Ship of fools
A legacy of failed investments sinks Churchill Cos.

by Michael Rose, Business Journal Staff Writer
April 3, 1998

Two years after Churchill Cos. Inc. went belly up, federal prosecutors are picking over its bones and questioning whether a group of business people crossed the line into white-collar crime.

Churchill, a Vancouver, Wash.-based business development company, raised money by creating and marketing investment products, such as promissory notes that offered investors high interest rates. Three associates of defunct Churchill--Clifford Tadema, Steven Reimer and Mark Ritacco--and six others have been slapped with an 84-count fraud indictment filed by the U.S. Attorney in Spokane, Wash.

While the indictment doesn't suggest every investment deal was fraudulent, the deals called into question allegedly bilked investors out of about $3 million. Defendants said the allegations were without merit.

"The conspiracy that we did this to live high off the hog is an absolute laughable joke," said Tadema, Churchill's former president. He said nobody was defrauded and investors knew the risks they were taking with their money.

But Churchill's legacy of bad investments, unresolved bankruptcies and alleged fraud were costly to investors in Oregon, Washington and Kansas. Churchill promoted investments ranging from oil and gas deals to electronic products. There's even a connection to a yacht reputedly built for mobster Al Capone.

A Business Journal investigation of Churchill's operations revealed a pattern among its investment vehicles. The investments were often high-risk and seldom generated the anticipated return. Many led to either civil litigation or official action on the part of regulators.

As they prepare for a June 6 trial in Spokane, Tadema and the other Churchill associates face these allegations:

• The December indictment, which was expanded in February, accuses the Churchill associates and six other Oregon and Washington business people of mail and wire fraud, and transportation of money obtained by fraud. Prosecutors called the actions of the defendants "a scheme and artifice to defraud and obtain money and property from individuals by means of false and fraudulent pretenses, representations and promises."
• A bankruptcy court trustee in Tacoma raised questions about the disposition of certain assets controlled by Tadema. Both Tadema and Churchill filed Chapter 7 bankruptcies in 1996. Complaints filed by the trustee allege that assets were deliberately concealed from the bankruptcy court by Tadema.
• A Kansas physician has filed a lawsuit against Reimer, Tadema and Doug Lamb, a Kansan involved in several Churchill deals, for allegedly mismanaging the doctor's trust fund. The plaintiff also seeks $2 million in damages in a separate civil suit against Reimer.

Tadema said the Vancouver investment group's troubles began in the Kansas oil and gas fields and ended with a lawsuit over a failed electronic alarm import company called Immcon Inc.

"We didn't expect to hit all winners, but we needed some winners earlier on," said Tadema, when contacted by telephone at his home near Lynden, Wash. Tadema said his company did pick some winners. But that's small comfort to those on the wrong side of a bad investment.

"Just to know that they are being put through this hell does my heart good," said Joshua Bright, whose late mother, Sue Bright, lost $100,000 in an Immcon promissory note.

Immcon, a Spokane-based company that planned to import small electronic alarms designed to ward off attackers, shut down, and noteholders lost all but a few hundred dollars of their investments. Investors, mostly from small towns on the Oregon Coast, sued Churchill, a principal shareholder of Immcon, and others.

Robert Banks, the attorney who represented plaintiffs in the Immcon case, filed a blistering complaint calling Immcon "a Ponzi scam" and "a vehicle to steal plaintiffs' money."

Immcon plaintiffs won a $300,000 judgment, triggering Churchill's 1996 bankruptcy.

For eight years, Churchill branched off companies that shared common officers and sired investment opportunities. Licensed broker dealers operated branch offices on Churchill's premises in Vancouver and sold many of its investment products. Debentures, unsecured notes offering high returns to investors, were a Churchill specialty.

Salespeople who routinely did business with Churchill found prospects willing to invest in ventures such as an alfalfa farm, which is headed for auction to pay creditors; a now-defunct African art importing company; and Churchill Energy Corp.'s construction of a 17-mile oil and gas pipeline at the Bird Ranch in Southeast Kansas that briefly transported product. That company is part of the Churchill bankruptcy.

Tadema had explanations for each lackluster investment. Agricorp, a Kansas alfalfa farm, "got flooded out one year, didn't get enough rain the other," he said. Blue Rhino Trading Co.'s African art importing business shut down for lack of capital and investor interest, despite imminent orders. As far as the Bird Ranch oil and gas pipeline, "we had some terrible luck in the energy sector."

In court papers filed in Spokane, Tadema, Reimer and Ritacco's attorneys argue that the prosecution's sweeping fraud indictment is vague and attempts to prove guilt by association.

The defense charges that the prosecution has unfairly linked the Churchill associates with an Oregon group called Brendon Marshall Inc., which pitched investments to market the recordings of undiscovered musicians. Brendon Marshall's principals have also been indicted by the U.S. Attorney's office. The defense maintains their clients have no connection to Brendon Marshall and have filed motions to have Tadema, Reimer and Ritacco tried separately.

The prosecution, however, claims the common link between the deals mentioned in the indictment is the late Lloyd Pankey, a securities salesmen. He was allegedly involved with Brendon Marshall, Churchill Cos. and JJJ Electronics Repair Technology Inc., another Churchill investment vehicle. Pankey provided information to prosecutors before his fatal car accident in 1996.

During the government's "unexplained delay" in getting the case to trail, Pankey died, "thus depriving Mr. Reimer of significant exculpatory evidence," according to motions filed by Reimer's attorneys.

The defense also contends evidence that could clear Reimer has been lost or destroyed during the several years it took the government to prepare its case, and it has attempted to have the case dismissed based on the delay.

Churchill's investment vehicles have drawn the attention of the U.S. Securities and Exchange Commission, the National Association of Securities Dealers Inc. and the securities divisions of Oregon, Kansas and Washington in recent years.

State securities regulators intervened after an investigation into the sale of unregistered securities to Oregonians. Churchill entered into a "cease and desist order" in 1993--neither admitting nor denying allegations made by the state--that barred the company from doing business in Oregon.

The SEC investigated Churchill and its affiliates, then dropped the matter without comment, according to a 1994 Churchill stock memorandum.

Tadema and Reimer's harshest critics conceded they had a gift for raising money.

Stephen Lemons, a physician from Wichita, Kan., once gave a testimonial in a Churchill brochure. He is now suing his old friends in the Pacific Northwest.

Lemons' attorney, Stephen Joseph, alleges that Tadema and Reimer set up a $1.8 million trust fund for Lemons and then abused their position as trustees. The doctor's money was placed into a series of high-risk investments.

Most of the deals lost money, and, in some cases, the primary beneficiaries were allegedly the Churchill associates, according to two lawsuits filed by Lemons.

"These guys made money by raising money . . . period," Joseph said.

© 1998 American City Business Journals Inc.