Empire Securities Inc. of Washington has signed a consent order issued by state securities investigators that allows the troubled Spokane brokerage firm to remain open but on a short regulatory leash.


Also, four of Empires employees or former employeesDavid Taisey, Dale Woolhiser, Brian Westmoreland, and Robert Clarkall signed similar orders that among other requirements called for each of them to pay $5,000 to the state.


The consent orders are the result of a year-long investigation of Empire and its affiliated companies by the Securities Division of the Washington state Department of Financial Institutions. The orders, issued this summer, amount to settlements that censure Empire and the employees, and bind them to certain requirements, but dont require them to admit or deny guilt in the allegations set forth by the state in a blistering summary order it issued in June.


In that summary order, the state Securities Division details a host of alleged violations of state securities laws by Empire and its employees, including instances in which the state claims that Empire intentionally deceived elderly and unsophisticated investors, was less than truthful in its offering circulars, and sold some securities unlawfully.


We hope this is the culmination of a very long and difficult investigation involving troubled transactions that were put together by two people who are no longer with the company, says Douglas Siddoway, a Spokane attorney who represented Empire in the consent agreement. We hope this is behind us now and we hope (Empire) has turned over a new leaf.


Though Siddoway doesnt identify them by name, it is apparent that the two people he refers to are Michael B. Lavigne and Randall J. McNeice, each of whom had headed an Empire subsidiary and both of whom are being sued in Spokane County Superior Court by Empire-related companies for breach of fiduciary responsibility and other charges. The latter of the two suits was filed late last month.


Neither man, however, is among the four Empire employees named in the states order. Three of those fourTaisey, Westmoreland, and Clarkare still employed at Empire, says Siddoway. He referred further questions about the men to their Coeur dAlene attorney, who declined further comment.


Empires problems also are far from over. At least two of its subsidiaries or related companies are in receivership and it still is involved in a handful of lawsuits, including two in federal court, filed by a retired Spokane optometrist and his wife who claim they were defrauded out of half a million dollars. When told of the states actions against Empire last week, the Spokane couples Seattle-based attorney was not pleased.


Its a slap on the wrist as far as Im concerned, says the attorney, Paul Brain. Were talking about some very egregious conduct. I think the censures could have been much more severe. Peoples lives have been unalterably damaged.


Tight oversight


As a result of the recent consent orders, Empire now must get advance, written approval from the state Securities Division to underwrite or participate in the underwriting of any offerings of nonaffiliated entities, except municipal finance issues. The company is banned for 10 years from underwriting any offerings of entities with which it is affiliated, and is banned from involving any retail customer in its own capitalization.


The company also was required in its consent order:


To, until further notice, make monthly reports to the Securities Division detailing all transactions in which it sells an equity security to a retail customer. The company isnt required to detail in those reports any transactions between it and other broker-dealers, or any transactions that involve corporate or municipal bonds.


To appoint company executives Ron Snyder and Stan Covey as president and vice president, respectively, and to limit the activities of Taisey, who was serving as company president and CEO at the time of the consent order, to supervising the recovery of assets for the benefit of shareholders of Empire-affiliate ventures.


To secure prior approval by the Securities Division of any person to be named or hired as compliance officers or compliance staff members at Empire.


To reimburse the Securities Division $5,000 for its investigation costs.


Meanwhile, Taisey, Woolhiser, Westmoreland, and Clark each were required to pay $5,000 to offset the states investigation costs, and all but Woolhiser had their state securities licenses suspended for 10 days this summer. Woolhiser agreed to what amounts to a three-year probationary period.


The Securities Divisions original summary order called for the indefinite suspension of all four executives securities license and also the suspension of Empires broker-dealer registration. That order was set aside when the company and the executives agreed to the consent orders.


Deborah Bortner, administrator of the Securities Division, says the sanctions are typical for the violations the division found. Whats significant is theres a completely different management team in there now, and one we believe is on notice that those individuals need to be kept in compliance, Bortner says.


In a prepared statement, Empires new president, Snyder, described the consent order Empire signed as a mutually satisfactory way of resolving the states regulatory concerns. He echoed Siddoways suggestion that the employees primarily responsible for the private placements of concern to the state are no longer with the company, and said that Empire is in the process of recovering assets from those placements for the investors.


Dishonest and unethical


The original summary order is replete with accounts of alleged misconduct by Empire and the four named employees, mostly involving dishonest or unethical business practices, but also technical violations of law.


But first a little background.


Over the years, Empire Securities and/or its principals have formed a collection of related companies, each of which raised money from investors with the intent of making its own investments. Three such companies were established to use their investors money to buy, at discount, assets of failed savings and loan associations that were under the control of the federal Resolution Trust Corp. (RTC). Another, called ESI Financial Partners LP, was to invest both in RTC-related assets and other forms of receivables. Yet another, Northwest Capital & Advisory Services Inc., made short-term loans to businesses.


Roughly $10 million and $14 million was raised in connection with those ventures, according to various, and sometimes conflicting, documents filed in court cases and by the state in connection with Empire.


All three RTC-related companies have ceased operations, and one is now in receivership, as is Northwest Capital. Lawsuits involving those companies have raised questions about allegedly inappropriate transactions that occurred between the various ventures and also about alleged actions their top executives may have taken to enrich themselves at the expense of the companies as a whole and their shareholders.


In one incident, the Securities Division alleges took place, Westmoreland persuaded an elderly couple to invest in one of the RTC-related companies through a retail store they owned. The state charges that neither the couple nor their store was qualified to make the investment, which by rule must be offered only to accredited or sophisticated investors. The couple had a combined annual income of about $37,000 and had no experience in evaluating such an investment, the summary order says. In fact, the order says, the husband had suffered five strokes, leaving him with severe cognitive impairment including the loss of the ability to read. The wife, the state charges, told Westmoreland that absolute safety of principal was among the couples paramount investment goals, but was told the investment was safe and secure. The couple wasnt provided with offering documents, which would have spelled out that the investment was of high risk or speculative nature, the order alleges. The order doesnt state whether the couple received any money back from that investment.


Later, Westmoreland persuaded the husband to transfer an individual retirement account from another brokerage to Empire, and then told him to sell the IRA holdings and invest the proceeds in a second RTC-related venture. That venture eventually stopped making payments to investors and was listed as having no value as of April 1997, the state says.


There are similar alleged incidents involving the other three named Empire employees, including one involving a disabled, 75-year-old Spokane resident whose monthly income was around $1,900 a month and who was accustomed to investing only in municipal bonds. Another case involved a 96-year-old Davenport, Wash., man who suffers from cognitive impairment due to advanced age.


Empires attorney, Siddoway, says many of the states charges are disputed, but that the company and the executives felt it was easier to agree to consent orders than to fight the summary order in a formal process. He claims also that, The companies involved have made great strides in recovering assets and cleaning things up.


Its been a tough process, Siddoway says. A lot of time and a lot of money have been spent. But Empire is in business and will continue to be in business.


The Lavigne and McNeice suits


In the second of two similar cases, Empire subsidiary Northwest Capital filed suit Sept. 22 against McNeice, who had served as Northwests president for a time. McNeice is accused of breaching his fiduciary responsibilities in order to enhance his own compensation.


Specifically, Northwest Capital claims that McNeice intentionally allowed delinquent factoring accounts to remain active, thereby generating commissions for himselfand late-fee income for which he received a takeeven though the accounts were uncollectable.


The company alleges that it lost more than $1 million as a result of McNeices actions. Reached this week at his Spokane home, McNeice says he denies Northwest Capitals allegations. Theyre ridiculous, he says.


Last February, Empire and some of its related companies filed a similar suit against Michael Lavigne, who also had served as Northwest Capitals president. That suit alleged that Lavigne also had enriched himself and entities with which he was affiliated at the expense of Empire and its subsidiaries. The companies estimated the amount that Lavigne had cost them at more than $6.5 million.


In court documents filed by Lavigne in August, he denies the companys allegations. It is unclear where he is living now and his Seattle-based attorney couldnt be reached for comment.


The states Bortner says neither Lavigne nor McNeice currently is licensed to sell securities in the state of Washington. Lavigne left Northwest Capital in March 1996, according to court documents; McNeice says he left the company in the fall of 1995.


Meanwhile, the two federal suits filed by the retired Spokane optometrist, John H. Smith, and his wife, Kathleen, may be around for some time. The first of the two, filed late last year in U.S. District Court in Spokane, has been postponed by the Smiths while a court-appointed receiver for three Empire affiliates works to recover assets that could be sold to repay investors, says Brain, the couples attorney.


Brain says the Smiths are cooperating with the receiver, Spokane attorney Barry Davidson, in hopes of getting some of the roughly $500,000 they invested in various Empire entities. Whether they will proceed with the lawsuit depends on the success of the receiver, Brain says, adding that the Smiths believe they also are out much more money in lost interest. He says he isnt necessarily optimistic.


I dont think that the litigation is anywhere near being at an end, Brain says.


The couples second suit, filed recently in U.S. District Court in Seattle, is an attempt to recover some of the Smiths money that Empire-related entities may have invested in that area, he says.