Insurance Agent Owes Millions To Investors

Copyright 2010 Richmond Newspapers, Inc.All Rights Reserved Richmond Times Dispatch (Virginia)

<strong>February 25, 2010 Thursday State Edition

SECTION: BUSINESS; Pg. B-03

LENGTH: 459 words

HEADLINE: Man owes millions to investors; Insurance agent in Richmond reveals his assets in statement

BYLINE: DAVID RESS; Times-Dispatch Staff Writer

 

A Richmond insurance agent sold roughly $14 million of securities from several firms over the past decade, repaying only $2.8 million before state securities regulators stopped the sales last year.

 

Julius Everett "Bud" Johnson disclosed that his businesses' assets amounted to only $4.5 million in a financial statement prepared for investors this month, a copy of which was obtained by the Richmond Times-Dispatch.

 

His businesses also owed $1.3 million to secured lenders, mainly banks, on top of the $11.2 million still owed investors.

 

"It's ugly," said Stephen J. Williams, a retired Wall Street executive and securities law consultant who is helping one woman who invested $100,000 with Johnson.

 

"My opinion is it is highly unlikely that investors will get 100 cents on the dollar, highly unlikely that they'll even get 50 cents," said Williams, who runs Midlothian-based Compliance Consultants.

 

Johnson has not returned repeated calls seeking comment.

 

The State Corporation Commission last fall ordered Johnson and his companies to stop selling securities while it investigated the operation.

 

Earlier this month, it ordered Johnson's companies, Johnson and a North Carolina associate named Walter Ray Reinhardt to show why the agency should not find they violated Virginia securities law and should not be ordered to repay investors. Reinhardt has twice been barred from selling securities in North Carolina, according to SCC records.

 

Johnson and his companies had promised investors 6 percent to 12 percent interest on their money, but he stopped making payments earlier this year. .

 

"It looks as if he kept going for so long by paying investors with money from new investors," Williams said.

 

Cash flow, revenue and expense figures disclosed in his financial statements show his businesses could generate about $562,000 a year, a Times-Dispatch analysis found.

 

But interest, at 6 percent, on just the $11.2 million owed to investors, amounts to about $672,000 a year.

 

The financial statements also disclose that Johnson personally owns more than $9 million of real estate with $5.7 million of mortgages due. His annual mortgage expense is $399,000, but rents from those properties amount to only $36,000, The Times-Dispatch analysis showed. Most of the mortgages and the secured loans for his businesses are in default, according to his financial statement for investors.

 

Johnson said in the statement to investors that he plans to assign his assets to an independent trustee, who will administer them for the benefit of the companies' creditors.

 

"Mr. Johnson's business plan did not work out as expected," the accounting firm that prepared the financial statements told the investors.

 

Contact David Ress at (804) 649- 6051 or [email protected]

LOAD-DATE: February 26, 2010

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