HOUSE OF CARDS

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My Kentucky client (VMCI) was an industrial construction company operating in the southwestern corner of Kentucky who performed services for several large local chemical plants. My involvement came about 10 years ago when I helped obtain a million dollar replacement line of credit for VMCI. A couple of years later, the company owners again asked me for financial assistance. I had reservations this time. Financial statements, my own research, and conversations with employees concerned me. Business seemed good, but the owners, by some accounts, allegedly had certain business-inhibiting personal issues. Add that VMCI was a union company with high priced wage packages, and I almost refused the request. However, I accepted the challenge and soon introduced them to American Express.

American Express approved VMCI for a credit card account with a corporate line of credit starting at $35,000. Because of concerns that VMCI might misuse the funding, it was agreed that I would act as Program Manager to make sure that monthly invoices were paid timely. I signed a fee contract (July 12, 2002) for services with the owners of VMCI. To protect American Express, the owners both signed an agreement "to expressly cooperate with WWW (my company) to insure prompt payment of funds advanced by American Express." Revenues were to be sent to WWW's cash management account to insure payment of American Express, corporate payables and payroll taxes.

Implementation of the credit card accounts by VMCI helped reduce payables, but when the bill was due, it was hard for VMCI to pay what it had charged. As Program Administrator, I felt it was my primary duty to make sure VMCI kept current with American Express.

After discussions with American Express, I talked with VMCI's CPA. He and I discussed the pros and cons of his company establishing a payroll service so he could bill VMCI for payroll which would pay the payroll by charging it, and the cash used to pay the payroll would be preserved making it available to pay other operational expenses. Each payroll period, one of the owners would send the paperwork to the CPA for processing by American Express.

American Express applauded the arrangement saying that it was the exact procedure marketed in one of its brochures. Our Regional Manager said that in a sales meeting in New York, other sales personnel liked the idea, too. To be sure, though, I called American Express Merchant Services. They, too, said the idea was acceptable. I even considered opening a company to strictly do payroll services. One of the owners was called by American Express, once the program began, and they indicated to her that they had no problem with payroll services.

From a humble beginning, during the last half of 2002, Internet records supplied by American Express show that for local products and services, VMCI charged $370,000, more or less. Payroll services provided by the CPA for the time being kept the credit intact and growing. No payments were missed and communications with American Express about the program were favorable.

However, payroll service invoices grew as VMCI, instead of improving financially, declined. VMCI still could not pay invoices and as a result, cash preservation became protracted. What's more, no one at VMCI wanted to know about the problem, let alone offer a solution. Their collective cry turned into, "more money" and it was becoming increasingly aggressive.

The CPA and I now doubted that this additional cash injection would ultimately resolve VMCI's mounting financial difficulties. Not once, but many times, I thought it was high time for me to step aside from what I saw as a never-ending, irresponsible money grab from those who only wanted to perpetuate a lavish life style. So consistent were the phone calls, it became a joke in my Pennsylvania office when VMCI called for even more money. I never once heard a thank you or things are improving. Instead, the calls grew hateful as if it was my fault VMCI had money problems.

Loyal to the end, I made a bad decision. I brought my company (WWW) into the mix to document and provide earlier agreed upon consulting services for VMCI. Ethically, though I stood alone, I had not been able to justify charging VMCI for the financial consulting fees contracted earlier in 2002. But, now, I would charge VMCI for my services, but instead of taking the fees; use the cash to pay VMCI's debt to American Express. Nonetheless, in short order, I saw that everything that the CPA and I did, failed to quench the never-ending demand for more and more money. I was out of ideas, out on a wobbly limb and it was becoming increasingly clear that I had forthrightly and knowingly dug my own grave.

In a fax to VMCI owners dated January 23, 2003, I callously pointed out that one of them had recently demanded $120,000 in cash from the CPA's American Express bank account. He later told me that she said, "It's my money and I want it!" I also mentioned in the same letter that on the following day, I had to pay their invoice and I was $95,000 short. And, "For months, all I have are broken promises, refusal to pay payables, refusal to pay debt, refusal to return phone calls." Plus, "I must somehow continue rolling over money until we can think how to repay your debt. My neck is on the line with AMEX. I reiterated our contractual agreement, "VMCI agrees to expressly cooperate with WWW to insure prompt payment of funds advanced by American Express." I asked both owners to acknowledge receipt of my report, but only one signed before faxing the paper back. Ultimately, my words proved ineffective.

Sometime early in 2003, one of the owners asked if I would be interested in buying VMCI with her as a partner. She and her husband were divorcing. They were also in trouble with the IRS for not having paid well over $100,000 payroll taxes and faced jail time. I would be added to the bank accounts and all cash wired to Pennsylvania where American Express, payables and payroll taxes would be paid. I had no interest in her proposition, but maybe if I agreed, I could put a stop to or even reverse the owner's unrestrained raping of American Express. So in April of that year, I reluctantly agreed to release sufficient cash float to cover delinquent payroll taxes, pay a particular truck off and give nominal cash to her husband. I unwillingly signed an agreement to indemnify the husband that came back to bite me.

As it turned out, there was no divorce. Both owners continued to draw substantial payroll checks and live the high life. Payroll taxes continued unpaid; mismanagement abounded; demands for more and more money ruled the day. My good intentions had been abused. Since ownership is the state of having or holding the legal right to something; to control - and I had no control - the closing was deemed a farce and of no consequence. My benevolence had been seen as a weakness to exploit.

At wits end, I remember calling one of the owners and strongly suggesting that we simply close the business, sell the assets and pay off the bills. It was a good idea and financially solid. I had even found a company that might have been willing to shoulder some of the expenses. She refused. She wanted to save their good name; things were getting better; give it some time.

Believe it or not, later in 2003, I fell for another swindle. A consummate salesman, one of the owners talked me into taking over VIS, a sister company of VMCI, projected as extremely profitable. VIS's profits could be used to help fund VMCI and thus provide much needed relief. I was desperate to help VMCI and protect the American Express line of credit, so I decided to take a chance on the owner's honesty. I agreed to release a portion of the agreed upon funds in hope that the intended leverage buyout might work.

They eagerly took the money, but I was denied signature rights at the bank and not allowed access to the corporation books. No arrangement was made to wire revenues to Pennsylvania. To my dismay, the profits from VIS had already been squandered by VMCI. There was nothing left in the bank. I had been lied to again. Thankfully, given that I wisely never paid the balance due, had no control over the operation due to the owner's reneging on bank signatures, access to corporation books and refusing to wire revenues, the deal never legally consummated. The CPA and I agreed he would watch the sinking ship, but to no avail.  

Finally, when American Express temporarily shutdown the VMCI accounts in early 2004, circumstances dictated that it was time to find a buyer for VMCI and its sister companies ASAP. One of the owners found a buyer on a gambling boat floating nearby and in haste, a deal was negotiated. The essence of the deal was an arrangement made with the buyer as regards the owner's corporate real estate and equipment. The buyer agreed to fund the upcoming, bloated union payroll. I was kept generally informed, but not personally involved with the negotiations. As it was, I had only visited the Kentucky site perhaps four times. In fact, I had only met the buyer once at a brief meeting in Cleveland.

The owners had decided that it was best for them to avoid mentioning American Express for fear that it would kill the deal. Instead, I was viewed as an investor to be paid a token $25,000 per month for three years (a decision verified to my attorney by the CPA). The owners had made it crystal clear to me that they were not responsible for the American Express debt, knew very little about it, and didn't remember getting any money; I must have taken it all (later verified to my attorney by several Kentucky lawyers). 

The deal was so preposterous; so one-sided; so shady, I refused to sign the contracts. So, on March 19, 2004, with the deal ready to close, I received a rather angry call from one of the owners. He was anxious about the sale of his assets and the approaching union payroll. After months of combating the owners, I was numb and tired; hence I grudgingly relented and agreed to sign. After closing, the owners held a party; I sat at home exasperated, trembling, and unable to move.

My reservations were right on. The buyer defaulted on everything, forged signatures and transferred VMCI, etc. to his company in Michigan where he filed them into bankruptcy and began to sell the assets at auction.

Without help to discharge my "appointed" responsibility to pay the owner's debt to American Express, on March 26, 2004, I sent American Express $670,000 followed by another $100,000 on May 7, 2004, most from borrowed funds. My intent was to assign my $900,000 buyer's payment to American Express. On April 19, 2004, I signed a letter of intent with the buyer to provide certain financial services in exchange for a commitment to pay me $750,000, which was also earmarked for American Express. The balance due American Express consisted primarily of uncollected fess, which I noticed in their contract was the most it would be responsible for.

Unfortunately, the buyer paid nothing and I cancelled the letter of intent on March 23, 2004 when I found what I considered less than professional conduct. No matter how ill-advised, my continuing effort to pay the owner's debt to American Express led directly to my re-opening accounts in Pennsylvania; which regrettably precipitated an unwarranted Indictment.

Later, in a suspiciously crafted letter from one of the owners dated January 2, 2007: He blamed the CPA for the operational problems at VMCI and plainly said he knew virtually nothing about American Express. In a more recent letter from the owner's attorney postmarked January 6, 2010: "nor did they (the owners) have any knowledge that an American Express credit card or any other credit card was being used to incur debt or any service activity or any other manner in which said credit card could be used."

While I sit in impoverished retirement, all my assets taken and my reputation destroyed beyond repair, the owners - indifferent, sanctimonious and in one piece - continue the "I know nothing" theme. What they lost in comparison to what I lost is like comparing a single grain of sand to an entire beach. For six years, I have kept my mouth shut about the owners, instead compiling damaging evidence against American Express, its employees and the buyer. The above letter from the owner's attorney changed all that.

Indisputable local bank and American Express Internet records show that more than $1,700,000 was expended by my clients in Kentucky; $1,200,000 in cash. This does not include the fees charged to extend this credit. I have never received validation as to how much they still cling to or how the cash was spent. I did not accept one dime; I am not responsible for the owner's debt.

... Richard Shumaker

Copyright 2010 Richard Shumaker. All Rights Reserved.