Accountant: Owner in denial about firm’s red ink
The owner of Valley Investments, who had crowed that he profitably developed affordable housing, was in denial about figures that showed the opposite, the company’s former chief financial officer testified Wednesday.
Rick Langley said he suspected early on that after he arrived at his new job as CFO in May 2008 that Valley Investments had failed to properly include all of the costs in the price of the entry-level manufactured housing it was selling in places such as County Living Park in Mack and Sunburst Terrace in Vernal, Utah.
In applying generally accepted accounting principles to a single lot on which a modular home had been placed and sold, one in Sunburst Terrace, he found that the financial outcome in that single instance was upside down, the opposite of how it had been portrayed to investors, Langley said.
Instead of turning a $50,000 profit on the sale, Valley Investments realized a $59,000 net loss on the deal, including construction costs and interest owed to investors, Langley testified.
When he presented that information to Valley Investments owner Philip Rand Lochmiller and Lochmiller’s stepson, Philip Rand Lochmiller II, the elder Lochmiller denied the veracity of Langley’s numbers, Langley said.
The younger Lochmiller, however, said he was surprised by the revelation.
That didn’t mean that Valley Investments changed its business model, though, and the Lochmillers made no changes in what they told investors, Lochmiller II testified.
When Langley left Valley Investments on Oct. 7, 2008, “Dad used the occasion as a celebration,” Lochmiller II testified Tuesday.
The elder Lochmiller instead redoubled his efforts to attract investors to the company, Lochmiller II said.
The elder Lochmiller also rejected advice to reduce the interest rates he was promising investors, and he rejected Langley’s advice to sell an expansion of Sunburst Terrace rather than pursue expensive development that the City Council opposed because it was too dense, Langley said.
At one point under cross-examination by Lochmiller attorney Daniel Smith, Langley said Valley Investments’ effort to expand Country Living Park in Mack was stymied by Mesa County’s insistence on a bond for the project.
“The insurance agent told me he could not write a bond for Valley Insurance,” Langley said.
Langley said he did persuade the elder Lochmiller to work on a variant of a profitable venture in Utah, where Valley Investments supplied housing for a mine. Langley said Valley Investments similarly could offer to supply housing to mining and drilling companies in western Colorado.
Lochmiller liked the “Community Housing Solutions” idea and tried pitching it to industry decision-makers at a Club 20-sponsored meeting in Glenwood Springs. Lochmiller’s pitch to executives, Langley said, was “overzealous,” and his “overselling” was “embarrassing to an extent.”
Nothing came of the meeting, and Lochmiller never pursued it any further, Langley said.
In other testimony Wednesday, Lochmiller’s personal secretary, Mindy Blackburn, said her boss accepted cash payments from renters at Valley Investment’s Blue Mountain development in Dinosaur.
Blackburn testified that at Lochmiller’s direction, she regularly accepted the rental payments in cash and turned them over to her boss rather than deposit them in the company bank account.