Businessman, state settle fraud case Invest Maryland chief gives up post, stock, but admits no guilt

Legal affairs

March 26, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Maryland's attorney general settled yesterday a securities fraud case against a businessman who raised $2 million from Maryland investors to start a combination insurance agency, stock brokerage and buffalo-meat chain, but who allegedly lied about his past business record and the amount of his own money he put into the business.

Invest Maryland Corp. and its founder, Dennis K. McLaughlin, agreed to settle the case but continued to deny that they broke state securities laws. Mr. McLaughlin gave up his office as chief executive and his stock in the company, which will continue to operate, and agreed to be barred from the securities business in Maryland.

He also agreed to forfeit his issuer agent registration, a license he would need to raise money from public investors for future ventures.

Among other investors who were required to give up their stock in Invest Maryland was Jeanne Mandel, wife of former Gov. Marvin Mandel.

Along with the shares of other insiders in the venture, Mrs. Mandel's stock will be distributed to public investors. Company attorney Robert P. Trout said she owned 10,000 shares.

Mr. Mandel, who was one of the company's attorneys, denied last year that he had invested in the company, but he recommended the venture to friends.

What the state did not get was a promise to give investors their money back. While that remedy is allowed under the law, the state said the company did not have enough money to pay off more than 1,000 Marylanders who had invested in Invest Maryland.

Not enough money

"There wasn't enough money in the business to make a full rescission offer, so we had to examine alternatives," said Melanie Senter Lubin, deputy state securities commissioner. "We've heard from a lot of shareholders that they want the business to go forward."

That is partly because the shareholders don't see a lot of good alternatives, said Kenneth Ransdell, a retired Air Force officer from Clinton who invested in the plan.

"It would create jobs in Maryland, and give [investors] a better return on their money than 28 cents on the dollar," he said.

Mr. McLaughlin's lawyer, Joel Katz, said the settlement does not mark any admission of guilt by his client. He said he did not know Mr. McLaughlin's plans, but said the buffalo-meat restaurant in Glen Burnie is still slated to open.

A matter of economics

"A settlement wasn't reached because he felt he did anything wrong," Mr. Katz said. "The settlement was dictated by economics. If litigation continued, the attorney general would probably force the company into bankruptcy."

Ms. Lubin said the settlement resolves both administrative enforcement actions and the state's civil lawsuit against Mr. McLaughlin and the company. But it leaves individual investors free to pursue their own lawsuits to get their money back.

The state suit, filed in Anne Arundel Circuit Court, contended that the defendants misled investors and filed misleading statements when they registered the stock offering in 1993.

The case claimed that the misrepresentations included overstating Mr. McLaughlin's personal investment in the company; failing to disclose that principals had taken few, if any, steps to get licenses to open the insurance and securities firms; misrepresented the level of involvement of the company's most experienced executives; and failed to disclose the regulatory and financial problems that a similar McLaughlin venture had encountered in Louisiana.

Pub Date: 3/26/96

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