Is Norwest guilty of a cover-up? Shareholders' attorney Karl Cambronne, of Minneapolis, says the chain of events speaks for itself. "There was an extensive audit and a recommendation to pull the plug on FTC. The bank knew it had its rear end hanging out, with $12 million outstanding, and they knew there was a public offering coming in six months that would raise $25 million. What could they do with a set of facts like that? They could pull the plug, declare a default, blow the offering, bankrupt FTC, and take the loss. Or, they could opt not to say anything, pass on some of the debt to Continental Illinois, and by letting the investing public put millions into FTC's coffers, hope to get paid off. They did it, and they almost got away with it."
Norwest, in its own defense, says it had no legal duty to disclose what it knew about FTC -- to Continental Illinois, the company's investors, or anyone else. In court documents, the bank concedes that the results of the collateral review made it "uncomfortable in having future dealings with FTC," but the bank maintains that it did not "have knowledge of fraudulent activity." Operating on the advice of counsel, the bank concluded that it would be courting a lawsuit if it breached the confidentiality of its relationship with FTC, and that it "could not, without great and unacceptable risk, take steps to protect itself by declaring a default and calling the loan."
The bank further points out that others, notably Fox & Co. and Drexel, had access to important information, which they failed to share with Norwest. That failure, the bank argues, makes it as much a victim in this case as any shareholder. Cambronne, for one, finds this reasoning hard to swallow.
"If you look, you'll see that the bank -- knowing everything it knew about FTC -- nevertheless loaned the company some $3 million, just weeks before the final public offering, to buy an airplane that never existed. Now why would they do something like that? To keep the company solvent until the offering went through, perhaps?"
At the mention of the Taj Mahal, Tom Bartsh lights yet another cigarette. "I'd like to dynamite the place," he says, sending the lighter skittering. As FTC's receiver, Bartsh has the unenviable task of disposing of FTC's assets. That means the Taj Mahal, the hangar, and everything in and around the two structures -- even the boxes of sex manuals (entitled How We Can Make It Last Longer) left over from one of Rubin's enterpreneurial ventures. All he has sold so far is Karki's old bedroom set and various of FTC's executive toys.
The way it looks, the entire case may be sewn up before Bartsh manages to unload much more of the $1.7-million property. Indications are that shareholders will get back a substantial portion of their investments. The last of the civil suits was wrapped up in July, when Fox and Norwest agreed to a multiparty settlement that is expected to receive the judicial stamp of approval in September. Rubin, Karki, and Miller, the controller, are awaiting criminal trial on charges that could put them in jail for 132, 112, and 75 years, respectively. McGovern, no longer practicing law, accepted the prosecutor's offer to plead guilty to a lesser fraud charge, in exchange for a one-year prison term, a $10,000 fine, and his testimony on the witness stand. He had already begun cooperating with authorities when a judge rejected the plea bargain, ruling that it was not in the public's interest.
Still the Taj Mahal sits, its chandeliers lit, its sign peeling, the hulk of a business that never was -- but, in Bartsh's opinion, might have been.
"The company wasn't all air," he says. "The case would be easier to understand if it was." There were indeed an executive-charter business and a flight school, and plans to build houses in the Caymans. "If they had managed to buy Executive Jet," Bartsh opines, "it would have been an entirely different company."
That may seem farfetched, given the backgrounds of the alleged perpetrators. It turns out that -- so far as anyone can tell -- Rubin never did work for United Air Lines, and Karki isn't a CPA. In fact, Karki hasn't always been Karki, according to Twin Cities' reporters who traced her back to her native Iowa. Under her maiden name, Eva Lou Wagoner, she carries an arrest record that includes forgery, petty larceny, and a variety of lesser charges. Nevertheless, Bartsh -- like others who have been eating and sleeping FTC for the better part of three years -- thinks Rubin and Karki wanted to build a successful company. "They lied in the first offering, and it worked," he shrugs. "From there, it just snowballed."
And yet it took more than a few lies to keep the ball rolling from one offering to the next. It took, in some cases, the active collusion and, in others, the passive cooperation of accountants, underwriters, lawyers, and bankers. Every time one of them signed off on a prospectus, it was that much easier for those who followed to put their hands to the next and collect their fee. As in a game of hot potato, even those who knew (or suspected) the truth about the company found it preferable to keep the game going, rather than stop it and get burned. "The more Rubin and Karki b.s.'ed, the more people wanted to believe them," says Bartsh.
Why? He smiles at the question and exhales a puff of smoke. "Greed."
