Gray defends role in vetting investment firm
Sunday, Sept. 15, 2013
By Danny Robbins
The Atlanta Journal-Constitution
Near a busy intersection in Marietta, a used car lot lies abandoned, a few leftover vehicles scattered among the weeds. Second Chance Motors once billed itself as the last chance for credit-challenged customers. Now its own luck has run out.
“It’s been at least 10 months since I’ve seen anybody over there,” said Greg Humphries, the owner of a nearby muffler shop.
The remnants of Second Chance Motors are the most visible reminder of a pension scandal 800 miles away that has led to criminal indictments, a civil suit by the U.S. Securities and Exchange Commission and more questions for Atlanta investment adviser Larry Gray.
For three years, investigators have been burrowing through a series of transactions that put nearly $16 million in public pension money from Michigan into Second Chance Motors. The money represented the lion’s share of nearly $25 million invested by pension systems in Detroit and Pontiac, Mich., in a private equity fund created by Onyx Capital Advisors, a firm operated by Atlanta resident Roy Dixon Jr.
Federal authorities have determined that the money is gone, and they allege that Dixon embezzled more than $3 million of it. A criminal complaint alleges that more than $500,000 of the stolen money went to help Dixon build an $8 million house in northwest Atlanta.
Dixon has been charged with bribery, wire fraud and other federal offenses. In addition, he and Atlanta resident Michael Farr, the owner of Second Chance Motors , are defendants in an SEC lawsuit that accuses both of misappropriating the pension money.
Gray hasn’t been charged with a crime, nor is he named in the SEC suit. But as the investment consultant for the Pontiac General Employees Retirement System, he was responsible for vetting Onyx Capital when that board approved investing $5 million in it in 2007.
“I’m surprised that pension money went into a (business) like that,” said Adam Taub, a Southfield, Mich., attorney who sued Second Chance Motors in 2004. Taub’s client was a customer who claimed the company sold him a car without a title and with defective brakes.
Dixon pitched Onyx Capital to the board as a firm that would invest in Midwest manufacturing companies. However, shortly after the firm was approved, Gray informed the board that Onyx’s first investment would be in Second Chance Motors. The change prompted a discussion of whether the board could reconsider before transferring any assets.
Asked by a board member if he was comfortable with the investment, Gray said he’d performed more due diligence on Onyx Capital “than he can recall in his career,” according to minutes from that meeting. Andwhen several board members expressed concern about Second Chance Motors and wanted to back away from Onyx because of it, Gray stated that the investment “will not move the needle enough to make a big difference.”
At the time Gray made those statements, Farr had just been sued in Oakland County — where Pontiac is the county seat — for defaulting on a $1.3 million loan a California lender had made to help finance his company. However, that issue wasn’t raised in front of the board.
An article in the Oakland Press about Second Chance Motors in 2008 caused further discussion about the legitimacy of the investment. In response, Gray said the board couldn’t dictate how a private equity firm chose to invest, but he believed it could expect returns of 11.2 percent from the Onyx investment.
“Overall, it is a good investment and he thinks the retirees will be pleased with the results,” the minutes quote Gray as saying.
In an interview, Gray said he can’t be blamed for the Onyx fiasco. He said he checked out the company as best he could, including a face-to-face meeting with a proposed firm manager whose expertise was considered crucial by the board. Gray said the manager assured him he was working with Onyx.
Once that was done, Gray said, he wasn’t obligated to do additional due diligence on Second Chance Motors because Onyx had the right to invest as it saw fit.
“When you hire these companies, we give them the money and they have the discretion to select whatever companies they want under that,” he said.
Seth Lipner, a securities attorney in New York who specializes in investor protection, said private equity firms do have autonomy in selecting investments. But if one makes a choice that differs radically from its offering memorandum, the pension board can consider trying to back out, he said.
“The adviser ought to give an honest opinion and not hide behind `It’s not my responsibility,’” Lipner said.
The board ultimately stopped funding Onyx because of questions about a document Dixon submitted, but only after putting in $3.8 million.
Ray Cochran, a member of the Pontiac board at the time, said he sensed that Gray had doubts about Onyx, yet tried to temper his skepticism because he didn’t want to upset the board’s chairman, Charlie Harrison, who brought Dixon and his firm to the board.
“I think Larry was trying, in a diplomatic way, to say they’re not ready yet,” Cochran said. “But basically to keep the board happy and keep the chairman happy, he couldn’t say, `Absolutely not.’”
Farr, a former NFL player with the Lions and Patriots, has admitted in deposition testimony for the SEC that he wrote checks totaling $513,426 to contractors working on Dixon’s house using some of the Onyx Capital funds. He admitted that he considered the payments a favor to Dixon for the investment in Second Chance Motors.
When the SEC began investigating two years later, Farr and Dixon created a backdated promissory note to make the transaction appear to be a loan, Farr testified.
The SEC alleges that the payments to the contractors working on Dixon’s house were part of an overall scheme in which Farr and Dixon diverted the pension money.
Dixon, who has pleaded not guilty to the criminal charges, declined to be interviewed at length for this story. However, in a brief phone conversation he said he has information that will make the government’s task “very daunting” if his case goes to trial.
Efforts to contact Farr were unsuccessful. His attorney, Rodd Walton, did not respond to phone and email messages.
Farr at one time operated Second Chance dealerships in Michigan, North Carolina and Texas as well as Georgia, but a recent check of various locations by The Atlanta Journal-Constitution found that none remains in business. According to the Georgia Used Car Board, he agreed to surrender his license to sell used cars in the state in March 2012 to settle an unspecified disciplinary proceeding.
Court records reviewed by the AJC show that Second Chance dealerships in Cobb and Rockdale counties have been sued at least a dozen times by customers. Many complained that they never received titles for the vehicles they bought, and one claimed she lost her car — a 2002 Lincoln LS purchased for $3,000 — soon after buying it when police showed up at her home with a tow truck and said the vehicle had been stolen.
“I’ve been calling around to get my money back with no luck,” the woman wrote. “Please help."
Sunday, Sept. 15, 2013
By Danny Robbins
The Atlanta Journal-Constitution
Near a busy intersection in Marietta, a used car lot lies abandoned, a few leftover vehicles scattered among the weeds. Second Chance Motors once billed itself as the last chance for credit-challenged customers. Now its own luck has run out.
“It’s been at least 10 months since I’ve seen anybody over there,” said Greg Humphries, the owner of a nearby muffler shop.
The remnants of Second Chance Motors are the most visible reminder of a pension scandal 800 miles away that has led to criminal indictments, a civil suit by the U.S. Securities and Exchange Commission and more questions for Atlanta investment adviser Larry Gray.
For three years, investigators have been burrowing through a series of transactions that put nearly $16 million in public pension money from Michigan into Second Chance Motors. The money represented the lion’s share of nearly $25 million invested by pension systems in Detroit and Pontiac, Mich., in a private equity fund created by Onyx Capital Advisors, a firm operated by Atlanta resident Roy Dixon Jr.
Federal authorities have determined that the money is gone, and they allege that Dixon embezzled more than $3 million of it. A criminal complaint alleges that more than $500,000 of the stolen money went to help Dixon build an $8 million house in northwest Atlanta.
Dixon has been charged with bribery, wire fraud and other federal offenses. In addition, he and Atlanta resident Michael Farr, the owner of Second Chance Motors , are defendants in an SEC lawsuit that accuses both of misappropriating the pension money.
Gray hasn’t been charged with a crime, nor is he named in the SEC suit. But as the investment consultant for the Pontiac General Employees Retirement System, he was responsible for vetting Onyx Capital when that board approved investing $5 million in it in 2007.
“I’m surprised that pension money went into a (business) like that,” said Adam Taub, a Southfield, Mich., attorney who sued Second Chance Motors in 2004. Taub’s client was a customer who claimed the company sold him a car without a title and with defective brakes.
Dixon pitched Onyx Capital to the board as a firm that would invest in Midwest manufacturing companies. However, shortly after the firm was approved, Gray informed the board that Onyx’s first investment would be in Second Chance Motors. The change prompted a discussion of whether the board could reconsider before transferring any assets.
Asked by a board member if he was comfortable with the investment, Gray said he’d performed more due diligence on Onyx Capital “than he can recall in his career,” according to minutes from that meeting. Andwhen several board members expressed concern about Second Chance Motors and wanted to back away from Onyx because of it, Gray stated that the investment “will not move the needle enough to make a big difference.”
At the time Gray made those statements, Farr had just been sued in Oakland County — where Pontiac is the county seat — for defaulting on a $1.3 million loan a California lender had made to help finance his company. However, that issue wasn’t raised in front of the board.
An article in the Oakland Press about Second Chance Motors in 2008 caused further discussion about the legitimacy of the investment. In response, Gray said the board couldn’t dictate how a private equity firm chose to invest, but he believed it could expect returns of 11.2 percent from the Onyx investment.
“Overall, it is a good investment and he thinks the retirees will be pleased with the results,” the minutes quote Gray as saying.
In an interview, Gray said he can’t be blamed for the Onyx fiasco. He said he checked out the company as best he could, including a face-to-face meeting with a proposed firm manager whose expertise was considered crucial by the board. Gray said the manager assured him he was working with Onyx.
Once that was done, Gray said, he wasn’t obligated to do additional due diligence on Second Chance Motors because Onyx had the right to invest as it saw fit.
“When you hire these companies, we give them the money and they have the discretion to select whatever companies they want under that,” he said.
Seth Lipner, a securities attorney in New York who specializes in investor protection, said private equity firms do have autonomy in selecting investments. But if one makes a choice that differs radically from its offering memorandum, the pension board can consider trying to back out, he said.
“The adviser ought to give an honest opinion and not hide behind `It’s not my responsibility,’” Lipner said.
The board ultimately stopped funding Onyx because of questions about a document Dixon submitted, but only after putting in $3.8 million.
Ray Cochran, a member of the Pontiac board at the time, said he sensed that Gray had doubts about Onyx, yet tried to temper his skepticism because he didn’t want to upset the board’s chairman, Charlie Harrison, who brought Dixon and his firm to the board.
“I think Larry was trying, in a diplomatic way, to say they’re not ready yet,” Cochran said. “But basically to keep the board happy and keep the chairman happy, he couldn’t say, `Absolutely not.’”
Farr, a former NFL player with the Lions and Patriots, has admitted in deposition testimony for the SEC that he wrote checks totaling $513,426 to contractors working on Dixon’s house using some of the Onyx Capital funds. He admitted that he considered the payments a favor to Dixon for the investment in Second Chance Motors.
When the SEC began investigating two years later, Farr and Dixon created a backdated promissory note to make the transaction appear to be a loan, Farr testified.
The SEC alleges that the payments to the contractors working on Dixon’s house were part of an overall scheme in which Farr and Dixon diverted the pension money.
Dixon, who has pleaded not guilty to the criminal charges, declined to be interviewed at length for this story. However, in a brief phone conversation he said he has information that will make the government’s task “very daunting” if his case goes to trial.
Efforts to contact Farr were unsuccessful. His attorney, Rodd Walton, did not respond to phone and email messages.
Farr at one time operated Second Chance dealerships in Michigan, North Carolina and Texas as well as Georgia, but a recent check of various locations by The Atlanta Journal-Constitution found that none remains in business. According to the Georgia Used Car Board, he agreed to surrender his license to sell used cars in the state in March 2012 to settle an unspecified disciplinary proceeding.
Court records reviewed by the AJC show that Second Chance dealerships in Cobb and Rockdale counties have been sued at least a dozen times by customers. Many complained that they never received titles for the vehicles they bought, and one claimed she lost her car — a 2002 Lincoln LS purchased for $3,000 — soon after buying it when police showed up at her home with a tow truck and said the vehicle had been stolen.
“I’ve been calling around to get my money back with no luck,” the woman wrote. “Please help."
Comment