices from T-C Audio and blank T-C Audio checks apparently signed by Curnow. Investigators also are in possession of a copy of a $248,000 Consolidated Allied check written to a leasing company located in a Burbank apartment building co-owned by Curnow and Tanous. The check is dated May 15, 1985.

According to public documents obtained by The Times, the company to which the check was written, Trans Pacific Leasing, was formed in February, 1985, by J. S. Miller. In an interview, Jerry S. Miller, a former Los Angeles Police officer who headed the Consolidated Allied security force, denied any knowledge of the company or the check.

According to the Burbank Fire Department, the Tanous-Curnow apartment building was the sight of a suspected arson on Feb. 16 this year. “We found that flammable liquid had been poured on the floor of one of the units,” fire investigator Greg Rhoads said. “Right now our investigation is in limbo because we haven’t had any cooperation from the owners,” he said.

According to Rhoads, the apartment was occupied at the time by members of the rock group DeBarge, which is managed by Tanous, although none was home at the time.

Tanous is also the principal of a business called Rainbow Business Management. Sources said that checks for large sums were made out to Rainbow by both Riviera and Consolidated Allied during the period the recording equipment leases were written.

‘Non-Functioning Partnership’

Through their attorneys, both Curnow and Tanous declined to be interviewed for this article, citing the ongoing criminal investigations.

Kimball Richards and Robert Bernfeld also formed a partnership in 1985 called Allied Artists/Riviera Broadcast Leasing. According to documents obtained by The Times, that partnership was dissolved on March 2 by Bernfeld, who stated in an earlier interview that there was “no special relationship between Consolidated Allied and Riviera.”

According to Marvin Sears, an attorney for Riviera Capital, the Richards-Bernfeld partnership “was originally formed as a means of giving (Richards) an opportunity to get investment tax credits from his investment and the sale of equipment to third parties.” However, he said, “it was never used for that or anything at all. It was a non-functioning partnership and the idea was abandoned.”

Spokesmen for a number of the lenders involved with the Consolidated Allied debacle admitted that their companies were embarrassed by recent disclosures that they may have been duped. For the most part, they asked that their names not be mentioned.

In declarations and lawsuits filed in U.S. District Court here, the various lenders said that they relied heavily on financial statements provided by Consolidated Allied--statements that said the company had $10 million in cash in an account at the “Recording Artists International Credit Union.”

However, according to sworn statements by Union Bank officials, after providing Consolidated Allied with financing and loans of more that $7 million, the bank discovered that the credit union did not exist and that the phone number given to the bank to check Consolidated Allied’s credit union account “in fact rang through to the premises maintained by Consolidated Allied.”

According to attorneys for several lenders, one of Consolidated Allied’s primary suppliers of equipment, Network Audio, apparently was nothing more than a phone number maintained at Consolidated Allied’s Santa Fe Springs offices. “Other than that, the only evidence we have that this company existed is a batch of sequentially numbered invoices that were found in Consolidated Allied’s offices,” said an attorney for three major creditors.

According to a document obtained by The Times, Riviera Capital claims that in 1985 and 1986 it purchased more than $4 million worth of recording equipment from Network, leased it to Allied and then sold the leases at a discount to other lenders.

The same document shows that nearly $16 million worth of equipment was purchased from T-C Audio during that time.

Investigators and attorneys for the creditors say that so far they have located equipment worth only a fraction of that--about $1.6 million.