"The case has lately turned into a mud-slinging-fest that, despite the legal verbiage necessary of court documents, reads like a soap opera scandal."
Denver Post July 3, 2013 article on
bankruptcy case of insider trading
suspect Roger "Mr. Fast Lane" Parker,
business associate and client of
Westlands Water District
lobbyist/lawyer Norman Brownstein
By Lloyd G. Carter
In every American city there is at least one, and usually more than one, power elite group which wields great influence and power over civic, economic and political affairs. There are at least two types of individuals in those power elites: People who inherit or marry into great wealth, and self-made multi-millionaires or billionaires. In Fresno, that elite is centered around dynastic agribusiness clans and real estate developers, who have no problem plowing up productive orchards and vineyards to make way for cookie cutter subdivisions.
In Denver, one power elite is centered around the oil and gas industries, which features both inherited wealth and rags-to-riches entrepreneurs. At the center of one powerful group of friends and business associates is Norman Brownstein, who proudly wears the mantle of America's "101st Senator."
What do Denver power brokers have to do with the California water issues I often write about? Plenty. For starters, Brownstein is a $20,000-a-month lobbyist for the Westlands Water District. I have already written here about the saga of Norman Brownstein and the embarrassment brought on by the shenanigans of his two sons, one imprisoned for insider trading and the other entangled with the creator of the Girls Gone Wild video goldmine.
But it must be conceded that Brownstein appears to have many friends (Republicans and Democrats) in high places, which attracts clients like Westlands. And scandal in high places is not new to Denver.
A quarter of a century ago, during the savings and loan scandals of the mid 1980s, soon-to-be presidential son Neil Bush at the tender age of 30 had a seat on the board of directors of the Silverado Savings and Loan in Denver, while simultaneously influencing Silverado loans to his two partners in a failing real estate business. Federal regulators were ready to shut down Silverado in the fall of 1988 when Daddy Bush (George Herbert Walker Bush, then vice-president running for the presidency), or one of his minions, told the regulators to back off until after the election. They did.
The failure of Silverado cost taxpayers $1.6 billion. The US Office of Thrift Supervision investigated Silverado's failure and determined that Bush had engaged in "breaches of his fiduciary duties involving multiple conflicts of interest." Nevertheless, he was not charged criminally and a civil action was brought instead. He ended up paying $50,000 to settle out of court.
Brownstein was no stranger to ethical problems, either his own or those of his sons or his clients.
Brownstein was involved in an ethical dilemma a decade ago when he served on the board of directors of Global Crossing, a short-lived telecommunications company that went bankrupt in 2002. Brownstein's older son Chad had become involved as a partner in a company - ITU Ventures - which was heavily financed by Global Crossing's chairman Gary Winnick. In newspaper articles, corporate ethics experts said Global Crossing's board members had several conflicts of interest and board member Norman Brownstein, who had a fiduciary duty to Global Crossing, should not have been involved in Global Crossing business dealings with a company in which his son was a partner.
In just three years, Winnick sucked up $20 billion from investors, all hoping that Global Crossing would keep growing and secure new customers. Global went public in August 1998, its shares rising from $9.50 to $13.40 the first day of trading. Less than two years later, with the stock at a peak of about $64, the market valued Global Crossing at $47 billion. Winnick became the quickest billionaire in history with an estimated worth of $6 billion.
Winnick used Global Crossing's briefly inflated stock value to buy other companies. Among his acquisitions were Frontier, a century-old phone company in Rochester, New York. Frontier was the nation's fifth-largest long-distance carrier.
Unfortunately for Frontier, Global Crossing's downfall was as quick as its rise. The Internet bubble burst and dozens of telecom companies collapsed. Global Crossing watched customers abandon its 100,000-mile fiber-optics network. Hemorrhaging cash and facing withering prices and $12 billion in debt it couldn't repay, Global filed for Chapter 11 bankruptcy protection in early 2002. About 12,000 people, including many Frontier employees, lost their jobs and their pensions.
Winnick, apparently slightly bothered by his conscience, put $25 million of his new billionaire's wealth in an escrow account to reimburse Frontier workers whose pensions vanished. His contribution was a fraction of the $300 million lost by the company's employees.
In one of the few media comments that Norman Brownstein, the consummate behind-the-scenes lobbyist, has made in the last two decades, he told the New York Times ''You can say he [Winnick] didn't put much money in vis-à-vis how much he made at Global Crossing, but what other C.E.O. has put any money into a company that collapsed?" A contorted ethical view, to say the least.
Another big profiteer in the Global Crossing fiasco was recently elected Virginia Governor Terry McAuliff, former head of the National Democratic Committee, who invested $100,000 and got back at least $8.1 million, according to the Richmond, Virginia Times Dispatch newspaper. Virginia Attorney General Ken Cuccinelli, McAuliffe's opponent in the recent gubernatorial race, claimed in controversial TV ads that McAuliffe actually made $18 million on his small investment while thousands of Global Crossing employees lost their jobs and pensions when the company went bankrupt.
McAuliffe, in a 1999 story in The New York Times, said Global Crossing head Gary Winnick hired him on retainer because he "wanted a stable of people around him with great contacts" to "help him work on details." McAuliffe said in that Times article that "Winnick was looking for a little political action." McAuliffe’s retainer with Winnick ended in 1998. But he was allowed to hold on the stock, which rose steadily. McAuliffe later sold his 176,017 shares when Global Crossing stock jumped above $60 a share.
In the spring of 2013, while Norm Brownstein basked in lavish praise (recorded in the Congressional Record) from senatorial admirers, another financial scandal in high places was again sweeping Denver. Brownstein client and business partner Roger Parker, an oil and gas speculator who - with Brownstein's direct help - had talked Fresno native and billionaire Kirk Kerkorian into plunking down $684 million in late 2007 to buy a one-third share in Parker's Delta Petroleum company. Parker, known in Denver as "Mr. Fast Lane", leaked this inside information to at least two close friends. It was an unleashed secret that would come back to haunt Parker, who ended up in bankruptcy court.
The Securities and Exchange Commission (SEC) said that at the same time Parker and Brownstein were setting the hook in Kerkorian's wallet, Parker was also bragging to Michael Van Gilder, fourth generation head of the Van Gilder insurance company, and Scott Reiman, presumed heir to his aging father's estimated fortune of $700 million. Van Gilder insured Parker's business ventures and Parker had office space in Van Gilder's building. They were connected socially, in civic affairs, and in business.
Despite landing the $684 million investment from Kerkorian, things started to go badly for Parker and Delta Petroleum, with the world wide economic recession beginning in 2008. According to the Denver Post, critics said Parker refused to hedge his risks by guaranteeing future oil/gas supplies at a set price, believing falling prices would quickly rebound. They didn't.
Kerkorian's lieutenants moved in and took over operating control of Delta but they could not stop the bleeding either, and Delta stock plunged from a high of $22.82 per share on January 4, 2008, to an almost worthless low of 5 cents a share in January of 2013. Kerkorian ended up taking the company into bankruptcy in December of 2011 and, after reorganization, it was later renamed Par Petroleum.
Despite these setbacks, Parker, by 2010, was presumably unworried about the tip he had given Van Gilder and Reiman three years earlier at the time of the Kerkorian buy-in. Although SEC attorneys have never revealed who tipped them about the insider trading by Parker, Van Gilder and Reiman, some Denver bloggers suggested the leaker was Norman Brownstein's youngest son, Drew K. "Bo" Brownstein, who himself was ensnared in an insider trading scandal which occurred in 2010. Conspiracy theorists claimed Bo Brownstein may have tipped prosecutors about Parker in order to get a lighter prison sentence. Bo Brownstein, who was subject to up to 20 years in prison and a $5 million fine, instead served a year in a low security level federal prison. Others said Bo may have learned of the Parker insider trading from his own father, Norman Brownstein, who was a participant in the Kerkorian merger talks. According to the SEC, Bo made over $5 million for himself, his friends, and his hedge fund. Parker says in his SEC filings that the investigation of him began during the Bo Brownstein insider trading case.
SEC officials said Bo Brownstein, in his own insider trading case, had been given inside information by close friend Drew Peterson, whose father was H. Clayton Peterson, head of the Arthur Anderson Accounting Denver office and well known in the Denver business community. Both Petersons pled guilty to insider trading. They escaped prison time and were instead fined and ordered to pay back illegal profits.
According to the SEC, in April 2010, Clayton Peterson, learned through confidential board meetings that an oil company, Mariner Energy Inc., was about to be acquired by Apache Corporation, another oil company. Peterson tipped his son, Drew, about the acquisition and instructed him to also purchase Mariner securities for Clayton Peterson’s daughter. Drew Peterson used the material nonpublic information he received from his father to trade Mariner securities for his own accounts, for his family members, his investment club and investment clients, and to tip certain friends, including Bo Brownstein. Drew Peterson’s trading and the trading of his tippees, excluding Brownstein, resulted in illegal profits of $205,416. SEC officials said Brownstein used the material nonpublic information he received from Drew Peterson to trade shares for his father's account which he managed, for his family members and for hedge funds managed by Big 5, Brownstein’s registered investment advisory firm. Brownstein reaped approximately $4.6 million for Big 5 hedge funds, $305,050 for his family members and $130,671 for himself.
The New York Times, without reference to any source, reported that Bo Brownstein "bought stock for his family, including his father, without their knowledge." The Times never explained how it knew that Norman Brownstein did not know his son was using the father's account to engage in insider trading. News accounts suggested Norman Brownstein had given his son discretionary authority to buy and sell from the father’s account. However, there was no mention that attorney Jeffrey M. Knetsch, a shareholder in Norman Brownstein’s law firm, had assisted Drew “Bo” Brownstein with his business model and had delivered the Articles of Organization for Big 5 Asset Management LLC - Bo's hedge fund company - to the Colorado Secretary of State via an e-file, according to state records.
The SEC civil complaint Final Judgment entered against Bo, Norman Brownstein's son: (1) permanently enjoined him from violations of Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder; (2) ordered him to pay disgorgement of $435,722, representing illicit profits that he gained in his personal accounts and his relatives’ accounts, plus prejudgment interest in the amount of $23,427, for a total of $459,150; and (3) ordered him to pay, on a joint and several basis with Big 5, disgorgement of $4,148,262, representing illicit profits gained by Big 5 hedge funds, plus prejudgment interest in the amount of $274,709, for a total of $4,422,971. In addition, on June 27, 2012, the SEC issued an order on consent in a related administrative proceeding pursuant to Section 203(f) the Advisers Act barring Brownstein from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
While Bo Brownstein quietly served time in prison on criminal charges of insider trading, the SEC and U.S. Justice Department turned their attention to new Denver targets.
On October 24, 2012, the U.S. Justice Department filed five counts of criminal securities fraud (insider trading) against Michael Van Gilder, with a potential penalty of 20 years and a $5 million fine. Van Gilder reacted by sending a letter to the New York Times website, which printed the letter in full, proclaiming his innocence. Van Gilder, in that letter, compared himself to Nelson Mandela and Steve Jobs, leaders who overcame considerable hardship and difficulty. Van Gilder's bravado didn't last long.
Two days later, on October 26, 2012, the first civil complaint by the Securities and Exchange Commission (SEC), named Van Gilder as an inside trader in the Kerkorian buy-in at Delta Petroleum, subjecting him to further civil penalties.
On November 27, 2012, Roger Parker was added to the SEC civil complaint as a co-defendant with Van Gilder. Significantly, the Justice Department did not file criminal charges against Parker, who is the son of New Mexico federal judge James A. Parker. Then on April 15, 2013, the Securities and Exchange Commission charged Scott Reiman with insider trading based on confidential information he obtained from Roger Parker in the Delta Petroleum stock transaction.
Parker, Van Gilder and Reiman were not only linked socially in philanthropic circles in Denver, they were also intimately involved in the business world, sometimes serving on the same board of directors. The way Parker, Van Gilder and Reiman responded to their insider trading charges, and the reaction of friends and relatives and the Denver media and business community, speak volumes. We consider the situation of the three amigos as follows:
Michael Van Gilder
Michael Van Gilder, 46, is an heir to a Denver insurance empire launched by his great-grandfather in 1905. He was serving as CEO of Van Gilder Insurance on October 24, 2012 when the U.S. Justice Department indicted, arrested, and booked him on five felony counts following federal grand jury proceedings. The criminal complaint alleged that in late 2007 Van Gilder was "a close personal friend" of a Delta Petroleum executive, who turned out to be Roger Parker, and that Parker had tipped Van Gilder of the pending buy-in of Delta Petroleum by Las Vegas billionaire Kirk Kerkorian. Van Gilder was accused of buying Delta stock call options in late December 2007 and selling them on January 9, 2008, following a jump in Delta's stock, reaping a profit of $86,000.
Despite his bravado, he immediately resigned as CEO of Van Gilder Insurance. His name has been completely purged from Van Gilder Insurance Company website. Indeed, as noted below, the Van Gilder name will vanish from the Denver insurance industry because of a buyout by a bigger insurance company.
Van Gilder claimed in his letter to the New York Times "No great man, woman, or company has achieved greatness without going through massive adversity." He added, "You might think I’m going to stay home and hide, stay invisible? Wrong, I plan to be as visible as ever, I won’t let this beat me down." Van Gilder's email expressed confidence that he would be exonerated in a jury trial.
Van Gilder's "greatness" however, was short-lived. Two days after the criminal charges were filed, the SEC filed a civil complaint against Van Gilder in a civil action, again alleging insider trading. His legal team then began extensive negotiations with Justice Department lawyers and SEC lawyers. About a month after the SEC civil complaint, the SEC filed an amended complaint naming Parker as a co-defendant as well as an unnamed co-conspirator identified by the SEC as "Friend A" and widely believed to be Reiman, who reaped a profit of over $730,000 by acting on a tip from Parker about the Kerkorian buy-in.
On May 1, 2013, Van Gilder pled guilty to one felony count. What about his claims of innocence? When asked in court why he used insider information to make a quick $86,000, Van Gilder simply said, "I was naive and ignorant and made a mistake." Few believed that. A more pertinent question is why a man worth many millions of dollars would risk his freedom and good name for a mere $86,000. Is it a character flaw? Is it simple greed in order to make a quick killing? What does he tell his family and friends? What do his children tell their friends? Is insider trading common in certain business circles?
Van Gilder's replacement as president of Van Gilder Insurance, Donald Woods, also drew raised eyebrows by insiders. Woods' former job was CEO of the failed Community Banks of Colorado, a banking chain he co-founded, which included among its board of directors Van Gilder and Parker. Another member of the Community Banks of Colorado board of directors, Jeff L. Johnson, purchased assets from Parker before Parker filed his Chapter 11 bankruptcy, according to Parker's bankruptcy pleadings. Johnson, a University of Colorado grad, is chairman and co-founder of MBH Enterprises LLC, a diversified holding company based in Denver. It is not clear if Van Gilder or his insurance company borrowed money from Community Banks. Presumably, he would have (should have) recused himself from voting on a loan to himself or his insurance company.
Parker and his father, federal Judge James A. Parker of Albuquerque, had loans out with Community Banks before the banking firm crashed. It is not known if Van Gilder, as a close friend of Parker, nevertheless approved these loans in his capacity as a bank director. Federal banking regulators said the Community Banks failure would cost American taxpayers $224.9 million. No word if Van Gilder, as a close friend of Parker, recused himself on bank board votes on loans to Parker.
In his criminal case, Van Gilder was sentenced on August 14, 2013. He got five years probation plus six months of home detention on an ankle monitor as well as a $5,000 fine. He was also ordered to repay $86,100 of his "ill-gotten" gains as a result of the insider trading incident. U.S. District Judge Wiley Daniel rejected a Justice Department request that Van Gilder do time in prison as a message to other insider traders.
It didn't hurt Van Gilder that his attorney at the sentencing, Bob Miller, was a former U.S. Attorney. Miller objected repeatedly when prosecutors tried to offer details of Van Gilder's crime. Miller said the prosecutors' tactics were "only an effort to tarnish Michael in the eyes of the public to things he had not done. It's only done to prejudice him." Had he been found guilty of all five counts he faced a maximum potential prison sentence of 100 years and $25 million in fines. But, of course, maximum punishment is rarely imposed on white collar criminals.
Also a factor in Judge Daniel's imposition of a light sentence, was that Van Gilder told the judge he might be getting a new job. Van Gilder has two teenage children who live with his ex-wife, Lisa, and he said he had paid $9,500 a month in spousal support for a year and a half after he was no longer legally obligated to do so.
Van Gilder has also resigned from a board position in the Boy Scouts of Denver Council, where his father, Dell, still sits as a director. Michael Van Gilder's name is no longer found on the Denver Boy Scouts website. Roger Parker was also involved with the Denver Boy Scouts prior to the SEC complaint. He too stepped down.
In the wake of the criminal and civil complaints, Parker complained in a written response to the SEC complaint, that although he did tell Van Gilder about the pending buy-in of Delta stock by Kerkorian, Parker said it was understood that Van Gilder would not act on the information for his benefit.
"Based on their history, pattern and practice of sharing confidences, they [Parker and Van Gilder] knew . . . that the other expected any such confidences to be maintained in confidence and not to be used for the purpose of trading in Delta's stock," Parker wrote in his answer to the SEC civil complaint.
Parker and Van Gilder, both alumni of the University of Colorado, are among the founding members of the "Buff Club Cabinet", a university sports boosters' club, which requires members to provide $25,000 a year for three years. Also, Van Gilder handled Delta Petroleum's insurance business and provided Parker office space.
On Nov. 13 , The Denver Post reported Van Gilder "appears to have reached a settlement with federal securities officials in an insider-trading lawsuit. Although neither side would provide details, court records show a deal is being finalized and will probably bring an end to the year-old litigation regarding Van Gilder's illegally profiting from information he got from bankrupt oilman Roger Parker, his longtime buddy who at the time headed Delta Petroleum." U.S. District Court Judge John Kane gave Van Gilder until late January 2014 to formally answer the U.S. Securities and Exchange Commission civil complaint against him, noting that the parties "have reached a settlement in (principle)." Van Gilder may lose his insurance broker's license as part of the deal he makes with the SEC.
In early December of this year, business newspapers reported USI Insurance Services LLC had entered into a purchase agreement to acquire The Van Gilder Insurance Co. Of course, Van Gilder officials denied the sale of the 108-year-old company had anything to do with Michael Van Gilder's legal problems. The Van Gilder firm will change its name to USI Colorado, and the company's office and employees will remain in Denver. Van Gilder President Donald Woods, who presided over the Community Banks failure, and Chief Financial Officer Edward M. Harrington Jr. will remain in their leadership roles.
“Selling Van Gilder to USI is a positive decision for our company, our people and customers,” Dell Van Gilder Jr., (Michael Van Gilder's father) current chairman of Van Gilder's board, said in the statement. Presumably, Dell Van Gilder is deeply ashamed of his son's criminality.
One wonders what the discussion must have been between father Dell Van Gilder and his son. One wonders what Michael Van Gilder said to his teenage children about his greedy act that brought disgrace upon his multi-generational company. Dell Van Gilder said his own father almost lost the insurance company to bankruptcy decades ago. Dell, still active in the community, must have wondered at the irony that two generations later, his son also damaged the company, leading to its buy-out and name change.
Some see the sale of the business as be part of a settlement with the SEC. Presumably, if the SEC agrees to a settlement with Michael Van Gilder on the securities fraud case, they will impose certain sanctions, which will order Van Gilder to cease and desist in activities which led to the SEC charges. It is not uncommon for the SEC to require a defendant to agree to other sanctions, which could include surrendering any license. In this case, sanctions against Van Gilder's license to act as a insurance broker or agent, sit on any board of directors, or manage such a business, may be part of the settlement.
If all three men - Parker, Van Gilder and Reiman - were indeed born with silver spoons in their mouths, Reiman's spoon was also gold-plated and encrusted with diamonds and rubies. His father, Roy Reiman, is a near billionaire.
Roy Reiman, born during the depression, grew up on a farm near Auburn, Iowa and worked in a creamery to pay for his college education at Iowa State University, graduating with a degree in agricultural journalism. His first publishing job was at the farming journal Capper’s Farmer, where, at the age of 23, he became managing editor. He worked for two magazines but both went under. He published his own magazine, Pepperette, targeting teenage cheerleaders but it too went out of business after two issues.
Then Roy Reiman started Reiman Publications in 1965 in the basement of his Hales Corners, Wisconsin home. Over the next four decades he built a farm magazine publishing empire, many of his magazines aimed at rural life in America. He successfully published several cookbooks.
In 1998, Roy Reiman sold his controlling interest in Reiman Publications to Madison Dearborn Partners, a Chicago investment firm, for roughly $630 million. Madison Dearborn then sold the Reiman company to the Reader's Digest Association in 2002 for $760 million. Reader's Digest, with an aging readership, filed for bankruptcy in 2002. Roy Reiman continued with Reiman Media Group until November 2005. In June 2007, Reiman Publications officially lost its name under a bankruptcy reorganization of Reader's Digest.
In 2003, Roy Reiman and his wife Bobbi were given the Impact Award from Iowa State University for their activities within the school, including the creation of the Reiman Gardens and the Christina Reiman Butterfly Wing.
Roy Reiman is also a past president of the Iowa State University (ISU) Alumni Association Board of Directors, an ISU Foundation Governor, an Order of The Knoll Campanile Award recipient, and an ISU Foundation Philanthropy Award recipient. Bobbi Reiman is an Order of The Knoll Campanile Award recipient, ISU Foundation Philanthropy Award recipient, and a member of the University Museums Curators Associates. The Reimans are life members of the ISU Alumni Association. An entrepreneurial scholars and lectures program in the ISI College of Business also bears the name of Roy and Bobbi Reiman.
Roy and Bobbi's son Scott, had a much more comfortable upbringing than did his parents.
Scott Reiman, now 49, graduated from Denver University in 1987 with a Bachelor of Science degree in Business Administration with a concentration in Finance. He is the founder of Hexagon Investments of Denver (with some considerable help from his parents) serving as president of the investment firm since 1992. He has been a member of the Board of Trustees at the University of Denver since 1999 and until the insider trading scandal chaired its Investment Committee.
He additionally serves on the boards of Graland Country Day School, the Denver Scholarship Foundation, and the Denver Art Museum.
A native of Milwaukee, Wisconsin, Scott Reiman now lives in Denver with his wife Virginia and two young sons. In his free time, he enjoys reading, traveling, hiking, and playing golf and tennis, according to the Crunchbase website.
He also has served on many other civic boards including the Denver Mayor’s Financial Management Task Force/Investment Council (whose board also included Gary Reiff, co-chair of the corporate and securities group at the Norman Brownstein law firm). Scott Reiman has (or had) a large interest in Roger Parker’s Delta Petroleum Company. Scott Reiman also has a financial interest in many other Denver companies such as Labyrinth Energy LLC, Labyrinth Enterprises LLC (it can get confusing!), Very Hungry LLC, Prospect Global Resources, Inc. and another company associated with Roger Parker called Recovery Energy, Inc.
Scott Reiman was a board member of Prospect Global Resources, Inc. the company (a potash investment firm) that was co-founded by Norman Brownstein’s son Chad Brownstein. Reiman owns a substantial interest in that company, as do Norman and Chad Brownstein.
Scott Reiman was the recipient of the Josef Korbel Humanitarian Award at the University of Denver in 2006. This year that award was given to former President George W. Bush, over campus protests. Josef Korbel’s daughter, Madeleine Albright, was secretary of state under Bill Clinton.
In 1964, Josef Korbel founded the Graduate School of International Studies (GSIS) at Denver University and became its first Dean. The Korbel Dinner is the main fundraising event of the Josef Korbel School. Eleven years ago, the Josef Korbel School established the Josef Korbel Humanitarian Award to recognize individuals who have given concrete expression to the values underlying the Universal Declaration of Human Rights through unusually generous philanthropic work within the Denver community.
Conway J. Schatz , a University of Denver business school graduate is a Hexagon Investments board member where he serves as Vice President of Real Estate/Energy. He is also a board member of Prospect Global Resources, Inc., probably to watch Reiman’s interests, as Reiman resigned as a board member of Prospect Global after his insider trading problem.
Denver University has a consultant, Monticello and Associates, that does the investing of endowment dollars. You would think Scott Reiman as a trustee and former chair of the Investment Committee, would have influence on how DU’s money is invested. One wonders if Scott Reiman urged the university Investment Committee to buy Delta stock, or Global Resources or Recovery Energy stock.
Denver area blogger Rob Prince had this to say about the pickle Reiman's insider trading debacle has had on Denver University's fund-raising and the ethical dilemma it poses.
"In a settlement with the SEC, Reiman, himself a former (2006) Korbel Dinner Humanitarian award winner, `admitted no wrong doing’ but paid the penalty as a result of the SEC’s investigation of illegal insider trading of Delta Petroleum stock in 2007, just before billionaire investor Kirk Kerkorian was on the verge of buying into the company. Delta’s board of directors includes Hank Brown, former U.S. Senator from Colorado, current president of University of Northern Colorado, who comes out of the Monfort meat packing industry . . .
Not only did Reiman escape indictment over the Delta Petroleum insider trading incident – several others involved didn’t – but the blow of the fine was somewhat softened by the DU Board of Trustees. The board did its own internal inquiry into the SEC allegations, defining the charges against Reiman as “circumstantial” – whatever that means. If the SEC found enough grounds to fine Reiman, the Board of Trustees considers Reiman almost blameless. In what comes off as more of a statement of class solidarity than the conclusion of an impartial investigation, the Board’s investigation concluded:
“We (The Board of Trustees) recognize that it is inappropriate to conclude, from an SEC settlement of this nature, that Mr. Reiman has violated a law or even been guilty of unethical conduct.”
Let us leave aside for the moment the validity of the Board of Trustees investigating itself, and move to the results. Reiman resigned as chairman of the board’s investment committee, but remains an active member of the Board of Trustee.
It turns out that one of Reiman’s closest friends and associates is Roger Parker, former C.E.O of Delta Petroleum. Dubbed `Mr. Fast Lane’ by some who know him well, Parker is the son of a New Mexico federal judge. As one friend put it “but for Roger, Scott (Reiman) would be little more than a middle level manager at an Iowa tool company.”
Reiman’s case is especially interesting and deserves a little more elaboration as he has been a key person in D.U.’s fundraising efforts. As chair of the Board of Trustee’s Investment Committee he was, of course, heavily involved in finding donors. As will be discussed, his contacts tend to be on the ultra-conservative side. It is not clear how his SEC fine will impact his fund-raising for the university, but it can’t help. The impression that Reiman is yet another Horatio Alger success story, a shrewd investor, is off the mark. He got by with a little help – or maybe more than a little help – from `dad’."
It certainly appears that Reiman and Parker are close friends. According to the Denver Post, Reiman loaned Parker $24.7 million to start up Recovery Energy Inc. after Parker was ousted from Delta Petroleum by Kerkorian's lieutenants. This past April 15, Reiman, undoubtedly on the advice of counsel, made a deal with the SEC regarding his insider trading on the Delta Petroleum deal.
On June 10 of this year, The Denver Post reported:
Denver University has a Code of Business Conduct that applies to trustees, faculty and staff alike. Its first section deals with complying with laws and regulations. The third addresses stands of ethics and integrity and says, "Even the appearance of misconduct or impropriety can be damaging to the University."
For that reason, the board chose to review the matter, "to ensure we operated on the highest level, beyond scrutiny," said trustee Patrick Hamill, founder, president and CEO of Oakwood Homes.
The board conducted its probe quietly and "behind the scenes" over six weeks, Board of Trustees chairman Trygve Myhren wrote.
"We recognize that it is inappropriate to conclude, from an SEC settlement of this nature, that Mr. Reiman has violated a law or even been guilty of unethical conduct," Myhren wrote in his first letter to faculty and students.
Hamill and a school official confirmed the content and circulation of Myhren's letters. Myhren was not reachable for comment Monday.
"Because Scott is very much aware of how this matter may appear to some who have not had the advantage of the (board) committee's in-depth probes, he is concerned about the potential impact on the reputation of the University of Denver," Myhren wrote. "He will remain an active member of the board . . . in other capacities."
Myhren and Hamill glossed over the fact that although Reiman did not admit the SEC charges he also did not, indeed could not, deny them. What they overlooked in their desire to hang on to Reiman's riches, is that Reiman did not dispute he used information from Parker to make a quick killing in the stock market, facts that any civil jury would conclude constituted inside trading. Even if not an SEC violation, it clearly was a breach of ethics. Reiman agreed in the SEC settlement that “during the weeks leading up to the [Kerkorian buy-in of Delta stock], he received material nonpublic information from Delta Petroleum’s chief executive officer, Roger Parker (Parker), and then traded on the basis of that information reaping ill-gotten profits." (italics added.)
Apparently the DU trustees do not have a problem with ill-gotten profits when they are reaped by a very wealthy man who loves playing the big shot at his Alma Mater.
Reiman is one of 28 trustees at DU. Although he remains on the board of trustees he submitted in resignation in early June from his position on the Trustees' Investment Committee.
The Institute of Enterprise Ethics at the Daniels College of Business at Denver University, published a letter endorsing the findings of the trustees that Reiman's actions did not deserve any sanctions.
The Institute letter, noting that Reiman was a "major benefactor" of the DU school of business, stated:
Given the information uncovered by the Trustee Affairs Committee of the Board and the nature of the agreement Mr. Reiman signed, the Board determined that Mr. Reiman “has violated no standards of legal or ethical conduct to which the Trustees hold themselves.” Consequently, the Committee and the Board determined that Mr. Reiman would likely be invited to continue to serve as a trustee of the University and the University would continue to display the Reiman name on the institutions he has supported for many years.
The Institute for Enterprise Ethics has great respect for the process of due diligence the Board exercised as well as for the decisions they came to as a result. We are especially impressed with the way in which the board dealt with the fundamental and difficult ethical challenges inherent in this situation.
Those are some enterprising ethics alright. I'm sure the Institute for Enterprise Ethics is going to hold a public forum on insider trading by folks high up in the Denver food chain.
Scott Reiman is also a former board member and stockholder of Prospect Global Resources, Inc., providing a $5 million loan to the company, receiving stock as collateral. Reiman also provided $1.5 million from his Hexagon investment firm and $12.5 million from Very Hungry LLC (another one of his companies) to Prospect Global Resources, Inc. Also, some money came from the Scott Reiman 1991 trust. Scott Reiman was a board member of Prospect Global Resources, Inc. from 2011-2012.
According to bankruptcy court records, Roger Parker sold for $1.3 million “several unknown interests” to Labyrinth Energy LLC, which show their principal office street address as 730 17th St. Suite 800, Denver. Colorado Secretary of State records show Scott Reiman is the registered agent for Labyrinth Energy, LLC and the listed address for Reiman’s Hexagon Investments Inc. is the same address as Labyrinth Energy LLC.
Nearly a decade ago Denver oilman Roger Parker was sitting on top of the world. He was the Chief Executive Officer of Delta Petroleum, was living in a $9.2 million home in the toney Cherry Hills neighborhood of Denver, and was actively involved in community affairs. An avid golfer, he was a golf buddy of National Football League Hall of Famer John Elway, a financial supporter of University of Colorado athletics, a trustee of the Denver Art Museum and even served as a trustee of the Denver Area Council of the Boy Scouts of America. He was well on his way to his stated goal of becoming worth $100 million.
Then, in the biggest moment of his career in late 2007, Parker could not keep his mouth shut, as he was required by law to do. His fall from power was faster than his rise. Parker, who had joined Delta Petroleum in 1987 not long out of college, had risen to CEO of the oil exploration company by 2004. Eager to expand, Parker, along with his attorney and business partner Norman Brownstein, and Las Vegas businessman Michael "Tiger" Davis, talked former Fresnan and billionaire nonagenarian Kirk Kerkorian into buying into Delta with an infusion of $684 million. Brownstein was being paid over $320,000 a year in lobbying fees and it was he and Davis who talked Kerkorian into the investment.
However, the honeymoon with Kerkorian's Tracinda company did not last long. Along with the 2008 worldwide energy market crash, Parker made some questionable decisions that helped propel Delta stock downward. Promising oil wells did not pan out. Kerkorian's aides serving on the Delta board forced Parker out of the CEO position in May 2009. Tracinda took Delta Petroleum into bankruptcy in December of 2011. Kerkorian's two-thirds of a billion dollars vanished.
It was during the buy-in negotiations with Kerkorian in November 2007 that Parker told two of his closest friends - Van Gilder and Reiman - that he had reached an agreement with Kerkorian and a huge influx of cash was going to be coming into Delta, which would cause an increase in the value of Delta stock. The deal was announced on December 31, 2007, after Reiman and Van Gilder had made their buys, and the stock immediately jumped upward. Both Van Gilder and Reiman, acting on Parker's tips, made several hundred thousand dollars on the Delta stock surge, selling their shares before the long, slow slide into bankruptcy which commenced in 2008.
Later, Kerkorian would allege in a now settled lawsuit that Parker had “secretly arranged" a $5 million compensation package for "Tiger" Davis - who had been friends with Kerkorian - for Davis's role in securing the Kerkorian buy-in. Creditors, including Kerkorian's Tracinda, would later allege that Parker took sensitive data from Delta and then used that information for his own purposes.
For well over three years, Parker, Van Gilder and Reiman shared the secret that Parker had tipped Van Gilder and Reiman about the Kerkorian buy-in, allowing them to make a quick killing on the insider trade.
According to a December 15, 2012 article in the Denver Post, Delta Petroleum and Parker had encountered the Securities and Exchange Commission before. In 2006 and 2007, prior to the Kerkorian/Tracinda deal, the SEC investigated alleged backdating of stock options that were awarded to Parker and other Delta executives. The SEC later dropped its inquiry, and a pair of shareholder suits alleging the fraudulent practices were settled.
Six months after Parker's resignation in May of 2009 from Delta Petroleum, he joined Recovery Energy Inc., another oil exploration company. He would become Chief Executive Officer (CEO) of Recovery in May 2010. But Parker - with SEC charges imminent - would leave Recovery Energy in Mid-November 2012, resigning as both CEO and a board member, according to a Denver Business Journal article. The Business Journal noted than in a Recovery Energy website press release, the company "gave little mention of Parker" - not even using his first name - simply announcing "The Board of Directors wishes to thank Mr. Parker for his service to the Company and wishes him well."
By this time, Parker was aware he was under investigation by the SEC and he presumably told Recovery Energy directors of this dilemma, leading to his resignation. Parker's name had been mentioned in a Denver Post article earlier that month about the criminal charges against Michael Van Guilder were lodged. On November 28, 2011, the U.S. Securities and Exchange Commission added Parker, 51, to a civil complaint that the agency had filed on Oct. 26 against Van Gilder. Parker's income from Recovery Energy in 2011 was $670,606, according to bankruptcy records.
Things were unraveling in other areas too.
On October 21, 2011, federal regulators took over Community Banks of Colorado. Parker was a former director of the bank chain and he disclosed this information on his personal bankruptcy documents filed on January 23, 2013. Listed as directors of Community Bank of Colorado were Michael Van Gilder, Donald Woods, co-founder and CEO (who later took over the Van Gilder insurance company), Jeff Johnson and others.
The bankruptcy records show Roger Parker and JPFP Family LLC - a company owned by Parker's father, New Mexico federal Judge James A. Parker - both borrowed money from Community Banks of Colorado. JPFP Family LLC, according to Judge Parker’s annual financial disclosure reports, borrowed between $500,000 and $1 million from Community Banks in 2009 and paid back the loan in full in 2010. Roger Parker still owes the bank money. There is also a claim still outstanding from NBH Bank, N.A. Kansas City, which is the company that took over from Community Banks of Colorado, when that banking company failed. Roger Parker lists an outstanding balance due NBH Bank of over $5.9 million. Parker's bankruptcy filings show he also owes Prins Bank over $2.5 million, and Select Portfolio Servicing over $6 million.
Another former director of Community Banks, Michael Potts, now serves on the board of Van Gilder Insurance Company. Potts is a former Chief Executive Officer of the Rocky Mountain Institute.
In his bankruptcy pleadings, Parker said he held a management position at IEXCO, a Canadian company providing seismic data and other services to the oil industry.
In the year prior to his filing personal bankruptcy, court records show, Parker attempted to shed assets. He sold a business he owned, the popular Mile High Flea Market in Denver, to MBH Investments for $348,000. Remember, the founder of MBH Enterprises is Jeff L. Johnson, a former director (along with Parker) of Community Banks of Colorado. According to his 2011 financial disclosure form, Parker's father, federal judge James Parker, had stock valued at $250,000 to $500,000 with MBH Enterprises LLC.
In February of 2012, Parker's wife, Delia "Dee Dee" filed for divorce. It later came out in the bankruptcy proceedings that Parker was having an affair with Erin Wallace, the wife of John Wallace, Parker's partner at Delta, who served as chief financial officer. Despite the presumed acrimony over infidelity, Parker transferred assets to his ex-wife totaling $66,555, according to a claim by the bankruptcy trustee.
In May of 2012, Parker sold his working interest in the Church oil field to JPFP Family LLC for $265,000. The JPFP Family LLC is co-managed by Roger Parker’s father, Judge Parker. JPFP uses the mailing address of Roger Parker's sister, Pamela Parker Jones. That same month, court records show, Parker sold a Cadillac to Erin Wallace, 49, for $20,000. He also sold Northern Flights Ranch, LLC to Ruxece, LLC for $280,000, and sold a partial interest in Apex Operating Company LLC to Ruxece LLC for $500,000. He also was attempting to sell a $35,000 membership in the Castle Pines Golf Club and had sold a $100,000 membership in the Whisper Rock Golf Club in Scottsdale, AZ to Ruxece LLC. Ruxece LLC was incorporated in October of 2012.
Parker told the bankruptcy court last summer that a "close personal friend" was behind Ruxece LLC. Parker's attorneys told the Bankruptcy court that Parker and Erin Wallace had been married in mid-summer of 2013 and that Erin Wallace was the "close friend." Creditors howled that Parker was trying to hide assets in the year leading up to his bankruptcy filing. They said Erin Wallace had been living at Parker's $9.2 million mansion - which he stopped paying for - months before their marriage.
On December 12, 2012, the Denver Post reported that earlier in 2012 Parker had pledged 100,000 shares in Prospect Global Resources, Inc., the potash mining company in Arizona, as collateral to Norman Brownstein's law firm for personal legal help. At the time of Parker’s bankruptcy filing, he listed the value of the 100,000 shares of common stock at $146,000. By mid-November of 2013, the stock had risen to $226,000 in value.
Roger Parker’s bankruptcy filing lists a claim of $775,000 by the Brownstein Law firm and a second lien on Project Global Resources shares by Westfield Development Partners and a $409,000 claim by Labyrinth Enterprises LLC with a first lien on Project Global Resources shares. These claims were made prior to Parker’s Jan. 23, 2013 bankruptcy filing. Labyrinth Enterprises LLC shows the registered agent is Scott Reiman of Hexagon Investments.
In his bankruptcy form, Parker said that in May of 2012 he sold a "working interest" in the Church Oil Field to JPFP, LLC, for $265,000, a company co-managed by his father. In addition, Parker disclosed that in December of 2012 he made a "redemption agreement" with JPFP for $188,546. Judge Parker's financial disclosure form for 2012 is not yet available to the public. In addition, Roger Parker disclosed he has accounts receivable from JPFP valued at $23,546.
Roger Parker's troubles with his ex-wife were not over.
On October 15, 2013, she filed a claim against Parker's estate for $10 million in connection with the couple's 2012 divorce. She claimed Parker misrepresented ownership of property or its rights, or otherwise has failed to comply or perform under a separation agreement reached between the pair, which has devastated her financially. She claimed Parker promised to pay about $8.9 million in support for herself and the couple’s four children from funds she wants secured from any creditors to the bankruptcy.
Parker claimed in SEC court documents that the SEC investigation into him began during the 2010 Mariner Energy/Apache insider trading scandal involving Bo Brownstein. Has Parker confronted "Bo" Brownstein, or his father, for that matter, to see if Bo was the snitch?
Does Parker still talk to Van Gilder or Reiman? How do the affluent residents of Denver treat the three men at civic events? Does Dell Van Gilder explain to young Boy Scouts what Michael Van Gilder did was wrong? Or is the attitude more like "too bad they got caught."
Judge Parker, in his 2007 annual financial disclosure form required of all federal judges, stated he owned between $500,000 and $1 million in Delta Petroleum stock in 2007, the year his son talked billionaire Kerkorian into investing $684 million in Delta. Puzzlingly, the following year, in his 2008 financial disclosure form, Judge Parker listed his Delta stock's value between $15,000 and $50,000, but did not indicate he had sold or traded any Delta stock. A clerk at the SEC told this writer that if Parker bought, traded, or sold any of his Delta stock he should have stated so on the form. Judges are free to file corrections and amendments months after they have filed a report. Willfully falsifying the forms constitutes a crime and can also result in civil penalties. Did Judge Parker watch his Delta stock slide into bankruptcy before he sold it? Did his son try to warn him?
In Judge Parker's 2011 financial disclosure report he noted that in July of 2011 he sold a "fractional share" of his Delta Petroleum stock for $2.60 a share, a few months before Delta Petroleum filed for bankruptcy on December 16, 2011. The Financial Disclosure form does not reveal exactly how much Delta stock Judge Parker sold or when, but only that it was a "fractional share" a meaningless phrase without context and hard numbers. Parker's 2012 financial disclosure form was not available as of Dec. 22, 2013.
Judge Parker's wealth is between $5 and $15 million, according to his disclosure forms. His extensive oil holdings caused him a problem in the mid-1990s. In 1996, the Albuquerque Journal reported Judge Parker was presiding over a lawsuit alleging Amoco Oil Company and Meridian Oil Company (later called Burlington Resources) had polluted groundwater in the San Juan Basin of New Mexico, harming plaintiffs' water wells. Two attorneys for the plaintiffs said Judge Parker owned Amoco Oil Stock and that his son, Roger Parker, was an employee of Delta Petroleum which also had an interest in the area that overlapped the land in the groundwater pollution lawsuit.
The plaintiffs' attorneys said Judge Parker showed bias by several negative rulings against them, including an order preventing the plaintiffs' expert witness from testifying.
In "an angry and sometimes emotional statement," the Journal said Judge Parker, while his wife Florence watched from a back row of the courtroom, denied any wrongdoing on his part or his son's part, stating:
"I simply can never again trust the word of those lawyers and it would be enormously unfair to a client of theirs to handle a case in which they are the attorneys. I reiterate, I have not recused myself because of my conduct in the case prior to publication of plaintiffs' counsel's motions. I believe throughout all of my rulings I was impartial."
Parker's voice broke as he noted that his reaction was probably a normal one for "any parent who loves and admires his child." He noted that a judge has a duty not to withdraw from a case because of mere criticism. Parker said he was so angry at the attorneys he could not give their clients a fair hearing.
Although he acknowledged receiving royalties from Amoco, he said he and his wife had never owned any royalty or working interests in San Juan Basin gas.
Although Judge Parker recused himself, he didn't rule on the motion seeking his disqualification.
Margaret Branch, one of the plaintiff attorneys who filed the recusal motion, said "It's still my position he's in violation of the [disqualification] statute and the canons [of judicial ethics]."
The federal judge who replaced Judge Parker in hearing the water pollution case, Lucius Bunton, reversed Parker's ruling blocking testimony by the plaintiffs' expert, geohydrologist Tim Kelly, and said the expert could testify, based upon a 10th Circuit ruling which came out after Judge Parker took himself out of the case.
In late February, 1997, the federal jury awarded a total of $500,000 in damages to six San Juan County families who claimed Amoco Production and Meridian Oil had polluted their water supply by improperly drilling natural gas wells. The jury found all damages were caused by Amoco.
The jury found Amoco was negligent in its drilling, maintenance or operation of its wells and its conduct constituted an invasion of the plaintiffs’ interests in the use and enjoyment of their property.
Judge Parker continues to invest heavily in the oil industry, according to his annual judicial financial disclosure forms. According to his 2011 financial disclosure form he has oil and gas working interests or royalties in New Mexico, Colorado, Texas, and Louisiana. He also has between $100,001 and $250,000 interest in Prospect Global Resources. Norman Brownstein and his law firm own nearly 1.7 million shares of Prospect Global stock. I wonder if Judge Parker and Norman Brownstein dine together occasionally?
In his 2011 financial disclosure form, Judge Parker disclosed he had $250,000 to $500,000 stock in MHB Enterprises (launched by Jeffrey Johnson, who, along with Roger Parker and Michael Van Gilder, was a board member of the failed Community Banks of Colorado.
In a written explanation, Judge Parker said he included income from Mile High Flea Market (owned by his son Roger) with the MHB Enterprises income. I was unable to determine from the form how much stock he had in Mile High Flea Market, which Roger sold in January of 2012 to MBH for $348,000. MBH was founded by Jeffrey L. Johnson, who also served on the Community Bank board of directors.
In his 2006 financial disclosure form, Judge Parker reported that he was now Co-Manager of JPFP Family, LLC, a company utilizing his initials and those of his late wife, and also involves their daughter, Roger's sister, Pamela Parker Jones. He did not identify the co-manager or co-managers. Before that, going back to 2002, Judge Parker always listed himself as the manager of JPFP Family LLC.
Also, in his 2011 disclosure report, Judge Parker disclosed he had $100, 001 to $250,000 worth of Prospect Global Resources Inc. stock. As noted before, Prospect Global was created by Chad Brownstein, Norman Brownstein's older son, and major stockholders include Scott Reiman. What seems clear from a review of Judge Parker's financial disclosure forms from 2002 to 2011, is that he often invests in companies that his son, Reiman, Norm Brownstein or Van Gilder also invest in. A nice, cozy arrangement, don't you think? Or maybe just coincidence?
Judge Parker's 2009 disclosure form lists a loan for between $500,000 and $1 million with Community Banks of Colorado, which he states in his 2010 report, was paid off in 2010. So he and his son borrowed money from this same bank in which his son, Roger Parker, Michael Van Gilder, Jeff Johnson of MBH Enterprises LLC, Michael Potts (now a board member of Van Gilder Insurance), and Donald Woods (CEO of Community Bank of Colorado and now President of Van Gilder Insurance) were all involved.
Six children of divorce are among the victims of this insider trading scandal as well as other family members, ex-wives, friends, and business associates. One wonders if Judge Parker and Roger Parker have sat down and discussed the ethics of the SEC complaint. Are Parker, Van Gilder, and Reiman still the best of friends? Does Roger Parker still golf with John Elway? Was this the first time any of the three wealthy men took advantage of an insider trader tip? How has Norman Brownstein handled not only the situation with his two errant sons but with his client Roger Parker? Do Norman Brownstein - America's 101st Senator - and Roger Parker even talk? Did Parker get thrown under the bus because Norm Brownstein told his son Bo about the Kerkorian deal and Bo told SEC investigators? Is Norman Brownstein going to get paid when the bankruptcy case is finally settled?
Is Norman Brownstein facing yet another ethical dilemma by representing both the San Diego Water Authority and the Westlands Water District at the same time?
When Parker, Van Gilder or Reiman attend future philanthropic events in Denver will they be whispered about, or offered condolences? Was this the very first time Parker, Van Gilder or Scott Reiman acted on an insider tip?
Is Denver University going to hold a seminar about the ethics of this scandal in the Denver business community? (Don't hold your breath on that one.) Will Parker and Van Gilder rejoin the Denver Boy Scouts organization? Scout's Honor, next time?
Parker's battle over the SEC civil complaint may be settled in January 2014 and his bankruptcy sometime thereafter. Fortunately, for him, he was not charged criminally, as was Van Gilder. The scandal will fade with time but human greed will not. Something like this will happen again in Denver or in any American city. Count on it.