A state Banking and Finance Department investigator testified Friday that he believes investors were unaware that the money they trusted to former Nebraska City stockbroker Rebecca Engle was at risk of a total loss.
Investigator Thomas Sindelar said although investors signed statements acknowledging they had received relevant information at the time of investments, they later told investigators they did not.
Prosecutors allege that Engle failed to inform investors of the risks involved in buying promissory notes and debentures in the start-up Florida companies American Capital Corporation and Royal Palm.
Investigators say about $20 million invested in the companies, mostly from the Nebraska City area, was lost.
“There is a pattern from many of the investors that the transactions were made in a rush. Because of their longstanding relationship with Mrs. Engle, a lot of investors had an inordinate amount of trust in her. They signed where she told them to,” he said.
Engel’s attorney, Steven Achelpohl of Omaha, said documents signed by investors indicated they had received confidential company information, called private placement memorandums (PPM).
In other cases, such as loans with a duration of only a few months, the PPMs are rarely used, he said.
Sindelar said Engle and her partner Brian Schuster sold about $17 million worth of securities in the company and received a 10 percent commission. He said neither ACC or Royal Palm still exist today.
Schuster eventually became the chief executive officer of Royal Palm. Achelpohl said the state’s investigation has not focused on Engle’s diligence on behalf of investors.
He said she consulted with legal authorities available to her, as well as the compliance officer with her company Capital Growth Financial, and the chief officers of ACC and Royal Palm.
Assistant Attorney General Michael Guinan asked Sindelar to read from the Royal Palm PPM.
Sindelar said the company stated an investment strategy that appeared to focus on buying shares of other companies with the intent of gaining control of management.
He said the strategy was not certain, however.
The PPM said the company would invest in companies that presented “special opportunities” for “any reason.” He said the PPM said it would invest in U.S. companies, unless it changed its mind.
He described the investment strategy as an “open pool” and said it is riskier for the investor.
“It increases risk because the stated use and purpose of proceeds are not identified,” he said.
He said the parameters of the strategy are too wide for investors to have any idea how the company will proceed.
“I believe their investment policies are nebulous. The investor just doesn’t have a clue as to which companies that would involve. It is wide open,” he said.
The PPM said ACC and Royal Palm are only suitable for investors with sufficient finances that they can afford a total loss of their investment.
It says there is no assurance the company will meet any of its investment objectives and says the company’s management experience is limited.
Sindelar and Karen Reynolds, a banking department securities analyst, said investors told them that Engle did not provide them with a PPM.
They said the investors noted that transactions would take only minutes and Engle only spoke favorably about the company.
They said investors concluded they would not have invested in the company had they known the contents of the PPM.
Nebraska City, Neb. —
