Hearing on Receivership Today : Ex-Client Alleges Investment Firm Loan Abuse
An Arizona man gave large sums of money and a 75% interest in an Alaskan business to the principals of Commercial Acceptance Corp. in return for not having to make payments on millions of dollars he borrowed, a judge was told Monday.
The written statement given to Los Angeles County Superior Court was signed by Dennis E. Wagner, one of 20 individuals associated with the Los Angeles firm who were accused Nov. 17 of misusing some $60 million in pension plans covering thousands of workers. He came forward voluntarily, the court was told.
For the record:
12:00 AM, Dec. 03, 1987
Wagner, of Glendale, Ariz., stated that his Alaskan enterprises borrowed $10 million to $14 million from Commercial Acceptance since 1982 on land of dubious value.
“None of these loans have been repaid and have been in default since they were made,” his declaration added.
Stephen P. Webb, attorney for a large group of investors, submitted Wagner’s declaration to Judge Jerry K. Fields. Webb joined Melinda Brun, senior counsel of the state Department of Corporations, in a plea for immediate appointment of a receiver. A hearing is set for today.
The lawyer told the court that “self-dealing sweetheart loans” by Commercial Acceptance and co-defendants John C. Ellsworth, Barry Francis Gray and David A. Facciani, as well as other new evidence, “clearly establishes” fraud. His papers also warned of “imminent danger” that assets will be lost unless a receiver takes control.
Wagner said he believed that Ellsworth, previously identified to the court as an ex-convict, is the majority owner of Commercial Acceptance. (John W. D. Ellsworth, director of marketing with Shuman Orth & Co., an Irvine securities firm, said he has no connection with John C. Ellsworth.)
Gray was listed as president and Facciani as chief financial officer. Wagner said made that assessment during conversations with the three men.
Wagner’s declaration said his first loan from Commercial Acceptance was for $500,000--ostensibly to pay for property that he bought for $20,000. He complied with a condition that he in turn “reloan” $160,000 of the proceeds to Gray, through another firm Gray headed.
He said he subsequently received other loans far in excess of the price of his land purchases, and in at least one instance was asked to make a payment by cash or personal check to Facciani.
Wagner said he signed over 75% of the stock of one of his companies to Ellsworth, Gray and Facciani after receiving a $3-million loan to buy unimproved land for $2.7 million. He also signed over 25% to 50% of another firm to Ellsworth, he said.
Early this year, Wagner said in his declaration, he became suspicious of a Luxembourg entity set up last year by Ellsworth. Investors were told the firm, Busi-Corp., was insuring their investments in Commercial Acceptance.
An investigation abroad determined that it was “nothing more than a secretarial company,” Wagner said in the filing. He said he told this to Ellsworth, Gray and Facciani in a telephone call he made from Europe last February. He said they refused his request that they go to Europe to straighten out the matter.
In a subsequent telephone conversation placed by Ellsworth and a Michael Canata, “both of these gentlemen told me that if I did not drop my investigation ‘something could happen to me or my family,’ ” Wagner said in the declaration.
He added: “I spent four months in Europe cooperating with the authorities regarding the activities that I have testified to in this declaration. Shortly thereafter, I returned to the United States and have met with the Federal Bureau of Investigation and the Department of Corporations for the purpose of providing them with whatever assistance and information that I can.”
Webb also told the court that evidence “overwhelmingly” suggests that there is no insurance. No indication of any has been produced since Commercial Acceptance began defaulting on interest payments to investors last July, he said.
He also said that investors were never told that Gray was previously known as Byron Bray and that he had filed bankruptcy papers in 1981.
The court files disclose many lawsuits filed against Ellsworth, Gray, Commercial Acceptance and others, Webb told the court.
He presented documents to show that as recently as last January, an Ellsworth-controlled firm was found in contempt of court for violating a restraining order. Further, he said, an order to show cause is pending in U.S. District Court against Ellsworth on grounds that he violated a court order by transferring funds to affiliated entities.