Muniland’s sour fraudster

September 20, 2012

In 2010, the small town of Moberly, Missouri issued $39 million in municipal bonds for a private manufacturing facility that the town hoped would add 600 jobs to its community of 14,000. Yesterday the Missouri Attorney General Chris Koster filed felony theft and securities fraud charges stemming from the collapse of that project, the Mamtek sweetener factory. The charges were made against California businessman Bruce Cole who was the CEO of Mamtek. Cole was arrested at his home in Dana Point, California and Attorney General Koster said extradition proceedings would begin immediately.

In short, Cole is alleged to have used proceeds of the municipal bond offering for personal expenses. The Moberly Monitor has the details:

The probable cause affidavit alleges that shortly before the sale of the Mamtek bonds, Cole directed a Mametk consultant to prepare an invoice purporting to come from “Ramwell Industrial, Inc.” This invoice requested payment of $4,062,500 for Ramwell’s services, including $3,562,500 for “Design, acquisition, and installation of five production lines,” $325,000 for engineering and design, and $175,000 for project supervision.

Cole directed that this invoice be submitted for payment even though Ramwell was never incorporated, never had any employees, never owned any property, and never provided any goods or services to Mamtek U.S. The day after the invoice was submitted, it is alleged, Cole instructed a bookkeeper for Mamtek U.S. to wire $700,000 to Cole’s wife, Nanette.

Within 48 hours of receiving the $700,000 wire from Mamtek, Nanette Cole wrote a $281,046.30 check to cash. The Coles immediately made a payment on their mortgage in the amount of $243,018.73. Shortly thereafter, the scheduled foreclosure auction of the Coles’ Beverly Hills home was canceled.

Muniland fraud doesn’t get any simpler than this. Submit a false invoice and then have money wired to your personal account. Cole actually had submitted the false invoice to the Moberly city finance manager who had authority to approve expenses as described in the criminal complaint:

The city finance manager reviewed the invoices and receipts in the request. If he concluded that an expenditure was not permitted under the Financing Agreement, e.g., travel expenses, he rejected that particular item and reduced Mamtek’s request accordingly.

The finance manager with guidance from bond counsel allocated the amounts requested to one of the three series of bonds to ensure that money was drawn from the appropriate taxable or tax-exempt bond series.

The finance manager then prepared a requisition form, attaching the draw request, asking the bond trustee to disburse funds to the appropriate recipients, typically directly to the contractor or supplier. In the case of Ramwell invoices [the invoices fraudulently prepared by defendant Cole], those disbursements were wired to Mamtek directly.

Obviously Cole is a swindler if the facts alleged in the criminal complaint are true. But where was the oversight? The Moberly city finance manager and bond counsel obviously didn’t delve very deeply into the invoices they were presented. But that was late in the game. Oversight needed to happen before the bonds were issued. Moberly city officials did some due diligence on the intellectual property collateral that Mamtek was pledging to the city, but there was no direct inquiry into the representations that Mamtek had made about its Chinese operations, which were the model for the new Missouri factory. The state economic development agency that shopped the Mamtek project around the state appeared to have done no due diligence in its zeal to create jobs for the state.

There is only one bright spot in this whole sad tale. A freshman state legislator representative Jay Barnes attempted to pass legislation that would have created some public oversight of the process of committing a community to an economic development project. Unfortunately Representative Barnes’s legislation was quietly mothballed by the leaders of the Missouri legislature. From the May 18, 2012 Columbia Daily Tribune:

Rep. Jay Barnes, R-Jefferson City, who led the House investigation of the collapse of the Moberly sweetener factory project, said he has put the proposals onto a Senate bill as an amendment. He had little hope that the upper chamber would accept it.

The bill would direct communities to hold well-publicized public hearings before issuing bonds to support a factory project. It also would require the Missouri Department of Economic Development to closely examine the finances of startup companies, issue ratings on the quality of proposed projects and require full information-sharing between state and local economic development agencies.

Representative Barnes has made the best suggestions for oversight of municipal revenue bonds that I have seen. Local public officials often have very little expertise about economic development projects. Often bond offerings are rushed through local council or committee meetings with little or no time for public comment. Slowing down the process and requiring more due diligence could vastly improve these bond offerings.

Mamtek bondholders are flat out of luck. The most recent trades on the largest tranche of the bond issue was at 24 cents on the dollar. This suggests a truly miserable recovery for bondholders. I understand that bondholders are suing the sole underwriter of the deal, Morgan Keegan. No one seemed to look very deeply into this deal and the money is gone, the factory equipment is being auctioned off and Moberly never got those 600 new jobs.

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see