The Securities and Exchange Commission yesterday charged convicted swindler Cortes W. Randell and three associates with fraud in their operation of the National Commerical Credit Corp.
Randell served eight months in a federal jail in 1975 for his role in a stock fraud involving a firm called National Student Marketing Corp. the SEC civil complaint, filed in U.S. District Court in Alexandria accuses him and the others of "gress corporate mismanagement, self-dealing, the taking of second trust notes and cash valued of several hundred thousand dollars through a series of undisclosed transactions."
The SEC asked the court to enjoin the defendants from further violations of federal securities laws and seeks an accounting for missing funds and assets of NCCC.
The SEC filings say the defendants "ravaged (NCCC) by depriving it of cash and its only other principal asset, second trust notes." Second trust notes are similar to mortgages.
Also charged were Randell's wife, Joan Randell: Lester Cotherman; John Mumford, a top Labor Department official: and the Federal Mortgage Acceptance Corp. which was formed by Randell in June 1974.
According to the court papers. Randell was introduced in 1973 to Harry Koenigsberg, the former owner of NCCC, an Annandale-based corporation (formerly called Potomac Valley Homes, Inc.), that would buy homes with assumable first mortgages, repair the homes and resell them to persons who could not afford the normal down payment.
The filings said NCCC would realize its prifit by issuing second trust notes which it took back from the home buyers. These notes then would be sold by NCCC at a discount for cash or pledged on lines of credit with banks or private lenders.
According to the SEC. Randell began his attempt to gain control of the company shortly after his meeting with Koeningsberg. The agency charged that Randall "manipulated the stock ownership, the board of directors and the officers of NCCC to gain and maintain control of the corporation."
The papers add, however, that "Randell himself never assumed an officer's title, never signed any agreements as a principal, and never had any stock in his name in order to conceal his controlling position because of his earlier activities in NSMC."
After promising Koenigsberg that he could change their firm into a nationwide, public company and make a lot of money for its owners and managers, Randell talked NCCC's owners into hiring him as a $60,000-a-year-financial consultant, the SEC says.
Later, after Randell wrestled control of the firm away from the former owners, he began engaging in "a series of the self-dealing transactions to the financial detriment of NCCC," the SEC alleges.
According to the filing, at one point Randell actually was directing company activities from his jail cell at the Allenwood Federal Prison in Pennsylvania, where he was serving eight months of an 18-month sentence for secrities fraud.
Some of the allegations specified in the SEC's filing:
The defendants "continually and without exception painted a rosy picture concerning NCCC's financial condition and future prospects," claiming that NCCC had "never lost money on any of its real properties."
After taking over, the defendants, "undisclosed to actual or prospective investor, materially changed the previous business practices of NCCC in that they substantially lowered the credit standards in approving prospective Florida home purchasers in the face of a decline in business."
This activity caused a large number of foreclosures and declinquincies on NCCC Florida property.
Randell and Cotherman "caused NCCC to send approximately $198.000 (and another $108.000 later) to (a Florida firm Cotherman owned) in 1974 as purported 'Advances to Commissions.' There was no proper accounting for these funds of reimbursement to NCCC."
On May 17, 1974. Randell and Cotherman "caused NCCC to issue a $35,000 check to a third party for a purported 'Commission Expense' when in fact only $2,500 was due the third party. These defendants then accompanied this third party to the bank, cashed the check, and . . . took approximately $32,500 for their own use and benefit."
Randall and his wife, in her name, loaned NCCC $140,000 at 14 per cent interest, for which NCCC pledged $280,000 in second trust notes.
Then the Randells repledged the notes as a lending institution, collection proceeds "in excess of $200,000." But the SEC charged, they still continued to collect $11,000 interest on the $140,000 from NCCC.
Mary M. Olson, a Springfield widow, said a affidavit for the SEC that her $20,000 investment in NCCC "is a major part of my savings."
Up until September 1974 she was told by NCCC employees that the corporation was doing well and that she should not cash in her bonds. Then she decided to exchange her bonds and add $6,000 to her investment.
All she ever received from NCCC was $500, Mrs. Olson said.