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Investor's Claims Put SEC on Trail

September 05, 1993|CONNIE BENESCH | SPECIAL TO THE TIMES

MARINA DEL REY — The regulators who closed down self-styled real estate baron and philanthropist Stephen J. Murphy's investment business last week said it was Murphy's self-promotion that helped attract their attention.

The full-page ads promoting the Marina del Rey man and his investment books, with titles such as "One Up on Trump" and "Trickle 'Up' Economics," began appearing in February in the Los Angeles Times, New York Times, Wall Street Journal and other publications. And with the help of public relations consultants, Murphy's rags-to-riches story caught the eye of TV and radio talk-show hosts too, who booked him on such programs as "Larry King Live," "The Tom Snyder Show" and "John and Leeza."

"We saw the ads in the national media and became very suspicious," said Lori Richards, associate administrator at the Los Angeles regional office of the Securities and Exchange Commission.

On Thursday, the SEC accused Murphy, 44, of securities fraud and obtained a court order freezing his assets and those of his company, American Capital Investments, and turning them over to a receiver.

According to the SEC, Murphy and other defendants raised about $13.7 million from approximately 180 investors nationwide in the past year through the sale of interests in 11 commercial real estate properties.

The SEC said that Murphy and the others made numerous misrepresentations to investors, including statements that their properties were generating returns of 25% to 135%, when each of the properties involved was unprofitable.

The SEC said the investors' money was used to perpetuate a "Ponzi-like scheme," referring to a form of investment fraud in which funds from new investors are used to meet obligations to earlier investors.

Murphy could not be reached for comment late last week. His public relations firm issued a statement saying that American Capital Investments "believes that the SEC lacks a fundamental understanding of its investment goals and strategy."

The statement said the company "is prepared to demonstrate that all of its investors have received everything they were told they would receive" and added, "ACI, Stephen Murphy and the other defendants intend to vigorously defend themselves against the SEC's action . . . and fully expect to be vindicated."

Named in the SEC's complaint in addition to Murphy and American Capital were Kenneth A. Sorenson, 30, the company's vice president of marketing; Adfin Corp., a telemarketing firm that had a contract with American Capital to sell securities, and Adfin's president, Richard D. Otto, 47.

Left unclear amid the crackdown was the status and future of Murphy's philanthropic ventures, which include two Westside facilities that provide shelter and services for homeless military veterans.

Murphy's self-promotion efforts made much of his own background as a former homeless Vietnam veteran and recovering alcoholic. And advertisements for his books said that all proceeds from their sale "go to a nonprofit organization for homeless veterans."

That organization was Murphy's nonprofit American Capital Foundation for the Homeless. It has purchased three homes for veterans recovering from substance abuse and post-traumatic stress syndrome.

The two Westside facilities are a 15-unit apartment building on Wade Avenue in Mar Vista, purchased in April for $1.1 million and intended to house 45 to 50 men, and a four-bedroom house on nearby South Barrington Avenue in Mar Vista purchased for $390,000 in September, 1992. The third home is in New Haven, Conn.

Those involved with Murphy's shelters were shocked to learn of his problems with the SEC.

"There's got to be some kind of misunderstanding here," said John Keaveney, executive director of New Directions, the nonprofit group that operates the rehabilitation programs in the Mar Vista buildings. "A man who's been as generous to the least of the least, which is the homeless of this nation, I can't see him doing anything wrong.

"Last year, when the shelter was getting ready to be closed because the person we were leasing the building from went into bankruptcy, Mr. Murphy stepped in, purchased the building and allowed us to remain there rent-free for over a year," Keaveney said. "And in that year, 27 homeless, destitute (people) have gotten their lives together and are now gainfully employed."

Keaveney said the shelters were in no immediate danger of being shut down. He said New Directions is a separate organization that has about $16,000 in its own bank account, about $10,000 of which was provided by Murphy.

American Capital Investments was very persistent with its marketing efforts, according to one Westside woman. Kathleen Paredes told The Times that after she ordered one of Murphy's books early in the year, she received 11 calls from March 31 to Aug. 16 urging her to invest, though she never did.

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