Representing himself, former Northwest Territorial Mint owner Ross Hansen faced lawyers and 100 of 3,800 creditors at the first creditors meeting last Wednesday since the Federal Way-based mint went bankrupt in April.
“I’m not ‘lawyered up’ here; you’re not seeing me with a battery of lawyers,” Hansen said. “I’ve shown up to answer your questions to help.”
Michael J. Gearin, an attorney with K&L Gates who represents U.S. Trustee Mark Calvert, provided many of those questions, asking Hansen a series of them before creditors asked their own in the three-hour-plus-long meeting.
When asked about the events leading up to the mint’s bankruptcy, Hansen said it was due to “actions caused by a Bradley S. Cohen.” Cohen was the plaintiff in a defamation suit brought against Hansen – a judge in a federal defamation lawsuit recently ruled that Hansen must pay $12.5 million of a $38.3 million judgment for defaming Cohen through a website he created comparing Cohen to famous Ponzi scheme operator Bernie Madoff.
“Over time, they have damaged the company to the tune of over $50 million,” Hansen said of Cohen and his lawyers.
Calvert has different information, estimating the “damage” at $7 million – $3 million from a previous environmental lawsuit with Cohen and about $4 million in legal costs from the defamation lawsuit (Hansen has not paid the $12.5 million).
Cohen, also an unsecured creditor, declined to comment on the matter. It should be noted that Cohen recently reached an agreement with Calvert to release back to the mint $190,000 he obtained from a court-approved seizure to help fund the business’s operations.
In Calvert’s assessment, Northwest Territorial Mint was heading toward bankruptcy long before the defamation suit judgment.
“The company was run more like a personal hobby,” Calvert said at the meeting.
With $56 million in liabilities and an estimated $6.4 million in assets, according to U.S. bankruptcy trial attorney Martin Smith, Calvert said the mint has been insolvent since 2009 or before. Smith said only $73,000 in liabilities is secured, with $56 million unsecured. Of the assets, there’s approximately $5 million in inventory. Smith also noted there was $4 million in accounts payable, $57,000 in deposits, and approximately $4,000 in the mint’s bank account at the time of bankruptcy.
But Hansen disagreed, saying, “Mr. Calvert needs help with his math.”
Counting on the value of his multiple websites, 250,000 bullion client names, company equipment in several locations, inventory, and naming rights to designs, Hansen believes his company has $20-$25 million in assets.
When asked about inventory, Hansen confirmed that “inventory people” kept inventory logs for bullion in vaults in Federal Way; Auburn; and Dayton, Nevada. Sales transactions were accounted for, but it’s less clear if all “owner’s draws,” which is how Hansen took compensation, were logged. There was not “perpetual physical inventory made,” Calvert confirmed.
“Diane and I work many hours, and it is not uncommon for us to take work home at the end of the day,” Hansen said. “We take metals home and back, bring it back. We don’t log it. As owners, I don’t think we’re concerned if we bring it back.”
Smith interjected, “Well, I think the creditors are concerned.”
According to bankruptcy documents, there’s security footage of Ross Hansen and Diane Erdmann taking “significant quantities of precious coins and metals” from the Federal Way vault on March 27, Easter Sunday, days before the mint filed for bankruptcy. It’s alleged Erdmann used money from the sale of contents of the vault to pay for their attorney’s retainer fee, which was $150,000.
About three weeks ago, Hansen had $156,000 worth of coins seized from his home, the source of it unknown, but those funds are believed to have also helped pay for their attorney’s retainer fee. Erdmann said it was her own money.
Calvert said there is a hearing on June 22 on that issue.
Erdmann, Hansen’s girlfriend with whom he’s lived for 17 years, was responsible for the Federal Way vaults, Hansen said at the creditors meeting.
In a declaration from Dave Huffman, the director of security for Northwest Territorial Mint, Hansen called Huffman into his office on March 31 to tell him to take a “medium size bag” to a coin dealer. Huffman picked up the bag of coins from Erdmann and was told to go to a coin shop in Seattle.
Huffman said the coin dealer was allowed to look through every coin and gold bar and ended up purchasing $99,460 worth of precious metals. A KeyBank cashier made out the check to Erdmann, and Huffman returned the check and remaining coins in the bag to her.
“Mr. Hansen told her to sign the check over to J. Todd Tracy, attorney with the Tracy Law Group in Seattle, Washington,” Huffman’s declaration states.
J. Todd Tracy filed a motion to withdraw as Northwest Territorial Mint’s attorney on April 18.
Alan J. Wenokur, attorney for Wenokur Bankruptcy Law, also filed a motion to withdraw as the mint’s attorney one day later.
When Gearin asked if Hansen removed precious metals from the Federal Way vault on Easter Sunday, Hansen said he could not recall.
It’s not the first or last instance in which Hansen could “not recall” details or facts related to his one-time business – Hansen was removed from all authoritative power on April 12 and resigned later that day. Hansen also stated he could not recall how much bullion was owned by the mint and couldn’t remember the source of the money he used to acquire Medallic Art, a company of which he says he owned 50 percent. The trustee alleges the company’s purchase was the result of a fraudulent transfer from Northwest Territorial Mint and intends to pursue the matter.
Calvert said in an interview that not only has the mint not prepared tax returns since 2011 – it’s been operating instead on a cash-in, cash-out basis – but that customers’ deposits were used to acquire other companies, such as Medallic Art, Graco Awards and the Hawaii mint facility.
“Based on our analysis to date, the bullion sale of operations have attributes of a Ponzi scheme,” Calvert said, adding that employees didn’t know about those attributes. “The actual start date is unknown, but it appears to be prior to 2007 [when the questionable activity began].”
The U.S. Securities and Exchange Commission defines a Ponzi scheme as “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business.”
Because Northwest Territorial Mint operated on paying old customer orders with new customer funds, only the courts could determine whether that fit the criteria and definition of a Ponzi scheme. Calvert did, however, confirm the FBI is conducting a federal criminal investigation on the mint.
“The FBI and DOJ (Department of Justice) is a one-way highway when it comes to information, and justice will take time,” Calvert said.
In Calvert’s 30 days as trustee for the mint’s bankruptcy case, he’s determined that the increase in time it took for bullion to be delivered correlates with the increase of bullion’s market price.
“It wasn’t adequately hedged,” he said, noting that the company also had too many orders to fulfill.
Calvert has closed down the bullion sales department and cut the mint’s approximately 240 staff members by 40 since he took over. He also plans to sell the Texas facility.
“This company will be more structured like a normal operating business, playing each player to their strength and realizing the potential that is here,” Calvert said, adding that the re-organization will focus on custom commemorative metals.
Several creditors at the meeting shared stories of huge personal and financial loss.
Steve Packer, a 66-year-old Gig Harbor resident, said he’ll likely have to come out of retirement because of his $30,000 loss. Packer bought a 1,000-ounce silver bar from Northwest Territorial Mint four years ago for $30 an ounce, and he decided to convert it to silver rounds because he got “tired of lugging it around.”
It was his impression that the mint would melt down his silver bar when he took it to the mint in October, but he learned that it was more of “buyback system.” To this day, he hasn’t received his silver.
“I don’t trust anybody,” Packer said. “I’ve been through this once before and I don’t trust the government side and I don’t trust the guy who’s running the company.”
John Scarrow purchased a substantial amount of silver in 2009 and chose to store it at the mint’s storage facility.
“I got a storage contract that talks about it being insured, it talks about it being mine, it talks about being able to view it, take it away at any given time,” he said. “I got a bill every year for my storage so I’ve been paying for the storage from that standpoint.”
Now, Scarrow said he’s been told it’s been “locked up as part of the bankruptcy.”
“I felt like it’s my property, like a car, that I had stored in public storage, and just because the public storage goes bankrupt, it doesn’t mean that I shouldn’t be able to pick the car up,” he said. “But, evidently, that’s not clear and that’s not the case.”
Vincent Robert is in the same boat as Scarrow.
He purchased $37,000 worth of precious metals in June 2011 and stored them for safekeeping.
“I paid for them five years ago and I’ve been paying storage fees for 5-and-a-half years,” he said. “The metals are supposed to be there. Bankruptcy or not, these are my metals.”
While Calvert estimated there would be less than 10 percent of recovery for general unsecured creditors, he said attorneys will file a motion with the courts to release customer-owned metals in storage.
Although he warned that there was a higher amount of storage contracts than physical inventory, he did say they are being thorough in documenting customer inventory with more than 2,000 photos, and he added that the FBI agreed to do a second inventory check. A hearing on that should occur within 60 days, he estimated.
This past September, the U.S. Equal Employment Opportunity Commission filed a lawsuit against Hansen that said he sexually harassed former employees.
In 2008, the Washington State Attorney General’s Office settled with the mint, when it was based in Auburn, in a case that alleged the business sold metals online but failed to deliver the items by the promised date. The company was ordered to pay $20,000 in civil penalties and $38,000 in state attorneys’ fees.
According to a 1995 Seattle Times article, Kent police arrested Hansen in 1989 after a large drug bust paved a “financial trail” to Hansen. In the seizure of more than 1 ton of marijuana, police also picked up $600,000 worth of silver, gold and palladium, which had been sold from Hansen to the drug dealer.
Charges in that case were never filed against Hansen because of a then-new state law that precluded prosecutors from proving Hansen had broken the law. Instead, he was charged with “avoiding federal tax-reporting requirements” and gun possession. After pleading guilty, he served three years in prison.
Hansen’s full name is Bernhard Ross Hansen, although he’s gone by several different names in the past.
According to Calvert, Hansen filed for Chapter 11 bankruptcy in 1989, under the name Ross B. Hansen. He also filed for voluntary Chapter 13 bankruptcy in 1994 using Bernhard Ross Hansen and the case was dismissed a year later but he refiled again, using “Bernhard Ross Hansen, aka Ross B. Hansen.”
For more information on timelines, case motions and litigations on Northwest Territorial Mint’s bankruptcy, visit existingbullionorders.com.