IOWA CITY, Iowa—A disgraced Indiana businessman agreed Friday to pay more than $3 million and never run a public company again to settle federal regulators’ allegations that he carried out three separate fraud schemes over five years in states stretching from Colorado to Michigan.
The Securities and Exchange Commission accused Lowell “Bob” Hancher of Sheridan, Ind., of defrauding investors in a Colorado construction company of $1.8 million, manipulating the stock price of a classic car company he founded in Michigan and abusing his position as director of an Iowa manufacturer by stealing $620,000.
The government’s complaint, filed in federal court for the northern district of Iowa, said Hancher used some of the money he stole to pay personal expenses such as credit card and mortgage bills and to keep his other businesses afloat.
Hancher, 57, did not acknowledge wrongdoing under the settlement, but he agreed to pay back nearly $2.4 million, along with a $130,000 civil penalty and $600,000 in interest. He also agreed to never again be an officer or director of a public company and to refrain from violating federal securities laws.
The SEC also charged and reached settlements with Hancher’s Westfield, Ind.-based company, Commerce Street Venture Group, Inc., which stopped operating last year; business associate Edward T. Whelan of Keyport, N.J.; and Whelan’s company, Grace Holdings, Inc.
Anne McKinley, assistant regional director of SEC’s Chicago office, noted Hancher filed for bankruptcy in August and said it’s unclear whether he will ever be able to pay the full amount. Once it’s known how much will be available, the agency can find the victims and distribute the proceeds, she said.
McKinley said the case is unusual because Hancher’s conduct involved “three separate, completely different frauds” that he ran back to back over a five-year span.
“It wasn’t the same scheme over and over again,” she said. “Because of the severity of the conduct, there’s a fairly substantial settlement here.”
Attorneys for Hancher and Whelan did not immediately return phone messages.
Regulators said Hancher raised $1.8 million from 60 investors between 2005 and 2007 in a scheme involving a fraudulent stock offering for Scott Contracting, Inc., a construction firm based in Henderson, Colo. McKinley said Hancher told the investors, which included company employees and investors from Iowa and elsewhere, at least four different stories about how their money would be used and promised unrealistic returns once the company went public.
“None of them were true. He just took all of the money,” she said.
In a second scheme in 2007 and 2008, Hancher told Whelan and others to buy and sell large, identical amounts of stock of LMWW Holdings, Inc., the holding company for Legend Motors Worldwide, Inc., a Michigan-based manufacturer of classic automobiles, the SEC said. The stock orders, which were carried out at the same time and for almost exactly the same price, were intended to prop up the company’s stock price and make it look like more heavily traded, the SEC said. Whelan was a founder and board chairman of the company, which filed for bankruptcy in 2009.
In the final scheme, Hancher abused his position on the board and as director of the audit committee of Cycle Country Accessories, Corp., a Spencer, Iowa, company that makes accessories for all-terrain vehicles and golf carts, the SEC said. Hancher convinced the firm to give him and Whelan $620,000 for a plan to take the company private through a stock buyback, the agency said.
But instead of using the money to buy company stock, Hancher kept more than $500,000 for personal and business expenses and told Whelan to use $16,000 to buy stock of LMWW, the SEC alleged. Whelan, 60, agreed to pay back $16,000 plus interest and to pay a $20,000 civil penalty under his settlement.
Hancher created fake documents to cover up the misappropriation and lied to the company’s auditor, which caused the company to file incorrect reports to the SEC, the agency said.
A lawsuit Cycle Country filed against Hancher last year put its losses at $800,000.
A judge has put the case on hold pending the outcome of bankruptcy proceedings for Hancher, who had been on the board since 2001. He resigned last year.
A Sheridan, Ind., home that Hancher bought for $905,000 in December 2007 burnt down last year and was “a total loss,” according to a report filed this week by the trustee handling his bankruptcy. The report showed Hancher once had $2.6 million in assets, including another home in Noblesville, Ind., and commercial property worth $800,000. Much of his personal property is being auctioned off to pay creditors, including classic cars, trucks and poker tables.
