Managed Cash Flow investors sue

More than 400 investors are out about $19 million, prompting an investigation by the Colorado Division of Securities into the dealings of a Fort Collins businessman, who is also facing civil suits by several of those investors.

Gene Little and Managed Cash Flow LLC, an investment group for which Little acted as the servicing agent, are under investigation, Securities Commissioner Fred Joseph has confirmed.

Joseph was unable to comment further on the investigation, but court and Securities and Exchange Commission documents shed light onto the situation.

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Managed Cash Flow operated as an investment vehicle, with more than 400 investors. Little acted as the servicing agent on the investments through Walter Robert Associates Inc., a company owned by Little’s wife. He resigned from Managed Cash Flow in October and was not available for comment prior to publication of this story.

According to court documents, investors say they were promised a 15 percent to 20 percent return annually, and were given the option to collect their return as it accumulated or to roll the money back into Managed Cash Flow for further investment.

Bob Vangermeersch had invested $38,000 in January and March 2006 into Managed Cash Flow. Shortly after placing his second investment, Vangermeersch began to worry about the health of the portfolio. The former Fort Collins businessman said that Little told him in January 2006 that the portfolio was performing well, and it appeared to be – at least on paper.

A letter from Little to Managed Cash Flow investors dated April 1, 2006, showed “an ending balance for March 2006 of $19,082,009.28.”

Nonetheless, Vangermeersch requested his money back in May 2006. Now, a year later, he still has not received his funds and his investment has ceased to produce a return.

Vangermeersch is one of Managed Cash Flow’s investors seeking to regain his investment through the courts. He filed a civil suit in Larimer County against Walter Robert Associates and Little in February alleging securities violations, “racketeering activities” under the Colorado Organized Crime Control Act and other claims for relief.

Two other civil suits have been filed against Little in Larimer County, not including small claims proceedings. Individual investors in those suits claim to have invested $110,000 and $373,900 with Managed Cash Flow.

Red flags go up

When Vangermeersch read in the Business Report last year about Windsor factoring company Blue Bear Funding LLC and its ongoing bankruptcy proceedings, red flags went up.

What worried Vangermeersch was that the man heading up Blue Bear – David Karst – was also handling investments for Managed Cash Flow. Karst, part-owner in and manager of Blue Bear, invested funds from Managed Cash Flow through his company Nationwide Cash Flow Specialists.

“(Managed Cash Flow), managed by Gene Little, has provided capital to my factoring company, Nationwide Cash Flow Specialists, since 2002 in the form of business loans,” Karst explained in a statement e-mailed to the Business Report earlier this month.

Despite looking healthy on paper, Managed Cash Flow’s investments made through Nationwide Cash Flow were having problems as early as the end of 2005, according to Karst.

“By late 2005, mounting legal expenses, interest payments and capital drain had resulted in (National Cash Flow) being unable to meet interest and note repayment obligations,” Karst told the Business Report. “I began to work on options including sale and liquidation of assets. I began negotiations with a publicly traded company, DLR Funding, who was interested in purchasing assets in the company in return for issuing DLR stock.”

DLR Funding Inc. is based in Windsor. The company actually formed in 1996 as CRT Corp. and operated in the food service industry in California and Nevada, according to Securities and Exchange Commission documents.

Several incarnations later, DLR Funding was formed. The company is registered in Colorado by Virginia Brinkman – a former manager of one of the investment groups with Blue Bear. In addition to DLR Funding, the company has also registered the names DLR Factoring Inc. and DLR Leasing Inc. with the Colorado Secretary of the State.

A lawyer for DLR Funding declined to comment on the company, instead referring inquiries from the Business Report to documents filed with the SEC.

Rapidly dwindling assets

To begin operations, DLR Funding planned purchasing the assets of Karst’s Nationwide Cash Flow Specialists and several of Brinkman’s companies – Silver Mountain Financial LLC and Grizzly Creek Leasing LLC. DLR Funding was also interested in obtaining the assets in Managed Cash Flow’s portfolio.

In March, DLR issued $31 million in preferred stock in anticipation of receiving $27 million in assets from investments controlled by Karst, including Managed Cash Flow.

Karst was listed on SEC documents as the president of DLR in early 2006. He resigned in August after a DLR audit of his companies’ assets showed little value remaining in the portfolio.

According to SEC documents, an audit of the portfolio by DLR beginning on Sept. 7 revealed that the investments were worth closer to $15 million.

“The assets were then reviewed and now DLR is informed that $15 million in assets may be only $100,000,” stated a Sept. 15 letter from a DLR executive to Karst. The same letter indicated the stock issue would be rescinded in light of the lack of assets.

The state of the portfolio makes it seem unlikely that there are any funds available to pay back Managed Cash Flow investors, but several are seeking repayment from Little, who collected payment as servicing agent.

For his part, Karst indicated that he is trying to find other solutions to repay some of Nationwide Cash Flow’s creditors.

“A bankruptcy filing was advised in order to liquidate assets and establish creditor positions,” Karst explained in his e-mail. “A Chapter 7 bankruptcy filing is currently in process whereby assets will be liquidated and distributed to creditors including MCF, with no effort to reorganize or continue the company. I have agreed to cooperate with collection efforts on behalf of the creditors,”

For Vangermeersch, regaining his lost investment is less about the money and more about the principle.

“I look at other people and they have their life savings wrapped up in this,” he said. “For me, it just really pissed me off.”