Elwynn Hewlett Jr. dreamed of an elaborate, $93 million Micronesian cultural center to be built on a beautiful, curved bay in Guam called Turtle Cove.
He also dreamed of a pioneer resort village, with hotel and equestrian park, to be centered around the old ghost town of Grafton, located in Utah's red rock country near Zion National Park.Hewlett sold others on his dreams, and they invested perhaps as much as $3 million in his vision of the future. Some quit their jobs to work on the projects, contributing their talents along with their money. Others persuaded friends and family members to invest.
But the Guam beach is still a tropical jungle, and the southern Utah ghost town is empty as it has been for decades.
The embittered investors accuse Hewlett, as president of Destination Development Corp., and Robert Crouch, secretary-treasurer, of using the money for a variety of unauthorized projects. (The two men are also president and secretary of Grafton Park Inc.) Hewlett and Crouch adamantly deny that accusation.
Destination Development Corp. has filed for bankruptcy.
Now, officials from the U.S. Justice Department and federal bankruptcy court have raised questions about some of DDC's financial practices. In addition, four investors have told the Deseret News they talked with FBI Agent Don Rogers regarding an investigation into Hewlett and Crouch's business dealings.
"The FBI has real strict guidelines," said Rogers. "I can't make a statement either confirming or denying an investigation."
Hewlett and Crouch counter allegations by contending that many investors were involved "on a day to day basis" with the operations of the company so they were in a position to know where the money was being spent.
They also assert that investors were not deceived but that the projects were continually delayed when outside financing fell through.
"They (investors) were deceived from the standpoint that - just like we were deceived - in that we were led to believe that the financing was available," Crouch said.
And, they say, most investors aren't upset.
Hewlett said "almost everybody" they've borrowed money from still backs them. "We just have a few of the group out there shooting at us hard."
The Guam project is "as real as its ever been," he said.
During a Deseret News interview, when asked to specifically tell how the money was used, Hewlett and Crouch gave vague and sometimes conflicting answers.
For example, when questioned about whether they were involved with any projects other than Guam, Hewlett and Crouch initially said no. When asked about Grafton, Hewlett said his involvement was cursory _ "just some ideas and thoughts as to what it could be." When pressed about whether a group of investors gave him $100,000 specifically for Grafton, Hewlett said "that's not correct, is it Robert?"
The two then agreed that investors had given them $100,000 _ specifically for Grafton Park. Later they said they had loaned some of it to DDC and gave the Deseret News a listing of how about $65,000 was spent.
When DDC filed for bankruptcy in March 1988, three of the five largest unsecured creditors listed in the petition were companies controlled by Hewlett or other DDC officers. The list of assets included a $2 overdraft on a checking account and an option to purchase the Guam property. DDC purchased the property at one time, but lenders foreclosed on it when scheduled payments weren't made. Under Guam law, they retained an option to re-purchase it under specific conditions.
The court recently agreed to sell that option for $5.8 million, probably enough to pay off the DDC creditors who can document their claims. But it remains questionable whether creditors who invested in Grafton and other of Hewlett's projects will receive any money. (See accompanying story.)
Bankruptcy court records show that investors aren't alone in their concern about DDC and Grafton Park Inc.
Referring to the disposition of $225,000 in funds from unsecured creditors, U.S. Trustee John Straley reported to the court that the "transactions smack of fraud."
Reporting on DDC's disbursements of "a personal nature," bankruptcy court examiner Bruce Wisan said "The total of cash and assets received by Elwynn and Mona Hewlett that we have identified amount to $178,369.90."
Also, Wisan says it may be impossible to track all of the money that Hewlett obtained from investors, purportedly to use for the Guam project.
Wisan detailed co-mingling of monies among several different corporations controlled by Hewlett and noted that "entities other than Destination Development Corp. received funds from various people in the form of loans that were to be used for the development of the Guam project."
In his report, the examiner said DDC "has not maintained a proper set of books from inception . . . Whatever the intent of the debtor, the books and records were not indicative of a well-run, organized business."
Another illustration of Hewlett's lax approach to finance was played out at the creditors meeting for a number of investors, some of whom say they lost their homes as a result of becoming involved with DDC.
When asked pointedly under oath during a meeting with unsecured creditors about the disposition of their investments, Crouch answered, "I could go back and make a guess."
Hewlett and Crouch also testified during the creditors meeting that money investors placed with them was frequently transferred between DDC and at least four other corporations they control. The trustee's motion says "funds were channeled through Grafton Park reportedly to avoid the lawful collection efforts" by two of DDC's creditors.