Payson Mayor Curtis Arrington and his wife, Barbara, were surprised but not suspicious when they got a call a couple of years ago from a man named Kent Rampton.
Rampton said he was representing some people interested in buying the Arringtons' defunct heating and insulation business. He wouldn't name the buyers and claimed not to know what they wanted to do with the company, the Arringtons said, but he told them the name would be changed.The Arringtons hadn't operated Solar Heat & Insulation of Central Utah Inc. for about five years.
"Some guy calls you on the phone and he says, `We want to give you a couple hundred dollars for the name of your company, but we're not exactly going to use the name.' That's like a gift from heaven," Arrington said.
The couple signed what seemed like hundreds of pages of documents, then "put it out of our mind and forgot about it" until some people from the Securities and Exchange Commission called a few months ago.
As it turns out, the company's name had indeed been changed - to Columbia Electronics Systems Inc. And its stock ended up being sold by some very questionable brokerages in Europe to unsuspecting investors, some of whom lost their entire investments.
The company that started as a simple, privately held, Utah contracting business is now connected with an international fraud investigation.
Rampton, the man who first contacted the Arringtons, told the Deseret News he'd been nearly as much in the dark as the Arringtons and others from whom he'd bought companies.
He said he bought several defunct corporations on behalf of Paul Tolman, a Murray man who was helping him line up financing for a business project.
Rampton said Tolman told him the shells would be merged with out-of-state companies, but he didn't know who was involved. Rampton said he was just "the mailman."
Unfortunately, Tolman can't be interviewed _ he died in December.
But in court documents filed May 1, the Securities and Exchange Commission says it believes about 38 companies, originally incorporated in Utah in the 1970s, were later fraudulently revived, in part through the use of backdated and forged documents.
At least eight of these _ including the Arringtons' company _ went through name changes and/or mergers and were retailed overseas. Their new names are Columbia Electronics Systems, M.A.G. Holdings Inc., Golden Glory USA Inc., Creative Telecom Inc., Hillside Gold & Minerals, Alan Jones Pit Stop (USA) Inc., Bitter Corporation Inc. and Dunhill Exploration Inc.
Last fall the SEC's Salt Lake office temporarily suspended trading in all 38 companies, saying they'd failed to provide adequate and accurate information to investors.
Who was responsible for the suspected fraudulent revivals is something the SEC will have to prove. The documents that the agency filed in federal court this week in an effort to stop a challenge to SEC subpoenas for certain financial records confirm publicly for the first time the existence of the SEC investigation.
The SEC investigators met last summer with Eric Dalton, a co-founder of a South Jordan construction company called NDN Inc., which later was to become Dunhill Exploration. Dalton had also been visited previously by Rampton, who had purchased his defunct firm.
The SEC investigators showed Dalton several purported NDN documents, including a letter by Salt Lake attorney O. Robert Meredith expressing an opinion on the "tradeability" of NDN stock.
The NDN letter is not the first opinion by Meredith to catch federal investigators' attention. The Salt Lake attorney is now under indictment in a recent FBI stock fraud sting case in connection with his opinion on another revived shell. On NDN, Meredith's opinion stated it was based on books and records supplied to him by NDN. Meredith now says he believes the information was inaccurate.
Meredith's opinion on NDN indicated that on Oct. 26, 1979, the company had gone public in an intrastate distribution, which exempted it from federal registration with the SEC. And an exemption from state registration was claimed because the stock had been distributed as a dividend to shareholders of a company called World Electors in what's known as a "spinoff distribution."
Dalton told the SEC investigators, however, that he didn't even sell his privately held company to Rampton until 1987, so there's no way it could have gone public in 1979.
Meredith's own involvement was not just as a lawyer. In the opinion he stated that he was one of the World Electors shareholders who received NDN stock.
Meredith did almost identical opinions for all eight of the companies traded overseas. Such letters are used to help get a company's stock listed in the "pink sheets," a quotation service for stocks too small for the major exchanges or NASDAQ.
When asked about the apparently incorrect company histories laid out in his opinions on some of the eight Utah revived shells, Meredith expressed surprise. Meredith subsequently notified the stock transfer agent for the Utah shell companies and the person who delivered some of the information upon which he based his opinions that he is withdrawing those opinions.
To figure out who besides Meredith had had something to do with the companies in question, a logical place for the SEC to start was with the opinions themselves and other company documents.
World Electors, the non-profit corporation that Meredith's opinions named as having been involved in some of the purported spinoff distributions of shell stock, was formed by the late Richard L. Chatham, a prolific shell producer in the 1970s known locally as "the granddaddy of the spinoff."
Chatham was dead by the time some of the latest shells were revived. But still alive and working was one of his former close business associates, Robert C. Lund, whose name appears in state records along with Chatham's as a former trustee of World Electors. Lund and Chatham had both been named previously in a 1978 shell manipulation lawsuit filed by the SEC.
Meredith's opinion on the stock of NDN _ Dalton's former construction firm _ indicated that a block of NDN shares, which was issued to a company called Chatham Securities Corp., was subsequently bought by Lund, putting Lund in a controlling position with respect to NDN.
Meredith said Lund was a longtime client of his until a couple of years ago. Meredith told the Deseret News that to the best of his recollection, information for his opinions on at least some of the revived shell companies was delivered to him by Lund or people from Lund's office and by the transfer agent, Interwest Transfer Co. But Meredith noted that the SEC had taken many of his records last fall, so he could not verify his files for each company.
Meredith wrote to Lund and to Interwest Transfer Co., asking them to advise the companies that he was withdrawing his opinions. He said Shirrell Hughes, who runs Interwest, called him shortly afterward to confirm that she was notifying the corporations.
Lund wrote to Meredith, saying he had only acted "as a representative for others and directed certain paper work" on the companies and did not know their addresses or officers. He stated that the paper work he had seen had appeared to be in order and had not appeared to be illegal. Lund also said he had some stock, which he purchased legally, in some of the corporations Meredith mentioned.
Lund declined to be interviewed by the Deseret News about the companies, saying the press often gets things wrong. Hughes also declined an interview, saying she had no information that could contribute to the story, because she had been just the transfer agent.
Until recently, Lund worked out of a South Temple office that he shared with Von Jenson, a former stockbroker. Jenson and Meredith had previously been involved together as president and vice president of Jenson's brokerage.
Also working out of the South Temple office at times was the late Paul Tolman, the man for whom Rampton said he bought the defunct shell companies. The names of Lund and Tolman appear together as officers on at least two corporations in state corporate records.
Jenson said he merely shared the South Temple office and knew nothing about any business dealings of Lund and Tolman.
The South Temple corporate suite appeared as the address of at least four of the eight shells that ended up overseas, including NDN. The eight companies each received audited financial statements from one of five auditors, at least two of whom _ David Lamoreaux and Myron Berryman _ have been the subject of prior SEC actions. Lamoreaux preferred not to be interviewed by the Deseret News. Berryman declined to talk about the companies because of client confidentiality concerns.
Each of the eight former Utah shells had as its transfer agent either Interwest Transfer Co., the Salt Lake-based company run by Hughes, or Nevada Stock Transfer Co., a Las Vegas firm co-founded by Jenson.
The two transfer agencies appear to be closely linked. When Interwest opened a Las Vegas office in 1988, it took over Nevada Transfer's accounts, and Nevada Transfer's president, Bobby Ray Combs, went to work for Interwest.
Jenson, the former stockbroker, told the Deseret News he has not been actively involved with Nevada Transfer in recent years. Combs, however, told the paper that Jenson has always been involved with the company and was the one to suggest the deal with Interwest.
Three months after Combs started work for Interwest, Hughes fired him. Combs then filed suit, alleging he was wrongfully terminated, and the case is still pending. Interwest claims that Combs misrepresented his qualifications and failed to do his job properly. Combs claims he was fired because he let the SEC look at company records.
Shirrell Hughes' husband, Clifford, runs a brokerage called Hughes Securities that made markets in some of the former revived shell stocks. Mrs. Hughes told the Deseret News that her husband also declined to be interviewed because he didn't have any information to contribute. She referred the Deseret News to the SEC for information.