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THE ARKANSAS CURSE STRIKES AGAIN
By all accounts, David Watkins is one of President Clinton's favorites. A member of the First Family's tight band of Arkansas aides, Watkins, 52, has toiled in nearly all of Bill Clinton's political campaigns. These days, he is a Presidential assistant, overseeing the White House's vast administrative machinery.
But Watkins, a Little Rock adman who teamed up with Hillary Rodham Clinton in several lucrative ventures, is a man with a past. Interviews with more than a dozen former associates and investors, backed by court documents and financial data, suggest that Watkins' life as a dealmaker has left a trail of disappointed investors. Indeed, he has been associated with a string of failed penny-stock companies from New York to Texas, hawking items from cruises to credit cards. "The public should know what kind of a guy they have in the White House," says an angry shareholder in Amerinet Corp., a Watkins company. "It just isn't right what he has done."
Not all of Watkins' ideas fizzled. Hillary Clinton made $46,000 on a $2,000 investment in his cellular-phone partnership. And Watkins himself has managed to prosper. His federal disclosure form lists a net worth of up to $1.7 million.
Worthless. Back in Arkansas in the 1970s and '80s, Watkins dabbled energetically in small business. Many of his ventures were so small they didn't have to register with the Securities & Exchange Commission. When things went sour, losses to individual shareholders were so modest--usually a few thousand dollars--that few bothered to sue.
One exception was Alan Fleisher. The Smithtown (N.Y.) businessman claimed in a 1991 lawsuit that Watkins and his associate, Clifford E. McFarland, lured Fleisher's family into investing $200,000 in three worthless deals. "The mistake he made," Fleisher says, "was to get me to invest a lot of money." Watkins declined repeated requests for an interview on these and other business dealings. His attorney, Ty Cobb, a partner with the firm of Hogan & Hartson, denies that his client benefited at the expense of shareholders, adding that "Mr. Watkins was in a position to assist startup companies such as Amerinet because of his many...business successes."
In court papers, Watkins and McFarland denied Fleisher's allegations--which the White House says Watkins disclosed before his appointment. Moreover, the investor's charges of securities fraud were thrown out because they were filed too late. Fleisher could have refiled some charges but negotiated a settlement with Watkins in November, 1992, just before the election. Says Al J. Daniel Jr., another Watkins attorney: "There is no complaint now pending."
Fleisher seems far from mollified. He withdrew his suit in return for equity in a reconstituted Amerinet on the understanding that the shares would be equal to the value of his previous investments. But 18 months later, Watkins hasn't come up with the compensation--although Daniel says Watkins still is trying to repay Fleisher. Fleisher says he is threatening to refile his lawsuit.
The most contentious Watkins deal involves Amerinet, which was formed to market "affinity" credit cards. Watkins took the company public through a reverse merger with a Nevada shell company, Clean Machine Inc. In August, 1987, some 85 investors attended a meeting at Las Vegas' Golden Nugget Hotel. Watkins and McFarland urged them to buy shares of Clean Machine, according to several people who were present.
Investors put up $250,000 to buy shares for 6.25 cents each. The impetus, Fleisher's suit alleges, was Watkins' and McFarland's promise of a heady 250% return. When the deal was sealed in November, 1987, the Watkins Group got 31.7 million shares, or 80% of the outstanding common in Amerinet.
LARGE FEES. But shareholders didn't reap much from the deal--despite a 1988 press release that forecast annual revenues of $1.8 million. A financial statement for the first 10 months of 1988 shows that Amerinet chalked up a net loss of $142,000 on revenues of $4,000. Among the expenditures: $78,000 to Watkins-affiliated companies for consulting and management fees, with an additional $100,000 in reimbursements due for cash advances. Disgruntled shareholders say such a pattern was typical, and that Watkins' affiliates, such as the Watkins Group, his merchant-banking firm, would rake off large fees at the expense of investors. By mid-1989, Amerinet had nearly ceased operation.
This was not the only project where Watkins' plans flopped. In December, 1987, he got 1.6 million shares of Cruise of a Lifetime USA Inc. for helping the company raise $150,000 from the public, according to Securities & Exchange Commission documents. The New York concern, which sold franchises to market ocean cruises, folded in 1989.
Investors in Cashland Corp., based in Solvang, Calif., which franchised cash-checking services, fared no better.Fleisher claims he lost $60,000 when a Watkins-owned firm, Franchise Group International Inc., failed to keep a promise to jointly operate some of the check-cashing stores. The outlets never opened, his suit says. Other investors lost about $1.4 million in a 1988 limited partnership that Watkins sponsored for several Cashland outlets, according to court filings. His stores and Cashland's eventually went out of business.
Travelgate. Another enterprise, Sara Care Inc., is barely surviving. A Watkins firm was paid at least $50,000 in consulting fees by Sara Care, which at one time franchised 50 elder-care centers. Sara Care now operates one senior center in El Paso, Tex.
It would be easy to dismiss this trail of bruised bank accounts and broken businesses as a remnant of Watkins' Arkansas past. But controversy has continued to dog him in Washington. Last year, he was taken to task by Congress for backdating personnel appointments and pay raises. Watkins was also a major player in last year's Travelgate flap, which saw the mass firings of White House travel-office workers in what seemed like a clumsy attempt to steer business to an Arkansas travel agency. He was later reprimanded by Chief of Staff Thomas F. McLarty III.
Watkins, still Amerinet's president, failed to reveal his ownership role on his 1993 financial disclosure form. A White House associate counsel contends there was no need to because Amerinet is dormant. But C. Boyden Gray, White House counsel in the Bush Administration, asserts that "government officials must disclose all financial interest, whether it's valued at $1 or $1 million. Otherwise, you can have the appearance of a conflict."
The White House is standing behind Watkins. Now, President Clinton has to hope that his aide serves the White House better than he did investors.
DAVID WATKINS'SPOTTY BUSINESS RECORD
Many of the White House aide's deals have gone sour. Some examples:
AMERINET Founded by Watkins in 1986 to market Visa cards. In 1987, it became a public company through a reverse merger with a Nevada shell company. Within 10 months, Amerinet was $142,000 in the red. It has been inactive for four years.
FRANCHISE GROUP INTERNATIONAL This Watkins company signed up investors in 1987 to buy franchised check-cashing outlets from Cashland. The outlets and Cashland eventually went out of business .
SARA CARE Franchise Group International served as a consultant and sales agent for Sara Care, an elder-care franchisor. A Watkins associate served on the Sara Care board. Its 50 franchises are out of business; it now owns a single outlet in El Paso.
CRUISE OF A LIFETIME USA Watkins was the investment banker in a reverse merger of this New York-based franchiser of ocean cruise agencies in 1987. In exchange, he received 1.6 million shares and a board seat. The company failed in 1989.Michael Schroeder in Washington