Saturday, September 11, 2004
Former executives at company in Lynchburg indicted for fraud
The Burruss Co. officials are accused of cheating a bank out of $10 million.
Two former executives of a Lynchburg wood products company have been indicted as part of an alleged multimillion dollar scheme that federal authorities say resulted in the bankruptcy of the company four years ago.
The case - in which federal authorities say the company officials cheated a bank out of $10 million - demonstrates increased efforts to prosecute allegations of corporate malfeasance in the wake of the implosions of Enron and WorldCom, said Michael Dooley, a professor who specializes in corporate law at the University of Virginia law school.
About 600 company employees were laid off after Burruss Co. filed for bankruptcy in November 2000, said Assistant U.S. Attorney Jennie Waering. The company has facilities in Lynchburg, Galax, Brookneal and the Campbell County community of Gladys. Burruss, which is liquidating its assets as part of the bankruptcy, also has facilities in Tennessee and Kentucky, according to the indictment. None is currently in operation, Waering said.
John Alvis Jackson Jr., the former president of Burruss Co. in Lynchburg, and the company's former treasurer, Larry Andrew Carey, pleaded not guilty Friday afternoon in federal court in Roanoke. U.S. Magistrate Judge Michael Urbanski released them on bond.
Both are charged with conspiracy, bank fraud, wire fraud, making false statements to a federal program, and thefts from an employee benefit plan and an employee health care plan. Jackson is also charged with another bank fraud and a money laundering count.
Carey's attorney, Joseph Sanzone, argued in court that the criminal case is just a rehash of issues that have already been resolved through civil litigation.
Federal authorities say Jackson, 62, and Carey, 57, inflated Burruss inventory numbers to secure asset-based loans from Fleet Capital Corp., which is based in Atlanta. The fraud resulted in a loss of more than $10 million to Fleet, according to the indictment. Jackson was removed as president when the fraud was discovered at the private company and Burruss filed for bankruptcy, according to the indictment.
But before the alleged fraud was discovered in 2000, federal authorities say Jackson and Carey, in addition to collecting salaries as high as $226,000 and $105,000 respectively as officers at Burruss from 1997 to 2000, paid themselves bonuses totaling more than $812,000 over four years through selling off Burruss assets.
Jackson and Carey, who live in Lynchburg, made money from a company they formed called Virginia Wood Products. The company sold lumber to Burruss at inflated prices, according to the indictment.
But all the work at Virginia Wood Products was done by Burruss employees, according to the indictment. From 1997 to 2000, Jackson and his wife, Jeanette, who is not charged, made more than $473,000 from Virginia Wood Products, according to the indictment. Carey made more than $530,000, according to the indictment.
Jackson and Carey also did not pay more than $6,400 to Burruss employees' pension plan and more than $70,000 to the employees' health care plan, as they were required to do, the indictment alleges.
Also indicted in the case is Jackson's daughter, Betty Jo Jackson Holloway. She was not arrested and will receive a summons to appear in court, Waering said.
Holloway, who managed a Burruss plant in Tennessee, is charged with bank fraud and money laundering. She allegedly used more than $13,000 in Burruss funds to pay for personal items, including her wedding, according to the indictment.
Roanoke attorney Tony Anderson, who is representing Jackson, said this is a very complicated case from a business perspective.
"Mr. Jackson has dealt with these allegations since October of 2000," Anderson said. "We anxiously wait the opportunity to establish that there has been no wrongdoing on his part."
Anderson added that had Jackson not suffered a heart attack in October 2000, Burruss never would have been in bankruptcy. Anderson declined to comment further on the allegations.
Lynchburg-based Sanzone, who is representing Carey, said his client's defense had already been put forward in a civil lawsuit. Fleet sued Jackson, Carey, their wives and Virginia Wood Products in 2001.
Sanzone argued in the lawsuit that Fleet was at fault in the case for not following standard business practices and guaranteeing the funds it loaned Burruss. That lawsuit and another suit filed against them by bankruptcy attorneys for Burruss were both settled in August, Waering said. The settlement amount is confidential.
UVa law professor Dooley said that penalties for fraud have been significantly increased by Congress since the corporate scandals and "prosecutors have made increasing use of mail and wire fraud in recent years because it casts a very wide net.
"Basically, all you need is proof that the defendant either committed fraud or ... acted disloyally to a corporation" and used the mail, a fax machine, the phone or an e-mail to do it, Dooley said.