Interesting article about custodianship shells like WCSY that Arcaro specializes in creating.
FBI INFORMANT - COOPERATING WITNESS: Swindler acquiring businesses
By CARRI GEER THEVENOT
and ED VOGEL
REVIEW-JOURNAL
Admitted stock swindler Peter Berney has been cooperating with the federal government for nearly four years. He's also been busy in recent months taking over Nevada corporations.
New York attorney Maranda Fritz said she has discovered about 40 corporations that have been acquired by the Las Vegas businessman or one of his associates since January.
Attorneys representing one of the corporations, Drake Holding, have accused Berney of engineering "a far-ranging criminal conspiracy" while awaiting sentencing in his federal fraud case.
On Wednesday, a district judge in Reno heard testimony on the matter and concluded that the U.S. attorney's Organized Crime Strike Force should investigate the possibility that Berney is using the state's corporate custodian law to steal companies.
The judge heard evidence Berney has been targeting companies that appear inactive, then buying a nominal amount of stock as part of a scheme to have him or one of his representatives appointed as a custodian with certain powers over the company.
In the Drake case, District Judge Brent Adams of Reno appointed shareholder Robert McBride custodian of Drake Holding in May after McBride alleged that the company had "abandoned its business."
On Wednesday, Adams removed McBride as custodian after learning that he is a home repairman who has worked several times at Berney's Las Vegas house. McBride also testified that he had no experience running a company and owned only 600 shares of Drake Holding.
Adams accused Berney and one of his associates, Corene Dion, of using McBride as their "instrument" to take over dormant companies and profit at the expense of unsuspecting shareholders.
During the hearing, McBride contended that the state's corporate custodian law gave him the power to do anything he wanted with Drake Holding, including changing its name and authorizing new stock.
"This conduct is shocking," the judge told McBride. "The duty of the custodian is to take custody of a corporation and protect it, not to steal it."
McBride testified that Berney had turned him on to the idea. He said he has no retirement fund and was looking for "a few bucks" to help him out when he retires.
New York attorney Lawrence Schoenbach, who represents Berney in his criminal case, declined to comment last week on the allegations made by Drake's attorneys.
No one in the federal government wants to discuss Berney's recent activities, either.
In researching this story, the Review-Journal received "no comments" from officials with the U.S. attorney's office, the Pretrial Services Office, the Securities and Exchange Commission, and the Internal Revenue Service.
Berney has been cooperating with the federal government since he pleaded guilty in December 2001 to federal conspiracy charges and admitted receiving at least $35 million in proceeds from the fraudulent sale of securities.
The pleas resolved cases pending against him in Las Vegas and New York.
According to Berney's plea agreement, he engaged in a conspiracy to defraud the United States from February 1993 through August 1999.
Berney was arrested in Switzerland in February 2000 and later was extradited to the United States.
Court records show that he was placed under the supervision of Pretrial Services in Las Vegas and initially faced such restrictions as house arrest with 24-hour surveillance and a prohibition on his use of computers.
After Berney's guilty pleas, however, all restrictions but one were lifted: a restriction on travel outside the United States.
Berney, who has been awaiting sentencing for nearly four years, is scheduled to testify against his co-defendants in January at their Las Vegas trial. McBride also is expected to testify as a government witness.
Among the defendants in the criminal case is former New York lawyer Herbert Jacobi, who is represented by Fritz.
Fritz said she began investigating Berney's activities about two months ago, when she received a tip that he was offering shell corporations for sale. She went to the Nevada secretary of state's Web site and searched for the names of Berney and his associates.
She found their names repeatedly. She also found Berney's name listed as president of a corporation called Telpac Industries.
Ironically, Fritz had represented Telpac's president, Mary Grace, for many years. The lawyer notified Grace about her discovery and began orchestrating an undercover investigation to gather more information about Berney.
Fritz said Jane Gordon, a woman who works for her private investigator, posed as an attorney representing a man interested in buying a shell corporation. Gordon and Berney communicated for about three weeks and ultimately had a face-to-face meeting in Las Vegas.
The following day, July 27, Fritz took all the information she had gathered on Berney and shared it during a two-hour meeting in Las Vegas with IRS Special Agent Mike Payne and Assistant U.S. Attorney Gregory Damm.
"Much to my surprise, the response was that unless I could prove that Berney was engaged in federal criminal violations, they did not see why they should interfere with his business activities, even though they were the ones who put him back out on the street," Fritz said.
She also provided her information to Pretrial Services, the secretary of state's office and the SEC. Only SEC officials have shown a strong interest, she said.
"My concern is that the U.S. attorney's office is not taking action against (Berney) because he is now a cooperating witness for them," Fritz said.
The lawyer said Grace recently was replaced as Telpac's president through a "proper shareholders meeting."
Adams said he plans to turn transcripts and documents from last week's court hearing over to the Organized Crime Strike Force, of which Damm is a member. The judge also asked his clerks to notify the secretary of state's office about how Nevada's corporate custodian law is being abused.
Attorneys representing Drake Holding outlined what they called "the Berney scam" in a mid-August motion that sought to remove McBride as custodian of the company. The motion described McBride as an agent for Berney.
"Monitoring the secretary of state records, Berney and his henchmen would discover corporate charters being suspended or revoked for nonpayment (a relatively frequent occurrence)," the attorneys wrote.
"They then would send a letter purporting to represent `a shareholder' to the last known address listed with the secretary of state."
When the letter is returned as undeliverable, according to the motion, they immediately seek shares of the corporation and move for custodianship.
"Once appointed custodian, the criminal perpetrators will attempt to sell the company to third parties," Drake's attorneys wrote. "When marketing the company to third parties, the criminal perpetrators rely on the court's custodianship order and seek an upfront payment of cash that is to be wired to a company owned and controlled by Berney."
Fritz said Berney has been offering to sell the corporations for between $130,000 and $160,000, although she does not know whether he has succeeded in selling any.
Joe Dilillo, president of Drake Holding, testified that he learned only a few weeks ago that McBride had taken over the company he had founded in 1986, issued 100 million shares of new stock and changed its name. He said McBride never contacted him, even though his telephone number was listed in the phone book.
"We were blindsided by this," Dilillo testified. "Someone comes in from left field and tries to steal my company."
Nonetheless, McBride filed documents with the secretary of state's office indicating that he had conducted a shareholder election and that 52 percent of the shareholders had agreed to the name change and authorized the issuance of additional stock.
Upon questioning by Adams, McBride admitted that he had not conducted a shareholder meeting and that he did not have approval of 52 percent of the shareholders. McBride said he thought under state corporation laws that he controlled unissued stock of the company.
"Does that sound OK to you?" Adams asked McBride.
"The way you put it, no," McBride replied.
During the hearing, McBride repeatedly told Adams he could not remember how many times he had filed other requests to become the custodian of inactive companies.
Drake lawyer David Otto mentioned at least one other company with which McBride sought a custodial relationship. He named four other companies in which McBride was listed as a director or officer.
"Why on earth did you get in the business of being a custodian?" Adams asked.
"I thought I could do it in my later years when I could not do contracting," he replied.
McBride said he was a home repairman who had worked several times at Berney's home.
Since he has no retirement benefits, McBride said, he asked Berney how he might secure additional money. He said Berney discussed deals with him and suggested he contact Dion.
Dion said Berney is a consultant for her financial research and development business, which she operates at 350 Kachina Circle, the same address as Berney's home.
She declined specific comment, saying, "Due to the voluminous amount of verbiage that it would require to refute the allegations at hand, we will reserve the right to respond later." She said she would be willing to discuss the allegations after a transcript of Wednesday's hearing becomes available.
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