Creditors of the defunct investment firm Hanover Corp. will meet in Nashville this week to have their day in court.
Representatives of the mom-and-pop investors from across the country who put money into Hanover will appear in Nashville's federal bankruptcy court as company founder Terry Kretz seeks to discharge his personal debts -- a move some investors have sued to prevent.
Investors assert that their losses in an alleged Ponzi scheme that Nashville-based Hanover and Kretz committed should be reimbursed. What some will find out, and many already know, is that Kretz likely has no assets to seize or liquidate to make up their losses.
Give the system points for trying
Alleged victims of Hanover — some culled from Madison’s Cornerstone Church where Kretz attended — have gotten little aid from the court system to date.
At least a third of the $18 million that has apparently vanished in the collapse of the Hanover Corp. might have been saved, if only the Tennessee Attorney General’s office had won its case in late 2005. But Tennessee securities regulators failed to convince a Nashville judge that Hanover was a Ponzi scheme, designed to pay off old note holders with money from new investors.
Hanover issued promissory notes to investors with a guaranteed interest rate of 2 percent per month, or 24 percent annually. It claimed to be investing that money in a number of different businesses. Kretz has testified since the state’s court loss that much of the cash Hanover took in between 2002 and 2005 went right back out the door to pay interest to other investors.
No criminal charges have been brought in connection with Hanover. Department of Commerce & Insurance spokesperson Shannon Ashford said last week the regulatory investigation and case “is still open and ongoing,” although the state has taken no further action since Davidson County Chancellor Carol McCoy denied it a restraining order in December 2005.
Yet, at least one Hanover investor maintains both the Federal Bureau of Investigation and the Securities and Exchange Commission are probing Hanover's failure.
Hanover investor Lisa Reitmeyer said the SEC took her deposition last year and that FBI agents have questioned her at length and gathered evidence from her, including recordings she made of telephone calls with Kretz.
Reitmeyer, a financial advisor in Mesa, Ariz., who is related by marriage to Kretz, says she and her husband lost their entire retirement savings of $734,000 after investing in Hanover. Reitmeyer is among several former investors who have sued the company and its founder.
Other court action is pending as alleged victims have recently sued to prevent Kretz from gaining the protection of personal bankruptcy.
‘God's hand is on you guys’
The state’s initial failure in court led what investors say were additional losses. It also may have led to Kretz’s church becoming part of the complex Hanover money trail and a series of lawsuits.
Investors put roughly another $7 million into Hanover after the state’s request for a restraining order was denied. Finally, in October 2006, a group of them filed to place the company in involuntary bankruptcy.
The trustee for that case has sued Madison’s Cornerstone Church, headed by controversial Pastor Maury Davis, seeking to recover some $176,000 in donations from Hanover. Kretz and other officers of Hanover and its subsidiaries were associated with Cornerstone, as were some of the investors.
Davis — who in 2002 received national attention and condemnation from various ecumenical corners for a series of sermons entitled “Islam: An Evil Religion” — has denied that the church had any connection to Hanover, however, and it is fighting the move to take back the donations.
The state's undercover investigation into Hanover's sales of promissory notes involved the Tennessee Bureau of Investigation as well as the Securities Division and the Attorney General's office. It yielded vivid details of the claims Kretz was making to prospective investors. After relating tale upon tale of Hanover's nascent business successes to a couple posing as prospects, he spoke of the holy nature of the company's deeds:
"If you were around us a couple of weeks, you would say 'God's hand is on you guys.' It's very, very obvious."
The McCoy Ruling
In November 2005, the securities regulators sued in Chancery Court. They asked for a ruling that would keep Hanover from taking in any more money from investors. McCoy issued a temporary restraining order.
At trial, however, local business consultant John Mayo testified as an expert witness that one of Hanover's portfolio businesses might be worth $100 million to $1 billion.
That business was eCharge2 Corp., based in Madison. Kretz claimed Hanover owned a large stake in that company, and he said that it, in turn, owned the rights to online payment technologies that had been proved market-worthy before the dot-com crash.
Attorneys for the alleged victims have been unable to establish just how much of eCharge2 Hanover ever owned, but they know that it bought shares without a purchase agreement or any other commitment from eCharge2 as to what ownership percentage it would own. eCharge2 was free to issue more shares at will, diluting the Hanover stake.
Greg Taylor, president and CEO of eCharge2, says Hanover has never owned voting stock in the company, been represented on its board of directors or taken part in management.
If the state raised the ownership issue at all, it did not register on McCoy. She noted from the bench that Hanover had “an affidavit stating that the potential may be, at the highest, over $1 billion, but most conservative at $100 million. And there is nothing to rebut that.”
The fact that Hanover could argue that it was a real business venture, however risky, appeared to be decisive for the judge. She lifted the restraining order and the state then backed away from the lawsuit in a way that would allow it to reopen proceedings later.
Reitmeyer notes that more than half of the money her family put into Hanover changed hands after McCoy's ruling.
“It really hurt us,” she says. “We've had to start all over. We had to give up our house and downsize.”
Jack Wiesner, a general contractor from Nolensville who paid $100,000 for promissory notes from Hanover, sounds more angry than hurt.
“I'd like to barbecue the S.O.B.,” Wiesner says of Kretz.