INVESTMENT: Golden-Age Fraud

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In the hyped-up stock market of the late '60s, many credulous small investors were advised by their hard-selling brokers to invest in Four Seasons Nursing Centers of America Inc. By owning part of a fast-growing proprietor of homes for the ailing aged, they could profit from a healthy young industry —or so the tout went. For a while, anyone who bought that advice had the prospect of a very comfortable nest egg indeed. Offered at $11 a share in 1968, Four Seasons soared to $181 (counting for a split). Then, a spectacular fizzle. The price shriveled to as low as 6¼¢ before the company was finally suspended from trading on the American Stock Exchange in September 1970. Last week the Justice Department charged that the many people who put their money and hope in Four Seasons, now bankrupt, had been criminally defrauded of as much as $200 million.

Three past or present officers of Four Seasons were charged in a New York federal grand jury indictment. Moreover, as part of its increasing willingness to hold professionals responsible for the misdeeds of their clients, the Government also indicted five members of the company's accounting firm and its financial underwriter. The full group included two partners in Chicago's Arthur Andersen & Co., one of the "Big Eight" accounting firms; Glenn R. Miller, who until his sudden departure less than a week earlier had been the No. 3 man at Walston & Co., a large Wall Street broker and underwriter with 105 branch offices nationwide; and Jack L. Clark, the Oklahoma City builder who as Four Seasons' chairman, engineered the geriatric razzle-dazzle.

The Government claimed that the eight defendants had collaborated in a bewildering array of financial sleights of hand designed "to arouse interest" on the part of investors in Four Seasons' seemingly golden growth. In fact, says the indictment, part of the company's earnings were based on sales of nursing homes that were reported in company documents and certified in accounting statements but had never really occurred. Another ruse, it said, was the selloff, at inflated prices, of some of Four Seasons' losing properties, which unnaturally increased the company's earning power. Actually, says the indictment, the buyer was Four Seasons Equity Inc., a firm that was secretly owned by the parent company. The company had bought its own losers.

Three of the eight defendants were alleged to have been major shareholders in Four Seasons, but not, wonder of wonders, among the big losers. In fact, says U.S. Attorney Whitney North Seymour, knowing full well that Four Seasons was worth nowhere near as much as they publicly claimed, these insiders sold off large chunks of their holdings through numbered accounts at Walston. Clark alone was accused of pocketing more than $9,000,000, most of which is believed to be stashed in Europe. Andersen officials promised to "vigorously" defend their employees in the case; Clark and Miller were not talking at all. Having allegedly rigged a grand numbers game with Four Seasons, the eight had some new figuring to do: if convicted, all face variable prison terms, as well as fines on the indictment's 65 separate counts.