Risky Business

How did state representative Allen Fletcher, the chairman of a House subcommittee on white-collar crime, find his very own company tangled up in, well, a white-collar-crime investigation?

June 2009By Comments

House Oversight: Fletcher, photographed on April 6, 2009, says he fell prey to financial con artists three times in two and a half years.

There is a proverb that Tomball state representative Allen Fletcher likes to put on brochures for the private security company he owns: “The man of integrity walks securely, but he who takes crooked paths will be found out.” Fletcher, who was elected last fall to represent District 130, in northwest Harris County, has made a career out of finding crooks. He founded his security company, Resource Protection Management, or RPM, after retiring from a thirty-year career in law enforcement, the high point of which was supervising a unit in the Houston Police Department that investigated public corruption and contracting fraud. All of which might explain why Fletcher had some difficulty during a two-hour interview in his office at the state capitol in April explaining how his own business became embroiled in a stock fraud investigation.

On December 18, 2007, two of Fletcher’s business associates, Lois Newman and her son-in-law Evan “Nick” Jarvis, had their homes raided by the U.S. attorney’s office, which seized more than $3 million in assets and bank holdings controlled by the pair. Jarvis was arrested on a robbery charge related to the alleged stock fraud. “When I agreed to run for this office, I did not have a clue—not a clue—that Nick Jarvis was fixing to get arrested in a few days,” Fletcher said. “And when I heard that, I thought, ‘Well, that’s some shit. I hope that doesn’t hit the front page.’ ” It didn’t hit the papers, and Fletcher’s association with Jarvis and Newman stayed off the radar through the primary season, during which Fletcher picked up a high-profile endorsement from Houston state senator Dan Patrick. It was still off the radar when he won the election and was assigned to the House Criminal Jurisprudence Committee, where his experience as an investigator earned him the chairmanship of the Subcommittee on White Collar Crime.

No criminal case has been filed in the alleged fraud, and an attempt to confiscate the assets and cash seized in the raid stalled in November 2008, at which time the money was returned. Federal authorities left themselves the option of trying again, however, and spokespersons for both the U.S. attorney’s office and the FBI have declined to describe the investigation as closed. A federal complaint filed in the case, obtained recently by Texas Monthly, together with other documents reviewed for this story, raises a question about the freshman legislator’s business dealings: How does a man like Allen Fletcher find himself in business with a group of alleged con artists?

Fletcher’s company, RPM, provides security guards and other security services and, until recently, sold burglar- and fire-alarm systems. In May 2007 Fletcher took on Newman as a business partner. Through her company, NuTech, she purchased half of RPM. Acting on a tip received that same spring, the Harris County district attorney’s office began investigating NuTech along with another company that Newman once helped direct, Grifco International, and began building a case that both companies were being used for a stock-manipulation scheme known as scalping. Investigators concluded that Newman and Jarvis, a stock promoter, and others were artificially inflating the prices of NuTech and Grifco stock and benefiting from sales of those stocks, which they did not disclose to shareholders. (This type of scam is also known as a pump and dump.) Both companies are penny stocks, which trade through brokerage vehicles commonly known as pink sheets, which operate largely below the radar of federal regulators.

In the case of Grifco, which purported to be an oil field equipment firm, the stock was allegedly inflated in part through a series of bogus press releases about Coil Tubing Technology, a company Grifco had recently acquired. According to the federal complaint, Grifco stock promoters falsely claimed that the company had developed and shipped an improved type of jet motor, when in fact work on the motor was still two years from completion. The complaint also identifies a series of press releases that Jarvis prepared for NuTech. Although Fletcher and RPM are not mentioned by name in the complaint, Texas Monthly has reviewed the NuTech press releases cited by the complaint, and virtually all of them tout Fletcher’s alleged accomplishments and promising developments at RPM. In particular, NuTech flogged a new type of burglar alarm system known as dual notification, which was said to use proprietary technology developed by RPM to drastically reduce police-response time. Fletcher’s entry into politics was also used as a selling point; in one press release, NuTech informed potential stock buyers that Fletcher had decided to run for state office, noting that he had the support of Senator Dan Patrick.

According to the federal complaint, the press releases, in conjunction with a spam campaign, helped boost NuTech’s stock to $3.50 by August 2007, by which time Newman had issued millions of shares to herself and Jarvis. Though Jarvis was urging investors to buy NuTech stock at the time, the complaint alleges that he quickly sold his own stock for about $950,000. According to the complaint, Jarvis then kicked some of the proceeds back to Newman. Jarvis also made about $2 million on sales of Grifco stock. According to the complaint, investors should have been informed that Jarvis was selling large volumes of the same stocks he was promoting and that insiders in the two companies were being issued millions of shares of stock.

But things were already beginning to unravel. Back in March 2007, Coil Tubing’s chief financial officer, Edwin Leonard, became suspicious about his new business associates. According to a search warrant affidavit filed by the Harris County district attorney’s office, Jarvis allegedly hired an acquaintance to stage a robbery of Leonard at his home, apparently in the hope of recovering a laptop containing the company’s accounting files. Leonard suspected Jarvis’s involvement and went to the police. A nine-month investigation followed, culminating in the December 18, 2007, raid on Jarvis and Newman. When Harris County authorities decided to turn the case over to federal investigators, in early 2008, the robbery charge against Jarvis was dropped.

During the interview in his office, Fletcher said that he had no knowledge of any illegal activities involving his company. “I’m the victim here,” he said. Fletcher said that he knew press releases were being issued about his activities, but he denied actively participating in their drafting, despite the fact that most of them contained quotes from Fletcher himself. One of the releases refers investors to an audio interview that Fletcher recorded on a Web site that promotes penny stocks. Fletcher acknowledged doing the interview, which was posted on November 1, 2007, six weeks before the raid on Jarvis and Newman, but he said that everything in the press releases and the interview was accurate and factual.

“I thought Nick could take my company and take my story and raise money legitimately and help us turn our company around,” Fletcher explained. He said that RPM had never recovered from losing its biggest contract, providing security at the Enron complex, in Houston, and that the company was in serious financial trouble when Jarvis approached him. Fletcher said he knew that Jarvis was building an enormous new house in an exclusive Montgomery County subdivision and that when Jarvis pulled up to RPM’s offices, in Tomball, to pitch him on the NuTech deal, he was driving a $100,000 Mercedes-Benz. “I’m telling you I didn’t have a clue he wasn’t legitimate,” Fletcher said. “He had all the legitimate trappings; why would I think that Nick wasn’t?”

In fact, there were, or should have been, warning signs about the NuTech deal from the start. Jarvis is a felon who served time in the penitentiary for burglary and drug convictions in 1995. Fletcher, whose company performs background checks on prospective employees for clients, told me he had had no idea that Jarvis had served time in prison. He conceded that he or a business partner had found a criminal history for Jarvis but that Jarvis had explained away the charge and that he’d never really followed up on the issue.

But Fletcher had crossed paths with the Jarvis family before and, by his own account, had been skeptical about their business endeavors. Fletcher said he first met Nick Jarvis at a Tomball bowling alley owned by Nick’s brother John Jarvis. Nick managed the bowling alley, and Lois Newman ran the counter. John had incorporated a series of penny stock companies in Montgomery County over the years, hawking a variety of ventures: independent films, casinos, online gambling—even a data center to be built in a renovated underground nuclear fallout shelter. Fletcher told me that in 2004, John brought him a business proposition, offering to help him raise money from investors by merging RPM into a publicly traded shell company known as LitFiber. It was essentially the same type of deal that Nick would bring Fletcher two and a half years later. Fletcher said that he got out of the deal with John because he didn’t like the way he was promoting the new enterprise—issuing press releases in support of the stock that Fletcher considered false, or at least greatly exaggerated. In other words, Fletcher now says he felt he was being drawn into a scam very similar to the one described in the federal complaint against Grifco and NuTech. In fact, according to a Harris County search warrant affidavit, the same shell company John offered to Fletcher was eventually used to acquire Coil Tubing. (John, who could not be reached for this story, has also had trouble with the law, having been convicted of felony check forgery in the late eighties. Fletcher told me he was unaware of this fact.)

Why would Fletcher agree to do business with Nick Jarvis if he felt he had just been burned in an almost identical deal by his brother John Jarvis? At the time Fletcher said yes to Nick’s deal, he was also being sued by a businessman named James Buchanan in Massachusetts, who claimed that Fletcher and a Miami investment broker named Mychal Jefferson had tried to defraud him in another effort to raise capital for RPM. Fletcher said that Nick told him he was no longer doing business with his brother John because the two had had a falling out. Fletcher explained: “He says, ‘Look, I know you’ve been burned. You walked away from John’s deal. And I know that you got burned on the Buchanan deal. I’m telling you that if you get with somebody that’s legitimate, like me, we can make this happen.’ ” Fletcher said that he and his business partner had had the deal vetted by an attorney and decided to go ahead with it. The contract Fletcher signed was countersigned by Newman, who was handing out shoes at the bowling alley when Fletcher first met her. Her title was now NuTech president.

Fletcher, who recently settled the Buchanan suit, said he was a victim of deception in that case as well. In other words, Fletcher claims that in a relatively short period of time he was talked into participating in three different efforts to raise capital for his company, each of which ended in legal trouble and allegations of wrongdoing. “Have I said to myself more than once, ‘What a dumbass. In a two-year period, you got drove off into this stuff’?” Fletcher said. “Little ol’ me, our company, all we were doing was trying to make payroll every two weeks, trying to stay open.” Fletcher continued, “And you know what? You really don’t know sometimes, when you have people that show up saying they’re going to put money into your company—you don’t know that their money might not be good. I’m not trying to be naive here. I’m a cop.”

Mychal Jefferson, the broker who brought Fletcher the Buchanan deal, had also been involved in the LitFiber deal in 2004. He said he warned Fletcher about the Jarvis brothers after the LitFiber deal didn’t pan out. “I have no idea why he would go into business with them again,” he said of the NuTech deal. “Unless it was desperation.” Fletcher acknowledged that RPM owed hundreds of thousands of dollars to creditors during this time and that he was having trouble meeting payroll on a regular basis. He was borrowing money wherever he could to keep RPM afloat. According to court records, Fletcher was also being sued during that period by a Tomball man named Ronald Morgan, who had lent him $65,000 and hadn’t been repaid. In fact, Texas Monthly has determined that Fletcher owed several people in Montgomery County large sums of money at the time of the NuTech deal. Sometime in 2003, for example, Fletcher borrowed $50,000 from David Johnston, a retired police officer who was working part-time as a security guard for RPM. Johnston died before he could recover his money. “We’re talking about a very unsophisticated seventy-year-old man,” said Johnston’s son Chris, who has been trying to recover the money from Fletcher for the past several years.

Asked about these debts, Fletcher acknowledged that he had borrowed money from a number of people and failed to repay it in full, but he said that he kept careful track of the debts, which he characterized variously as investments or loans to RPM. Fletcher said he had repaid a portion of the debt owed to Johnston’s family and that he had recently promised to repay the remainder. Fletcher settled Ronald Morgan’s suit in June 2007 by paying him the full amount owed. (Fletcher told me he was able to repay Morgan only by borrowing money from somebody else.) He attributed his inability to make good on most of his debts to the disastrous deals he’d been a victim of in recent years. “My in-laws, my brother-in-law, my best friend from college, people that are retired from HPD that work with me—these people all lost money on investing in RPM,” he said. “I could have filed bankruptcy fifteen times. I could have walked away from all this. But I told them, ‘As God is my witness, the day will come when I pay you back.’ ”

Fletcher also owed approximately $600,000 to a wealthy investor in Magnolia named David Weber, whom Fletcher describes as his business partner. (Weber did not return phone calls for this story.) After the December 2007 raid on Jarvis and Newman, Weber demanded the most valuable part of  RPM—all the company’s alarm-monitoring contracts—as compensation for the debt. Fletcher agreed, and Weber took the contracts and opened a new security company. Today Fletcher has just a handful of security guard contracts, including one to provide guards for the Montgomery County courthouse, as well as some businesses in the Tomball area. His wife runs the business out of the couple’s house, and Fletcher says they are barely breaking even. “The truth is that this has ruined me,” he said. “As God is my witness, I will never, as long as I live, ever let anybody talk to me about taking my company public again.”

By the time of the raid, Fletcher had already raised $35,000 dollars for his political campaign—the primary was less than three months away—and retained Senator Patrick’s chief of staff, Court Koenning, as his campaign consultant. In the months leading up to the primary, Patrick, who owns a Houston radio station, had donated nearly $50,000 in free radio advertising to Fletcher’s campaign. Patrick, who was in a well-publicized feud with the Republican incumbent Fletcher was trying to unseat, also provided more than $18,000 in campaign mailings for Fletcher, making him Fletcher’s biggest single contributor by far.

Fletcher, who claims he has never been contacted by investigators about the case, said he did not tell Patrick or Koenning about the raid or that he had been in business with Jarvis. “When that came up, it was my belief that it would have been unfair, with the commitment [Patrick] made to me—it would have been unfair to bring that up to him,” Fletcher said. “I will tell you right now that there’s no doubt in my mind that if Dan Patrick had talked to me about that, he would have known I had nothing to do with it. He would have backed me all the way.”

Contacted in April, Senator Patrick said he was unaware of the investigation into NuTech or the arrest of Jarvis but that he did not regret his decision to endorse Fletcher. “Unless I find out other information, I stand by Allen. He’s done a great job,” Patrick said.

Fletcher said he never made any money off the NuTech deal, nor did he profit from the LitFiber deal or the James Buchanan deal. Fletcher acknowledged that he bought a $409,000 house in Tomball in December 2007, just before the NuTech deal fell apart. (His previous home was assessed at $115,000.) But Fletcher said that no proceeds from the NuTech deal were used to buy the house. After the raid on Jarvis and Newman, Fletcher said that attorneys for RPM formally ended the company’s association with NuTech and that he also at that time returned NuTech stock that had been issued to him. (The value of NuTech shares had plummeted by the end of 2007.) As a company insider, Fletcher’s shares were restricted, and he was never able to sell them, he said.

Fletcher did receive tangible benefits from the NuTech deal, however. He acknowledged, for example, that NuTech provided money to RPM as part of their business agreement, though he said he had no way of knowing if the money came from illicit activities. He also acknowledged that NuTech wrote checks to David Weber, in essence helping to pay down the debt that Fletcher owed Weber and forestalling Weber’s eventual takeover of RPM’s most valuable assets.

Fletcher also acknowledged that he received $50,000 from Mychal Jefferson as an up-front payment prior to the failed Buchanan deal, though the details of that transaction are in dispute. According to Jefferson, Fletcher called him shortly after the LitFiber deal fell through, asking for money to pay down a line of credit at his bank, which was threatening to shut down RPM if he didn’t make an immediate payment. Fletcher acknowledged that the $50,000 went to the bank, but he said that it was Jefferson who contacted him, not vice versa, and that his situation was not as dire as Jefferson described.

In the months following the raid on Jarvis and Newman, the stock fraud investigation seemed to bog down. Federal authorities dragged their feet after taking the case over from Harris County prosecutors. Meanwhile, Newman and Jarvis hired top Houston trial lawyer Dick DeGuerin, who began pressuring the government to either file an official forfeiture action in court or return the seized money and assets—which included cars, Jet Skis, office equipment, and other items—to his clients. A state judge set a deadline, and assistant U.S. attorneys filed their complaint on the last possible day. As an associate at DeGuerin’s firm argued convincingly in his motion to dismiss the case, the complaint seemed rushed and incomplete, containing a great deal less detail, for example, than the search warrant affidavit prepared by the Harris County district attorney’s office at the time of the raid. Rather than risk an unfavorable ruling from the judge, the government voluntarily withdrew the complaint and returned the money and assets. But the U.S. attorney’s office withdrew “without prejudice to bring action in future,” which means prosecutors are free to refile the case with a revised complaint at any time. Attorneys for Newman and Jarvis told me that their clients have done nothing wrong.

One of the first bills Fletcher filed as a new state legislator was a measure making the organizing of a Ponzi scheme a first-degree felony, a move he now says was a response to the fraud he says he has been a victim of in recent years. Fletcher likes to tell people that RPM really stands for “Retired Police Men,” and the walls of his Capitol office are covered with mementos from his many years at the Houston Police Department. During the interview in his office, I asked Fletcher what he would say if someone asked how it was that Edwin Leonard, the Coil Tubing employee who blew the whistle on Jarvis and Newman, had caught on to the alleged scam before Fletcher, who had years of experience investigating white-collar crime. “I’d say that I was a victim, just like all the rich people that gave money to Madoff and Stanford. And that’s why I’m up here trying to pass a bill so the rest of us don’t get taken advantage of,” Fletcher replied. “And I’m gonna be real hard—real hard—to burn again.”

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