Steve Clary’s Legal Troubles Boiling

Momentous personal events accompanied Steve Clary’s last two birthdays, with the possibility of an ominous third.

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On July 30 of this year, Clary and his wife, Cindy, filed for Chapter 7 bankruptcy liquidation with a preliminary estimate of liabilities between $100 million and $500 million and estimated assets of $50,000 or less.

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A year earlier, an Oklahoma state court judge issued a bench warrant for Clary’s arrest for contempt after he failed to appear at a court-ordered deposition.

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When July 30 rolls around in 2011, Clary could find himself in federal prison.

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The 58-year-old accountant by training and real estate developer by vocation faces five counts of loan fraud alleged in a July 6 indictment handed down by a grand jury in Little Rock.

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Gwinnett County (Ga.) Magistrate Emily Powell issued an arrest warrant for Clary on a charge of theft by taking. Local law enforcement officials have not served the warrant yet.

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The case involves Clary allegedly borrowing $500,000 from Touchmark National Bank of Alpharetta, Ga., to purchase a tour bus but instead using the funds for other purposes. Touchmark is listed among the Clary creditors.

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The criminal charges follow two years of civil lawsuits and default judgments for unpaid loans and debts in Arkansas, Texas, Oklahoma, Alabama and elsewhere.

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The court records portray a businessman scrambling to save his failing fortunes by begging, borrowing or, as federal prosecutors allege, stealing. Business associates speaking on and off the record describe a man whose success in commercial real estate emboldened him to take big risks outside his area of expertise.

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His downfall is even more staggering if personal net worth claims made during a sworn deposition are genuine: Three months ago, Clary said that his net worth was “virtually nothing” after pegging his year-end 2007 net worth at about $92 million.

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The historically media-shy Clary couldn’t be reached for comment.

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As creditors peeled away his chaotic financial affairs, Clary shed the vestiges of respectability long associated with his upright community image.

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Preceding his indictment, Clary resigned from the boards of trustees at Central Arkansas Christian Schools in North Little Rock and Harding University in Searcy, where he served since 2004.

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A 1974 accounting graduate of Harding, Clary was its 2008 College of Business Administration Alumnus of the Year. He was a member of the University Builders Circle and President’s Council and an elder at Pleasant Valley Church of Christ.

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Harding’s Cannon-Clary College of Education was named to honor the parents of Steve and Cindy Clary, a nod of recognition of the couple’s big-bucks donor status with the school.

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But that was then. His now includes eviction from his west Little Rock office after missing four month’s rent, running up a $28,000 tab during March through June.

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Shattered Image

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The transformation from well-heeled Harding alumnus to deadbeat tenant is dramatic. Those who know Clary still have a hard time wrapping their minds around all that has transpired.

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“It’s sad,” said one long-time friend. “He was a good man. He didn’t mean to directly hurt anyone or cheat anyone. He just got in too deep and did things he shouldn’t have done. Sometimes you just have to cut your losses and move on.”

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Clary’s professional reputation was built largely on developing retail projects, culminating in the Shackleford Crossings lifestyle center in west Little Rock. That high-profile property is now under the care of a receiver after Clary defaulted on the project’s $74 million funding agreement with M&I Marshall & Ilsley Bank of Milwaukee.

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Among the actions that triggered the M&I default was Clary’s pledging his ownership in Shackleford Crossings as collateral on other debt.

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Bill Plunkett, executive director of Habitat for Humanity of Pulaski County, three years ago lent Clary $300,000 secured by Clary’s financial interest in Shackleford Crossings.

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Plunkett said he hadn’t talked with Clary in more than a year but had communicated with some Clary confidantes.

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“I’ve heard that his attitude is, ‘I’ve screwed up and done something I shouldn’t have done and will probably go to jail for it,’ ” Plunkett said.

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Clary has, however, entered a plea of not guilty and asked for a jury trial on the five-count indictment.

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The four counts of wire fraud against Clary are tied to the reallocation of $1.6 million from Banc of America Leasing & Capital to refurbish six tour buses to be leased. Instead, Clary allegedly had the money redirected for other purposes.

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More than $1.3 million went to three bank accounts in Texas affiliated with Clary’s Cirrus Health II Ltd. of Dallas. The remaining $265,000 went to an account for another Clary entity, Convenos LLC.

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“That’s as far as we traced the funds,” said Michael Johnson, senior legal adviser for the U.S. Attorney’s office in Little Rock, which is prosecuting the case.

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The single count of mail fraud alleges that Clary falsely stated in writing to Banc of America Leasing that loan proceeds were spent to equip the buses.

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The deal by Clary’s Destination Adventures LLC of Missoula, Mont., was part of a six-bus purchase funded by a $4.5 million Banc of America Leasing & Capital loan on May 8, 2008.

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As of Aug. 5, his trial was set for Aug. 23 in Little Rock U.S. District Court before Judge Leon Holmes. Few would be surprised to see the case rescheduled, coming less than two months after Clary’s indictment.

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Adding to the expectation of a delay in the trial is the schedule of Clary’s chosen attorney, Jack Lassiter. The Little Rock criminal defense lawyer also represents Dr. Randeep Mann, whose monthlong trial on charges of trying to kill Dr. Trent Pierce, chairman of the Arkansas State Medical Board, went to the jury last week.

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Clary was represented at his July 20 arraignment by Lisa Peters, a public defender. Handwritten notations in the plea and arraignment report state that Peters was appointed solely for the hearing along with “Jack Lassiter retained.”

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“I have talked with Mr. Clary, but I am not his attorney of record,” Lassiter told Arkansas Business.

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Searching for Money

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Plunkett was part of a group of mostly local businessmen who lent money to Clary three years ago when his squeaky-clean image was still as intact as his outward appearance of wealth and success.

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That list and their subsequent default judgments include Hendren Family Ltd., led by James Hendren, $1.16 million; Ventures LLC, led by Phil Whisenhunt, $1.05 million; Naftal Family Ltd. of Alpharetta, Ga., led by Mark Naftal, $527,497; and Hank Kelley, $263,748.

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After Clary defaulted on monthly payments on individual loans in August-November 2008, he negotiated a March 10, 2009, forbearance agreement. In exchange, he pledged an Oct. 1, 2006, line of credit for $15 million payable to him by Delphis Ltd. of Denton, Texas.

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Delphis, a Clary investment, has evaporated, and the note represented money Clary lent to the venture. The balance owed was about $4 million when the investors took possession of the Delphis note last year.

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Clary creditors now believe his balance sheet was filled with such vacuous assets.

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Executives at Centennial Bank of Conway still aren’t sure what to make of a stock certificate for more than 14 million shares of SkyComm Technologies Corp. that Clary pledged to help secure a $1.5 million loan originated on July 26, 2007.

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However, bank officials are near certain the shares in the penny-stock venture are worthless, even if SkyComm’s corporate history remains a tangled enigma.

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Plunkett and the other personal lenders were offered the option of converting the money lent to Clary into shares, discounted by 50 percent, in two of his ventures: Spinner Acquisition LLC, a mystery entity also pledged as collateral to Centennial Bank, and Clary Petron Ltd. of Dallas.

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According to loan documents at the time, Clary “intends to borrow a total of $8 million from individuals or entities similar to secured party.”

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Why did Clary seek personal loans from Plunkett and others instead of going to a bank?

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“Yeah, I asked that question, but I honestly don’t remember what he said,” Plunkett said. “I felt like at the time he couldn’t borrow any more from the bank.”

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The timing of Clary’s search for loans from individuals is troublesome. Plunkett made his $300,000 loan to Clary on July 13, 2007. According to court documents in an Oklahoma case filed by Waterford Investors LLC, Clary’s purported net worth was more than $90 million as of Dec. 31, 2007.

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Waterford Investors of Oklahoma City believes Clary misrepresented his financial affairs to deceive creditors into lending him money – and that he is hiding assets instead of making good on personal guarantees.

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“We have clear evidence he’s been transferring assets,” a Waterford insider said.

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Waterford holds a $6 million default judgment and continues its battle to get financial information from Clary.

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“In particular, defendant has failed to produce any financial records related to 2008-2010,” according to Waterford, and Clary testified “that he has not created or instructed anyone to create financial statements since Dec. 31, 2007, nor had he filed income tax returns since 2007.”

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Out of Patience

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Frustration with Clary’s inability to follow court orders, show up for depositions and hearings or bring all the documents mandated by subpoena finally erupted into a contempt citation and more in the Waterford case.

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A bench warrant was issued for Clary’s arrest last summer after he finally wore down the patience of long-suffering Oklahoma County District Court Judge Daniel Owens.

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Clary’s lawyer, Leif Swedlow, told the Oklahoma court last year that his client was “presently engaged in complex, intensive negotiations for the completion and closure of an international transaction.”

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Swedlow said that Clary expected the deal to close on or before July 22, 2009, and the proceeds from the transaction would enable him to repay Waterford in full.

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But that didn’t happen.

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It wasn’t the first time Clary failed to deliver on promises of a pending big deal that would set everything right with Waterford and others, and it wouldn’t be the last.

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According to court documents, “Clary approached Waterford, requesting a short-term loan, stating he required additional operating capital pending the closing of a private placement memorandum.”

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The 2008 Waterford loan was supposed to be repaid in five months from the sale of Clary Energy LLC and cash distributions from Clary Petron Ltd.

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“He thought he was going to take both of those companies public, or at least that’s what he told us,” said one Waterford insider.

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“Clary continually represented to Waterford that he had secured an investor for the [private placement memorandum] and that the closing would occur in the near future,” court documents state. “Clary made the representations regarding the imminent closing PPM and the investor knowing that such representations were false.”

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The Waterford loan started with $3.15 million on Feb. 15, 2008, and Clary failed to make the first interest-only payment on March 1. The borrowing grew to $4.8 million by July 31, 2008, and unpaid interest pushed the debt upward from there.

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Unable to get a clear picture of Clary’s financial condition to attempt collection on its judgment, Waterford asked for the appointment of a special master.

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Waterford, in a motion, told the court that Clary’s financial transactions were so complex that determining his actual net worth would require a certified public accountant.

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Core Competence

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That financial reckoning likely will shift venues since Clary and his wife filed for bankruptcy. Some are skeptical that anyone will make sense of his financial dealings.

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“I’ve sat with him at a deposition for seven hours,” one lawyer said. “I’m not sure if I understand any more about this than I did when I first became involved, nine months ago.”

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In its search for Clary assets, Waterford began exploring his business relationship with Jim Guy Tucker. The former governor of Arkansas used office space at Clary Development Corp. and shared investments with Clary over the years.

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Two of their ill-fated deals include the 2005-08 Convenos software venture in Scotts Valley, Calif., and ownership of the Arkansas Twisters arena football franchise from October 2004-08.

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Clary’s interest in oil and gas leases in Miami, Linn and Cass counties in Kansas and Bates County, Mo., helped secure the Waterford debt. The limited liability company also is seeking information on Clary’s involvement with four entities where Tucker is chairman: Rivers Edge Inc., Houston Refinery Partners No. 1 LLC, Houston Refinery Partners No. 2 LLC and Houston Refinery Partners.

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Those familiar with Clary’s business dealings point to oil and gas holdings and fledgling companies as devouring his money.

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Oil and gas ventures became his biggest asset and later became a huge liability. Also eating into his cash flow were investments in Convenos and other ventures that required ongoing operating capital to stay afloat but failed to become profitable.

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Clary approached Little Rock businessman Andy Collins more than a year ago about borrowing $2 million. Collins declined the offer, which included a sales pitch by Jim Guy Tucker, because Clary couldn’t provide any assets to secure the debt that weren’t already leveraged.

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“If you could give me collateral that was unencumbered, I would consider it,” Collins said he told Clary.

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Collins asked Clary why he asked him for a four-month loan instead of going to a bank. He said Clary told him the loan process would take too long at a bank.

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Collins said even this year, Clary talked of closing a big oil deal that would get him back on his feet and allow him to pay his rent and compensate his small staff, which had gone without paychecks for several months.

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Collins feels sorry for Clary and offers insight on why he didn’t heed warnings that he was risking everything he had built on dangerous money-consuming investments.

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“He’s been in tight spots before and wanted to believe he could pull a rabbit out of his hat again,” Collins said. “He has a humble front, but he’s always been a self-aggrandizing guy.

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“He brought it on himself. He got lost.”