EDITORIAL For September 8-10, 2015

I’m CAVE MANager Paul Lotsof.   Every so often I get an email with a strange message such as, a very wealthy man in China has just died and left me a hundred thousand dollars.   In order to claim my cash I must immediately forward my bank account number so that my share of the man’s estate can be deposited into my bank account.   They also need my Social Security Number for tax purposes.   When I get emails like that I can only laugh and wonder what sort of person would be foolish enough to respond to such a thing.  Clearly some people must be taken in or the crooks wouldn’t bother sending out their messages.   I would imagine that there are some folks who are so desperate for money  that they’ll swallow just about any line that looks like financial help.  As P.T. Barnum so famously  put it, “there’s a sucker born every minute”.

How does one know when a proposed offer is honest or the work of a con artist?   Often it’s hard to know unless you investigate before you invest.  But there are certain telltale things to look for when you suspect that you’re dealing with a con artist: For one thing there are nearly always promises made that are too good to be true.   And almost always there is the requirement for immediate action or the offer of a lifetime will go bye bye.   You must sign on the dotted line right away or lose the prize.

In May of last year, a company called El Dorado Benson LLC bought twenty square miles of land along Highway 90 in Benson.  They paid  $26.6 million for the land and that is dirt cheap for all that dirt.    In the fall of last year Michael T. Reinbold began to show up at Benson City Council meetings.   Reinbold was identified as a principal of El Dorado Holdings of Scottsdale which has close ties with El Dorado Benson LLC.   Reinbold began to address our city council making wild claims about the wonderful plans that El Dorado has for Benson.   He said that over a period of twenty years his company was going to build 28,000 houses in a town that presently has just over 5,000 people.   On October 13th of last year Reinbold stated that when his project was complete, Tucson would become a suburb of Benson.  He later cited a study that his project would be worth over 20 billion dollars to  the Benson economy over the twenty year period.  Benson’s mayor and council apparently thought that Reinbold’s claims were realistic and that El Dorado was God’s gift to Benson.

To my ears, Reinbold’s claims seemed like a classic con number with promise after promise of things that were too good to be true.   Reinbold told our public officials that before he could start spending the millions of dollars, our City Council must set up an entity called a Community Facilities District so that municipal  bonds could be sold, and that district must be established at the earliest possible moment.   There was no time to waste.   More red flags went up in my mind.  What’s the big rush?     How much money would be raised by the sale of bonds and where would the money go?   How might we make sure that the money didn’t get squandered or fall into the hands of crooks?  I remembered how a special district had been set up in Tucson several years ago and over $200 million  of downtown revitalization dollars somehow disappeared.   Could something like that happen in Benson?

Then suddenly the bombshell exploded in late July when I got a tip that Michael Reinbold had been a defendant in a massive lawsuit in Portland, Oregon in the 1990s.   Seems that Reinbold and some partners had set up some companies to build an aircraft maintenance hangar at the Portland International Airport.   Bonds were sold to finance the project and those bonds were guaranteed by the Oregon Public Employees Retirement Fund.   The Oregon Attorney General accused Reinbold and his associates of making false claims about the market for aircraft maintenance along with  gross mismanagement of their company before it went out of business.  Reinbold’s company wasn’t able to repay the loans or its operating costs so the state retirement fund was forced to pay back the loans.    The lawsuit claimed that the Retirement Fund was done out of over $60 million.     The Oregon Attorney General also accused Reinbold of using $661,000 of his company’s money to buy himself a luxury home.

Although I don’t know exactly what the outcome of the lawsuit was, I do have over fifty pages of court documents in my possession and I have posted some of them on the CAVE Web Site.  The CAVE web site also has a link to a ruling by the Oregon Court of Appeals.  

Benson’s public officials pay no attention to this radio station but sooner or later  the Benson newspaper will almost certainly run  a story on Reinbold’s escapades in Oregon.  It will be interesting to see how Benson’s mayor and council will react to this  information.   My guess is that they will quickly get over the shock and give Reinbold everything he asks for.   For many years Benson and its leadership have been weary of being a town that is an impoverished little dot on the map.   They will grasp at any pie in the sky.  

I’m CAVE MANager Paul Lotsof and the opinions you’ve just heard are mine and not necessarily anyone else’s .   If you go to the CAVE web site and click on editorials you will find a copy of this editorial followed  with many documents pertaining to  Reinbold and to the Oregon lawsuits.  If anyone would like to respond to this editorial, including Mr. Reinbold, the CAVE web site is the place to visit and it is found at CAVEFM.com.   That’s CAVEFM.com   
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            SUPPLEMENTARY INFORMATION
It appears that there are some skeptics who doubt that El Dorado will be able to locate buyers for their 28,000 homes.   During the August 24th city council meeting Mike Reinbold said that El Dorado plans to bring in home buyers from all over North America.  He then spoke about a survey done by the U.S. Department of Agriculture, which was reported in an article in the Washington Post.   Reinbold added that the survey showed that Cochise County ranked in the top one percent of America’s 3,000 plus counties in terms of quality of life.   He said he was going to use data like that as marketing  material.  What Reinbold didn’t say was that the article in the Post dismissed the survey as poorly done.    This will take you to the article in the Post:
    http://www.washingtonpost.com/news/wonkblog/wp/2015/08/17/every-county-in-america-ranked-by-natural-beauty/?wpmm=1&wpisrc=nl_wonk
           
Now let’s take a closer look at Reinbold’s legal  problems in Portland.   According to records on file at the county courthouse, Reinbold teamed up with some partners and formed  companies for the purpose of constructing and operating an aircraft maintenance hangar at the Portland International Airport also known as PDX.  The companies got started in the late 1980s.  Reinbold and his associates became defendants in the lawsuit which was filed in October 1996.  The legal wrangling continued for nearly eleven years before it was settled in late 2007.   If you go to the Multnomah County Courthouse you’ll find that there are 49 files pertaining to this case and each file folder  has about 300 pages for a total of perhaps 15,000 pages of documents to read.  If you want to you can go to Portland but it might take you weeks to read all of them.   We ordered a tiny fraction of those documents, just enough to get a good idea of what happened. Here we should warn you that the case is very complex and not easy reading.  An integral part of a civil lawsuit is called the “complaint” and it is exactly as its name implies.  In this case it was filed by a lawfirm that had a contract with the Oregon Attorney General’s office.  The complaint alone encompasses 63 pages but we copied only 22 of those pages.   Pamcorp  is a company that Reinbold co-founded. PERF is the Oregon Public Employees Retirement Fund.  Toward the end of the complaint there are several references to “piercing the corporate veil”.   This is a legal term and it means making a corporation’s officers and stockholders  personally responsible for the corporation’s liabilities. This will take you to the complaint filed in 1996:
                   (link to complaint)

In December of 1998 the Superior Court handed down this decision:
        (Link to decision 1999)
 Note the figure of $61.7 million against defendants Reinbold and Simon.

In early 2004 the case was taken to the Oregon Court of Appeals and that case is found on the internet.   It is long, very complex and not easy reading.   You can find it here:
http://law.justia.com/cases/oregon/court-of-appeals/2004/a107124.html

The Appeals Court sent the case back to the Superior Court where it took another three years to resolve.  We weren’t able to locate the final outcome.

Now let’s compare the Oregon affair with what appears to be going on in Benson:   In both cases there are many companies that are intertwined.   We have found  four El Dorado companies involved with the Benson project.  El Dorado Holdings Inc. appears to be the biggest entity by far.  El Dorado Benson LLC owns the land along Highway 90 and it has investors from all over the nation.

The Arizona Corporation Commission’s web site has a list of the main  investors  of El Dorado Benson LLC.   You’ll see that they are as far away as Florida.  Here is the link:
        http://ecorp.azcc.gov/Details/Corp?corpId=L19173525

  In both the Benson case and the Oregon case, funding comes from the sale of bonds.   In the Oregon case the bonds were guaranteed by a public entity.   So far, we don’t know how the Benson bonds will be backed if at all.  If the Oregon story repeats in Benson the bond holders will have good reason to be worried.

Final comment: Paul Lotsof spoke before the Benson City Council and asked this question but his question was ignored: What would happen if the city didn’t form the facilities district?
 From a public interest point of view the facilities district would appear to be the most risky element of El Dorado’s proposals.    After spending over $26 million for the property would El Dorado decline  to develop it without the district?

The next few weeks should be interesting.  As always, CAVE News covers city council meetings.  Our next report will be on the morning of September 15th.