"Charming," "a teddy bear" and "disarming" are words folks here use to describe Gary Vance Lewellyn, a 33-year-old stockbroker. But federal law enforcers have accused Lewellyn, who disappeared last month, of stock manipulation and embezzlement that ruined his ailing father's bank.
Lewellyn, who is being sought by the FBI, allegedly embezzled more than $16 million from a Humboldt, Iowa, bank headed by his father and, according to the Securities and Exchange Commission, ran up $22 million in brokerage debt while manipulating the stock price of a little-known Pennsylvania company, Safeguard Scientifics, Inc.
On April 2, the SEC filed suit in U.S. District Court in Manhattan against Lewellyn and his company, G. V. Lewellyn & Co. Inc., charging him with numerous violations of the federal securities laws, including stock manipulation. Last week a federal judge in Cedar Rapids issued a warrant for his arrest on charges of embezzlement from the First National Bank of Humboldt.
According to the SEC suit, Lewellyn allegedly used bonds obtained illegally from his father's bank as well as brokerage credit to buy the stock of Safeguard Scientifics, an automotive parts, electronics and computer equipment manufacturer located in King of Prussia, Pa. In a few months, Lewellyn allegedly purchased 58 percent of the company's stock and drove its price up from $5.75 a share to $16. Last month, the price of the stock collapsed to its former level after a trading suspension was lifted.
The SEC complaint spells out in elaborate detail how Lewellyn allegedly manipulated the price of Safeguard stock and finagled his father's bank out of millions. But SEC lawyers say the scheme was so obviously flawed they can't see how it possibly could have worked.
Nor have investigators figured out what Lewellyn was up to last year when he made huge purchases of shares of Brad Ragan Inc., a North Carolina inner tube and appliance maker. Brad Ragan's stock jumped 47 percent in one month, prompting an SEC investigation that started before the complaint was filed in the Safeguard case. Also unanswered are the questions University Bank in Ames is asking about the more than $1 million it says it paid Lewellyn & Co. for government securities that it never received.
Another bank also is worried about its dealings with the brash young broker, and investigators following a trail of human and financial debris have found a host of unanswered questions.
Victims include his father's country bank, located some 90 miles northwest of here in Humboldt. The First National Bank of Humboldt went out of business last week after the SEC alleged that young Lewellyn had misappropriated more than $16 million worth of bonds--a big chunk of the bank's modest assets. His father, Clifford H. Lewellyn, resigned as president, and he and his wife, both suffering heart ailments, went into seclusion. With the blessing of regulators, the bank last weekend was taken over by a major banking company and given a new name.
In New York, meanwhile, Lewellyn owes several major brokerage firms an estimated $22 million, according to the SEC. And here in Des Moines, his wife and two young children were left behind when Lewellyn disappeared.
Last weekend, Lewellyn's blue 1980 Jeep Waggoner was found at the airport here. He was last seen on March 31 in Chicago where, according to the SEC complaint, he withdrew $500,000 in $100 bills from a recently established bank account.
Meanwhile, SEC and various bank regulators are trying to untangle Lewellyn's complex, seemingly senseless run on on Safeguard Scientifics' stock.
It's not hard to understand why the 6-foot-3, 200-pound Lewellyn was considered "charming."
"I have little doubt that his appearance helped him," says an attorney who knows him well and who invested through him. "You didn't go on guard with him. He looked like a yokel, with curly hair that may not have been naturally that way but which made him look like a big teddy bear."
Lewellyn, who grew up in Humboldt and graduated from Iowa State University in Ames, was a born salesman, everyone agrees. But not long after he went into business, he got involved in questionable business dealings.
In the mid-1970s, Lewellyn the crackerjack salesman was hired away from a regional brokerage by the New York Stock Exchange firm of E. F. Hutton. He soon became manager of its Des Moines office.
But then the NYSE, which found that, while at the regional firm, he had knowingly misinformed customers and created false transactions, suspended him for two years beginning in March 1979 from being employed in any supervisory capacity by a Big Board firm, and Lewellyn was fired by Hutton. In 1981, a private lawsuit by the Daughters of the American Revolution orphanage in Anderson, S.C., alleged that he churned its $847,000 account and generated fees for himself of $383,000. The suit was settled out of court without resolving the allegations.
According to Raymond Kraftson, general counsel of Safeguard Scientifics, after Lewellyn began buying the company's stock, the firm became curious and checked on him at the NYSE, among other places. Kraftson said that when the broker was asked about the suspension, he effectively explained the incident away.
"Gary said the customer involved was a long-time family friend. It involved $5,000, and Gary paid it back out of his own pocket," Kraftson said in a telephone interview. "But from what we learned later, his problems obviously were much worse."
Safeguard Scientifics' stock was brought to Lewellyn's attention about a year ago by an E. F. Hutton analyst in New York, Mike Sofia. Sofia says he had considered Safeguard Scientifics a good investment--but not regardless of price--and what happened subsequently shocked him.
"I thought I knew Gary, but I didn't understand this play from the beginning," Sofia said. "I don't know what value he was putting on the stock, but his opinion of the company was higher than mine."
In its complaint filed in New York, the SEC alleges that the following occurred:
Lewellyn began buying large chunks of the stock last August, and by Oct. 26, 1981, having accumulated more than 5 percent of the company's shares outstanding, he complied with an SEC rule and disclosed his interest in a public filing. He purchased his stock through the New York brokerage of Swiss American Securities Inc., an American arm of Credit Suisse. Lewellyn & Co. established a correspondent relationship with Swiss American.
Lewellyn bought the stock on margin, which meant he had to pay cash for only 50 percent of the price of the shares, a common credit arrangement.
By December, Lewellyn had bought hundreds of thousands of shares in the company, pushing the price up toward $10 a share. Safeguard Scientifics' management had become understandably curious about Lewellyn's intentions and began meeting with him. They were assured by Lewellyn that his purchases were strictly an investment and that he didn't want to take over the company.
Kraftson said in the interview that Lewellyn told company officials he had made a killing investing in oil and gas ventures and commodities. But Kraftson says they were surprised at how little Lewellyn actually knew about Safeguard Scientifics, considering all the money he was putting into it.
"The thing that puzzled us all along was what he knew that we didn't about our company," said Kraftson. In the end, Kraftson said, the company could not understand his behavior.
What is certain is that Lewellyn did not have any understanding of Safeguard Scientifics' true worth.
Daniel Larson, who was the other member of Lewellyn & Co., says he didn't question what his associate was doing because it was none of his business. But one day, Lewellyn pulled out a financial statement listing Safeguard Scientifics' assets, and when Larson added up the figures it showed the company, if liquidated, was worth only $13 a share.
"He was talking about it being worth $30 a share," Larson says with a shrug. "I just wasn't in a position to question him."
One theory was that Lewellyn saw himself in the role of an arbitrageur, who buys up a company's stock, then sells it back to the company or someone else at a premium. But Kraftson says that from the beginning, Lewellyn was told the company would pay a maximum of $6 a share for its stock.
Kraftson says Lewellyn was "fixated" on the company's German associates, who he seemed to think would buy his shares. But the company's financial disclosures stated that the Germans had an option to buy 500,000 shares at $10 a share. "They weren't jumping for that," said Kraftson, "so why would they pay him $15 a share?"
According to the SEC complaint, By Dec. 31, 1981, Lewellyn had accumulated 514,400 shares of Safeguard Scientifics, and Swiss American, becoming concerned about his huge margin debt, told him that from then on he would have to pay cash for stock.
Lewellyn then opened an account at the Merrill Lynch Pierce Fenner & Smith office here and continued his buying spree. But by the end of January, Merrill Lynch, too, cut off his margin purchases, the SEC said.
Clifford Lewellyn had designated his son to purchase government securities for the bank and its customers, according to the SEC. The SEC alleged that Gary Lewellyn diverted millions of dollars of those securities through an account--labeled GVL/Solomon (not to be confused with the Salomon Brothers firm)--at United Central Bank here. The SEC contends Lewellyn "began to pledge and transfer the bank's securities for the purpose of financing his purchases of Safeguard Scientifics securities."
The government contends it has traced the bank funds to Swiss American and Merrill Lynch, where they were used to pay for Lewellyn's stock purchases.
To get around his margin problems, Lewellyn bought 2.1 million shares of stock using three nominees, according to the SEC, and brought the accounts of the three women customers to Swiss American. On the floor of the exchange, according to one broker, it was well known that Lewellyn was the one who was buying the shares.
Two of the women, Margaret B. Turner, who is in her 80s, and her daughter-in-law, Beth Ann Turner, told authorities they were not even aware that their names were being used. Lewellyn's relationship with the third woman, Kathryn Barakat, is the subject of much speculation here.
Barakat, a former hat-check girl at a restaurant called the Embassy Club, had a relationship with Lewellyn for about five years, according to government and local sources, and Lewellyn reportedly had bought her a Cadillac. No one answered the door at Barakat's expensive house in a posh area of town, and the Barakat phone number is unlisted.
In recent months the relationship had put tremendous strain on Lewellyn, according to people who know him.
Some who know Lewellyn speculate that the pressures of his personal problems contributed to his bizarre and hopeless game with Safeguard Scientifics. A friend said that Lewellyn, who in the past seemed absorbed in his business dealings, had of late begun talking of leaving for Colorado and of making a million dollars, then living off the interest.
"It was like he lived two lives," the friend says. "There was the good, loyal son, the loving father and husband, the hardworking investment banker.
"Then there was the other Lewellyn. . . . In fact, I think that Lewellyn had two motivations--greed and fear. Greed at the beginning and fear at the end."
Only days before the balloon popped, Safeguard Scientifics' stock price had reached $16. And Lewellyn had been buying stock through new accounts he opened at Morgan Stanley & Co., Drexel Burnham Lambert Inc., and Shearson/American Express Inc., according to the SEC.
On March 17, when the NYSE halted trading in the stock, it was at $11 a share. When trading resumed on March it closed at 5 3/4. As of March 17, according to the SEC complaint, the big losers, besides the Humoldt bank, were Swiss American, owed $16.5 million, and Merrill Lynch, $3.6 million, with the balance of the $22 million split between the other three brokerages. CAPTION: Picture, Gary Lewellyn allegedly embezzled more than $16 million from his father's bank. AP