DID A PARAGON OF THE RIGHT DO INVESTORS WRONG?
To Frank J. Murdoch, an unabashed disciple of right-wing crusader George Hansen, it was an offer he couldn't refuse. According to Murdoch, Hansen, a former Republican congressman, promised the Idaho Falls accountant a whopping 5%-a-month return on his $7,000 stake. The money would be used to invest in such projects by Hansen's super-patriotic Free America Foundation as minting silver George Bush commemorative coins.
The credo of Hansen's foundation is "Eternal vigilance is the price of liberty." But for Murdoch, the price of helping Hansen has been eternal regret. On Feb. 25, Idaho securities regulators charged Hansen with defrauding Murdoch and over 180 investors of nearly $20 million. The case exposed what regulators say was a fast-growing investment scheme that at its peak last fall netted $16 million in one month--and that BUSINESS WEEK has learned is the target of an FBI criminal probe. Neither Hansen, who admitted violating Idaho security laws, nor his attorney returned phone calls. But investors are less reticent. "I always liked his politics," says Murdoch, "but it seems he never put it together financially."
BLACK EYE. The case could have repercussions far beyond the close-knit, archconservative Idaho towns that were the backbone of Hansen's political and financial support. In Washington, the affair is a black eye for conservative leaders, including lawmakers who lent their names and support to Hansen's causes. One was Rep. Robert K. Dornan (R-Calif.), who joined the foundation's executive council. He says he recently resigned after learning Hansen was overstating his involvement, "making claims about me that weren't true."
If the Idaho case leads to criminal charges, it could ring down the curtain on one of the right's most colorful figures. A self-styled populist known as "George the Dragon Slayer" who served seven terms in the House until his defeat in 1984, Hansen was a persistent critic of government agencies, especially the Internal Revenue Service, which he accused of gestapo tactics. His attacks struck a chord among Idaho's radical antitax and survivalist groups.
Hansen was able to tap this groundswell of support for his ventures even though he had served 12 months in jail for filing false financial statements with the House of Representatives. He failed to disclose his family's substan-tial dealings with erstwhile Texas billionaire Nelson Bunker Hunt. Since his release in October, 1987, the six-foot-six, 60-year-old Hansen has been promoting a raft of causes, including a taxpayers' revolt group known as Victims of Government United Everywhere, or VOGUE. To underwrite his projects, Hansen hawked promissory notes, which he called "Liberty Loans." Although he promised investors returns ranging from 20% annually to as high as 10% a month, he was usually vague about the nature of the business ventures that would generate these profits. According to the state charges, he often gave investors a personal guarantee that he would meet his obligations. Court papers indicate that, in classic Ponzi fashion, he funded interest paid out to current noteholders by selling new investors Liberty Loans.
Idaho regulators say that Hansen kept the loan program operating in 1990 by kiting checks between Virginia and Idaho banks. The regulators also say Hansen and an aide regularly rented a plane that ferried them between the Idaho Falls Bank of Commerce and other institutions in Idaho and Virginia. Because of the lag in clearing checks written on these accounts, Hansen could inflate the balance in his Bank of Commerce account, according to the suit. One month, he deposited more than $16 million into his Bank of Commerce account while writing more than $18 million in checks, regulators charged.
'LIVE AND LEARN.' The scheme collapsed last fall when regulators received tips about Hansen's creative financing arrangements. They contacted Hansen, who agreed to pay off the investors. The state gave him until Nov. 1 to submit a repayment schedule, but he unexpectedly filed for bankruptcy protection on Oct. 31. Regulators say there are no indications that Hansen personally profited from his escapades. He filed for bankruptcy listing assets of $91,615. That is dwarfed by his possible $20 million liability to investors.
If Hansen has his way, say associates, Murdoch and other investors won't be left in the lurch. Ever willing to wrap himself in the flag, Hansen launched a last-ditch effort to raise money by running TV spots urging viewers to phone a 900 number, at several dollars a call, to register their support for the troops in the Persian Gulf. With the war winding down, that now seems a nonstarter. His investors doubt they'll ever see any of their money. "We trusted him," says Idaho Falls small businessman Jerry Pasley, in a tone that suggests less outrage at than disappointment in a fallen hero. "You live and learn." So have Hansen's other admirers. Dean Foust with Tim Smart inWashington