Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, October 8, 1993 TAG: 9310080254
SECTION: VIRGINIA PAGE: B-1 EDITION: METRO
SOURCE: By DAVID M. POOLE STAFF WRITER
DATELINE: LENGTH: Long
But the whole thing boils down to a simple question: Was Selbe a shareholder in American Chemical Co. when Cranwell and other partners forced him out in September 1984?
In a lawsuit filed Tuesday, Selbe, who was convicted of tax evasion last year, produced 547 pages of exhibits that he says will answer that question and prove that Cranwell chiseled the government out of $40,000.
The lawsuit seeks $10 million in damages from Selbe's former business partners, including Cranwell.
Cranwell, a Roanoke County Democrat, called the lawsuit an act of revenge timed to undermine his re-election bid.
"Mr. Selbe's allegations are nothing new," Cranwell said. "They are the same allegations he made when the U.S. government charged and imprisoned him for income tax evasion."
The lawsuit, however, sheds new light on a complex reorganization of American Chemical Co. in 1984 that Cranwell used to justify a $40,000 tax break that year.
The lawsuit also calls into question Cranwell's version of events leading up to the reorganization. His account appears to be contradicted by several exhibits, including confidential notes from his accountant.
For the reorganization to be valid, American Chemical had to certify to the Internal Revenue Service that all its shareholders had agreed to the plan.
At issue is how many shareholders there were - four or five.
In November 1984, the company filed a certification form with the IRS listing four shareholders: Cranwell; Carl Flora; and Flora's two sons, Barry and Gary.
The Selbe lawsuit contends that the form was a fraud because Cranwell and the Floras knew at the time that Selbe still owned a 20 percent stake in American Chemical.
They lied, the lawsuit claims, so they each could claim a $40,000 write-off on their 1984 tax returns.
In an interview Thursday night, Cranwell claimed that only the four signatures were required on the IRS form because Selbe had verbally agreed a few months earlier to surrender his interest in the company.
"We reached an agreement with him, I think sometime in August," Cranwell said.
Cranwell said the oral agreement was valid even though Selbe did not put it in writing until two years later. Cranwell showed a reporter an agreement signed in September 1986 in which Selbe states that he had given up his ownership of American Chemical by the end of August 1984.
Selbe calls the agreement a fake. His lawsuit presents evidence suggesting that, at the time of the 1984 reorganization, everyone involved - including Cranwell - agreed that Selbe was still a shareholder.
Exhibits in his lawsuit include:
Notes from a Nov. 10, 1984, conference with attorneys and accountants in which Cranwell and his partners discussed the need for getting Selbe's signature on the IRS form.
"The shareholders will first try to get F. Selbe to sign election. If he does not, then shareholders will assume he cancelled his stock," wrote Mike Wade, an accountant with Brown, Edwards & Co.
Notes from a conference held four days later in which Wade wrote that Cranwell and the Floras had decided to file the IRS form "without the signature of shareholder Frank Selbe."
When asked why Wade's notes make no mention of an August 1984 deal in which Selbe gave up his stock, Cranwell said: "I don't know what is in someone else's notes. I know what assumptions we were operating under.
"It was very clear that we all were operating under the assumption that we had a valid agreement with Frank Selbe."
A copy of a letter on Cranwell's stationery to Colonial American Bank appears to contradict Cranwell's assertion that Selbe had surrendered his stock in August 1984.
The letter says that Selbe had been relieved of his duties as president of American Chemical and that the shareholders had made an offer to buy his "interest" in the company.
"As yet he has not indicated that this offer is acceptable," the letter states.
The letter is dated Sept. 30, 1984 - more than a month after Cranwell now says that Selbe surrendered his stock.
Asked if the letter was authentic, Cranwell noted that the letter is a copy that doesn't bear his signature.
"I have no way of knowing. I would have to see an original copy of the letter with an original signature.
"As I read the letter, I can't tell you why the letter would be written. I can tell you that the letter is not in my files."
Cranwell said he was frustrated at having to respond to Selbe's lawsuit less than a month before the Nov. 2 election, when Cranwell faces his first challenger - Botetourt Republican Bud Brumitt - since 1981.
Cranwell said the IRS investigated the same allegations and did not challenge the validity of the American Chemical reorganization.
"Frank Selbe has made these allegations to a number of people in the federal government, and none of them have been substantiated," Cranwell said.
The IRS inquiry of the American Chemical reorganization ended inconclusively in 1990, according to the federal prosecutor in Roanoke assigned to the case.
"At the time the allegations were raised, there was no credible witness," Assistant U.S. Attorney Karen Peters said. "And there was no time to conduct a full-blown tax investigation within the [six-year] statute of limitations."
by CNB