J. Gary Sheets' son-in-law testified Thursday that he, the late Steven Christensen and a New York law firm prepared the documents for "debt offerings" that led to Sheets' indictment.
The trial of Sheets on 34 counts of fraud, embezzlement and transportation of money obtained by fraud is in its fourth week in U.S. District Court. Sheets' son-in-law, Joseph K. Robertson, was the first defense witness.Robertson was a vice president of J. Gary Sheets & Associates, owning 25 percent of the company's stock. Christensen was Sheets' partner; in 1986 he was murdered along with Sheets' then-wife, Kathleen, by forger Mark Hofmann.
Robertson's testimony was intended to exonerate Sheets of charges that he defrauded investors by taking money in the Working Fund I and II investments when he knew the company could never repay them. Prosecutors base some of their charges on the claim that the money was used for many purposes, including Sheets' personal uses, but not put into projects that would make money.
But Robertson said Working Funds I and II were "debt offerings" designed to raise money for Sheets' financial empire.
CFS, one of Sheets' companies, had previously raised funds through debt offerings, he said. The New York law firm that helped prepare investment documents was aware it was to be a debt offering, he indicated.
Working Fund I was intended to raise $2.5 million for operating expenses and to pay off debts. When it failed to land investors with that much money, Working Fund II was prepared.
The funds weren't supposed to go into specific investments, he said, but to offer operating expenses for the financial empire, to be repaid by J. Gary Sheets & Associates, with interest.
Christensen suggested creating both Working Funds, Robertson said.
"We worked very closely with the various law firms we used."
They were "hired by CFS (one of Sheets' and Christensens' companies) to basically do the disclosure and assist us in preparing the offering memoranda," Robertson said. He listed seven lawyers at a New York firm with whom the Sheets' organization had contact.
"They took the information that we provided and basically prepared a first draft of the offering memorandum for us to review." The offering memoranda were given to prospective clients, spelling out the purpose of the investments.
"There were constant changes in the financial projection, so we'd be continually revising," he said. In preparing disclosure documents, when the situation changed, "it was my responsibility to make sure that material made it into the offering memoranda."
Working Fund I was different from most of the investments that Sheets sold, as it had "absolutely no tax benefits associated with it," he said. He described Working Fund II as nearly "a clone" of Working Fund I.
He read a letter that he wrote on Oct. 1, 1984, to the New York law firm outlining the purposes of the projected Working Fund I. The money was to be used to make loans, cover operating functions and pay short-term debts of Sheets' company.
A memo from Christensen to Sheets and other partners of the company said $2.5 million would be needed from Working Fund I, with $1.9 million of that going to cover debts.
"A big chunk is needed now," Christensen wrote. "This will go for taxes, past due bills and short-term debt."
Creditors were after J. Gary Sheets & Associates to pay its bills, he said. "But on the other hand we also had some very positive things that were happening." The financial problems were viewed as short-term, he said.
The positive things included more offerings, more clients and a contract the company expected soon to land with a major insurance company, Cigna, to sell Sheets & Associates investments nationwide.