It was a little more than two years ago that Gov. Jay Nixon and Mamtek U.S. CEO Bruce Cole shared a stage at a local community college to announce the Chinese company planned to build a 120,000-square-foot sweetener factory just north of town.
With the help of $17 million in state incentives and $39 million in bonds backed by the city of Moberly, Cole promised the factory would eventually employ 600 people in this community of 14,000, 30 miles north of Columbia.
But the building that was supposed to house Mamtek now sits an empty shell. Construction abruptly stopped in September 2011, a month after Mamtek missed its first bond payment, which caused Moberly to go into default and its bond rating to be dramatically lowered.
On Tuesday, Attorney General Chris Koster stood outside the abandoned factory to announce that Cole had been arrested at his home in Dana Point, Calif., and charged with five felonies — one count of stealing and four counts of securities fraud — in connection with the Mamtek deal.
Cole is charged with diverting part of the bond proceeds to make a mortgage payment and misleading investors about Mamtek’s operations.
“The failure of the $39 million investment in Moberly was a tragedy for that community,” Koster said.
Following the announcement of criminal charges in Missouri, the U.S. Securities and Exchange Commission filed suit against Cole in U.S. District Court in California, alleging he executed a scheme to defraud investors in connection to the $39 million in bonds.
Koster said his office is seeking Cole’s extradition to Missouri. Court documents show the state has requested a $500,000 bond and for Cole to surrender his passport.
It is not clear whether Cole has an attorney, and calls to a phone number listed for him in California were not answered.
Tuesday’s charges resulted from a yearlong investigation by the attorney general’s office, Randolph County Prosecuting Attorney Mike Fusselman and the U.S. Securities and Exchange Commission. Mamtek’s collapse also had been the subject of two separate state legislative committee hearings.
Critics maintain that over the course of two years there was no shortage of warning signs that the project may have been too good to be true, but who ultimately is responsible for the project’s collapse is still a point of contention.
Moberly officials contend the state Department of Economic Development did not share vital information that raised questions about Mamtek’s financial and business claims. The state countered that local officials pushed the deal before due diligence and background checks could be completed.
Both sides said paid consultants — including bond underwriters and attorneys — profited from the deal but only looked at Moberly’s credit rating before signing off on the $39 million in bonds. The bond underwriters, Morgan Keegan, argued that it was not their job to evaluate Mamtek’s viability. That was left to local and state officials.
“I think as we go through this case, we will see that there were opportunities perhaps for more due diligence in this particular investment project,” Koster said Tuesday.
Regardless of who’s to blame, the project resulted in no jobs and Moberly’s lowered bond rating will cost the city in its future borrowing. News of the Mamtek deal’s collapse broke while lawmakers were trying to strike a deal on a massive statewide economic development bill, which contributed to the bill’s ultimate demise.
Not surprisingly, Republicans place the blame at the feet of Nixon, a Democrat running for re-election this year. They argue that Nixon’s administration failed to heed numerous red flags, pointing out that the deal quickly came together in 73 days when similar projects usually take months.
“A simple Google search could have prevented this entire fiasco, but Jay Nixon was more interested in throwing together a jobs announcement than protecting the people of Moberly,” said Lloyd Smith, executive director of the Missouri Republican Party.
Nixon spokesman Scott Holste was quick to counter that the state never paid out any of the incentives it had authorized because they were tied to job creation goals.
“Not a single state taxpayer dollar went to this project because the company failed to meet requirements for job creation and investment,” Holste said.
The project dates to March 2010, when the Department of Economic Development launched “Project Sugar,” the name given to the attempt to lure Mamtek to Missouri. Thirteen communities were after the Mamtek project, and by April the company had narrowed its choice for its new factory to three: Mexico, Sedalia and Moberly.
In the meantime, the state was having trouble verifying several critical pieces of Cole’s story, most importantly whether Mamtek actually operated a fully functional sweetener production facility in Fujian Province, China.
Koster alleges that his investigation found Mamtek’s facility was not producing any artificial sweetener at that time and previously had been shut down by the Chinese government.
Moberly officials testified before a Missouri House committee last year that they were never made aware of the problems the state was having verifying the existence of the Chinese factory. If they had, they said the city would have slowed down or pulled the plug on the deal.
The state denied that claim, saying the department shared its concerns with Moberly and was given assurances that the city had independently verified the factory was in operation.
While the state was trying to track down the factory, the Moberly Area Economic Development Authority was speaking with Mamtek officials independently. An April 22 memo from Moberly to the company’s business consultant promised millions in incentives if Mamtek chose Moberly for its new factory.
David Kerr, former director of the Missouri Department of Economic Development, testified last year that once Moberly officials made it clear they were hiring professionals to close the Mamtek deal on their own, the state assumed the city had received verification of the factory’s existence.
Additionally, Moberly’s bonds for the project were given a positive rating from Standard & Poor’s, further easing concerns within the department, Kerr said.
“It’s not the state’s policy to dictate to local government what they offer businesses to lure them to their community,” Kerr said at the time.
But concerns persisted. When a state employee learned in May 2010 that Moberly had still not received signed agreements from Mamtek, she asked a city official in an email if the deal was “starting to sound a bit fishy?”
It was later uncovered that communities in other states, including Bismark, N.D., had declined to do business with Mamtek after the company proved unwilling to share details of its financing.
And at the time the deal was being worked out, Cole was facing a lawsuit over an unpaid $250,000 loan and a had a lien against him for an unpaid bill of nearly $135,000.
Ultimately, the deal was finalized and an announcement was made in July 2010. Nixon, Cole and a host of state and local officials gathered together at Moberly Area Community College to make the project public.
Today, in hindsight, Moberly Mayor Bob Riley admits that Cole ‘‘was not as honest as he could have been’’ with local officials eager to generate jobs. He added that it was “hard not to join on the bandwagon.”
However, Riley is still hopeful the factory and its equipment can bring jobs to the community. On Oct. 24, Mamtek’s equipment and other assets are scheduled to be auctioned.
As for Cole, in addition to allegations that he lied about the Chinese factory, the charges also state that after Moberly’s bonds were approved, he directed Mamtek to make a $4 million payment for services supposedly provided by a company called Ramwell Industrial Inc.
According to Koster, Ramwell Industrial was never incorporated, never had any employees, never owned any property and never provided any goods or services to Mamtek. And the SEC accused Cole of directing Mamtek employees and consultants to create documentation to justify fictitious expenses.
Immediately after Mamtek received the bond revenues, Koster alleges Cole instructed the company to wire $700,000 to his wife’s personal bank account, which she then used part of to make a mortgage payment and avoid foreclosure on their home.
Additionally, Koster alleges that Cole defrauded bondholders by insisting that Mamtek’s manufacturing process did not use hazardous materials, when it did, and by claiming the Moberly facility could be built and operating within six months, when Cole knew it would take longer.
The charge of stealing is punishable by up to 15 years in prison. The four charges of securities fraud carry a potential sentence of up to 10 years in prison and up to a $1 million fine on each count.