Real estate fraud hounds Dacono

DACONO — Dacono faces its second development fraud controversy in less than three years, this time involving two Denver-area men accused of raising more than $4.7 million from investors, then converting most of the money to their own uses.

In late July, the U.S. Securities and Exchange Commission filed a complaint against Glen W. Hilker, Larry M. Baker, Project Dacono LLC and HB Investors LLC, charging the defendants with violations of the U.S. Securities Act.

The case against Hilker and Baker comes on the heels of the Dacono Factory Stores investment furor of 2001, which has led to criminal charges against four developers.

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In the latest case, Hilker and Baker and their “alter ego companies” — as they are characterized in the SEC complaint — are accused of raising the money to develop Silver Springs, a proposed residential-and-industrial development project adjacent to Interstate 25 in Dacono. The men promised investors high rates of return — up to 35 percent annually — on their investments.

The complaint accuses the pair of raising the money “from at least September 2000 through March 2003” by making “numerous false and misleading statements” to investors, primarily concerning the use of investor proceeds. At least 35 people invested with the partners.

“In fact, only approximately $1.7 million of the funds raised were actually used for the purchase and development of the Dacono property,” the complaint states. “The remaining $3 million of investor proceeds was used by Mr. Hilker and Mr. Baker for their own personal use, was diverted to alter ego entities they controlled?(and) was invested in risky business ventures unrelated to the Dacono property and was used for Ponzi-type interest payments to other investors.”

Thomas Carter, SEC trial counsel who filed the complaint, said he could make little comment on the matter. “It was filed based upon the misrepresentations and false statements contained in our complaint,” he said.

Carter said no hearing date has been set for the complaint. “We’re waiting for answers to be filed by the defendants,” he said. “At this point, the (SEC) has obtained a preliminary injunction against the defendants and the freezing of both their assets.”

Carter said he expected the defendants to file answers to the complaint within 60 days of the July 24 filing.

Hilker and Baker are also co-owners of Westco Investment and Finance Co. in Denver. Calls to their offices by The Business Report were not returned.

The complaint further states that, as recently as July 2003, Hilker and Baker were still soliciting money in connection with the Dacono development. Allegations against the partners include issuing fraudulent promissory notes, making Ponzi-type interest payments, diverting Dacono property investor proceeds to unrelated uses and loaning investor funds to “risky start-up companies.”

The SEC complaint alleges that Hilker and Baker formed Project Dacono LLC in the fall of 2000 in partnership with FS Land Company, owned by former Denver Broncos players Steve Foley and Bob Swenson. In investor agreements, according to the complaint, Hilker and Baker used the names of Foley and Swenson to induce investment in the property.

Foley and Swenson have not been charged with any violation of federal securities laws. Karen Cumbo, Dacono’s city administrator, said the city has only worked directly with Foley and Swenson and the 155-acre mixed-use industrial and residential project is still moving through Dacono’s approval process.

“It’s a very good project and (Foley and Swenson) intend to see this project built,” Cumbo said. “They’ve met their commitments and paid for the things they were supposed to do.”

Cumbo said the project is awaiting final plat approval but no date has been set for that action.

The SEC complaint further alleges that — in a statement mailed to investors in the first quarter of 2003 — Hilker claimed 243 single-family lots were under contract to be sold. “That statement was also false because no portion of the Dacono property was under contract at that time. The contract to sell lots had been rescinded or cancelled by approximately October 2002,” the complaint states.

The complaint requests unspecified fines and judgments be entered against Hilker and Baker by the United States District Court for the District of Colorado.

Factory store promoters face criminal charges

Steve Porter

TUCSON, Ariz. — Four men who were ordered in December 2001 to pay millions in restitution to investors in a bogus Dacono Factory Stores development scheme have been charged with criminal fraud in Arizona.

The Arizona attorney general’s office filed the charges on Aug. 6 against Charles Ray Stedman of Green Valley, Ariz.; Wendell T. Decker Jr. and Charles Testino of Tucson; and Keith Davis of Plano, Texas.

The Arizona Corporation Commission ordered the men to collectively pay more than $15 million in restitution to 113 investors in a proposed 650,000-square-foot outlet mall complex on 83 acres. The site is located at the Erie exit off Interstate 25 in southwest Weld County.

However, attorneys for the accused have previously told investors they would likely see little

of their investment money, which totaled more than $5 million and another $17 million in interest owed.

The four partners on the project sold promissory notes to investors — many of whom were retirees — in several states between 1996 and 1999. Karen Cumbo, Dacono city administrator, said “a fair amount of progress” was made on the project in engineering and plan development even though nothing was ever built.

“I don’t think they would have done that if they weren’t serious,” she said.

Cumbo said the property was eventually foreclosed upon and sold to another developer. She said the property will “probably be a future retail center of some kind” when it is developed.