Sentencing set: Reid pleads for W-2s
As the clock ticks down to Friday, April 23, the day John Reid will be sentenced for his role in a check-kiting scheme that sparked the collapse of the company he ran, a new hassle has arisen for some already reeling former employees. The tax refunds of some Ivy Industries employees could be delayed because they can't get official earnings information.
A leading national manufacturer of picture frame moldings, Ivy Industries fell apart in March 2003 after Reid, under pressure from federal investigators, confessed to a massive check-kiting scheme.
The sudden collapse of the company put about 150 company employees in Charlottesville and Beverly, West Virginia, out of work and left many creditors unpaid. The payroll company Ceridian was one to which Ivy owed money, says Harris Haynie, Ivy's former sales director.
Haynie says that in January, Reid, despite his legal maelstrom, made an effort to extract employee W-2 forms from Ceridian.
"John Reid asked me to find out how much it would cost and said he would find a way, if possible, to cover the expense," says Haynie. "He said either he or his wife, an accountant, would fill out the forms."
Ceridian, however, never indicated how much Ivy was in arrears or quoted a price to release the forms.
Haynie says Ceridian would only release the W-2 forms to the employer. "Clearly, there is no employer," says a frustrated Haynie. "I told them I would take responsibility for the data. But I got nowhere."
In January, scrambling to get the forms in time for tax season, Haynie thought he had a chance to help the former employees when he reached a Ceridian national account manager. Then he received her January 26 email:
"After reviewing this issue with appropriate management at Ceridian, we conclude that this is an issue that is an employer responsibility. Therefore, we are unable to assist further. Please contact your former employer for any further inquiries."
Haynie says many of the former employees– some still unemployed– were relying on a refund from the IRS to pay bills including, buying food.
"Tax day has come and gone, and employees were on their own," says Haynie.
"I was lucky," says former customer service director Joyce Wright. "I had my last pay stub."
Others, however, were left to file complaints with the IRS. "They think it's not fair," says Wright, "and the IRS can't help them."
Haynie says that even a letter from a local attorney has not budged Ceridian. As for Ceridian's view, "We do not discuss anything about our customers," says Candy Patron, a Ceridian spokesperson.
On April 23, former Ivy Industries CEO Reid and his co-conspirator, company comptroller Bro Pinkerton, will learn their sentences from federal judge James H. Michael Jr. The two offered guilty pleas and voluntarily reported to jail after their hearings on February 11.
In statements via his lawyer, Francis McQ. Lawrence, Reid has described himself as "extremely sorry" for his actions and insisted that he was merely trying to prop up the hemorrhaging finances of Ivy Industries.
His actions allegedly caused a $2.4 million loss at Albemarle First Bank when SunTrust– which had also been duped– suddenly spotted the kite in March 2003 and refused to cover Reid's bad checks.
In the plea hearing in February, FBI special agent James B. Lamb told the court that another bank suffered over $2 million in loan losses in the debacle. Lamb said Reid cooperated with the investigation.
Reid, 48, told Judge Michael he was nervous– but "fine otherwise"– shortly before pleading guilty to a single felony count of bank fraud. He later removed his sport coat and surrendered to a sheriff's deputy for transfer to the Albemarle-Charlottesville Regional Jail.
"This was a tragedy of Shakespearean dimensions," Lawrence said after the February hearing. While Reid has denied pocketing a penny of the lost funds, Lawrence readily admits that everyone involved was hurt.
The employees lost their jobs, the investors lost their company, two local banks suffered million-plus losses. And now, says Lawrence, a husband and father of children ages 8, 12, and 19– someone considered a pillar of the community– faces "not months, years" in jail.
Lawrence describes co-defendant Pinkerton as a "classic soccer coach dad" and notes that the only benefit of Reid's scheme– short term, obviously– was holding his "over $100,000" job for a little longer than if he had simply told the investors that Ivy Industries was unprofitable.
Still at issue is just where the money went. On August 17, 2001, Dave Matthews Band manager Coran Capshaw bought the Ivy Industries building for $4.975 million. That, says one banking insider, erased the balance of the check kite and might have been a good opportunity for Reid to reveal the scheme. He didn't.
What's known is that Reid and Pinkerton continued to juggle non-existent funds.
How is this kite different from the more benign and more common practice of an individual who writes a check on a skimpy bank account and then rushes to the bank with a "covering" deposit? Size and frequency.
For one thing, the "covering" payments, drawn from three local banks, were as bogus as the bouncing checks they were supposed to cover.
Another difference was the size. In a lawsuit, Ivy Industries owners Troost Parker and Corwith "Mike" Davis portray Albemarle First, the bank that suffered the biggest loss, as incompetent– at best.
As evidence, they submitted reams of photocopies of round-numbered checks. And as a sort of Rosetta stone, they emphasized the October 2000 statement of Ivy Industries' real estate arm, RPD Properties LLC. That statement begins and ends with the same piddling balance: $857.25– while 21 credits totaled $890,000 and 21 debits totaled $890,000. That sort of high-volume, low-balance legerdemain "would have been readily apparent to even the most casual observer," says the lawsuit.
Parker and Davis don't reserve all their scorn for Albemarle First; they're also upset with Guaranty Bank.
According to court filings, Parker and Davis had personally guaranteed loans made by Guaranty Bank to Ivy Industries. When Ivy stopped paying, Guaranty stepped in and took over the company– ultimately choosing to auction off its assets rather than operate it as a going concern.
Why did Ivy Industries, a company with customers all over the country ultimately shut down? Susan Payne, spokesperson for Parker and Davis, says, "Because Guaranty came in and put a padlock on the door. They're the ones who did it– not Troost Parker and Mike Davis."
"That's not correct," responds Guaranty's president Bill Doyle. Because of ongoing litigation, Doyle declined to be specific about his objections, but one banker familiar with the case defends Guaranty.
"Once you have fraud, you don't know how deep it goes. It poisons everything," says the banker, speaking on condition of anonymity.
In an October 6, 2003 civil filing, Parker contended that Guaranty botched the auction. A well-managed auction could have "fully paid" the loans with a surplus, Parker charged.
But selling the company as a going concern was "not feasible," Guaranty responded in a filing. "It would have been necessary," the document asserts, "to transfer the leases of the plants in West Virginia and Charlottesville to a new owner."
How hard could that have been? It's a moot point in Charlottesville now. Capshaw has revealed that he plans to convert the facility into the new downtown location of Atlantic Coast Athletic Club.
The mammoth site occupies about half of an over-sized city block on Monticello Avenue, 2.7 acres with about 70,000 square feet– or five Charlottesville Ice Parks– under roof.
While the upcoming civil trial set to begin May 17 is supposed to focus on Guaranty's quest to get Parker to pay the loans he guaranteed, the question of who killed Ivy Industries may be the issue that grabs the headlines.
Coran Capshaw wants the former frame factory to become a health club.
PHOTO BY JEN FARIELLO