Nation/World


Bankruptcy Reveals Sham Enterprise Testimony Indicates Ponzi Scheme Kept Investors In Valley Firm At Bay

THURSDAY, JAN. 9, 1997

The demise of a Spokane Valley company last month ended years of bogus accounting and reassuring phone calls that concealed an ongoing Ponzi scheme, according to statements made Wednesday in a federal courtroom.

D.L. Ward & Associates Inc. owes investors more than $4 million with less than $10,000 in cash and other assets on hand to repay them.

The company’s sometimes tearful president, Loletta Ward, admitted sending out statements that compounded interest on principal no longer in investor accounts.

Nor was D.L. Ward doing business with many of the companies that supposedly owed the Spokane company money, she said.

“I’m sorry,” she told about about 20 investors, a fraction of the almost 200 listed as creditors in court documents.

Her own assets, a home and cash, amount to about $50,000, Ward said, despite a salary from the company of about $70,000 a year.

The possibility D.L. Ward was operated as a Ponzi scheme was raised shortly after the company’s Dec. 10, 1996, bankruptcy filing by trustee Dan O’Rourke.

In a pyramid, or Ponzi, scheme, funds from new investors are transferred to those who had invested earlier. The practice is illegal.

Although there is little money on hand to satisfy D.L. Ward creditors, attorney Tony Grabicki said U.S. Bankruptcy Court officials may be able to recover more than $500,000 from investors who received payments within 90 days of the bankruptcy filing.

Other money may be recovered if authorities can prove some fund transfers were fraudulent, he said.

Assistant U.S. Attorney Frank Wilson said the FBI and other agencies are investigating Ward, who has managed the business since her husband, Don, died in 1993.

Ward has not been charged criminally, he said, and the probe will take a minimum of six months.

Wilson said his first priority will be returning as much money as possible to investors. Punishment will be secondary, he said.

Grabicki said Ward would cooperate.

“She’s basically going to tell the truth about what happened and then she is going to face the consequences,” he told the creditors.

Grabicki sketched the history of D.L. Ward from its beginning in 1982 as a company that bought receivables at a discount with investor funds, then split the profits as the accounts were repaid.

He said that business, called factoring, was legitimate until the late 1980s, when some accounts went bad and the company grew short of cash to repay investors.

Although intended as a stopgap, the transfers multiplied until the company was doing no factoring whatsoever by 1992.

When Don Ward died, Grabicki said, “Mrs. Ward was in quite a predicament.”

Ward said she continued operating the company, even though it was already in trouble, because she did not want to kill what her husband had started.

“I had some other investments,” she said. “I had hopes that I could eventually pay these people off.”

None of the investments paid off, said Ward, adding that promoter promises of sky-high returns were probably fraudulent.

Meanwhile, D.L. Ward continued to attract new money based on quarterly statements some investors said showed returns as high as 30 percent.

Ward said she alone prepared the reports, compounding the interest and arbitrarily shuffling the list of accounts receivable.

“I just felt the investors should not have the same names on the invoice every time,” she said.

Ward said the company took in about $1.8 million in 1996. Except for her salary, plus some payments to her two sons and two salesmen, the money was funneled to other investors, she said.

“Whenever someone made a request to get some money out, she tried to accommodate them,” said Grabicki. “There is a group of people that got all their money back.”

Few were in the courtroom in Spokane, which was about half-filled with individuals and couples who had invested as much as $500,000 with Ward.

Several expressed frustration and confusion about how the bankruptcy might affect chances of getting their money back. But they were quiet as each investor was given the chance to question Ward, who tugged on a Kleenex and responded so softly her answers frequently had to be repeated.

She broke down when investor Leslie Sherman, herself almost in tears, began asking questions about Ward’s knowledge of overseas investments.

“I wish you no harm,” Sherman said. Over four years of telephone conversations, she said, “I came to care about you.”

But most grumbled as officials explained that court expenses and the Internal Revenue Service will have first crack at whatever money is recovered.

, DataTimes ILLUSTRATION: Color Photo


 

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