THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Wednesday, October 12, 1994 TAG: 9410120433
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 187 lines
Like many corporate-takeover attempts, this one had its share of intrigue.
For five months in mid-1990, the Virginia Retirement System had been maneuvering to take control of Richmond-based RF&P Corp., a railroad and real estate holding company. And indeed, by late 1991, the state employees' pension fund succeeded in acquiring the company in a $548 million transaction.
But if much of that takeover was conducted under the scrutiny - and criticism - of shareholders and public officials, some efforts to acquire RF&P went on in secret, court documents have revealed. And one of the key players in the secret bid, documents say, was Mark T. Finn, president of a Virginia Beach money-management firm.
Finn, in consultation with others in the RF&P Corp. battle, tried to obtain a confidential report about the value of the company, say the documents. They sought details about others who might be buying RF&P's shares. And, in what appears to be violation of securities laws, they set up a secret account to mask purchases of RF&P Corp. stock.
Now, three years later, the architects of that takeover and two fellow participants are described in court documents as having participated in securities fraud, wire fraud, mail fraud, and other criminal acts.
In the Richmond federal court filing, the U.S. attorney for the eastern district of Virginia has alleged that Finn, a former member of the Virginia Retirement System board, plotted with former board Chairman Jacqueline G. Epps, a Richmond attorney, to have the pension fund illegally take control of RF&P.
Glen D. Pond, a former VRS director, and Patrick R. Bynum, a former assistant attorney generaland retirement system counsel, also were accused by the U.S. attorney of securities fraud, wire fraud, mail fraud and other criminal acts.
Bynum agreed in late September to plead guilty to one charge of mail fraud and to cooperate with the U.S. attorney's investigation of the takeover.
In a statement announcing the agreement with Bynum, U.S. Attorney Helen Fahey said her investigation is largely complete and that ``further criminal charges are expected.''
To date, no charges have been filed against Finn, Epps or Pond.
Finn, citing the advice of his attorney, said he could not comment on the allegations. Epps and Pond could not be reached for comment.
But court documents relate much of the story behind Finn and Epps' secret dealmaking.
With $16.1 billion in assets, the Virginia Retirement System is the 33rd largest pension fund in the country and serves 73,200 state and municipal retirees. Another 263,000 employees of state agencies and several cities and counties pay into the fund.
The campaign within the retirement system to take control of RF&P evolved in early 1990. It stemmed from an aborted merger offer involving CSX Corp., the Richmond-based holding company with rail, ocean shipping and barge operations.
CSX already owned a sizable stake in RF&P and wanted to acquire the company's remaining shares. RF&P's Richmond, Fredericksburg & Potomac Railroad owned a valuable stretch of track between Richmond and Washington. For CSX, having that heavily traveled track would boost the efficiency of its own rail operations.
But after CSX launched its bid, some of RF&P's smaller shareholders complained that CSX had offered too little for the company. Of particular focus in RF&P's portfolio were its real estate holdings in Northern Virginia.
Adding to complications with the merger offer was the Virginia Retirement System's part-ownership of RF&P. Any sale of the retirement system's shares to CSX would require approval by the General Assembly, and in the highly politicized atmosphere of the Wilder administration that could prove difficult to get.
At about that time, then-Gov. Douglas L. Wilder lined up with the dissenting shareholders and criticized CSX's offer as being too low. Soon after, facing a growing public controversy over its bid, the giant transportation company withdrew its merger offer.
One person who suggested that Wilder oppose the transaction was Finn. Having joined the retirement system investment advisory board in 1983, he was named the following year to the retirement system's board of trustees. Moreover, as the CSX bid for RF&P had heated up and run into trouble, Finn and Epps had managed to have themselves named to the board of the railroad and real estate holding company.
By having a major post at the retirement system, Finn hoped to gain prominence in the securities industry and attract business opportunities, the U.S. attorney's court filing says.
When CSX made its offer for RF&P, documents say, ``Finn attempted to ingratiate himself to the governor by asserting that the transaction was significantly undervalued. . . .''
Finn was no stranger to investment activity. For more than a decade, he had worked as a trust officer in the old Virginia National Bank in Norfolk. Shortly before Virginia National merged with another statewide bank in late 1983, Finn departed to launch his own money-management firm, Delta Financial Inc. in Virginia Beach. In 1986, he received a master's degree in business administration from the College of William and Mary in Williamsburg.
But by the late 1980s, business at Finn's company was faltering, according to the U.S. attorney's statement. The assets under management at Delta Financial had plunged from $135 million in 1987 to $84.3 million in 1990. Meanwhile, its roster of accounts had shrunk from 54 in 1987 to 29 in 1990.
Shortly after CSX announced its offer for RF&P, then-Gov. Wilder tapped Epps, a close friend and political ally, to chair the VRS board.
``Epps sought to use her chairmanship of the VRS to further what she perceived to be the political aims of Gov. Wilder,'' the U.S. Attorney's 83-page filing says. In doing so, Epps also hoped to promote her own political career, says the filing.
The retirement system board seat was one that Finn had hoped to get, according to the U.S. attorney's court document. Because Epps lacked a background in finance, Finn saw an opportunity to significantly influence the pension fund's investment decisions.
One of those decisions turned out to be the bid for RF&P.
Why would the retirement system want RF&P to start with? While it would not justify its purchase of the company until later, the board said it saw the RF&P buyout as an effort to diversify the pension fund's assets; some pension-fund specialists even agreed with goal. RF&P, they argued, was an attractive long-term investment because it owned large tracts of real estate in Northern Virginia close to Washington that had not yet been developed.
But it was when Finn, Epps and Pond, the former retirement system administrator, decided to act that they got into trouble. For at that point, they began to conduct their campaign for RF&P stock in secret.
The first thing court papers say Finn and Epps did was to hire The Boston Co., which already served as custodian for the retirement system's investments. Court documents say Epps and Finn directed a Boston Co. subsidiary, Boston Safe Deposit & Trust, to begin buying additional RF&P shares and to place them in a new and secret account, apart from the other shares owned by the retirement system.
In addition to separating the paperwork for these secret trades from their routine reports to the retirement system, employees of Boston Safe Deposit ``were instructed to speak only to Finn or (director of investments Timothy) Barron about any activity in the account,'' the U.S. attorney's filing says.
Boston Co., along with outside attorneys hired by Epps and Finn, cautioned the two retirement system board members about what they were doing, the court documents say. Federal securities laws, Finn and Epps were told, required the retirement system to publicly disclose its plans to buy RF&P.
But Finn, in particular, was determined to win control of RF&P, say the court papers, even if it meant keeping retirement system stock purchases out of public view.
Finn's determination to carry out the plan made itself apparent to retirement system officials. When one official raised concern about the interests of other RF&P shareholders, the court papers say, Finn declared ``F--- the shareholders. We've got to do the deal as we can.''
And when someone at a retirement system board meeting similarly asked about other shareholders, court papers say Finn replied, ``The hell with them.''
The U.S. Attorney contends that Epps and Finn, because they sat on the RF&P board of directors, ``had a duty to RF&P shareholders which required disclosure of VRS plans to acquire their stock.''
Under federal securities law, a bidder offering to buy shares in a company and attempting to take control must disclose in detail the terms of his offer, his background, his source of cash, and his intentions to the Securities and Exchange Commission and to the company. Such disclosure is aimed at insuring that investors are adequately informed about a possible change of control in a company whose shares are publicly traded.
In early May of 1990, Finn's directive to Boston Safe Deposit had been to buy one million shares of RF&P at no more than $34.50 per share, the U.S. Attorney's filing says.
But finding that amount of stock for sale proved difficult. By mid-August, Boston Safe Deposit had purchased only 212,950 shares at an average price of $31.78 each.
Yet Epps, according to the court filing, acknowledged that the $31.78 price was the equivalent of ``robbing'' RF&P shareholders.
How undervalued the stock purchases were became more apparent last December when the U.S. attorney's office reached an agreement with the retirement system under which the VRS paid $2 million to compensate shareholders who had sold their RF&P shares. The amount of restitution was based on the difference between the price that the VRS had paid investors who sold their RF&P shares early on and the $39 per share that the retirement system later paid in its 1991 public tender offer for RF&P stock.
Even before RF&P had been acquired by the retirement system, questions were being raised about the secretive way in which Finn and Epps had gone about stock transactions. These concerns were raised by then-Attorney General Mary Sue Terry, and later by the Virginia General Assembly which commissioned an investigation by the state's Joint Legislative Audit and Review Commission. The U.S. attorney's recent filing in federal court is only the latest revelation about the RF&P takeover deal.
Earlier this year, as a result of the problems at the VRS, the General Assembly restructured the retirement system board by expanding the number of seats from seven to nine, including four seats to be filled by General Assembly nominees.
In April, Epps' and Finn's terms as trustees came to an end, and an entirely new board was sworn in. ILLUSTRATION: Photo
The U.S. attorney for the eastern district of Virginia alleges that
Mark T. Finn (above), president of a Virginia Beach money-management
firm and a former board member of the Virginia Retirement System,
plotted with a former board chairman to have the pension fund
illegally take control of RF&P Corp.
by CNB