For the Working Fund I to succeed in bailing out J. Gary Sheets and Associates, it would have had to bring in at least $2.2 million in investments, said the former controller of JGSA.
But the investment generated only a little more than $1.5 million, Donald Williams said when he testified Thursday in Sheets' federal fraud trial.Williams added that he projected that to repay investors the 17 percent they were promised, JGSA would actually have had to make 23 percent on the money. That's because 10 percent went for sales commissions, and other fees also had to be paid.
Williams traced the way money was spent for all sorts of debts and other purposes as soon as it came in from pensions through Working Fund I. Many of the items were not actual debts of JGSA, he said.
Sheets would withdraw money, sometimes thousands of dollars, for himself. "Gary, when he needed money, would come to me and say, `I need X amount of dollars,"' he said. Williams would then write him a check.
Willliams said the late Steve Christensen, a Sheets partner, proposed two options concerning Working Fund I, only one of which came to fruition.
That was, "selling enough of Working Fund I to pay off short-term debts (of JGSA) and to cover operating expenses for a time."
Then, JGSA itself was supposed to repay the investments and interest out of the profits it would make between 1984 and 1990. To do that, Williams said, sales had to reach more than $12 million a year - something he had never seen since he began working in 1983 for JGSA, a company of which Sheets was president.
Federal prosecutors charge that Working Fund I - a JGSA investment offering - was a fraudulent scheme by which investors' pensions were looted to pay operating expenses of JGSA. Investors did not realize they would probably lose all their money, according to some of the counts in the 34-charge indictment against Sheets.
Under questioning by Assistant U.S. Attorney Tena Campbell, Williams said the Working Fund I offering was put together quickly to raise money to cover JGSA losses, which in 1983 totaled $232,381.
On Wednesday, Scott Leishman, an administrative assistant to Sheets and an officer with JGSA, testified that Working Fund I was a "debt offering" - a partnership designed to lend money to JGSA. Several such partnerships had been created before by CFS, another Sheets organization, he said.
Defense attorney Peter Stirba asked whether the idea to create Working Fund I was Christensen's, not Sheets', and Leishman agreed it was.
Christensen "had to do a little persuading with Gary to convince him to do Working Fund I, isn't that true?" Stirba said. Leishman agreed that that was true and that Sheets had thought he could make it work.
Leishman agreed that the preparation work for Working Fund I had been done by a New York law firm and others, including Christensen, but not by Sheets.
A broker-dealer handled the investments and was supposed to make sure that none of the securities laws were violated, Leishman said. That company was run by an attorney.