Lochmiller abused cash of investors, stepson says
The owner of Valley Investments in Grand Junction used millions of dollars in investor funds to pay for a condo in Mexico, new vehicles, back taxes, personal credit-card payments and even hush money, his stepson testified Tuesday.
Philip Rand Lochmiller II, 39, told a federal court jury in Denver that his father, Philip Rand Lochmiller, turned intimidating and angry when he was questioned about the condition of the company and his own background.
Lochmiller II, who said he was adopted at age 2 by the elder Lochmiller, testified under a plea agreement that leaves him vulnerable to a 15-year prison term. Under questioning by Daniel Smith, his father’s attorney, Lochmiller II said he hoped his honest testimony would be acknowledged at sentencing.
Lochmiller II, however, also said he hadn’t been truthful with investigators in interviews about the way Valley Investments operated or his role in the business.
Valley Investments, which resided at 1445 N. Seventh St., collapsed in May 2009, taking with it $30 million in investments from more than 400 investors.
It was only as the end neared for Valley Investments that Lochmiller II realized the business couldn’t survive, having recently learned its assets were far outweighed by its liabilities in the form of those investor funds.
His father even told him he expected to be incarcerated once the business’s difficulties had been resolved in receivership, Lochmiller II testified.
That was a sharp reversal from the day that Lochmiller II informed his father that he had told his fiancee about the elder Lochmiller’s criminal background.
“I thought he was going to rip my head off,” Lochmiller II testified. His father wanted that information “left in the past,” he said.
Lochmiller II said he was 12 or 13 when his father was sentenced to three years in prison in California after he pleaded guilty to 30 counts of securities fraud.
The elder Lochmiller told some of his investors he had run a successful business in California but told none of them about his criminal history, several have testified. Had he been forthcoming about that, as well as his own bankruptcy in 1984, investors have testified they never would have invested in Valley Investments.
Like his father, Lochmiller II never discussed his own personal bankruptcy, he testified.
As office manager at the company office, 1445 N. Seventh St., Lochmiller II had access to the company’s finances and was instrumental in wiring at least two payments of $100,000 each to Mexico for the purchase of a condominium unit in his father’s name, Lochmiller II said.
The elder Lochmiller used money from the general account, which contained investor funds, for other purchases, including a large residence at 22 and M roads.
Valley Investments also carried two of his sisters, Crystal and Natalie, as employees, much to his consternation, Lochmiller II said.
He used company money to buy a hot tub and rebuild a classic pickup truck, Lochmiller II said, in what he termed “retaliatory spending” for the money spent on his sisters.
Lochmiller II also sent checks to the Treasury Department for taxes owed by his father as far back as 1997, he testified.
In a bit of skulduggery intended to conceal the true nature of some spending from other employees, Lochmiller II wrote several checks to his father, who endorsed and sent them to a former employee, Phil Bartoe, as part of a settlement.
Bartoe, who has been subpoenaed, had threatened to go public with information that Valley Investments was insolvent and he had company records to prove it, Lochmiller II testified.
Bartoe called the company a Ponzi scheme when he met with the Lochmillers, Lochmiller II said.
Lochmiller II said he was unfamiliar with the term, named for a 1900s confidence man, Charles Ponzi, who used a pyramid scheme to defraud investors who bought unregistered securities.
“I had to go to my office and Google ‘Ponzi’” to learn what Bartoe was saying, he said.
The elder Lochmiller decided to pay up after hearing from Bartoe’s attorney, Lochmiller II said.
“Dad didn’t want bad press at that time” and agreed to pay Bartoe $10,000 a month for a set period of months, Lochmiller II said.
Lochmiller II is to continue testifying today.
Investors and others can receive updates on the trial from the U.S. Attorney’s Office at 303-454-0160.