June 6, 2010

State unveils Smith case

Consumer Protection reports securities fraud

By Kathy Ursprung
The Chronicle

     A division of the Oregon Attorney General’s office issued a cease and desist order June 4 against Cecil F. “Buz” Smith, citing 69 findings of fact related to the selling of 42 securities that were not registered or licensed and cost investors a total of $625,000.
     The Department of Consumer and Business Services, Division of Finance and Corporate Securities enforcement section has proposed civil penalties against Smith totaling $840,000.
     Smith operated True North Productions, a tourism company, in The Dalles over the course of the last few years, and leased the Granada Theater, which he closed abruptly last winter, leaving many local residents with worthless tickets. According to a variety of sources, he also left behind a string of debts in The Dalles and elsewhere that have not been repaid.
     The state has two ongoing investigations centering on Smith, said Kevin Anselm of the enforcement section. The order issued this week details business dealings prior to Smith’s involvement in The Dalles; however, his practices in The Dalles area are also under scrutiny.
     Most of the 42 securities sold in violation of state securities laws involved a company owned by Smith called Church Ministries Distribution, Inc. (CMD), which was registered with the state in 2001 and based in Portland. The business consisted of buying church curriculum materials from publishers at wholesale prices and reselling them to churches at markup, according to the state document.
     The order says Smith made personal use of investors’ funds over and above his salary for purposes including paying his mortgage, personal vehicles and recreational vehicles, and home closing costs.
     “In October 2003, Smith’s monthly salary increased 261 percent to $9,603 per month. In December 2003, Smith’s monthly salary increased to $11,844. In July 2004, Smith’s monthly salary increased to $11,962 and continued at that amount until CMD ceased operating in October 2004,” the state findings say, which CMD did not have sufficient income to maintain.
     “In order to maintain Smith’s salary and other personal expenses, CMD needed an additional source of capital,” the report stated.
     Findings suggest that Smith, between January 2003 and October 2004, devised a number of ways to raise capital for CMD including an air miles program, stock sales, investment contract sales, and the sale of promissory notes.
     Of the 42 violations, 38 center on the air miles program, which required investors to provide CMD with their credit card and grant CMD the excusive right to use the card. Investors were told their credit cards would only be used to buy church curriculum and that CMD would pay the entire balance each month.
     Smith reportedly told the credit card holders they would receive the benefit of earning air miles at a very high rate. At least 24 people joined the air miles program, allowing Smith use of 38 credit cards, expecting a return on their investment.
     “Once investors joined the air miles program, respondents had management and control over the investors’ credit cards,” the findings state.
     Some of the funds were used to buy materials from vendors, the report said, while others were charged directly to the CMD account.
     “The funds from these purchases were then used at Smith’s discretion.”
Smith initially made minimum payments on the cards, then after the first couple of months ceased making payments.
     “Investors began accruing interest and late fees due to respondents’ failure to make payments as agreed,” the report states. “As a result, investors were unable to redeem their air miles or other rewards, because their account balances had not been paid by respondents.”
     As of the date of the order, Smith had not paid back any of the debt incurred by investors.
     In The Dalles, none of the sources interviewed have seen debts owed by Smith repaid.
     In a May 17 interview, Smith said he is currently living in Mukilteo, Wash., north of Seattle, continuing to run tour buses from Seattle-area retirement homes to the Columbia Gorge area. While he declined to comment about his investment practices, he said he plans to pay back “all of my obligations by June.”
     “All of True North Productions and all the ticket-holders hopefully before that,” Smith said.
     He urged The Chronicle not to publish a story with negative information about his business.
     “I can’t pay them back if I don’t have money coming in,” he said. “Even the perception of lack of integrity affects my ability and willingness to do business.”
     Some of his creditors and investors still have optimistic feelings about Smith.
     “He always paid his rent, though he was slow sometimes,” said landlord Ray Swift, who also served as Smith’s advertising representative at The Chronicle. “And he and his wife left the place in better shape than when they got there.”
     Construction contractor Kase Limmeroth got to know Smith while doing some work on tenant space Smith was leasing downtown.
     “I have a passion for old buildings and he definitely had a passion for the Granada,” Limmeroth said. “We both obviously very much wanted to see the Granada take shape and live up to its potential.”
     Limmeroth said he invested in Smith’s projects and spent time working with Smith on cash flow projects and other aspects of the business end of the operation.
     “He would run stuff by me and ask my opinion of the reality of some of those projects,” Limmeroth said. “We had many discussions along those lines.”
     Limmeroth said he also offered his opinion on Smith’s concert plans at the Granada.
     “I thought he was over-anticipating the support he would get locally for the shows,” Limmeroth said. “That being said, he took into account many other things, but I think what he was really hoping to see was that he would draw significant more folks to the shows. When that didn’t happen, he did explore many, many other options. I think he just got financially hurt so bad on the shows that he didn’t have very much wiggle room left.”
     Limmeroth remained optimistic about seeing repayment from Smith.
     “I think personal integrity-wise, he really wants to make it right,” Limmeroth said.
Daniel Swan, the manager for Super Diamond, the Neil Diamond tribute band, contacted The Chronicle in late April.
     Smith acknowledged an outstanding debt to Super Diamond for concert fees, which Swan said totaled $10,000. In addition, Swan said band members paid their own airfare to Oregon to play at the Granada Oct. 23, 2009.
     “He was meant to pay a deposit and said he would pay in full the night of the show,” Swan said. “They played the show Oct. 23 and he said ‘I don’t have a check,’ and told them he was going to mail their agent Monday.”
     Swan involved a lawyer in his dealings with Smith in December.
     “We sent him a promissory note, breaking down what he owes Super Diamond into four payments,” Swan said. “He thanked us profusely, sent the first check and that bounced. He said, ‘I think I’m going to have a check in March.’ I never heard back from him.”
     Contacted this week, Swan said he had still not received any payment from Smith.
     “Ultimately, this saddens me,” Swan said. “A hard-working rock and roll band spent their own money to fly in and entertain the good people of The Dalles,” Swan said.
     John Maher worked with Smith for several months under an employment contract. He said Smith still owes him $2,400 under the contract. He said he has retained a laptop computer from True North Productions as collateral on the outstanding payment.
     Smith contends that Maher did not perform in accordance with the contract.
     “That’s funny,” said Maher, “the last meeting I had with him, he asked if I would keep working for him for free.”
     Elden Snoozy, who leased the Granada Theater to Smith, said Smith paid hardly any rent and took things that didn’t belong to him when he left, including some fixtures and kitchen equipment.
     “For all the months there, he might have paid a total of four, five or six months — it wasn’t all that much,” Snoozy said. “I tried to help him a bit, to make him concessions.      He was working hard on it, as I understand it.”
     Tina Cady, who directed the Gorge Theatre Foundation earlier in the decade, said he also took some sound equipment and other items that belonged to the foundation, which had remained in the building.
     “The biggest thing for me,” said Snoozy, “is the things he took out of there. All the posters from all the shows, the memorabilia, the history of the theater, all that stuff was gone. The way he justified it was that everything was junk.”
     Smith also made unapproved changes in the building’s structure, Snoozy said, which violated the terms of the lease.
     At least some of the concert ticket-holders, which Smith promised to repay first, remain unpaid.
     Leslie Kasmer and her husband bought season tickets to a two-person table at Smith’s failed concert series costing $750. They have not been repaid, Kasmer said.
Kasmer’s husband contacted the Wasco County district attorney’s office. Kasmer says they told him there was nothing they could do.
     “That’s a lot of money,” she said. “It was our full entertainment budget for the year. We wanted to support him.”
     Kevin Anselm at the AG’s office said investigation into Smith’s business activities are ongoing and include his involvement in and around The Dalles. The order issued this week requires Smith to no longer violate securities law and to register any securities business with the state.
     The penalties outlined are proposed, Anselm said. Smith may choose to seek a hearing to dispute the findings and penalties, or the order may take place by default if Smith chooses not to dispute the findings. Anselm said the state aggressively pursues payment of penalties, which would be paid into the state general fund.
     She urged anyone with more information on Smith’s dealings to contact investigator Tim Duy directly at (503) 947-7017, or call the office’s toll-free number at (866) 814-9710 and ask for Duy.