Past ventures raise questions about firm

April 23, 1995|By Kim Clark | Kim Clark,Sun Staff Writer

The combination sounds improbable. But a company that wants to sell stock, life insurance and buffalo sandwiches has already persuaded 1,200 Marylanders to buy more than $3 million in stock.

But what Invest Maryland Corp.'s stock salesmen aren't saying raises questions about its plans of becoming "the next McDonald's."

Not disclosed by the dozen salesmen knocking on doors across the state to find 13,000 additional investors willing to buy the $12 million in remaining Invest Maryland stock:

* Most investors in two similar previous ventures headed by Maryland Invest Chairman Dennis K. McLaughlin -- one in Maryland and one in Louisiana -- either lost money or are still waiting for a return.

* Louisiana securities regulators are probing charges that Invest Maryland -- which is licensed to sell its shares in Maryland only -- illegally sold securities in Louisiana.

* Louisiana's insurance commissioner has taken over supervision of a Louisiana life insurance company started by Mr. McLaughlin because of concerns that the company is insolvent.

Kenneth Ransdell, a retired Air Force officer from Clinton, said he was wowed by the plan to start a "Buffalo Bill's" fast food chain, which is intended to meet the booming demand for healthy food by offering turkey sandwiches and, on occasion, low-fat buffalo meat entrees. (The first Buffalo Bill's will open in Glen Burnie this summer, the company says.)

He also liked the way the company planned to hedge its bets by starting an insurance company and a stock brokerage as well.

But the main reason he was willing -- pleased, in fact -- to invest more than the $10,000 maximum Invest Maryland normally accepts: the recommendation of influential Marylanders, such as former Gov. Marvin Mandel, who is Invest Maryland's lawyer; and the salesman's rosy description of the Invest Maryland executives' background.

"He indicated they had been very successful. I wouldn't want to go with anybody who had a bad track record."

Mr. Ransdell was surprised to learn about the Louisiana investigations, and said he wished he had known about past investors' experience.

"It would make you stop and think," he said.

But Mr. McLaughlin said he hasn't told Marylanders about the other investors' returns, or the troubles in Louisiana, because they don't affect the new company's prospects.

"That is far removed from what we are doing here," said Mr. McLaughlin, who owns all of Invest Maryland's special class of controlling stock and has invested $250,000 of his own money in the company.

"We have a track record for doing a very good business," he said.

For Marylanders, that track record started in 1970, when Mr. McLaughlin gathered investors for Five Star Foods Corp. of Maryland, which started local Roy Rogers franchises.

Influential investors

Using a technique that has become his signature, Mr. McLaughlin sold the shares by calling on influential politicians and business people, persuading them to invest, and asking each investor to refer 10 friends.

Many of the Five Star investors -- including political kingmaker Irvin Kovens, who helped bankroll Mr. Mandel's campaigns -- are now dead.

But news stories at the time showed that most of the outside investors lost money, while insiders profited.

Five Star placed more than 525,000 shares of common stock, which were never registered for public trading, for $5 a share to Maryland residents. When the Marriott Corp. took over Five Star in 1978, it made additional cash and stock payments to insiders such as Five Star co-founder Edward Isaacs, who is now in charge of development of the Buffalo Bill's chain for Invest Maryland.

But it gave the outsiders, who held Five Star common shares, only $3 worth of Marriott stock.

The Maryland investors of the 1970s did much better than the investors in Mr. McLaughlin's venture of the 1980s, however.

In 1985, Mr. McLaughlin moved to Thibodaux, La., southwest of New Orleans, and launched another stock offering, this time for his Invest Louisiana Corp.

He sold a group of business people in that city on his idea of a holding company that would start a life insurer and a Cajun restaurant. And he asked each new investor to recommend 10 friends.

Leonard Hingle, owner of a Thibodaux photography studio, for example, remembers putting "my last $5,000" in Invest Louisiana in 1988 because of the recommendation of the manager of a Thibodaux five-and-dime, who had become involved in the company.

Although it never started the restaurant, Invest Louisiana did start Cajun National Life Insurance Co., which grew rapidly in its first few years. But by last year, it had run into difficulties.

Problems of Cajun National

For example, the company attracted no new insurance clients last year, according to filings in Louisiana. And in December 1994, Commissioner of Insurance James Brown placed Cajun National Insurance Co. under his administrative supervision because of concerns that it was technically insolvent.

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