(From For the Record, Tuesday, June 6, 1995): A French exploration team helped recover sunken artifacts from the Titanic. Its role was incorrectly reported in Monday’s paper.
David John Rowland’s gamble didn’t pay off.
Under Rowland’s direction, Gulf Resources & Chemical Corp. sank more than $100 million into New Zealand real estate, believing the market was about to turn around.
By the end of 1990, Gulf held land worth less than its price just a year earlier. Today, Gulf’s interests in New Zealand are valued at roughly $55 million.
The costs of running an international concern also drained company coffers. Despite the financial problems, Rowland received a $400,000 bonus in July of that year, a reward for “accomplishments in moving the company forward …”
But the board was concerned.
Just after New Year’s Day 1991, Gulf directors met to discuss cutting expenses. They gathered at the Breakers Hotel in Palm Beach, Fla., as a convenience for a director who lived in south Florida. The posh resort is noted for its championship golf course and pricey ocean-front rooms.
In a strategy report prepared for the meeting, Rowland announced plans to close Gulf’s Monaco office and reduce staff in New York and London.
The report complained about Gulf’s lack of borrowing power - banks were afraid of the company’s uncertain Idaho environmental liabilities. Gulf’s own estimates of its liability ranged from $25 million to $100 million.
Two months later, at a board meeting in New York, Gulf directors learned that an investor wanted to buy Rowland’s stake in Gulf.
By mid-1991, Rowland had sold his holdings to Nycal Corp., led by Graham Ferguson Lacey, another British speculator with an uneven past. Rowland sold out for $34 million in cash and Nycal stock.
In scarcely more than two years under Rowland’s control, Gulf’s cash reserves had shrunk by roughly $100 million.
How to stay rich
Lacey and his company, Nycal, desperately needed cash. They found it in Gulf, whose balance sheet still reflected a multimillion-dollar nest egg.
Gulf’s directors scrutinized Lacey in much the same manner as they had Rowland - by hiring a private investigator. The investigation noted Lacey’s colorful personality and spotty business record.
Founder of the Church of Nations, Lacey, now 46, has described himself to the British press as an evangelical. Associates say he captivates people. It’s impossible not to like him, they say.
He’s a persuasive, intelligent speaker who dropped out of school at age 15. According to British press accounts, he prayed with Jimmy Carter at the White House and has friends with ties to British royalty.
During 1989, Lacey took to the pulpit at Atlanta’s Dunwoody Baptist Church to deliver a sermon - “How to Lose Everything and Still be Rich,” according to a Forbes magazine article. It was a subject he knew well, having survived corporate bankruptcy.
Acquaintances say Lacey seldom preaches. Religion guides his personal life, they say, but not his business. He once declared religion America’s third-largest industry.
“He appears to be fundamentally religious from a personal standpoint, but I don’t know that it tracks his business style,” says one Lacey acquaintance. “I’d be his friend - but not his business partner.”
Lacey’s flamboyant lifestyle frequently graced British newspapers: He reportedly performed one of Diana Ross’ weddings and pleaded with Libyan leader Moammar Gadhafi to help release kidnapped Anglican envoy Terry Waite.
Lacey’s bid to save Waite from terrorists failed. So, too, did his plans to resuscitate Gulf.
He had Nycal buy Rowland’s interest in Gulf on May 23, 1991. Rowland left the company then, but the effects of his management lingered.
But almost immediately after acquiring Gulf, Lacey realized it was a mistake.
Just a week after Rowland’s departure, Lacey hastily assembled directors in a telephone conference.
He told them that Rowland had mortgaged Gulf property, giving the company the appearance of having more cash than it actually had, board minutes say.
Outraged, Gulf Chairman Robert Boulton insisted he knew nothing of Rowland’s action.
There was much more to be angry about.
Just before Rowland had left Gulf, a Panamanian company believed to be under his control bought a run-down industrial site in Kidderminster, England. The site was stripped of equipment and sold to Gulf - via a subsidiary of City Realties, a New Zealand real estate concern controlled by Gulf - for twice the original price, Lacey told directors. Rowland, Lacey reasoned, had found the perfect buyer for an investment he didn’t want.
Lacey also uncovered a $1.1 million investment in sunken treasure during Rowland’s tenure. The SS John Barry’s silver cargo lay 8,000 feet undersea in the Gulf of Oman.
Sunk by a German U-boat in 1945, the American vessel had been en route to Saudi Arabia from Philadelphia. Its cargo holds contained Saudi riyals and 1,800 tons of silver bullion, a war loan for the British in India.
Corporate records suggest the Gulf board knew nothing of the sunken treasure venture, nor the Kidderminster deal, until losses were reported to them after the fact.
Lacey met with Rowland shortly after his departure, demanding repayment for the Kidderminster purchase. He threatened criminal and civil court action.
Rowland eventually agreed to take back the Kidderminster property. In return, he received a release from all future claims based on his management at Gulf.
Rowland also was forced to take back the investment in sunken treasure, partially reimbursing Gulf, according to sources familiar with the deal.
As it turns out, Gulf should have held on to the treasure.
Late last year, a French team who helped raise the Titanic assisted in the recovery of 1.4 million silver coins from the SS John Barry. Whether Rowland still has ties to the venture could not be determined.
Running out of money
Lacey didn’t reverse Gulf’s fortunes. He sped the company’s demise.
Each month, a Gulf subsidiary transmitted $25,000 to Arimathaea Holdings Ltd. of Bermuda, whose sole shareholder was Lacey. The money was repayment for Lacey’s services.
In late 1991, Gulf’s directors bumped those fees to $35,000 - a $420,000 annual salary.
That pay seemed a bit high even to Gulf’s longtime officers at the time. But no one disputed Lacey’s work ethic. He hustled around the clock, calling officers before dawn and expecting the same in return. Tirelessly, he searched for the next big deal.
It never came.
Lacey’s first acquisition was a stake in Arimco N.L., an Australian mining company with substantial gold reserves and a strong cash flow - something Gulf and Nycal craved. Gulf acquired 19 percent of Arimco’s stock.
In 1991, Gulf made a run at buying all of Arimco, but it was scared away by competing bidders. The investment was sold later that year for a $1.4 million gain.
Gulf never again made money in the natural resources business - an industry that had created the company’s fortune.
Desperate for cash flow, Lacey had Gulf buy Land’s End, a 100-acre hotel and tourist center in Cornwall, England. Land’s End, Lacey told shareholders, boasted a “Disneylike sight and sound experience” and a spectacular rugged coastline.
Gulf also bought John O’Groats, a 20-acre hotel and tourist destination on the northern tip of Scotland. And the company invested in Skibo Castle, a Scottish estate and residence of British tycoon Peter de Savory, who once funded England’s America’s Cup challenge.
The tourist ventures generated cash - but hardly enough to reverse Gulf’s course toward insolvency.
The company rented office space from Lacey’s firm, Nycal, and footed the bill for his Bentley and Mercedes, according to the lawsuit against Gulf’s former officers.
The lawsuit also claims Lacey had the company loan $950,000 to a business associate. A third of the money was not repaid and instead was used to buy stock in Nycal. Gulf indirectly infused cash into its largest shareholder, Nycal, Lacey’s company. Lacey also is accused in the suit of having Gulf pay off a personal debt to another firm by investing in a losing Guyana forest land venture.
The end nears
Even on the steady road to Bankruptcy Court, Gulf strayed.
In 1993, under the new name Gulf USA Corp., Lacey declared the company unable to meet its financial obligations.
Nycal, too, was in trouble. Directors of that company came up with a long list of allegations against their own top officer, Lacey, including breach of fiduciary duty and fraud.
Nycal directors threatened to leave the company unless Lacey resigned, according to sources familiar with the matter.
In May, Lacey left Nycal’s Washington, D.C., offices and the lock on his office door was changed.
About the same time, during a breakfast meeting in the same city with two Gulf directors, Lacey resigned his position at Gulf as well.
Shortly after Lacey’s departure, Gulf’s top officers planned a bankruptcy filing. But Nycal shareholders - who, in turn, controlled Gulf - fought the move, insisting the company could be salvaged.
A Nycal officer at the time said Gulf’s financial condition would not hinder cleanup in Idaho’s Silver Valley.
He was wrong.
The U.S. Department of Justice and pensioners eventually forced Gulf into involuntary bankruptcy in October 1993. The case still is pending in federal court in Coeur d’Alene.
The Idaho pensioners criticize the Justice Department for failing to move faster. But in a letter to U.S. Sen. Larry Craig, R-Idaho, the department said it learned only after the fact that Gulf’s overseas deals had been “replete with selfdealing.”
Justice Department lawyers, a spokesman says, moved against Gulf as soon as possible.
Since the bankruptcy filing, court proceedings have proved a financial bonanza for lawyers. So far, legal fees top $5 million.
After 18 months, Gulf’s reorganization is just about finished. Insurance companies have shelled out more than $15 million to partially settle Gulf’s environmental obligations. This month, creditors are expected to vote on a reorganization plan that hinges on an investor buying Gulf’s New Zealand stock holdings.
Fixed-income pensioners could end up paying as much as $1,000 more per year for health care. Other creditors will fare far worse. Taxpayers, for example, are stuck with much of the Bunker Hill cleanup bill, which could reach $60 million or more.
As for Gulf’s lost millions, the only hope for recovery lies in the lawsuit against Rowland, Lacey and other former insiders. Gulf wants those defendants - including companies such as Inoco, Nycal and Rowland’s Swiss bank - to give the money back.
Gulf also wants insurers to make good on director and officer liability policies the company held during the Rowland and Lacey years. The bigger the insurance settlements, the more money for creditors.
Rowland still is an international investor, dividing his time between Monaco and Britain. He reportedly is grooming his daughter, 23-year-old Venetia, to continue the family business. She recently became a director of Inoco in London.
Lacey lives on the Isle of Man, in Britain’s tax-sheltered Channel Islands. He manages a much smaller firm - Van Diemen’s Co. Limited - and, according to an acquaintance, appears to be financially strapped.
Back in Idaho, Bunker Hill’s polluted carcass still hasn’t been buried after a decade of federal oversight.
And corporate insiders still dip into Gulf’s coffers.
Earlier this year, Gulf’s top financial officer, Bernie Goodson of Kellogg, asked the Bankruptcy Court whether he could buy the company’s 1992 Ford Explorer for $100. Just four days earlier, Gulf had received court permission to purchase the Explorer for $13,000, court records say.
Justice Department lawyers decline to discuss the Bunker Hill mess except to say they’ve fought hard to get money from Gulf without hurting pensioners.
Jack King, a Shoshone County commissioner and former smelter worker, just shakes his head in disgust.
“They should prosecute those guys at Gulf, especially if our pensioners end up losing some of their benefits,” King says. “It’s just terrible what happened here.”
, DataTimes ILLUSTRATION: Three Photos, One Color