How [Jehovah's Witness] CEO soared to top, landed in court
Ronald Sheppard faces securities fraud charges as he made millions while investors lost everything
By BEN WERNER
[email protected]
http://www.thestate.com/mld/thestate/16455338.htm
Ronald J. Sheppard was paid millions while HomeGold Financial was falling apart.
Sheppard collected perks, including a nearly $1 million RV and a personal trainer, as the subprime mortgage lender was bleeding cash.
He left the company with a $5 million loan just months before it filed for bankruptcy.
Tuesday, prosecutors in a Lexington County court will start trying to prove that the former chief executive of HomeGold should have known better, charging Sheppard with three counts of securities fraud.
When Lexington-based HomeGold and its Carolina Investors subsidiary finally collapsed in 2003, it was South Carolina’s largest-ever bankruptcy. It left more than 8,000 investors — most from the Upstate — holding more than $277 million of suddenly worthless IOUs.
Sheppard, 49, has maintained from the start that he is innocent — that, like all those investors, he too was duped by the founders of HomeGold.
Sheppard’s lawyer likely will tell that story to a jury, one to be culled from Lexington County residents.
But who is Sheppard?
The former chief executive of another Lexington lender, he was offered more than $4 million to take the helm of troubled HomeGold in 2000. Until 2002, he was paid an average annual salary and bonus of nearly $2 million to head the company.
Sheppard also is the kid from Cayce, a ninth-grade dropout who believed — through hard work and trying to follow the tenets of the strict Jehovah’s Witnesses faith — that he would make a name for himself in a cutthroat industry: subprime lending.
Sheppard, his attorney and the Attorney General’s Office were asked to comment for this article. All declined, citing a judge’s request not to comment about the case before Tuesday’s trial.
Facing up to 25 years in jail if convicted, Sheppard has lost 30 pounds in the past months, looks worn and is generally anxious, said Steve Wilson, who has spent 14 years doing information technology and security jobs for Sheppard.
“He doesn’t eat, and he can’t sleep,” said Wilson, an independent contractor.
In November, he had to ask court permission to take a day trip with his 13-year-old son to Charlotte, so his son could participate in a drag race at a track. A year earlier, he separated from his wife, court documents show.
What nobody will see, though, Wilson said, is Sheppard feeling sorry for himself. He is a fighter, who still spends his work days selling mortgages to people with troubled credit.
“His big thing was competition,” Wilson said of Sheppard’s work ethic. “He didn’t let anyone settle down. It was 24-7.”
Sheppard went from running a business with about eight employees in the early 1990s to running one with more than 1,800 employees nationwide in 2002, when he left HomeGold, just before its collapse.
Today, Sheppard’s professional life is back where he began.
Sheppard’s new company, subprime mortgage lender EMMCO LLC, is based in an unassuming office park on Sunset Boulevard in West Columbia, facing one of Sheppard’s first offices.
Trying to be a devout Jehovah’s Witness helped guide Sheppard to financial success, Wilson said. “He firmly believes his rise was because of his going to the church.”
Sheppard donated land and money to build the Kingdom Hall in West Columbia, according to his attorney.
But Wilson also says Sheppard’s ultimate flaw was his drive to work more, earn more and be more than that kid from a rough part of town.
In the end, Wilson said, “His unbridled ambition got him.”
RAGS TO RICHES
Sheppard grew up in The Avenues, a part of Cayce that then had low-slung houses with washer-dryer hook-ups in their kitchens.
Sheppard has said he was one of seven kids growing up in a two-bedroom home.
Former classmates at Brookland-Cayce High School say they do not remember much about Sheppard. He dropped out of high school after one year in 1972, according to Sheppard’s past statements.
By working marathon days — first at odd jobs, such as loan collections, and, by 1985, for United Companies Mortgage — Sheppard scraped together enough experience and cash to start his own business in 1989, according to financial reports and court statements.
Lexington-based HomeSense sold mortgages to homebuyers with less-than-perfect credit, and Sheppard excelled in the competitive business.
Chuck Garnett, president of the National Bank of South Carolina, remembers dealing with Sheppard in the 1980s and 1990s.
There were a lot of players on the tough subprime mortgage field, but Garnett said Sheppard knew how to turn a profit.
“He had a pretty good story,” said Garnett, who back then was a banker with NBSC. “He has a strong personality.”
But as interest rates started dropping in the late 1990s, lenders in the subprime mortgage industry found it harder to make a profit, bankers say.
It was pure chance that Sheppard and the leadership of HomeGold, another subprime mortgage lender, met at the end of the 1990s.
Each company had accused the other of stealing its logo. As the lawyers started talking, the HomeGold board learned about Sheppard’s success during the downtime.
While HomeSense was doing well, HomeGold had started hemorrhaging cash in 1998, according to financial statements.
HomeGold went from reporting a modest $7.5 million profit in 1997 to a $73 million loss in 1998.
HomeGold started relying more on its Carolina Investors subsidiary to pay for its operations.
Carolina Investors would sell high-interest, unsecured notes — what amounted to junk bonds — to S.C. residents, mostly retirees in the Upstate.
Carolina Investors then turned the money over to HomeGold, which used it to make loans to people with poor credit.
The goal was for HomeGold to collect money from the high interest and other fees related to the riskier mortgages and — eventually — repay Carolina Investors.
But what was once a relatively small inter-company debt — the amount HomeGold owed Carolina Investors — quickly ballooned.
In 1995, HomeGold owed Carolina Investors about $304,000. Four years later, that debt had grown to $145 million, according to financial statements.
Several HomeGold board members wanted to address the losses. They met in early 1999 to discuss sacking then-president Keith Giddens, according to an examiner’s report filed in bankruptcy court.
However, that move was stymied by HomeGold chairman and chief executive John “Jack” Sterling, an Upstate businessman. Sterling had helped set up the company that eventually became HomeGold.
A BIG OFFER
In early 2000, Sterling offered Sheppard cash for his company HomeSense and the chance to run HomeGold.
Since 1973, Sterling had been investing in start-up companies. An example is successful Datastream Systems, a Greenville-based software firm catering to Fortune 500 companies. In 1994, Sterling was named S.C. Entrepreneur of the Year.
The offer represented a huge leap for Sheppard. He received millions in cash and stock for his subprime mortgage business and became chief executive of publicly traded HomeGold.
As CEO, Sheppard also received perks, including the use of a chartered jet, a nearly $1 million RV and a personal trainer, according to court testimony.
The offer came from a group of well-known Upstate businessmen, including Sterling; IKON Office Solutions executive Tecumseh “Tee” Hooper, now chairman of the state Department of Transportation; private investment company and former Liberty Corp. executive Porter Rose; Enterprise Computer Systems chairman Clarence Bauknight; and investment banker Robert Philpott Jr.
Except for Sterling, the former board members were not accused of wrongdoing and do not face criminal charges.
All were named as defendants, with Sheppard, Sterling and other executives, in a federal lawsuit filed by HomeGold’s creditors that was later settled.
Giddens left HomeGold in April 2000 — just days before Sheppard officially took over. As severance, Giddens received $200,000 in cash, free health insurance for his family for a year, the title to his company car and the services of a professional head-hunter to find him a new job, according to financial reports.
Giddens does not face any criminal charges.
When Sheppard was put in charge, HomeGold already was drowning in debt.
In Wilson’s mind, what happened to Sheppard is clear — he saw the cash and the executive’s title but did not pay attention to the details of what he was agreeing to take on at HomeGold.
“They were playing chess, and (Sheppard) was still playing checkers,” Wilson said.
HomeGold’s board members pinned their hopes of the lender’s survival on Sheppard.
“The HomeSense merger represented, to a great degree, an act of desperation of a company (HomeGold) in great financial distress,” according to the bankruptcy court examiner’s report.
Sheppard believed the company could be saved, according to the examiner’s report. But that optimism faded as he started working at HomeGold, Wilson said.
Wilson remembers a conversation with Sheppard in late 2000, after Sheppard visited the Securities and Exchange Commission in New York.
Before the trip, Sheppard had been somewhat upbeat about HomeGold’s future, Wilson said. That’s not how he returned.
“The first time I saw him depressed was after the trip to the SEC,” Wilson said. But “he couldn’t walk away. He would be left with nothing.”
Most of Sheppard’s wealth was tied to the company’s stock.
In Sheppard’s mind, his only option was to work harder, Wilson said. HomeGold’s only source of money — aside from relying on Carolina Investors — was its loan offices, according to financial statements
So HomeGold opened more loan offices, hoping to earn enough to repay Carolina Investors.
Wilson remembers cramming stepladders, tool boxes and eight or more employees into Learjets — chartered by Sheppard — to transport a crew across the country — to St. Louis, Phoenix and Kansas City — so new offices could be opened within 48 hours.
Eventually, HomeGold operated 18 offices nationwide. In 2001, those offices had issued $648 million in loans in 45 states, more than twice the $234 million in loans made in 1999.
Sheppard left HomeGold in November 2002 to go it alone with EMMCO after engineering a deal to buy loan production assets from his previous employer. He paid for the assets with a $5 million loan from HomeGold.
At the time, HomeGold was gasping for life.
By April 2003, the troubled HomeGold and Carolina Investors had filed for bankruptcy.
When HomeGold finally failed, it owed Carolina Investors more than $277 million.
THE FALLOUT
Immediately, investors started lining up outside the Upstate branches of Carolina Investors. The news was not promising. All their money was gone, spent by HomeGold, a company few ever understood.
Attorney General Henry McMaster, who had been in office four months, sought a change in S.C. law governing the use of the State Grand Jury to allow him to investigate the collapse. Otherwise, McMaster has said, investigating and prosecuting the HomeGold/Carolina Investors collapse would have been virtually impossible.
Since 2003, the state has indicted six former executives in the collapse. Three have pleaded guilty.
Former Carolina Investors board chairman Earle E. Morris Jr. was convicted of securities fraud in November 2004. The former lieutenant governor and comptroller general is appealing that conviction.
Aside from Sheppard, Sterling is the only other person awaiting trial. The onetime HomeGold chairman and CEO has pleaded not guilty to three counts of securities fraud and is free on a $100,000 bail. His trial date has not been set.
Meanwhile, a series of civil suits were filed in federal court against the former directors and executives of the bankrupt HomeGold and Carolina Investors. These suits were combined into a single case, seeking $1 billion. A settlement of that lawsuit and the sale of HomeGold assets netted investors 18 cents for every dollar they had lost.
Sheppard too filed suit, alleging he had been misled by the HomeGold board and was owed money from his employment agreement. That lawsuit later was dropped.
BACK TO SQUARE ONE
Today, Sheppard’s EMMCO operates in an office park near Lexington Medical Center.
Sheppard still sells subprime mortgages, trying to succeed in the type of industry where finishing first gets you a luxury car; second a set of steak knives; and third, don’t ask.
Sheppard’s white Mercedes-Benz sedan blends in with the other high-end cars driven by EMMCO’s neighbors, a host of medical professionals piggybacking off the nearby hospital.
A neighbor, lawyer Bill Booth, said he doesn’t know much about Sheppard’s operations. Workers, a few dozen, show up in the morning and leave in the evening. Never any noise or commotion.
However, don’t be fooled by the quiet demeanor, Wilson said.
Working for Sheppard is hard, nose-to-the-grindstone type employment, said Wilson and others who testified during HomeGold’s and Carolina Investors’ bankruptcy proceedings. There is no joking around, no long lunches, no office holiday celebrations.
Sheppard worked as if “he wasn’t going to be here long,” Wilson said. “So he had to do it now.”
Wilson also remembers being told by Sheppard: “‘I’ll pay you a compliment. I’ll pay you a check. But I won’t pay you both.’”
When testifying in 2004 during the federal suit against HomeGold, former HomeGold employee Tony Park described Sheppard as a boss who rewarded producers.
Park, for instance, received a salary and bonus of more than $319,000 in one year.
Once workers stopped producing, though, Wilson said Sheppard was quick to cut them loose.
Sheppard eventually severed his relationship with Park, who might be called as a witness to testify against his former boss.
MAINTAINS HIS INNOCENCE
Bob Pierce, an Anderson businessman, lost more than $1.1 million in the collapse of HomeGold and Carolina Investors.
Pierce has no warm feelings for Sheppard, but does not consider him an architect of the two companies’ financial failure.
The downfall started before Sheppard, in 1998, and was overseen by the company’s board and chairman, Pierce said. “If only they had just faced up to the reality that no company could operate with such operating losses,” he said.
But Pierce does not dispute Sheppard’s business sense.
He points to Sheppard’s employment agreement when hired by HomeGold as rich.
Sheppard assumed control of 40 percent of HomeGold’s stock. The $4 million he received when hired was a loan from the company, secured by his stock, according to financial statements.
Pierce says the contract’s details were hidden from Carolina Investors’ noteholders. Until the collapse, Pierce said he never knew about Sheppard.
Sheppard maintains he is innocent.
The masterminds behind the failure were those who started HomeGold and eventually offered to buy HomeSense in 2000, according to Sheppard’s past statements. Sheppard said he was misled by Sterling, HomeGold’s board and legal advisers about the true condition of HomeGold.
Attorney General McMaster’s office charges that Sheppard committed securities fraud, lied to a bank, falsified a corporate insurance policy, misused company money and lied under oath.
However, what was an 11-count indictment was separated last week when a judge ruled the indictment was too broad. He also threw out the perjury charge.
So on Tuesday, Sheppard faces three counts of securities fraud. Sheppard still faces the prospect of standing trial in the future for the other charges.
In the end, it will be up to a jury to decide whether he was misled or did the misleading.
While Wilson says he does not consider Sheppard a friend, he respects him. Sheppard requires hard work from people, but people earn a lot of money working for him, Wilson said.
Earning money, though, is not enough to buy loyalty. Wilson doesn’t expect anyone to stand up for Sheppard.
“He didn’t want anyone to get close to him because he didn’t want anyone to think he’d cut them any slack.”
Reach Werner at (803) 771-8509.