CHICAGO — Alleging theft and securities fraud, local and state prosecutors in Missouri and federal regulators took aim Tuesday at the former head of the company that last year abandoned a half-built artificial sweetener plant financed with $39 million of debt backed by the city of Moberly.
Missouri Attorney General Chris Koster and Randolph County Prosecuting Attorney Mike Fusselman announced the criminal complaint alleging four counts of securities fraud and one count of stealing against Bruce Cole, the former chief executive officer of Mamtek U.S., a subsidiary of Chinese-based Mamtek International. The complaint was filed in the Circuit Court for Randolph County.
The Securities and Exchange Commission, also on Tuesday, filed a civil complaint against Cole charging him with a scheme to defraud the city and investors and making material omissions and misrepresentations in connection with the bond issue in violation of federal securities laws. The lawsuit also names his wife, Nanette.
The legal actions mark some of the more dramatic developments in the saga over the failed project that has been the subject of state legislative hearings and a bondholder lawsuit. Unable to find a party to take over the half-built plant, the trustee, UMB Bank NA, is expected to auction off project assets later this year.
The company in August of 2011 defaulted on payments owed to the city to support repayment of $39 million of bonds issued in 2010 by its economic development authority and abandoned the plant. The city’s failure to make good on its appropriation pledge led to its loss of an investment grade rating.
The local and state prosecutors’ filings lay out a series of instances in which Cole allegedly deceived officials and investors and personally profited by pocketing bond proceeds. “Today, we have alleged that Mr. Cole deceived the city and the investors about the project and unlawfully profited from the investment by taking at least $700,000 from the bond money for his own personal use,” Koster said.
Cole allegedly directed a Mamtek consultant to prepare an invoice from “Ramwell Industrial, Inc.” requesting the payment of $4 million for its services for the design, engineering, and other work on the project. The sham company was never formally incorporated by Cole.
Cole allegedly directed a bookkeeper to wire $700,000 to his wife, Nanette, and within 48 hours of receiving the wire, she wrote a personal check to cash for $281,000. The Coles then made a payment on their mortgage of $243,000. and the scheduled foreclosure auction of the Coles’ Beverly Hills home was canceled, the complaint alleged.
“Our charges also allege that, in securing the financing for the Mamtek facility in Moberly, Mr. Cole misrepresented or failed to disclose important facts that would affect an investor’s assessment of the viability of Mamtek’s plan to produce sucralose,” Koster said.
The complaint charges Cole with stealing for appropriating at least $25,000 for his own personal use. It alleges securities fraud for using Ramwell to defraud and obtain bond disbursements for personal use and misrepresenting to city officials that Mamtek’s manufacturing processes would neither require nor produce any hazardous substances when it did.
The state securities fraud charges also allege that Cole misrepresented to city officials that Mamtek had a fully functional sucralose production facility in China, when it did not at the time and for representing to the city that just four to six months would be needed to build the facility when Cole expected a longer timeframe.
The count of stealing carries a sentence of up to 15 years in prison while the securities counts each carry sentences of up to 10 years and fines of up to $1 million. Koster acknowledged the assistance of the SEC.
Cole could not be reached to comment and the city declined to comment.
The SEC complaint alleges that “Cole made material misrepresentations and omissions regarding the use of bond proceeds raised in the offer and sale of the municipal bond offering backed by the city of Moberly and orchestrated a scheme to defraud the city and bondholders.”
The complaint alleges that Cole — through unsuspecting employees — steered $900,000 in two separate wire transfers to Nanette Cole on the guise that she was an agent of the sham company Ramwell.
Cole, 65 and a resident of Beverly Hills, allegedly defrauded potential investors when he signed a certificate representing that certain information in the bond offering statement was not false or misleading.
At the time, the SEC claims Cole had already produced false documentation and made preliminary plans to divert and misuse bond proceeds in violation of federal securities rules.
The federal complaint provides a wealth of detail outlining Cole’s early designs on building a sucralose plant in the U.S. after failing to construct and operate one in China and alleged lies along the way.
Cole approached state agencies in March 2010 about building the plant and in May he accepted Moberly’s proposal which included bonding assistance. He allegedly created false documents to reassure the city of the sham company’s existence and submitted improper invoices to the city drawing bond funds for work never performed.
The complaint alleges that the underwriter and bond counsel relied on the “misleading” certificate signed by Cole in the bond documents. The SEC seeks a permanent injunction, disgorgement of the ill-gotten gains, and a civil penalty.
Standard & Poor’s in March downgraded to D its rating on the issue. The action was prompted by UMB’s decision to hold onto reserves to cover various legal and other expenses instead of making a March debt service payment. The bonds were initially rated A-minus, one notch below the city’s rating at the time. UMB used reserves to cover a Sept. 1, 2011 payment after the city refused to cover debt service. The city’s decision prompted Standard & Poor’s to drop the city’s issuer credit rating to B.
UMB has also reported that the bankruptcy trustee Bruce Strauss is analyzing possible claims against former Mamtek officers. The trustee and other creditors forced the company into involuntary bankruptcy and Strauss has already filed a lawsuit against Cole and his wife for breach of fiduciary duty.
An investor earlier this year filed a lawsuit against underwriter Morgan Keegan & Co. and underwriter’s counsel Armstrong Teasdale LLP, accusing them of providing false and misleading information in the offering statement. The firms deny the charges and said they will vigorously challenge them.
Missouri had approved $17.6 million in assistance for the project, although the state funds were never turned over. Lawmakers debated bills earlier this year that would affect future economic development bonds but took no action. Bonds have traded most recently at 18 cents to 19 cents on the dollar.