CEO’s Tales Ring Untrue to Investors
It appeared to be a solid investment: buying securities from an insurance underwriter and its polished chief executive, who mesmerized investors with tales of graduating from Harvard Law School, of being a prisoner of war in Laos, of rising to the rank of colonel in the Air Force and flying top-secret missions.
Backing those tales were photographs on the walls of Edgar Dale Allen’s Newport Beach offices: pictures of the American Life Underwriters CEO with high-profile politicians, including former Presidents Bush and Reagan.
One photo showed Allen with then-Rep. Robert K. Dornan (R-Garden Grove). Investors and a longtime friend said Allen told them that the POW bracelet worn by Dornan in the photo was inscribed with his name.
Today Allen, 69, is scheduled to be back in court for another round in a prolonged and messy bankruptcy trial that is all that is left of American Life Underwriters. Allen filed for bankruptcy protection for the small Orange County company and for himself in April 1997, claiming about $2 million in secured and unsecured debts.
About a dozen creditors, many from Orange County, filed suit to block the bankruptcy, contending Allen deceived them and falsified documents, defrauding them and other investors of nearly $4 million. They claim his tales of being a lawyer, a POW, an Air Force colonel and manager of a $50-billion trust fund were untrue.
Investors also claim Allen squandered the money on his personal bills and a lavish lifestyle he couldn’t maintain, and some accuse Allen of hiding assets, a charge he denies. A year before filing bankruptcy, however, Allen transferred his only piece of tangible property--his home in Corona del Mar--to his wife, local Republican party official Jo Ellen Allen, according to documents filed with the county clerk’s office.
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Allen’s attorney, Theodor C. Albert, contends that the investors made unsecured loans to the company, and that the losses were unfortunate consequences of the failed business. He and Allen deny that Allen lied to investors about his background, insisting that most of the alleged misrepresentations were never made.
But the stories of Allen’s secret war service are true, he and his attorney insist--even though his official military records make no mention of it.
When nationally known military fraud expert B.G. Burkett of Dallas testified earlier this month on behalf of investors, labeling Allen a “phony” and his claims of being shot down and captured in Laos in late 1963 “ridiculous,” Albert said Allen’s military records--indicating he never left Hawaii after July 1963--omitted covert missions with the Central Intelligence Agency for reasons of national security.
“I’m here to tell you, Eddie Allen is a war hero,” Albert said.
Allen said he isn’t proud to have had to file bankruptcy, but that the failed business gave him no choice. He said he would like to pay investors back some day.
About his POW status, he said, “What’s going to come out of this is that I did something special for the country, and I’m very proud of it.”
The picture was much brighter for Allen in the early 1990s, when the company he founded opened a branch office in Florida. He’d just landed a contract, he said, to provide insurance and other investments to teachers through a Dade County credit union, according to testimony. He set up shop next door.
As soon as the doors opened, he turned for money to friends and family of his corporate officers--a tight circle of people swayed by word of mouth and personal testimonials, according to a former employee who testified that his family invested with Allen after hearing of his wartime exploits.
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“He came off as honest and honorable, and he used intermediaries to make introductions 1/8so 3/8 people were primed to think of him as a hero,” investors attorney William R. Kennon of Tustin said. “What we found is that he seemingly had no business. As soon as he got new money, he spent it on himself.”
Investors testified that they gave their money to Allen believing they were buying secure investments in annuities and other registered securities. In most cases, they handed over the money without receiving a single document.
One investor who says he is owed $30,000, 57-year-old Jon Illingworth, testified he was wooed by Allen’s personality--and his reputation. Illingworth later organized investors to challenge Allen’s bankruptcy applications.
“When you’ve heard for 10 years that Eddie’s the greatest guy, you don’t have any reason to suspect anything,” said Illingworth in a recent interview. “It was like he was doing us a favor by letting us get in” on the investments.
Among Allen’s claims, according to investor testimony and documents:
* He was appointed by presidents Reagan and Bush as president of the National Council of Business Advisors. A spokesman said the White House has no connection with the group.
* He was a lawyer and graduate of Harvard Law School. Harvard University officials say they have no record of Allen attending Harvard or receiving any type of degree. Though Allen has testified he never told anyone he was an attorney, his resume lists membership in the Federal Bar Assn. Allen now says the listing was a mistake. He also testified that he completed an Air Force correspondence course in law with materials provided by Harvard, but his military record indicates no schooling other than pilot training.
* That he was an Air Force colonel. Allen said he retired in 1965 as a captain but that a year later he was elevated to “temporary colonel” because of his completion of a secret mission for the CIA. His military records show only his rank as captain and make no mention of CIA service.
* That he was shot down over Laos and captured sometime between September 1963 and January 1964. He repeatedly has refused to answer questions about the mission, saying that to do so would jeopardize national security. Bankruptcy Judge Robert W. Alberts told Allen to obtain corroboration from the government for the national security claim by today.
* That former congressman Dornan wore a POW bracelet with Allen’s name on it. Dornan, who created the POW bracelet program, denied that account, saying his bracelet instead bears the name of a family friend’s husband who was shot down in Laos in 1965. Allen denied that he told anyone Dornan’s bracelet bore his name.
Gerald Nowotny, a former Allen employee who quit in 1995, testified that Allen told tales of being held captive in an infamous “tiger cage”--a semi-submerged bamboo cage--as a prisoner of war, of having all of his bones broken in captivity, of having flown a top-secret mission in 1967 in the Arab-Israeli war, of piloting Air Force One during the Kennedy administration.
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But when Nowotny tried to recover a portion of about $225,000 that family and friends had invested with Allen, he discovered in 1996 that documents had been altered, he testified. At that point, Nowotny told the court, he began to doubt everything Allen had told him.
Investors filed complaints in 1996 with the Securities Exchange Commission, the National Assn. of Securities Dealers and U.S. Life, which suspended Allen’s license that same year to sell securities. It was that suspension, Allen said, that stopped him from doing business in Florida--and put him in an impossible financial bind that led to the collapse of American Life Underwriters.
Illingworth also filed complaints in 1997 with the Newport Beach Police Department and the Orange County district attorney’s office, neither of which pursued an investigation. While declining to explain why, police officials say they often defer such complaints until civil actions are complete.
Allen, meanwhile, is operating a new company, Mega Agency Group, out of the former offices for American Life Underwriters.
His attorney, Albert, said Allen wants to discharge about half of the listed debts--or about $1 million--and to rebuild his business.
“I will die trying to make payments back to people,” Allen said.
