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Published: Sunday, 10/31/2004

Financier faces ire of former investors

By GARY T. PAKULSKI

BLADE BUSINESS WRITER

It was 1999 in posh Ottawa Hills, and William C. Davis was in familiar surroundings.

Actor Jeff Daniels, whose film credits include Dumb and Dumber and Terms of Endearment, was pitching a movie project to a group of local movers and shakers with the means to assist with financing. A half dozen Toledoans would sign on to Escanaba In da Moonlight, a low-budget spoof about life in Michigan's Upper Peninsula.

Mr. Davis, who had helped put together the gathering, appeared to be at the top of his game.

An investment adviser who dabbled in company financing, he had amassed an A-list client roster, enthusiastic press clippings, and impressive community credentials, including service on the board of trustees of Toledo's Medical College of Ohio.

But less than four years after the Ottawa Hills gathering, everything would go up in smoke.

Former clients have filed 320 claims for $20 million against his firm Continental Capital Investment Services, which was declared insolvent by the U.S. Securities Investor Protection Corp. and is being liquidated under supervision of a federal bankruptcy judge. Mr. Davis was a sales representative of the brokerage and chairman of its parent, Continental Capital Corp.

Results of a criminal investigation into mail-fraud allegations have been turned over to the U.S. attorney's office for possible prosecution, according to lawyers familiar with the case.

The U.S. Securities and Exchange Commission, in a civil suit last year, accused him of selling unregistered securities, forging client signatures on investment documents, and diverting funds for his personal use.

Among the allegations is that he transferred funds in client retirement savings accounts without permission, moving them from conservative investments into risky business ventures in which he was involved personally and which eventually went bad.

And onetime allies have turned against him.

Ronald McMaster, son of the late inventor and industrialist Harold, has blamed his bankruptcy filing on Mr. Davis. "As a result of putting complete trust in my financial manager, my investment assets were converted to worthless paper, often with the use of forgeries of my name," he wrote in a letter to friends.

What's more, because Mr. McMaster served on Continental's board of directors, some creditors want him to repay their losses. Mr. McMaster has denied any involvement in improper activities.

Mr. Davis agreed to an interview for this story and then canceled after consulting with an attorney. He previously has denied wrongdoing and blamed the firm's problems on the stock market downturn in 2000. His attorney, Peter Kelley, didn't respond to a telephone message.

Last April, Mr. Davis went to work as a sales agent in the Southfield, Mich., office of commercial realty Marcus & Millichap Real Estate Investment Brokerage Inc., state records show.

Now 58, he, too, claims he is insolvent. In a bankruptcy petition filed in Detroit on Aug. 3 and dismissed this month, he listed $5 million in debts and $391,000 in assets. His most valuable possession is a $385,000 house in Lambertville, with $404,000 in mortgages.

As of August, he was making $3,800 a month in salary and commissions. But, in 2003, he stated that he made just $19,000 -$11,000 of it in state unemployment benefits that began after he was fired by the firm he founded for alleged improprieties.

Among his debts: $60,000 in unpaid federal and state taxes for 2002 and 2003.

It was a mighty fall for a man who spent the 1990s making deals and accumulating high-powered friends and business partners.

Deals that he helped put together or finance through Continental Capital's merchant banking unit ran the gamut.

There was a publicly traded firm that specialized in turning around struggling manufacturing concerns; a planned chain of rib joints in New England; radio stations; medical devices, and a firm that acted as an agent for professional soccer players.

But many of the ventures turned sour.

In the late 1980s, Vern Swanson sold his profitable artificial-limb design firm on West Sylvania Avenue to Continental. "Our company was a great company," said Mr. Swanson. "Originally, when I sold to Bill, I thought we would have great potential to grow and do things."

Swanson Prosthetic Center became part of the Continental-created Capital Medical Services. Things went well at first, but then Continental bought an unprofitable firm that specialized in medical equipment. The new firm dragged down the operation, recalled Mr. Swanson, who had stayed on as an employee. Eventually, Mr. Swanson reacquired his firm and operates it today as Swanson Orthotic and Prosthetic Center Inc.

Centrum Industries Inc. was once touted as a Continental success story. It was formed by Mr. Davis and 30 Toledo-area investors in the late 1980s, and specialized in buying and turning around struggling manufacturers. The chief executive boasted that the firm would one day have annual sales of $75 million. But it peaked in 1997 with $52 million in sales on which it recorded $3 million profit. Things went downhill from there.

"Bill was raising money for a lot of businesses that didn't do well," said James Tuschman, a Toledo lawyer who Mr. Davis unsuccessfully tried to persuade to invest in some of his ventures.

Toledo lawyer Thomas Pigott, who now represents former clients of Mr. Davis, recalled attending a presentation for a Davis-linked company called ADM Document Systems. "This was a company whose primary business was selling and leasing copiers in metro Toledo," Mr. Pigott said. "Yet, they got $2 million in investments. That's not a debt load a company like that can afford."

"The guy is an outstanding salesman," Mr. Pigott said. "But he's not an investment analyst. He had a great business. He was making a great living. He was hobnobbing with wealthy people. His got involved with high rollers on the East coast."

Through these experiences, Mr. Davis got the idea to begin buying struggling companies at bargain prices and turning them around, Mr. Pigott said. "He found out it wasn't that easy. One started to go south; then another. He had cash problems."

Mr. Davis is from Arlington, a small village in Hancock County, according to the 1968 yearbook of Ohio Northern University, Ada. He graduated from ONU that year after majoring in business administration.

His first job after graduation was in marketing at Marathon Oil Co., Findlay. Four years later, he became a stockbroker. He worked for a time at the Toledo branch of a brokerage firm called Moseley Hallgarten.

It was there that he had his first encounter with regulators. Details of the incident are sketchy, but records show that Mr. Davis was censured and he and the firm were fined a combined $1,300 for an unspecified violation of the rules of the Chicago Board Options Exchange.

Continental Capital was established in Ann Arbor in 1983 as a stock and securities brokerage. Robert Helber, a founder, said that Mr. Davis was hired about a year later. He recalled Mr. Davis as "a good salesman and a nice person."

After a while, Mr. Helber said, owners agreed to sell the securities operation to Mr. Davis. He promptly relocated to Toledo. In Ohio, Continental Capital Corp. became a holding company for a number of firms offering investment advice and financial services.

Giving the firm added credibility, respected industrialist Harold McMaster and his son, Ronald, became shareholders, according to a sworn statement made by Mr. Davis two years ago. Also boosting Continental's prestige, Scott Savage, son of insurance executive and Toledo business leader John Savage, became a vice president and director in 1987. He remained with the firm for eight years before striking out on his own in 1995. John Savage is deceased. Scott Savage did not respond to interview requests for this story.

For Mr. Davis, however, association with two of the area's most respected families was a boon. Said attorney Marvin Robon: "The McMaster name is affiliated with success, credibility, philanthropy, and goodness."

Mr. Davis's fortunes soared.

In 1989,Gov. Richard Celeste named him to the MCO board. He held the post for four years until moving to Lambertville in 1993. Putting together an investment group for a 1990 project, Mr. Davis was able to attract some of Toledo's most prominent citizens, including Stephen and Duane Stranahan, heirs to the Champion Spark Plug fortune.

Continental's offices also occupied prime Sylvania real estate.

The list of people willing to invest with Mr. Davis or lend money to Continental became more prestigious.

It included physicians from the prominent Toledo Clinic, a dentist, business executives, and even a corporate chieftain: Paul Ormond, chief executive of Manor Care Inc.

Associates were stunned as allegations of wrongdoing began to swirl. "No one wanted to believe it," said Bruce Rumpf, who agreed to allow his house to be used for the fund-raiser for the Jeff Daniels' project.

Robert Dempsey, a retired railroad worker who has accused Mr. Davis of mishandling $250,000 Mr. Dempsey received in a workplace injury settlement, recalled his first meeting with the broker: "He was very believable, very pleasant, very energetic," Mr. Dempsey said. "When he started throwing out names of his other clients, it was pretty impressive."

But things changed when Mr. Dempsey began questioning investments made by Mr. Davis and threatened to begin a one-man protest march in front of Continental's offices if Mr. Davis didn't return a portion of his money.

"Bill's attorney sent me a letter saying they were going to sue me if I said any more bad things about him," said Mr. Dempsey, 55.

Contact Gary Pakulski at: gpakulski@theblade.com or 419-724-6082.



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