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ARCHIVED  July 2, 1999

The Fall of the House of Usher

GREELEY — Metaphors were the order of the day March 8, when the U.S. Securities and Exchange Commission announced the stiffest penalties in state history against a leading Greeley stock brokerage and its president.

“An empty paper bag,” is how the SEC regional director Daniel Shea described the stock scheme that brought down Gilbert Marshall & Co. and founder Michael A. Usher.

“The poster child of micro-cap fraud” is how Shea described Sky Scientific Inc., the company whose stock was at the center of the case.

Usher himself adopted a metaphor when he read the findings of the administrative law judge who slapped him with a $250,000 civil fine, barred him from the securities business for life and ordered him and his company to return $5.4 million to investors — an amount the SEC described as “profits” of the scheme.

“It made me out to be Al Capone,” Usher said during a June interview. “I couldn’t believe what I was reading.”

The SEC claims that Usher profited personally from the scheme that drew in three brokers under his supervision at a Denver Gilbert Marshall affiliate.

But Usher’s Denver lawyer, John Schlie, has contended that Gilbert Marshall & Co. lost money during the period that the fraudulent stock promotion unfolded.

“There were no profits,'” Schlie said. “He made nothing more than his salary. If you count the attorney’s fees, Gilbert Marshall lost money.”

The 38-page ruling detailed how the Denver affiliate peddled stock in Sky Scientific, a Florida-based company that investors were told had promising gold claims in Nevada and California.

No one disputes now that Sky Scientific was hardly in the gold-mining business or that the company’s revenue and assets were close to zero during the time in the summer of 1994 that it became one of Nasdaq’s 10 most active stocks.

And a flurry of finger-pointing has surrounded the investigation of the elaborate scheme that inflated the value of a company with $35,052 in revenue to $80 million just a year later.

“It was a classic hype-and-dump scheme,” SEC staff lawyer Robert Fusfeld said June 8, the day before the 90-day appeal period for Usher and 17 other defendants was to expire. “As the buyers were buying it, the promoter was out dumping it — and keeping two-thirds of the proceeds.”

The SEC contends that Usher was an active participant in an elaborate plot to market unregistered shares of Sky Scientific stock at illegally jacked-up prices. According to the judgment, the stock issued by Sky was funneled through a Canadian investment house to brokers throughout the United States, including Gilbert Marshall’s Denver franchise. Usher’s defense has hinged on whether he was in a position to know that the Sky stock was suspect.

Usher, whose lawyer tendered a settlement offer to the SEC on the eve of the appeal deadline, declines to discuss details of the case pending a ruling on the settlement proposal.

But others acquainted with the proposal have said that Usher, if the five-member Securities and Exchange Commission approves, will pay a $10,000 civil fine and have all other provisions of the ruling lifted.

While reticent in discussing the case, Usher employs another word image to describe his ordeal: Since the events that led to the ruling, Usher has been on what he describes as a “runaway freight train that just doesn’t seem to want to stop.”

But in the weeks since the SEC announcement, more than 100 of Usher’s friends and clients led the effort to put on the brakes. A letter-writing campaign targeted Sen. Wayne Allard, R-Colo., seeking his intervention during the appeal period.

The connection to Allard’s office was through Warren Lasell, for eight years the Weld County Assessor and the only Democrat elected to office in the county during six of those.

“He is certainly one of the most ethical people I have ever met in my life,” Lasell said. “I was concerned that Mike find whatever help he might have available to him. It just happened that I had a contact there, and I gave him a call.”

Lasell called Allard press secretary Sean Conway to suggest he meet with Usher.

Allard kept his distance, but his chief of staff and two other staff members made phone calls and held meetings in Allard’s Washington office to discuss Usher’s predicament. At each turn, Allard was briefed either by e-mail or verbally about the Usher case, Conway said.

The ruling handed down in March is a scorching indictment of Usher. “Egregious” is how administrative law judge Robert Mahoney described Usher’s failure to investigate the company and its stock, which was sold by brokers at the Denver franchise.

Usher either “knew or was reckless in not knowing” that Sky Scientific stock was being fraudulently traded, Mahoney said. “A searching inquiry was called for, but was not carried out,” he wrote. Usher “defrauded Gilbert Marshall customers out of millions of dollars,” the judge concluded.

But Usher and Schlie contend that the seeds of the scheme were sown far away, in Florida, by Sky and promoters of its stock and that Usher was a victim of their lies.

They cite alleged false statements in Sky Scientific’s 1994 SEC filings, showing assets of $69.7 million, including mining properties and certificates of deposit. The SEC later concluded that neither the mining claims nor the CDs, held by a Russian bank, had value.

“Not only is Mike being held accountable for what happened at Gilbert and Marshall, but he’s also being held responsible for what happened at the company,” Schlie said. “If someone says a gold mine is in production, is it your responsibility to fly to Nevada, and backpack up some mountain to see if they are, in fact, mining gold? I don’t think so.”

Among dozens of people contacted during the preparation of this report, no one outside the SEC has had an unkind word to say about 52-year-old Usher. He is — on paper and in the words of his friends and clients — a proverbial pillar of the community.

For 11 years following his 1969 graduation from the University of Northern Colorado, Usher taught math at Greeley West High School, earning his master’s degree along the way. He taught in London in 1978 as a Fulbright fellow. He authored two mathematics text books, and was the runner-up as Colorado Math Educator of the Year in 1980.

He turned his attention to the investment business in 1981, first as a broker with Hanifen Imhoff’s Greeley office. In 1984, he left to found his own company, Gilbert Marshall, where he was president and CEO until the roof caved in during the SEC investigation in 1997.

The rest of his record reads like a candidate’s: a term as governor of Kiwanis International organizations in Colorado, Wyoming and Nebraska; election as president of the Kiwanis International Foundation Board and of the Northern Colorado Board of the American Cancer Society; numerous committee positions with the Weld County schools.

Usher’s clients, whose letters made up the bulk of the mail to Allard regarding his case, have remained loyal.

“Ninety-nine point nine percent of my clients have stayed with me,” Usher said this week. “Why would they do that? Doesn’t that say something?”

Most of the letters suggest that even a token fine in Usher’s case would be an injustice. Even $10,000 is too much, Lasell said.

“But they can extract that from people,” he said. “What bothers me is here is this big part of government, the SEC, that has the power to charge — to indict, if you will — Mike Usher. It’s a case of a giant taking on a small citizen.”

Lasell said he learned first of the case when he picked up the Greeley Tribune to find a front-page story about the judgment against Usher.

“If you read the headline, and the first couple of paragraphs, Mike’s a crook,” Lasell said. “That’s just not the case.”

Usher, too, remembers the press coverage of the ruling as his darkest day.

“To say it was a nightmare would be a grand understatement,” Usher said. “I told my wife that night, ‘Well, I guess I’ll find out now who my friends are.’ I found out that I have quite a few.”

GREELEY — Metaphors were the order of the day March 8, when the U.S. Securities and Exchange Commission announced the stiffest penalties in state history against a leading Greeley stock brokerage and its president.

“An empty paper bag,” is how the SEC regional director Daniel Shea described the stock scheme that brought down Gilbert Marshall & Co. and founder Michael A. Usher.

“The poster child of micro-cap fraud” is how Shea described Sky Scientific Inc., the company whose stock was at the center of the case.

Usher himself adopted a metaphor when he read the findings of the administrative law judge who slapped…

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