April 8, 2004
IN
THE NEWS | THE HUM | PREVIEW | CALENDAR
Site of proposed resort in Orick,
photo by Hank Sims.
Booking photo insets, clock wise from left: John Russavage, Michael
Harder
and Hans Overturf, provided by Del Norte County Jail.
by HANK
SIMS
I. Arrest
ON THE EVENING OF THURSDAY,
MARCH 4, DEPUTIES FROM THE Humboldt County Sheriff's Office showed
up at the Trinidad home of John Russavage, president and CEO
of the Redwood Parks Lodge Co., Inc., and served him with a warrant
for his arrest, signed by a Del Norte County judge. Russavage,
51, was taken to the Humboldt County Jail, and was later transported
to Crescent City and booked on charges of burglary, theft, fraud,
conspiracy and financial abuse of an elder.
Del Norte County District Attorney
Michael Riese sought two other Humboldt County men on the same
charges. Michael Harder of McKinleyville, a member of the Yurok
Tribe and a graduate of Humboldt State University's business
school, had served for a short period as Redwood Parks Lodge
Co.'s chief financial officer and had worked as a financial planner
for the Eureka office of Morgan Stanley. Hans Overturf of Bayside,
a native of Switzerland and an HSU economics graduate, also worked
for Morgan Stanley, but was never employed by Redwood Parks Lodge
Co. He currently heads the Arcata branch of Raymond James, another
financial services company. Both in their early 30s, they are
currently the president and treasurer, respectively, of the Arcata
Rotary Club.
Harder and Overturf surrendered
themselves in Crescent City before they could be arrested.
The arrests of Russavage, Harder
and Overturf were the culmination of an eight-month investigation
of Redwood Parks Lodge by the Del Norte County District Attorney's
Office. The investigation began when Harder and Overturf's former
bosses at Morgan Stanley called a Crescent City attorney to tell
him that their employees may have improperly urged an elderly
Crescent City couple -- Morgan Stanley clients -- to invest some
$730,000 in Redwood Parks Lodge. The DA charges that the well-to-do
couple, aged 85 and 83, were suffering from progressive dementia
when they made their investments, and the defendants took advantage
of their condition to enrich themselves. (The Journal
has agreed not to publish the couple's names out of a concern
that they might be sought out by future scam artists. The husband
died this past Sunday of natural causes, but his wife is still
living.)
The bail set for each of the
men was $500,000, one of the highest amounts ever in a Del Norte
County case. Russavage and Harder both waited in jail for a hearing
to get their bail lowered; Overturf took out a bail bond and
didn't spend any appreciable time behind bars. All three entered
a plea of not guilty.
If the case goes to trial, as
appears likely, Riese, who has handled the case personally thus
far, will attempt to prove two things. His key contention is
that the defendants should have known that the elderly couple
were not capable of handling their financial affairs at the
time they made their investments. And if an affidavit filed by
the DA's investigator is any indication, he will also seek to
show that at some point the Redwood Parks Lodge Co. became nothing
more than a vehicle for swindling potential investors.
The case may not be a slam-dunk
for the DA. In the first place, his charges have mobilized the
men's friends and supporters in Humboldt County's legal and business
worlds, and these forces may end up overwhelming Riese's tiny,
four-attorney office. In the second, the facts Riese is
using to make his case may not be as solid as they should be,
despite the amount of time his office has put into the investigation.
Other people who met the couple
around the time they invested in the company allege that they
didn't seem to be suffering from any debilitation, and one of
the couple's own relatives has written in support of one of the
defendants. And far from being shocked at the company's alleged
financial misconduct, most local investors -- who have all invested
much less money than the Crescent City couple, on the order of
$100,000 total -- are outraged at the Del Norte DA's charges.
"These people are the furthest
thing from a crook that there ever was," one investor, Eureka
resident Rosemary Hunter, said last week. "It's just ludicrous."
Hunter and others say that Russavage
and Harder, who were both executives at the company during the
period when the alleged abuse took place, are upstanding entrepreneurs
who would never take improper advantage of investors. They suspect
that Riese is trying to make a high-profile case merely for political
gain.
Look at the evidence from one
angle and it appears that at least two of the three defendants
may indeed have cynically taken advantage of an infirm, elderly
couple with a lot of disposable cash lying around. (The DA acknowledges
that Overturf did not profit from the alleged scheme). Look at
it from another, though, and Redwood Parks Lodge Co. was doing
what any struggling start-up company does -- trying to keep its
head above water by getting people with money to believe in it.
It's not an enviable business model, but if it wasn't apparent
the couple were senile, then it's not a crime, either.
Redwood Park Lodge Co.'s
Orick headquarters
II. Big dreams
There has always been an element
of the grandiose in Redwood Parks Lodge Co.'s vision that has
made it resemble, in some ways, countless `90s-era fledgling
technology companies. Like a relic of the New Economy, it promised
to build something ambitious out of some very unpromising raw
materials. A few years ago, someone tried to make their billions
by FedEx-ing customers cat food ordered over the Internet; in
2002, Russavage and his partners set out to turn an abandoned
mill in Orick into a sparkling new resort.
Russavage had quit his job as
a senior financial advisor for Merrill Lynch to invest all his
efforts into doing just that. In late 2002, he and his wife,
Mary Beswick, moved from Palm Springs to Trinidad to get the
company off the ground. Their early partners were Lee Miller
and Rita Lakin, a Trinidad couple who at the time owned the Lost
Whale Bed and Breakfast Inn. The only asset the four partners
had, aside from their talents and their dreams, was an option
to purchase the 38-acre former mill -- a site known in Orick
as the "Geneva Mill" -- located about three miles north
of Orick near Rolf's Park Café. [This
information has been corrected online since publication]
An early executive summary of
the company's business plan lays out the vision for the site:
"The final plans currently include state-of-the-art conference
facilities, a first-class resort hotel and spa, a family-oriented
hotel, youth/senior hostels and restaurants," it reads.
"We have plans for retail shops where tourists can purchase
gear for outdoor activities such as hiking, camping, kayaking,
etc. In total, we plan to have 2,000 or more rooms."
A Journal news item from September 12, 2002 reported that the lodge
would be constructed of wood, stone and glass, and would be modeled
after those built by the Civilian Conservation Corps in national
parks during the Great Depression. The Journal further
reported that partners were shooting for a grand opening in 2005.
Two thousand high-end hotel
rooms may sound like a few too many for the Orick area, but the
company wasn't thinking just of the town's charms. The one word
that kept appearing in all promotional literature for the company
was "Yosemite." Orick is the gateway to Redwood National
and State Parks, the company argued -- the 127th-most visited
destination in the national parks system. The town only has a
few modest motels where tourists may stay. With a destination
resort, like those at Yosemite or Yellowstone, tourism in the
parks -- and the economy of the north county -- would explode.
[This
information has been corrected online since publication]
Even in the early days, the
company had its share of setbacks. With financing slow to come
and building permits difficult to obtain, the company had to
push back its target opening date to some time in the distant
future. In recent months, it has focused its immediate
attention on two smaller scale projects -- the "Gold Rush
Cabin Complex," a dozen or so small vacation rentals near
the lodge site, and the "Beach Trails RV Resort and Campground,"
to be located at the south end of Orick.
Miller and Lakin left the company
almost as soon as Russavage and Beswick moved to town, for reasons
that they refuse to discuss. According to Victor Schaub, a former
Arcata mayor and the legal counsel to the Redwood Parks Lodge
Co., the couple signed an agreement not to talk about the details
of their split with the company in exchange for an undisclosed
settlement. Today, they own and operate two small businesses
-- Arcata Music in Sunny Brae and the Life's a Beach shop in
Eureka's Old Town. (They sold the Lost Whale Inn in 2003.) [This
information has been corrected online since publication]
With Miller and Lakin's departure,
Russavage and his wife became the sole major shareholders in
Redwood Parks Lodge Co., and Russavage himself took on a greater
role in building the company. But even before his old partners
bowed out, Russavage was making other acquaintances in the local
business community.
III. The victims
Russavage met Mike Harder sometime
in late 2002, while Harder was in his second year working as
a Morgan Stanley financial advisor. The two hit it off, and soon
Harder, who had lived in the Orick/Klamath region much of his
life, agreed to help raise funds for Redwood Park Lodge Co.
Harder and his co-worker, Hans
Overturf, were by all accounts extremely successful and promising
young employees, and they both traveled up and down the coast
to meet with wealthy clients who sought their help in managing
their investment portfolios. In at least one case, that of the
elderly Crescent City couple, they shared responsibilities for
particular clients.
The elderly man whom Harder,
Overturf and Russavage allegedly victimized had a long and successful
career as an investor and in the construction industry. The DA
estimates that the man and his wife had $3 million invested with
Morgan Stanley, and according to the DA investigator's report,
the couple were extremely close with their financial advisors
-- particularly Overturf, whom they considered to be "almost
family."
Many of the specifics around
the couple's investments in Redwood Parks Lodge Co. are unclear,
but the report filed by DA investigator A. C. Field lays out
a basic chronology, including the couple's interactions with
Harder and Overturf from late 2002 through May 2003, the period
when the investments occurred.
By the end of 2002, Harder had
received a check for $100,000 from the couple for the purchase
of Redwood Parks Lodge Co. stock. After receiving that investment,
along with $40,000 from another source, Harder left his job at
Morgan Stanley and took the position of chief financial officer
at Russavage's company. Harder received a 10 percent finders'
fee -- $14,000 -- on the funds he had raised.
The couple would make two more
investments in Redwood Parks Lodge Co. over the coming months,
and each time, according to the DA's office, both Harder and
Overturf would be somehow connected with the transaction. On
March 10, 2003, Overturf drove the couple to a meeting of shareholders
in the company at Russavage's home, which Harder also attended.
At the meeting, Russavage asked if anyone would be interested
in purchasing more Redwood Parks Lodge stock -- a few weeks later,
the couple bought an additional $30,000 worth. It's not clear
if anyone else who attended that meeting also purchased additional
stock.
Then, in late May, the couple
bought $600,000 worth of Redwood Parks Lodge Co. bonds -- debt
that the company was obligated to pay back to the couple in regular
monthly installments of $4,000, according to Field. Though
it is not clear what led to this investment, it is clear that
Overturf and Harder showed up at the couple's home on May 22
carrying with them checks drawn off the couple's Morgan Stanley
"margin accounts" -- money borrowed from Morgan Stanley
and secured by their other investments. According to the DA investigator's
report, the couple told him that they asked Overturf whether
he thought it was a good investment, and Overturf told them that
it was. They then signed the checks.
Field, who first met the couple
only a month after this last investment was made, writes that
it was immediately obvious that the couple were not in their
right minds. When he first met them, at the office of a Crescent
City attorney, Field said that the man could not remember the
name of the company he had invested in nor the amount he was
supposed to have invested.
Two weeks later, when the couple
came to meet with Field in his office in the Del Norte County
Courthouse, the husband forgot where he was and wandered out
into the parking lot. When Field found him, the man "stated
that he had left his wife somewhere" and needed to find
her before he could talk with Field any further. Field ushered
him back to his office, where the woman was waiting.
Though Overturf said he could
not speak to the press because of the pending charges, his attorney,
Russ Clanton, said last week that while the events that the DA
claims implicate Overturf did occur, the DA has misinterpreted
Overturf's role.
"There are areas of dispute
in this case," Clanton said. "The question is, did
Mr. Overturf recommend this investment to [the alleged victim]?
And I think that the definition of what is or is not an investment
recommendation is going to be at issue here."
Harder had not secured permanent
legal counsel by the end of last week, and did not return repeated
messages left at his home.
Several things happened shortly
after the couple made the $600,000 bond investment. Russavage
used the money to exercise Redwood Parks Lodge Co.'s option on
the Orick mill site, and for a price of $530,000 the 38-acre
plot that was to become the great lodge was finally in the company's
hands.
Overturf was fired from Morgan
Stanley in late June after his superiors found out about the
Crescent City couple's investments into Redwood Parks Lodge Co.
Soon after, they made the phone call that sparked the Del Norte
County DA Office's investigation. (Asked to comment on Overturf's
firing, a Morgan Stanley spokesperson would say only that the
company was cooperating fully with the Del Norte DA's office,
and that Redwood Parks Lodge Co. was never an authorized Morgan
Stanley investment.)
Finally, sometime in late June
or early July, Harder quit his job at Redwood Parks Lodge Co.,
as it no longer had any money to pay his salary.
IV. Money
When the company was flush --
basically, whenever the Crescent City couple made a stock purchase
-- the payroll at Redwood Parks Lodge Co. flowed freely. Between
late January and late June 2003, Russavage was taking home around
$11,000 per month. Harder was getting about $5,000 per month,
and Russavage's son, Joseph, brought on board as a staff engineer,
was getting about $3,000.
In total, the company paid around
$120,000 -- nearly the entire amount of the Crescent City couple's
stock investment -- to its three staffers in five months. This
was before the company had even bought any of the Orick property
it wished to build its various projects on -- before it had any
assets at all, except the option to purchase the mill site. That
option was set to expire in September. If Russavage and Harder
hadn't been able to get the $600,000 bond investment from the
Crescent City couple, it is likely that the company would have
lost the right to buy its flagship property.
The company had few other sources
of funds, despite Russavage and Harder's efforts to sell it to
local investors. One person who didn't bite at Russavage's pitch
was Eureka businessman Rob Arkley, the founder of Security National
Corp. and one of the wealthiest men in the county. According
to Arkley, Russavage approached him sometime last year and asked
him to invest several million dollars in his company. Arkley
said he and his advisors closely went over the finances of the
company -- something Russavage was "clearly not accustomed
to," Arkley said -- and it didn't take them long to come
to the conclusion that the company was a bad investment.
"It was such a clearly
non-serious business proposal, it was hard to imagine,"
Arkley said. "Frankly, he kept going through it and I kept
chuckling and laughing."
From financial records obtained
by the DA's office, it appears that Arkley's assessment of the
company was not uncommon. At different times, the company said
that it was interested in raising anywhere from $10 million to
$30 million from investors. But a list of Redwood Parks Lodge,
Co., shareholders dated Jan. 1, 2004, shows that apart from the
$730,000 invested by the Crescent City couple, the company had
succeeded in raising only about $250,000 -- much of it from local
investors, some from outside the area. (By way of contrast,
Eureka's new Redwood Capital Bank raised $12 million in a few
days, despite stiff competition in the local banking sector).
A statement of the Redwood Parks
Lodge Co.'s cash flows dated March 9 -- a few days after the
arrest -- shows that it had only $1,767 left in its accounts.
V. Defenders
The fact that the company has
foundered, though, doesn't seem to worry local shareholders.
Sharon Arnot, wife of the late James Arnot, owner of Humboldt
Land Title Co., bought $50,000 in Redwood Parks Lodge stock in
2003, and last week she vehemently defended Russavage against
Riese's charges.
"I thought and I still
think it's a good investment," she said. "It's a great
idea -- it's perfect for the area. The city of Orick and the
county of Humboldt would benefit.
"I have great faith in
John Russavage. He's a very genuine, honest person. I don't think
he's capable of what they've accused him of. But who knows what
one will do for political reasons, such as the district attorney."
Hunter, the investor from Eureka,
attended two different Redwood Parks Lodge Co. seminars for potential
shareholders in the spring of 2003. With her husband and daughter,
she ended up buying about $20,000 in company stock. Reached at
her home last week, Hunter was furious at Riese and the Del Norte
District Attorney's office.
"To see what this has done
to these people -- I hope they hurry up and get this [case] on,
because I want my pound of flesh," Hunter said. "This
is wrong."
Hunter said that several other
Humboldt County investors in the project -- including a local
physician, Louise Minor -- had met with the Crescent City investors
at the Russavage's home, and found the couple to be lively and
charming, and apparently in full possession of their mental faculties.
"When they made the investment,
they were very sound," Hunter insisted. "He [the man]
was the one giving advice. He knew what was being done and how
these things happened." Others who met the couple at the
same meeting confirmed Hunter's characterization.
And it isn't only investors
who are coming to the accused men's defense. In response to a
request from his attorney, Overturf's clients, fellow Rotarians
and other local friends -- including one of his former instructors
and an administrator at his children's school -- filled his file
in the Del Norte County Courthouse with letters of support. Perhaps
the most interesting letter is a strong statement of confidence
in the defendant by Dr. Anthony Whitney, a San Diego physician
who happens to be the nephew of the Crescent City couple the
DA accuses Overturf of financially abusing.
"I am pleased to write
a letter of character reference for Hans Overturf," Whitney
writes. "I had the pleasure of meeting Hans Overturf through
my uncle approximately two years ago. Since then, I have met
or spoken with Hans on several occasions. I have always found
Hans to be pleasant, professional and trustworthy. I have appreciated
his wise counsel."
Whitney -- who due to his medical
training would presumably be familiar with the state of his aunt's
and uncle's health -- may only be seeking to exonerate Overturf
with this letter. Or he may believe that the DA's case is unfounded.
Reached at his office last week, he declined to comment further.
VI. Adversaries
DA Mike Riese isn't disturbed
by the criticism leveled at his case. "Some people will
say things when they don't have all the facts," he said
last week. He declined to answer his critics directly -- "I
won't try my case in the media, I'll try it in a court of law,"
he said.
Schaub said Riese has been trying
the case in the media from the moment charges were filed. For
instance, the DA ordered up a splashy arrest at Russavage's home
when a simple phone call requesting that he turn himself in would
have sufficed, he said. As he railed against Riese, portraying
him as a headline-hungry prosecutor salivating at the prospect
of taking down a company he doesn't understand, Schaub last week
all but accused the DA of suffering from an acute case of Gallegos-envy.
"His statements in court
made it very clear that he is on a mission to close down the
company," Schaub said. "He thinks it's a bad deal,
but no one asked him to invest. He purports to be acting on behalf
of the victims, but he's victimizing other people."
Early in their illness, sufferers
from progressive dementia have their good moments and their bad,
Schaub said, and there's no reason to assume that the defendants
would have been aware of the Crescent City couple's condition.
"The whole thing hinges
on whether John and Mike and Hans were aware that the alleged
victims were suffering from progressive dementia," he said.
"There's a reason why they call it progressive dementia."
(Riese said that the couple's family doctor would testify for
the prosecution when the case goes to trial.)
But above all, Schaub said,
he has a hard time seeing how the alleged victims were victimized.
He said that despite the company's low cash balance, all scheduled
monthly payments to the couple were current. If anything threatened
repayments on the bonds, Schaub said, it was the DA's allegedly
frivolous charges, which hurt the company's ability to raise
cash. Schaub said the company was only two days away from getting
a Small Business Administration loan that would have allowed
it to completely refurbish the Gold Rush Cabin Complex when the
arrests came down. The creditor has since withdrawn its offer,
he said.
[LEFT: The "Gold Rush Cabin Complex": Some work had
been done on these dilapidated structures, but that has come
to a halt.]
Schaub also said that the company
would be initiating its own investigation into management at
the Eureka Morgan Stanley office, which he believes may have
initiated the whole matter simply out of "professional rivalry"
aimed at Harder and Overturf, their young, successful colleagues.
(Morgan Stanley declined to comment.)
Russavage has been working pro
bono for the company in recent months, according to Schaub. Since
Harder left, the company has brought several prominent Orick
residents -- including Phil Nesset and Joseph and Donna Hufford
-- on to either its board of directors or its staff. They, too,
are donating their work to the company, or working in exchange
for stock. Through Schaub, Russavage told the Journal that
he has invested $100,000 of his own money into Redwood Parks
Lodge. After the salary he received in the first half of 2003,
this would leave him with a net cash loss of some $40,000 since
starting the company. (Russavage and his wife still own the vast
bulk of Redwood Park Lodge Co. shares, though.)
Since his departure from the
company, Harder has been supporting himself and his family by
working as a commercial fisherman, Schaub said. As he has not
been able to afford his own attorney, shareholders in Redwood
Parks Lodge Co. have donated to his defense.
Overturf is reportedly doing
very well for himself as manager of the Arcata Raymond James
office, though his friends worry that the charges against him
-- even if they are proven false -- will harm his reputation.
Only time -- and a jury of 12
of their peers -- will tell whether the defendants are guilty
of defrauding two helpless old folks, or if the management of
Redwood Parks Lodge Co. is guilty of nothing more than taking
an ambitious idea and all but running it into the ground. The
first pre-trial hearing is scheduled for May 5 in the Del Norte
County Courthouse.
IN
THE NEWS | THE HUM | PREVIEW | CALENDAR
Comments?
© Copyright 2004, North Coast Journal,
Inc.
|