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California | Michael Hiltzik / GOLDEN STATE

Feathers Fly in Hollister After Sparrow's Nose Dive

August 25, 2003|Michael Hiltzik

It's a safe bet that there aren't many fans of the Hanagan family left in the Northern California city of Hollister.

Certainly not as many as there were when Mike Hanagan and his son Tom first came up with their Corbin Motors Inc. venture in the late 1990s. They proceeded to fill the locals' heads with dreams of turning Hollister into the world manufacturing center of a snazzy electric car called the Sparrow, and accepted thousands of dollars in investments for their fledgling enterprise from their neighbors.

The townspeople embraced the venture for a while. They basked in reflected glory when the ovate three-wheeled runabout landed a cameo appearance in an "Austin Powers" movie. They watched prospective buyers and dealers fly in from all over the country to be shuttled around town in Tom Hanagan's luxury Bentley. They bought into the Hanagans' projections of millions of dollars of profit in years to come.

When the dream died -- the company went bankrupt in March after building scarcely 300 cars -- it seems much of the city came down to earth with a thud.

As the scale of the failure became clear, the locals, among other investors, started complaining loudly about the Hanagans' alleged mismanagement of the company. The local newspaper, the weekly Pinnacle, chronicled the spreading rage and, arguably, helped stoke it.

The 18,300-circulation newspaper freely quoted investors calling the Hanagans crooks and liars. At one point it reported, entirely erroneously, that Tom Hanagan had admitted to holding $6.8 million in Corbin Motors shares in a family account in Florida. This, in turn, fueled speculation that the family had systematically drained investors' funds to pay for what the Pinnacle termed their "extravagant lifestyles."

The Hanagans contend that the Pinnacle's articles made a bad situation worse by spreading the incorrect impression that the company had failed not for legitimate business reasons, but because of outright thievery.

They also complain that the newspaper's articles were rife with mistakes. The Pinnacle reported, for example, that Mike Hanagan paid himself a salary of more than $180,000 a year at Corbin, while he says he worked for free and lost, by his reckoning, more than $3 million of his own capital in the failed venture.

The Hanagans acknowledge that they failed to bring these errors to the newspaper's attention until last week, when they sent the Pinnacle a five-page retraction demand covering articles as far back as April 2002. (The newspaper says it would have corrected any errors had it known of them at the time.)

But the Hanagans also raise the legitimate question of why the Pinnacle, while recording the anguish and bitterness of local investors in what it hinted might be one of the "biggest financial scandals in the history of San Benito County," never got around to mentioning one fact that it knew beyond dispute: Among Corbin Motors' aggrieved shareholders were the newspaper's two owners.

Pinnacle Publisher Tracie L. Cone, who invested $18,000 with her partner, Editor in Chief Anna Marie dos Remedios, in 2000, says she can't now remember whether the paper ever disclosed the couple's investment in print. But no such disclosure appears in any article about Corbin available on the newspaper's online database. And certainly none is contained in any of the stories the Pinnacle ran after April 2002 detailing the company's decline and fall and wholesaling the accusations of fraud. At least one of these pieces bore Cone's own byline.

Cone told me she doesn't believe her readers needed to know about the investment. "If we were making statements that created a situation that we were going to benefit financially from --then absolutely, we should have disclosed," she says.

On the contrary, she says she and dos Remedios have written the matter off. "We haven't filed a claim with Bankruptcy Court," she says. "We figure we took a gamble and it didn't pan out."

*

Lack of Disclosure

Under the circumstances, though -- a small newspaper in a small city covering the biggest local business story in years -- this is not even a close call.

Leaving aside the basic dishonesty inherent in the practice of referring in print to "investors" without revealing that the category includes themselves, Cone's and dos Remedios' investment loss in Corbin Motors may have colored their coverage of the company's downfall, possibly without their even being aware of it.

The only way to inoculate themselves to the charge that they may have a conflict of interest, which the Hanagans do indeed contend, is to have been open about it.

And the fact remains that some of the things the Pinnacle has said about the Corbin bankruptcy could well end up financially benefiting Cone and dos Remedios.

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