William R. Runnells Jr. and his wife, Marika Lody Runnels, who after their release from federal prison launched Phoenix Method One, a lucrative and aggressively marketed chain of hypnosis clinics based in Tysons Corner, have been ordered by a federal judge to sell their recently purchased luxury cars and condominiums to pay nearly $1 million in restitution they owe the federal government.
On Sept. 2 William Runnells, 63, was arrested by U.S. marshals outside the couple's McLean condominium on charges that he violated his parole by filing a fraudulent loan application when he bought a $419,000 Miami condo in July. He remains in jail without bond.
At an unusual emergency hearing last week in Norfolk, U.S. District Judge Rebecca B. Smith also ruled that the couple had diverted and concealed assets to avoid paying the long-standing debt imposed after their 1990 conviction on more than 140 felonies related to their bankrupt second mortgage company. Since their parole in 2000, court records show, the couple has paid about $35,000 in restitution, a debt they have repeatedly sought to reduce or eliminate on the grounds that they couldn't pay it.
Two years ago they moved to McLean and established Phoenix, which attracted an average of more than 70 new patients a week with promises to vanquish alcohol and other addictions with three or four hypnosis sessions that cost as much as $10,000.
The operations of Phoenix, as well as the Runnellses' lavish lifestyle financed by their business, were the subject in April of a Washington Post story that raised questions about the government's efforts to supervise and collect restitution from them.
Runnells, who recently resigned as Phoenix's executive director, must remain in jail pending a hearing in the next few months. Bail is prohibited in cases of suspected parole violation, authorities said. Marika Runnells, 61, who is the therapy director of the business, has not been charged.
If the U.S. Parole Commission finds that Runnells violated his parole, which requires that he refrain from certain real estate transactions and fully disclose his income and activities to his probation officer, he could be returned to prison to serve the remainder of his 40-year sentence, which expires in 2030.
The judge's ruling and the incarceration of Runnells appear to jeopardize the survival of Phoenix, which offered lifetime refresher sessions for clients. An attorney for the Runnellses said the business, which is being overseen by Marika Runnells, has cut its fees, would no longer offer refresher sessions and would continue to operate "as long as it could."
At last week's hearing, which had been requested by federal prosecutors, Smith issued a restraining order barring the couple from dissipating assets, ruled that they must turn over complete financial records to the government within 15 days, and ordered them to liquidate their property. Court records show that they own a condo in Miami and another in Norfolk and that in the past three years they or their corporations have bought 15 luxury cars, including a 2004 Lexus G43, a 2004 Infiniti FX45 and a 2003 Mercedes B sedan.
Assistant U.S. Attorney Mark A. Exley told the court that the Runnellses' companies, including Phoenix, generated more than $6 million in revenue in the past two years and provided the couple with an income of more than $600,000, in contrast to the $62,000 they declared on their 2003 income tax return.
Exley, who called Phoenix "a cash machine," said that a forensic accountant is examining the finances of about a dozen corporations in which the Runnellses were involved. He accused the couple of dissipating their assets in an effort to evade restitution and render themselves "judgment-proof."
The couple's attorney, Nina J. Ginsberg, did not oppose the asset liquidation, but denied that they were hiding assets. She told Smith they were struggling with medical expenses related to William Runnells's 2001 liver transplant, that they had paid the restitution requested by the government, and that their probation officer had approved the purchase of the Miami condo.
Smith brushed aside Ginsberg's arguments, saying that someone who owes $1 million in restitution doesn't buy a $419,000 property in Miami. The judge did not order -- nor did prosecutors request -- the closure of Phoenix, which has branches in New York and Miami and had been scheduled to open one in Los Angeles. The company's offices in Baltimore, Richmond, Virginia Beach, Newport News, Orlando and Tampa have previously closed.
In an interview, Ginsberg said that "the allegations in the parole violation are false" and that inaccuracies in loan documents may be due to misunderstandings by her client and sloppiness by bank employees. Court records show that Runnells said on the mortgage application that there were no outstanding judgments against him -- Ginsberg said he considered restitution a debt, not a judgment -- and that he had 20 years of formal education. The educational discrepancy, Ginsberg said, is "immaterial."
Court records show that Runnells dropped out of school after eighth grade. He calls himself "Dr." and claims two doctorates in hypnotherapy from unaccredited correspondence schools earned while he was a federal fugitive or in prison.
In 1990, after an 11-week trial, the Runnellses were convicted by a federal jury in Norfolk of more than 140 counts of racketeering, conspiracy, mail and wire fraud in connection with their defunct second mortgage company, Landbank Equity Corp., headquartered in Virginia Beach. Scores of investors, including the Federal National Mortgage Association, were defrauded of more than $52 million during the 1980s, and nine savings and loans closed as a result of their dealings with Landbank.
Prosecutors said that Landbank and 110 shell corporations were essentially a pyramid scheme that served as the Runnells family's "personal piggy bank," paying them huge salaries and financing the purchase of a fleet of 60 luxury cars including a $140,000 Aston Martin delivered with a chinchilla-trimmed interior. The businesses also supported William Runnells' addictions to cocaine and gambling.
The federal judge who sentenced them in 1991 -- William Runnells received a 40-year sentence, Marika Runnells, 31 years -- ordered each to pay $500,000 in restitution, an amount reduced, the court said, because of their "apparent lack of assets." But prosecutors said that despite the services of a forensic accountant, they were never able to trace millions of dollars funneled through Landbank and have long suspected that the couple hid money, possibly in offshore accounts.
The Runnellses have denied hiding assets and say they emerged from prison destitute. Since their parole in 2000, prosecutors have sought to obtain financial information from the couple in response to their repeated attempts to reduce or eliminate their restitution. In 2001, records show, Marika Runnells was returned to jail for several months for parole violations, including her failure to pay restitution.
Last April, in response to questions about the Runnellses' flourishing and well-funded business, which was expanding rapidly and spending more than $100,000 each month on advertising, U.S. Attorney for the Eastern District of Virginia Paul J. McNulty said in an interview that if prosecutors "have information on the concealing of assets and the ability of a defendant to pay restitution, we actively pursue those cases."
At that time Marika Runnells said the couple was paying $900 per month in restitution. Their memberships in the Tower Club, an eating club favored by Tysons Corner executives and the Piedmont Club, a golf club in Haymarket that charges a $17,000 initiation fee, were paid for by the business, she said. She noted that their probation officer in Alexandria knew "exactly what we're doing" and complimented them "that we were doing something very positive, that we were trying to help people" through their hypnosis clinics.
In a 101-page brief filed Sept. 9, Assistant U.S. Attorney Exley alleged that the couple have used "numerous corporations, numerous fictional business names and almost innumerable accounts" to "conceal their sources of income and assets."
Since their parole, authorities say, the Runnellses bought a home in Norfolk from which they receive rental income, the Miami condo, and two condos in McLean at the Rotunda complex. The McLean condos were sold in the past year, according to Ginsberg and Exley, and they currently rent a unit there.
Exley also said that William Runnells had hidden his recent involvement in Virginia Beach-based DAB Building Corp., which was involved in the purchase, sale and development of more than 30 properties in Tidewater. Exley said that DAB records, which are incomplete, show credit card cash advances totaling $29,000 paid to William Runnells. Ginsberg said that DAB is not owned by Runnells, but rather by an old friend who helped them after their release from federal prison.
Last week's court-ordered liquidation is the latest chapter in the Runnellses' remarkable odyssey.
In 1988, shortly before William Runnells was to be arraigned on Landbank-related charges, the couple drove to Dulles International Airport, boarded a flight to Los Angeles and disappeared.
During the next two years, they lived as fugitives using a series of aliases and disguises. Shortly after their arrival in Los Angeles, they took a weekend course in hypnosis, which William Runnells said enabled him to kick his addictions to gambling and drugs.
They then opened the Pinnacle Method, a hypnosis clinic that specialized in the treatment of weight loss and smoking.
FBI special agent Brian Lamkin said in an affidavit that the clinic, which grew rapidly, grossed between $1.4 million and $2.4 million per year, and that the Runnellses bounced checks from "numerous accounts" and did business under five different names.
After learning that their pictures were on FBI wanted posters and they were about to be profiled on the television show "Unsolved Mysteries," the couple sold the business and fled to Dallas, where they opened two new hypnosis clinics: Phoenix Centers for Addiction Control and Phoenix Longevity Center. They were arrested by the FBI at a luxury condo they were renting in Dallas, and extradited to Virginia to stand trial.
After their parole in 2000, they returned to Virginia Beach and lived with the friend who bankrolled Phoenix Longevity Center, the precursor to Phoenix Method One.
Two years later, the couple moved to Northern Virginia in search of better business opportunities.