Dacono mall organizers told to pay back investors

PHOENIX ? The Arizona Corporation Commission has proposed ordering three principals in the Dacono Factory Stores project to pay $9.35 million in restitution and $110,000 in fines.

Organizers of the planned outlet mall project stand accused of defrauding investors, selling unregistered securities and being unregistered dealers. The commission met May 22 but couldn’t finalize the consent orders because it wanted to make some changes, and the men weren’t there. A fourth man has not yet agreed to a consent order.

Commission attorneys believe it’s highly unlikely that the 110 investors will ever see their money, in part because a foreclosure sale has been posted for June 27. The original balance and the outstanding balance due on the property is $3 million, according to the Weld County Public Trustee. Compass Bank holds the note.

SPONSORED CONTENT

Business Cares: May 2024

As Mental Health Awareness Month unfolds in Colorado, it serves as a reminder of the collective responsibility to prioritize mental well-being.

Tucson developer Wendell “Ted” Decker launched the project in 1992 by securing a sales-tax benefit package with the town of Dacono. The development was to be a $200 million outlet mall with a sports focus at the northeast corner of Interstate 25 and Weld County Road 8. But, as of yet, nothing has been built.

Decker and Charles R. Stedman ? a former Tucson securities dealer barred from the National Association of Securities Dealers in 1994 ? apparently ran out of their own money in 1995 and began selling promissory notes to investors to tide the project over until a construction loan came through, said Pam Johnson, staff attorney.

In 1996, they recruited Keith B. “Skip” Davis, another Tucson real estate developer, and Charles W. Testino ? a Tucson insurance agent and currently NASD-suspended securities dealer ? to sell the notes, according to commission documents.

From about January 1995 through December 1999, the four men are alleged to have sold 124 notes to 110 investors. They raised more than $5.2 million. They promised short-term investments of one year at first, then 90 days, with returns of 15 percent to 20 percent, commission documents say.

As construction financing kept falling through, they renewed the notes. By August 2000, some notes had been renewed 18 times. Earlier that spring, internal accounting records showed investors were owed $5 million in principal and $17 million in interest, commission documents say.

Investors include Don Laframboice, a 60-year-old teacher from Tucson. He invested $25,000 two years ago through Testino but wants the money back to pay off his house after he retires at the end of the school year.

“I think Chuck is being honest, but I think he’s in the middle and doesn’t know what’s going on, either,” he said. Still, Laframboice said his heart sank when he heard about the commission’s original report. “I don’t know any more now than I did two years ago. There’s never been any correspondence,” he said. “I know there can be delays, (but) I don’t understand why it takes five years to do something.”

Another investor is Claude Meyerhoff, an electronics engineer who lives outside of Tucson. He invested $60,000 in August 1999 through Testino and Davis. He hasn’t seen much in writing since but has regularly heard that good news was on the way.

“(Testino) made it feel so easy and comfortable,” he said. “This guy, Chuck Testino, is getting more and more evasive. I’m waiting to get my money back.”

Others, including some who invested significantly more, also are waiting. One investor spoke to The Business Report but asked to remain unidentified in this article. He said the investors should join together and negotiate with Decker.

“I still see the possibility that the whole thing could be solved, and I don’t want to hurt that,” he said. “I’m not too satisfied with the whole thing. I don’t know where the money went. As a lender, you have a right to get information,” he said. “Decker and those who were involved refused to give information. When you ask for it, he starts getting angry.”

The investor said he was disappointed that the commission postponed action on a proposed consent order.

In the proposed order, the commission outlined a finding of facts, as well as the following:

* Decker would pay almost $5.3 million plus 10 percent interest, in restitution, and would be fined $50,000.

* Testino would pay $3 million plus 10 percent interest, in restitution, and would be fined $50,000.

* Davis would pay more than $1 million plus 10 percent interest, in restitution, and would be fined $10,000.

* Stedman had not come to an agreement with the commission on May 22.

The penalties were based on how many sales each person had made.

Commission attorneys said the consent order was as good a deal as they thought they could get. “I don’t know how likely it will be that we’ll collect on it, to be honest,´ said Mark Sendrow, director of the securities division.

But commissioners wanted to be sure that the state had done its best to get the investors’ money back. They had questions about whether the title to the property had been transferred. They also wondered if rights to the sales-tax benefit package could be transferred and wanted to add language to the consent order to keep those assets for the investors.

Dacono City Attorney Tammy Tanoue said the agreement for the 3 percent sales-tax break over 18 years could be transferred if the property were sold. But the new owners would have to prove their development experience and financial integrity. “The city does get the right to notice prior to any such agreement, although it doesn’t amount to a right of prior approval or disapproval,” she said. So far, she hasn’t heard of a transfer.

Because neither the men nor their attorneys were present, the commission postponed any action. The next open meetings were scheduled June 5-6 and June 26-27. If the men don’t agree to the orders, they will face an evidentiary hearing June 25.

Decker declined to comment on the situation, while Testino and Stedman could not be reached. Davis said he heard about the changes and was open to them. He said the orders were “probably” fair but didn’t know if he could handle them financially.

Investors fear they won’t get their money back but are hoping anyway. “If there is restitution, which I can’t envision because these guys aren’t billionaires, I don’t have much hope,” Meyerhoff said. “But I must have hope because it’s a lot of money.”