A deputy assistant secretary of labor was implicated in federal court yesterday in an alleged stock fraud that deprived area investors of several hundred thousand dollars.
The former bookkeeper and operations manager of the National Commercial Credit Corp. (NCCC) testified in U.S. District Court in Alexandria that during 1974-75. John Mumford signed checks and notes without sufficient collateral to the benefit of company executives.
Mumford, now deputy assistant secretary of Labor for employment standards adminstration, headed NCCC from January to July 1975. The company filed for bankruptcy in September 1976.
Mumford is the only one of three defendants to go on trial in an action brought by the Securities and Exchange Commission.
Cortes W. Randell, who served eight months in federal prison in 1975 for his role in a stock fraud involving the National Student Marketing Corp., signed a consent decree with the SEC Dec. 30. The agreement -- which is neighther an adminission of nor a denial of guilt -- prevents him from selling securities in the future. Lester Cotherman, another principal, in NCCC has not been located, government attorneys told the court yesterday.
NCCC, formerly known as Potomac Valley Homes Inc., was an Annandale-based corporation that bought homes with assumable first mortgages in order to repair them and sell them to homeowners who could not afford the normal down payment. The firm made its money by issuing second trust notes taken back from the buyers. The notes were then sold at a discount for cash or credit.
The SEC charged that Randell, who seized control of NCCC from its former owners, allegedly funneled approximately $300,000 to a Florida firm operated by Cotherman in the form of advances on commissions. Those funds were never properly accounted for, according to the SEC. Joan Randell, Cortes' wife, also was named in the SEC complaint. She allegedly lent NCCC $140,000 at 14 per cent interest, for which NCC pledged $280,000 in second trust notes. The Randells then repledged the notes, collected $200,000 in proceeds, but continued to receive interest on the loan.
Mumford, through his attorney, declined to agree to a consent order yesterday because he felt it would be an admission of culpability. Despite repeated objections from judge Oren R. Lewis that Mumford was not being tried for fraud, attorneys and witnesses for both sides proceeded as if the court session were a fraud case rather than a hearing on whether to issue an injunction against Mumford selling securities.
Judge Lewis noted that the parties were using this hearing to gather evidence for possible future civil and criminal actions. The SEC has turned Randell's case over to the Justice Department, and some investors may file damage suits against NCCC executives.
Ronald E. Charvet, once NCC's bookkeeper, testified that Mumford signed the 12 percent interest unsecured notes that NCCC offered investors in place of earlier 10 percent secured notes, when it did not have enough money to redeem the originals. Mumford also issued interest checks to Mrs. Randell and authorized payment of commissions to Cotherman that were not due, Charvet testified.
Former operations manager Karen Wade told the court that Mumford was in total control of the business in 1975, and that he told investors that new funds were coming into the company when in fact, she said, they were not.
She also testified that she was ordered by Mumford to prepare a list of the active and bad notes NCC held as collateral in response to a subpoena from the Virginia Securities and Exchange Commissions.
Another witness, attorney Henry Fitzgerald, said he had accompanied Randell and Mumford to the vault where the notes were kept to see if they were deficient.
Mumford, who resigned as president of NCCC shortly after the state commission investigation began, is scheduled to testify today.